Financial Market InfrastructuresFinancial Market InfrastructuresFinancial Market InfrastructuresBrazilian Approach

Financial Market InfrastructuresBrazilian Approach

Daso Maranhão CoimbraBanco Central do Brasil

Daso Maranhão CoimbraBanco Central do Brasil

Washington D.C. Washington D.C. –– USAUSA June 2013 June 2013

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AgendaFinancial Market infrastructures

• Brazilian Payment System• Systemic importancey p• Responsibilities of relevant authorities• Current issues• Current issues

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Brazilian Payment SystemFMI – Legal Concept

• Processing, clearing and settling of payments• Checks• Electronic credit and debit orders

F d• Funds• Clearing and settling of transactions in securities

• Commodities and futures• Commodities and futures• Derivatives• Others financial assets

• Registration, central depository, confirmation, acceptance, transfer and settlement

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Brazilian Payment SystemOverview – 2nd semester 2012 – Payments

Payment system Type of FMI Type ofsettlement

Main settled operations

Averagedaily turnover USD billions

STR LVPS/SIPS RTGS

SSS, Real time fund transfers, critical

payments309,4

yBM&FBovespa

Foreign ExchangeSIPS/CCP LDL Interbank foreign

exchange spot 1,9

CIP Sitraf PS (Retail) Hybrid Clients' real time fund 5 7CIP – Sitraf PS (Retail) Hybrid transfers 5,7

CIP – Siloc PS (Retail) DNS Clients' deferred fund transfers 2,8

Compe PS (Retail) DNS Checks 2,2

Cielo PS (Retail) DNS Payment cards 0,9

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Redecard PS (Retail) DNS Payment cards 0,8

Brazilian Payment SystemOverview – 2nd semester 2012 – Securities

Securties Settlementsystem Type of FMI Type of

settlementMain settledoperations

Turnover -daily averageUSD billions

Selic CSD / SSS RTGS Federal government securities 307,4

CommoditiesBM&FBovespaDerivatives TR/SSS/CCP DNS

Commodities, Futures, Options

and Swaps0,6

BM&FBovespa SSS/CCP RTGS/DNS Federal government 0 05Securities SSS/CCP RTGS/DNS securities 0,05

BM&FBovespaEquities CSD/SSS/CCP RTGS/DNS Equities, derivatives

on equities 3,7

Cetip TR/CSD/SSS RTGS/DNSprivate issued

securities, OTC Derivatives

17,4

5

CIP-C3 TR/SSS RTGS bank credit operation 0,1

Systemic importanceIdentification criteria

• Nature of the systemf f• Associated with the settlement of a financial asset

or financial instruments• SecuritiesSecurities• Foreign Exchange• Derivatives

• Payment system• Turnover - 4% of the LVPS/RTGS• Measurement of the contagion effect (DNS)

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Systemic importanceIdentification criteria – contagion effect

• Use of historical data• Backtesting• Backtesting

• Simulate the failure and unwind of each bank’s (and its affiliates) position in the system and its impact on the other banks’ positions

• Measure the contagion magnitude on each non-defaulted bank considering itsbank considering its• Bilateral positions with the defaulted bank• Available liquidityAvailable liquidity• Minimum intraday balance• Participation in the Brazilian payment system (%)

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Systemic importanceSpecial requirements

• Settlement in central bank money• Contingency and recovery planning, to ensure

processing in the same settlement cycle• System availability greater than 99.8%• Higher minimum capital requirement• Separated special escrow account with BCB

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Systemic importanceSpecial requirements - DNS

• Ensure timely settlement of, at the least, the highest position, in case of default (except the issuer risk)

• Central Counterparty• Central Counterparty• Ensure adequate mechanisms and safeguards, such as

• Operational limitsOperational limits • Mutual fund and other loss sharing mechanisms • Margin requirement• Committed liquidity lines

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Responsibilities of relevant authoritiesRegulation, supervision, and oversight

• Criteria used to identify FMIs subject to regulation, supervision, and oversight defined on National LLawnbr 10,214/2001

• Identified FMIs regulated, supervised, and overseen by relevant authorities

B C t l d B il BCB• Banco Ccentral do Brasil - BCB• Comissão de Valores Mobiliários - CVM

• Authorities’ powers established on regulation • National Monetary Council’s Resolution nbr

2 882/200110

2,882/2001

Responsibilities of relevant authoritiesPolicies

• Authorities’ policies clearly defined and publicly disclosedN ti l M t C il’ R l ti b• National Monetary Council’s Resolution nbr2,882/2001

• BCB’s Circular nbr 3,057/2001BCB s Circular nbr 3,057/2001• International standards as guideline to regulation and

oversight

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Responsibilities of relevant authoritiesCooperation

• Formal MoU between BCB and CVM• Effective communication, consultation and

coordination• Includes access to data recorded in a TR

• Assessment against international standards d t d b th BCBconducted by the BCB

• Authorization• Demand for changes on systems’ regulation• Periodic assessment

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Responsibilities of relevant authoritiesOversight tools

• AuthorizationAuthorization• Assessment

• International standards: Principles andInternational standards: Principles and Recommendations

• Business continuity managementBusiness continuity management• On site inspections• BacktestingBacktesting• Quantitative data

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Responsibilities of relevant authoritiesOpportunities for enhancement

• Need of a more comprehensive approach to• Need of a more comprehensive approach to systems’ interdependencies

• Establishment of a National Payments Council• Establishment of a National Payments Council with relevant stakeholders

• Make oversight policies objectives and approachMake oversight policies, objectives and approach more clear and transparent

• Attention to industry organization and itsAttention to industry organization and its implications on risks, efficiency and competition

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Current issues

• Implementation of the Principles for Financial• Implementation of the Principles for Financial Market Infrastructure• Normative revisionNormative revision• Identified the necessity of minor adaptations

• Resolution of FMIs• Resolution of FMIs• Draft of law• Incorporate Key attributes and draft of• Incorporate Key attributes and draft of

statements for FMI resolution

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Current issues

• Trade Repositories• Clarification of roles and regulator’s powers• Coordination with securities commission (CVM)OTC d i ti• OTC derivatives• Mandatory registration

• National Monetary Council Resolution nbr 3 505/2007• National Monetary Council Resolution nbr 3,505/2007• Federal Law nbr 12,543/2011

• Standardized contracts already traded on platforms and S a da d ed co ac s a eady aded o p a o s a dcleared through CCP (market solution)• 90% of derivatives market

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Banco Central do BrasilBanco Central do BrasilBanco Central do BrasilDaso Maranhão Coimbra

daso@bcb.gov.br556134141340

Banco Central do BrasilDaso Maranhão Coimbra

daso@bcb.gov.br556134141340+556134141340+556134141340

Washington D.C. Washington D.C. –– USA USA June 2013 June 2013

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Resolution of FMIsDraft of law

• Incorporate Key Attributes of Effective Resolution Regimes for Financial InstitutionsR d l ti f fi i l k t• Recovery and resolution of financial market infrastructures - Consultative report

• P blic interest Financial stabilit incl des• Public interest – Financial stability – includes FMIs

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Resolution of FMIsDraft of law – for systemically important institutions

• Continuity of critical financial services• Continuity of critical financial services• Possibility to extend the regime for related

organizationsorganizations• Broad possibility of reorganization• Loss absorption and compulsory recapitalization• Loss absorption and compulsory recapitalization

(bail in)• Public resources used only after bail in• Public resources used only after bail in• Cooperation with other jurisdictions

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Systemic importanceRole on managing systemic risk

• Interbank exposures that raises from financial t titransactions• Contagion riskR l f FMI• Role of FMIs• Shorten the settlement lag – RTGS• Finality• Conditionality of related payments – DVP/DVD/PVP• Certainty of payments – CCP• Disclosure of information – TR

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Brazilian Payment SystemFMI – Types

• Payment System (PS)• Securities Settlement System (SSS)• Central Securities Depository (CSD)• Central Counterpart (CCP)• Trade Repository (TR)

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Financial Market Infrastructures

SELIC

CIP – Interbank Payments Clearinghouse

SILOCfunds transfersDNS (T+1)

SITRAFfunds transfers

HYBRID

Banco Central do Brasil C3

Loans transfersRTGSSELIC

governmentsecuritiesRTGS

COMPEcheques

STRfunds

transfers

CETIPFixed income securities; OTC

chequesDNS (T+1)

RSFN National Financial System

NetworktransfersRTGS

ed co e secu es; O Cderivatives; others

DNS (T)RTGS

Network

settlement accounts

BM&FBovespaDerivatives

Clearinghousecommodities;f t res; s aps

Securities Clearinghousegovernment securities

S ( 1)

FX Clearinghouseinter-bank foreign

exchangeDNS (T T+1 T+2)

CBLCStocks; corporate bonds; stock

optionsDNS (T+1;T+3)

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futures; swapsDNS (T+1)

DNS (T;T+1) DNS (T;T+1;T+2) NS ( ; 3)RTGS