BM&FBOVESPA-CBLC
CBLC settles transactions traded at both BM&FBOVESPA and SOMA involving stocks (spot market and derivative market - options, term and futures) and corporate bonds (nowadays only outright transactions in the spot market). CBLC also acts as central depository for stocks and corporate bonds, and operates a securities loan program. As a central depository, CBLC maintains individual custody account for every investor. Multilateral netting is normally used to settle transactions, but in specific situations, as set in the system’s regulation, settlement can be carried out on a real-time basis, transaction-by-transaction. In the case of multilateral netting, BM&FBOVESPA acts as central counterparty and ensures the settlement of transactions among clearing members. DVP model 3 is observed.
The final financial settlement is always carried out through STR in accounts held at the Banco Central do Brasil1. The settlement day depends on both the market and the moment in which the transaction is carried out, according to the following chart:
Chart: CBLC – Settlement cycle by type of security and transaction
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Market
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Type of transaction
|
Settlement date
|
|
Corporate bonds
|
Spot
|
T for
transactions registered up to 1pm and T+1 for others
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|
Stocks
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Spot
|
T+3
|
|
Term
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T+n
(the maturity date)
|
|
|
Futures[2]
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(T+n)+3
(third day following maturity date)
|
|
|
Options[3]
|
T+1
|
Banks, brokers and dealers participate in the system as clearing members, which are classified into three categories: self-clearing member; full clearing member; and specific agent. The former clears only trades conducted by it on behalf of its own or of its clients. Full clearing member clears additionally transactions conducted by other brokers and special clients, such as mutual funds, pension funds, insurance companies etc, while specific agent clears some specific transactions involving corporate bonds. To settle its financial positions, it is mandatory for the non-bank participant to use services of an institution holding an account at the Banco Central do Brasil, according to an agreement between them. The system is composed of 57 direct participants (September, 2009).
CBLC counts on two processing centers located in Sao Paulo (the secondary center operates in hot standby). Transactions are registered in systems of the trading environments and are informed to CBLC on a real-time basis.
In the responsibility chain, the system has “principal-to-principal” relationship only with clearing members, which are responsible for default of brokers associated to them, and brokers, in turn, are responsible for default of their clients. As a general operational rule, all participants must deposit collateral to cover their open positions, and, based on collateral posted by them, CBLC determines the credit limit to each clearing member. The clearing member distributes this limit to the brokers tied to it and each broker, in turn, to its clients. At each level, the limit can be divided among different markets.
CBLC adopts the CM-TIMS5 to call margin on derivatives and securities lending transactions. The Risk Watch algorithmic6, among others, is used to monitor transactional limits and set the value of the settlement fund necessary to conclude the settlement process even in case of default of clearing members with the two largest single settlement positions. For these purposes, CBLC uses historical simulation and stress tests, respectively. The settlement fund, which is updated on a monthly basis, is formed with contributions of clearing members (they are calculated according to the risk presented by each clearing member).
To process settlement in case of participant default, CBLC uses the following remedies in the order indicated:
· collateral posted by the defaulting clearing member or by investors tied to it;
· resources from the settlement fund correspondent to the defaulting clearing member;
· resources from the settlement fund correspondent to the share of other clearing members;
· resources from the settlement fund correspondent to the CBLC’s institutional contribution; and
· resources related to the system's Special Net Worth6.
1 Daily adjustments are settled on T+1.
2 Date for premium payment (in case of exercise, it is observed the settlement normal cycle of the spot market).
3 BM&FBOVESPA's Megabolsa and Bovespa Fix respectively for stocks and corporate bonds, and Soma's Somatrader
4 CM-TIMS was developed by The Options Clearing Corporation - OCC.
5 Risk Watch is a product of the Algorithmics Incorporated, from Canada. It has been customized to the Brazilian market
6 Assets segregated according BCB regulations.