Financial Institutions
Brazil's financial market is based on a modern and solid banking system, a state-of-the-art payment system, and reliable market infrastructure. The national financial system includes both financial and non-financial institutions covering a broad range of services. In 2002 the Brazilian Central Bank launched the new Brazilian Payment System, which allows final and irrevocable transfers in real time. Brazil has national banks with branches throughout the country, all of which boast advanced technology – all payment orders are handled electronically, checks issued anywhere in the country are cleared and settled within 48 hours, and Brazilian banks are also leaders in the field of internet banking.
Financial stability of Brazil during the international financial crisis
The international financial crisis, which reached its most severe phase in October 2008, has had relatively little effect on the Brazilian banking system. In the first half of 2009 the equity of Brazilian banks grew 4%, despite a 1% reduction in assets. The most important events during this period were the normalization of market conditions, the return to credit operations, and the increase in the liquidity of the few institutions that still had some capital shortfall.
The vital factors that reduced the effects of the crisis on the domestic market and avoided more serious ramifications for the Brazilian economy were the large volume of equity held by the financial institutions at the beginning of 2008, the existence of a high level of compulsory deposits with the Central Bank of Brazil, the institutional changes implemented over the previous few years (such as the creation of the Credit Guarantee Fund), efficient prudential regulation, the high level of international reserves, and the evolution of the Brazilian financial sector's system of supervision.
In order to avoid undesirable effects in the Brazilian economy, the National Monetary Council and the Central Bank of Brazil have adopted a set of measures to partly correct the shortfall in liquidity, most notable among which is the reduction in the level of compulsory deposits and the possibility of deducting from such deposits credit operations acquired from financial institutions with equity of less than R$7bn. The effects of these initiatives, combined with the reduced volatility and the movement of the exchange rate back towards its pre-crisis level, enabled the liquidity index of the institutions to reach a higher level than that which existed before the crisis. The reduction in the level of requirement for compulsory deposits, along with incentives for the acquisition of credit portfolios, reinforced the liquidity of the system, thus benefitting the small and medium-sized banks that were most affected by the crisis.
Unlike what happened in the second half of 2008, when profit derived mainly from non-operational results and the expressive activation of tax credits, the major factor behind the profitability of the system in 2009 was the operational result. Despite this, the return on equity in the first half of 2009 was smaller than that in previous periods, mainly because of the high level of constituted provisions. However, considering that the last two half-year periods have been marked by great turbulence and a lower level of operational activity, the net profit in the first semester of 2009 – almost R$20bn – shows that the Brazilian banking system is capable of generating results even in times of crisis.
The analysis of the evolution of both the Basel Index and leverage shows that Brazil's financial institutions are currently in a comfortable situation. On the one hand the limited leverage makes them much less vulnerable to an increase in volatility and a sudden change in circumstances, while on the other the high Basel Index shows they have a sufficient capital base to absorb any losses deriving from the risks to which they are exposed.
Capital Markets
Brazil has a highly developed capital market which offers numerous investment opportunities, along with a wide range of services and products.
BM&FBOVESPA – The New Exchange
BM&FBOVESPA S.A. – Securities, Commodities and Futures Exchange was created in 2008 following the merger between the Brazilian Mercantile and Futures Exchange (BM&F) and the São Paulo Stock Exchange (BOVESPA). It is one of the largest exchanges in the world in terms of market value, the second largest in the Americas, and the leading exchange in Latin America. In today’s global scenario, in which the ability to respond quickly to market changes has become increasingly important, BM&FBOVESPA is an attractive investment option with cost-efficient trading fees.
BM&FBOVESPA trades stocks, public and private sector securities, futures contracts based on financial assets, indexes, interest rates, foreign exchange rates and commodities, in addition to spot US Dollar and gold. Trading is carried out exclusively in the electronic trading system, where investors can perform transactions involving stock purchases and sales, hedge, price arbitration between markets and/or assets, portfolio diversification and position leverage.
As the leader in the Latin American equity and derivatives markets, the mission of BM&FBOVESPA is to contribute to regional macroeconomic growth and to position Brazil as an international financial hub for equities, commodities, and other financial instruments, combining operational excellence with a socially responsible approach.
Reference in risk and collateral management
With a totally integrated business model, BM&FBOVESPA acts as a central counterparty across its markets through its four clearing houses – equity, derivatives, foreign exchange, and securities – and also offers a full securities custody system.
It is mandatory that all equity, derivatives, foreign exchange and fixed income transactions, including OTC transactions, carried out at BM&FBOVESPA by financial institutions or by investment funds must be registered at a centralized registration system authorized by the Central Bank of Brazil. The Exchange maintains a system that allows the equity and derivatives clearinghouses to identify the clearing agents, the intermediaries (brokerage houses) and the clients responsible for the transactions. In addition, the Brazilian regulatory entities may access and obtain information about risk exposures and transactions carried out by various institutions.
Corporate Governance
BM&FBOVESPA offers three special corporate governance levels for the listing of companies: Novo Mercado, Level 1 and Level 2. Listed in the Novo Mercado segment, which corresponds to the highest corporate governance level, BM&FBOVESPA maintains a governance policy that is aligned with the needs of its shareholders and of the community in which it operates, providing excellence in its services and transparency regarding its management. The Board of Directors of the Exchange comprises 11 members, six of whom are independent directors.
Internationalization
As a basis for its expansion, the New Exchange maintains a close relationship with investors and international markets. BM&FBOVESPA established its first strategic alliance with the group that controls the Chicago Exchanges, the CME Group, and in September 2008 CME Group clients in over 80 countries were authorized to trade the BM&FBOVESPA financial derivatives and commodities directly. Following that, in February 2009, BM&FBOVESPA clients were authorized to trade the Chicago products directly.
Evolution of the trading environments
BM&FBOVESPA has been continually enhancing the quality of access to its markets with IT implementations. In the derivatives segment, four direct market access (DMA) modalities are available, including access via DMA service providers and access via co-location, which consists of a service that allows investors to use their own computers inside the Exchange facilities. These service modalities will also be available to investors in the equity segment by the end of 2009.