The BM&FBOVESPA Securities Clearinghouse is a government securities multilateral net settlement system, which went on live on May 17, 2004. The system settles both transactions traded at SISBEX, which is an electronic trading platform operated by BM&FBOVESPA, and traditional OTC transactions. BM&FBOVESPA is central counterparty for all of these transactions, and DVP model 3 is observed.
The system settles outright transactions (both spot and term transactions) and repurchase agreements as well. Spot transactions can be settled at the same day (T), if they are traded and registered up to 11am. Term transactions are settled in the future date contracted between the original counterparties, which can be up to T+23 (T+1 is more usual). Regarding repurchase agreements, the front leg is usually settled at the same day, and the back leg is usually settled in T+1 (it is allowed up to T+23)1. Short sales are allowed only with securities integrating the securities loan program provided by SELIC or BM&FBOVESPA itself.
The following participants can have a principal-to-principal relationship with the clearinghouse, therefore posting collateral directly:
· clearing members, which are banks and securities brokers that can settle transactions on behalf of their own or on behalf of their clients;
· centralized settlement participants, which are typically investment funds, pension funds and insurance companies, which can settle their own transactions only.
Settlement of cash lag is made, via STR, at accounts maintained at the Banco Central do Brasil, and 45 settling banks are used for this purpose. Securities transfer leg is made in the environment of the relevant central depository (SELIC).
All participants are subject to transactional limits, which are based on the collateral previously posted, and assets traded as well. These limits are monitored in real time, and all assets are marked-to-market in ‘quasi real time’. For managing its risk exposure, the clearinghouse adopts the so-called portfolio risk methodology, and considers different sceneries (stress testing). Risk exposure is assessed using the same methodology observed by the Derivatives Clearinghouse, which is based on the analysis of risk primitive factors.
As a complementary mechanism, the system counts on a guarantee fund, which contributor is the BM&FBOVESPA itself. This fund can be used to cover both participants’ default and losses imposed to a third by its broker in registering incorrectly the related transaction in the SISBEX system.
The clearinghouse comprises 60 clearing members and 398 centralized settlement participants (September, 2009). As it happens in the case of other clearing systems operated by BM&FBOVESPA, two processing centers located in Sao Paulo are used (the secondary center operates in hot standby).
1 Repurchase agreements can have specific collateral, in which case it is specified since the beginning of each transaction, or, in some cases, according to the clearinghouse's rules, generic collateral (specific collateral is indicated at the end of the day and regarding the participant net position).