bvmf presentation - analyst day sp - august 2013

7/27/2019 BVMF Presentation - Analyst Day SP - August 2013

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BM&FBOVESPA

Analyst DaySo Paulo, SP

August 23, 2013


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This presentation may contain certain statements that express the managements expectations, beliefs and

assumptions about future events or results. Such statements are not historical fact, being based on currentlyavailable competitive, financial and economic data, and on current projections about the industriesBM&FBOVESPA works in.The verbs anticipate, believe, estimate, expect, forecast, plan, predict, project, target and other

similar verbs are intended to identify these forward-looking statements, which involve risks and uncertainties thatcould cause actual results to differ materially from those projected in this presentation and do not guarantee anyfuture BM&FBOVESPA performance.

The factors that might affect performance include, but are not limited to: (i) market acceptance of BM&FBOVESPAservices; (ii) volatility related to (a) the Brazilian economy and securities markets and (b) the highly-competitiveindustries in which BM&FBOVESPA operates; (iii) changes in (a) domestic and foreign legislation and taxation and(b) government policies related to the financial and securities markets; (iv) increasing competition from newentrants to the Brazilian markets; (v) ability to keep up with rapid changes in technological environment, includingthe implementation of enhanced functionality demanded by BM&FBOVESPA customers; (vi) ability to maintain anongoing process for introducing competitive new products and services, while maintaining the competitiveness ofexisting ones; (vii) ability to attract new customers in domestic and foreign jurisdictions; (viii) ability to expand the

offer of BM&FBOVESPA products in foreign jurisdictions.All forward-looking statements in this presentation are based on information and data available as of the datethey were made, and BM&FBOVESPA undertakes no obligation to update them in light of new information orfuture development.This presentation does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shallthere be any sale of securities where such offer or sale would be unlawful prior to registration or qualificationunder the securities law. No offering shall be made except by means of a prospectus meeting the requirements ofthe Brazilian Securities Commission CVM Instruction 400 of 2003, as amended.

Forward Looking Statements


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REVENUE GROWTH ANDDIVERSIFICATION Build on growth opportunities in the Brazilian capital

market

Foster greater sophistication among participants andinvestors

Promote volume growth and revenue diversification

Strategic Drivers

OPERATING EXCELLENCE Strengthen the business model with investments in

technology for trading and post-trade platforms that bringsefficiency to BM&FBOVESPA and market participants

Continuously improve processes and services, focusing on riskmanagement

Assure market integrity

FOCUS ON THE CUSTOMER

Deepen the relationship with clients (investors, brokersand issuers), by delivering high quality services andproducts, ensuring that this relationship isBM&FBOVESPAs greatest differential

Expand the range and quality of services and productsoffered

INSTITUTIONAL STRENGTHENING

Develop initiatives that contribute to the safety, reliability andstrengthening of the market, inducing and fostering its growth

Maintain high standards of self-regulation

SHAREHOLDERRETURN


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OPERATING EXCELLENCE

Strategic DriversProduct and Investor Relations Department

REVENUE GROWTH ANDDIVERSIFICATION

FOCUS ON THE CUSTOMER INSTITUTIONAL

STRENGTHENING

SHAREHOLDERRETURN


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Product Departments RoleStrategy and form of performance

LINK

EXTERNAL

ENVIRONMENT

RegulatorMarket

Committee / Relationship

THE ROLE OF THE PRODUCTS AREA

Identify market demands and trends

Link internal (IT, Operations and

Financial) with external (regulatorsand partners) efforts to prioritizeinitiatives

Manage fee and incentive policies

Adapt the range of products todifferent types of customers and

segments, including retail investors

INTERNAL

ENVIRONMENT


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Product and Market DevelopmentTrack record of success

*Updated until June 28, 2013.

OPERATIONAL DATA

CAGR: +55% CAGR: +38%

CAGR: +249%

CAGR: +458%CAGR: +197%

CAGR: +36%


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Listed

ETFs - Exchange Traded Funds: International

Fixed income

Equities

FIIs

Market Maker: Cash equities

Options

Commodities

Futures

Ibovespa (methodology review)

SMEs - Small and MediumEnterprises (BOVESPA Mais)

Incentive programs (retail

investors)

Selic Derivatives: Selic futures - OC1

FX spread - DCO

FX swap - SCS

Options on single stocks New fee policy for HFTs/day

traders

Ethanol Futures Contracts

BDR (exchange market)

Securities Lending (BTC)

Product and Market DevelopmentListed products

CONTINUOUS DEVELOPMENT OF LISTED PRODUCTS


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Product and Market DevelopmentOTC products and fixed income iBalco

Derivatives Fixed Income

Regis

tration NDFs deployed in Jul/13

Flexible options on single stocks

COE (Structured Notes) Swaps

LCAs (Agribusiness Credit Bill): improvements

LCIs (Real Estate Credit Bill) and CDBs (timedeposits): adaptation of the platform

pending regulatory approval Changes to listing rules and procedures for

corporate bonds and financial bills (LF)

Trading

-

Trading platform for government andcorporate bonds

Changes to the fee policy

CONTINUOUS DEVELOPMENT OF iBALCO PROJECT


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Projects Prioritized by Product AreaPriority Developments

Products / Market Current Stage

iBalco

OTC Derivatives

NDF Jul/13; prioritizing deployments and strategy implementation(Options, COE and Swaps)

Corporate Bonds and F (LF) Revision of prices and rules

Registration of LCIs and CDBs Platform under development (pending: Central Bank approval)

COE - Structured Notes

Discussions with regulators: Central Bank, Securities and Exchange

Commission (CVM) and Federal Revenue of Brazil (RFB) and

platforms adjustments

BTC (Securities lending) Operational improvement and trading screens Market Consultation about the model

Tax treatment Discussions with RFB

Promote the product internationally Roadshows in Europe and USA

Market Maker

Expansion of Market Maker Program

Conversations with participants; treatmentof market data

(challenges); market maker protection; automated options exercise;

and systems development (control and fee)

ETFs Fixed Income Discussions with market, CVM and RFB

International Index Discussions with market and CVM

FIIs Discussions with market, CVM and RFB

BEI Brazil Easy Investing Book orders in foreign currency - foreign retail

investors

Development completed; awaiting operationalization of the

agreement CVM RFB

Incentive Programs Retail investors Incentive program for brokers who attract retail investors


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Projects Prioritized by the Product AreaOngoing discussions with the Government

Initiatives for SMEs

Creation of a Working Committee for Small Offerings composed of public-private entities (BM&FBOVESPA, CVM,Brazilian Development Bank - BNDES, Brazilian Innovation Agency - FINEP of the Science and Technology Ministryand Brazilian Agency for Industrial Development - ABDI of the Trade and Industry Ministry)

Proposals to facilitate funding through issuance of shares (incentives for SMEs, investors and intermediaries)

Presentation of the project to the Ministry of Finance, CVM Board and BNDES

Securities Lending (BTC) Discussions with RFB about tax treatment: exemption for dividends received and regulatory arbitration

IOF (Tax on Financial Operations) on American Depositary Receipt (ADRs) issuance

Discussion with RFB for IOF exemption on ADRs creation

ETFs Discussions with CVM regarding international indices, fixed income and real estate funds (FIIs)

Discussions with RFB related to tax treatment of fixed income and FII ETFs

Tax on equity investments for individuals

Proposal for simplification of the tax treatment

MAIN DISCUSSIONS


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Strategic DriversTechnology and Information Security Department



STRENGTHENING

SHAREHOLDERRETURN


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PUMA Trading SystemHigh-performance trading platform

Derivatives Module: Oct/11

Equities Module: Apr/13

ADAPTATION TO BRAZILIAN RULES AND PRACTICES ADVANTAGES AND CHARACTERISTICS

Performance/Capacity

Lower latency and high capacity (scalable) Attraction of new clients

Multi-asset and multi-market

Synergies for participants and investors

Leverage BM&FBOVESPAs capacity to offer products(new/complementary)

Features

Adapted to the characteristics of the Brazilianmarket and the needs of participants/clients

Process and controls automation

Availability/controls

Auction rule and price variation limits (dynamic andstatic)

Stability and availability

Development of market data by offering (and not price),since GLOBEX is only market by price

Inclusion of auction rules (CVM Intruction 168) in thematching engine

Validation of pre-trade limits at the final client (LiNe)

Development of a module to calculate options marketbands

Implementation of different types of bands that mitigate

the risks posed by possible order entry errors(automated or not)

Intraday limits

Static limit or circuit breakers

Rejection band

Short-term volatility band

Auction bands (price and quantity)


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Participant

Co-location Infrastructure of PUMA Trading System

Gateway+

LiNe

MatchingEngines

~300 s~500 s~200 s

~1000 s

MACRO VIEW: PERFORMANCE OF CO-LOCATION

Network Infra

Networks built for thedevelopment and deployment

of PUMA platform

Gateway + LiNe

Pre-trade risk control (LiNe)represents about 60% ofGateway + LiNe latency

Matching Engines

Meet all auction rules andbands/fluctuation limits set outin regulations (100% of orders)

Network

The network infrastructure is required to allow connection between the participants and the Exchange.

The Gateway routes the orders sent by the participants to the Matching Engines.

The Matching Engine is responsible for the meeting of orders and market data generation.


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~1000 s


Upgrade of the network and servers infrastructure

The maintenance of network and servers infrastructure, scheduled for 2015, should reduce RTT -Round-trip time (measured in microseconds - s ) by roughly 25%, based on conservative estimates

This investment is part of the maintenance Capex of the Company

Participant

Co-location

Gateway+

LiNe

MatchingEngines

Network

~750 s

MACRO VIEW: PERFORMANCE OF CO-LOCATION

Infrastructure of PUMA Trading System


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Pre-trade Risk Control (LiNe)Ensuring market integrity in a high frequency world

LiNe

T

radingPlatform

Post-trade

Platform

ClearingMember

2008: LiNe was implemented for pre-trade risk analysis forDMA3 and DMA4 (co-location)

Mar/13: LiNe mandatory for any customer classified as highfrequency - HFT (in all DMAs)

Under discussion:mandatory for 100% of accesses

The pre-trade risksystems complement thepost-trade risk systems

=SAFER FOR

CLEARINGHOUSES ANDTHE MARKET

Brokers

Final clients

Establish

limits for


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SCALABILITY TRADING PLATFORM

Widely monitored environment - 24h

Process for monitoring the platform start

IT viewpoint

Business viewpoint

Mitigation of risk of infrastructure failure by the adoption of a High Availabilitymodel

AVAILABILITY

20 Market data channels

200 Gateways

12 Engines

. . .

Installed Capacity of PUMA TradingSystem Platform

ScalablePlatform

99.999%Availability

Platform tested in timesof high volatility and

historic peaks ofmessages per

minute/second

Easily scalable capacitywith the acquisition of"standard hardware


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New data centerInfrastructure IT Developments

BM&FBOVESPAClients

Jan/13 Apr/13 Jun/13

EFFICIENCY, SCALE AND EXPANSION OF SERVICES


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Market FragmentationEvolution of the discussion

New trading platform PUMA Trading System

Integration of the clearinghouses increased operational and capital efficiency for final clients andparticipants

Elimination of cross subsidies between trading and post-trade

EVENTS RELATED TO THE FRAGMENTATION OF THE CASH EQUITIES MARKET

HOW BM&FBOVESPA IS PREPARING FOR POSSIBLE FRAGMENTATION

2011 2012 2013

BATSAnnouncement

Feb/11

Direct EdgeAnnouncement

Nov/11

Hiring of Oxeraby CVM

Nov/11

Event about Oxerastudy results

Jun/12

ATSAnnouncement

Nov/12

Public hearing on costsand risks of fragmentation

Jul/13

Application for licenseexchange ATS

Jun/13

f h i i k i il


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Structure of the Equities Market in BrazilRoles and responsibilities

Trading Platform(TP)

CentralCounterparty

(CCP)

Central SecuritiesDepository

(CSD)

SecuritiesSettlement System

(SSS)

Receives and processes the flow of buy/sell orders entered by the participants,including trading desks and local and global DMAs. It closes deals based on orders that

are prioritized by price and chronological order, promoting efficient price formation. Itsends trading information to the post-trade systems and publishes trading data(orders and trades) in real time for the entire market.

CCP: acts as a buyer for every seller and as a seller for every buyer, taking on the riskand guaranteeing the settlement of transactions. For this reason it has collateral andsafeguard structures (risk management)

Clearing: calculation of the participants net obligations/rights resulting frommultilateral clearing (less need for liquidity, number of transactions, operational risksand costs)

Executes the transfer of securities and financial resources between buyers and sellers,extinguishing the rights and obligations arising from clearing. In the settlement oftransactions involving securities, transfer occurs through accounts opened with adepository, and settlement of the corresponding financial resources occurs in a

reserves transfer system (STR - Sistema de Transferncia de Reservas)

Responsible for the safeguarding, update and coordination of corporate actions(payments of proceeds, bonuses etc.). For this it takes on the status of trustee of thesecurities deposited in its environment

1 Simplified view that does not cover all of the characteristics of the services and activities described.

M k F i


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US MODEL

NYSE NASDAQ BATSDIRECT

EDGE

DARK

POOLSBROKERS

CCP

SSS

CSD

OTCEXCHANGE

DEPOSITORY AND TRUSTCLEARING CORPORATION - DTCC

M k F i


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TP

BVMF

CCP

BVMF

SSSBVMF

CSD

BVMF

NEW

TP

TP

BVMF

CCP

BVMF

SSS

BVMF

CSD

BVMF

NEW

TP

NEW

CCP

TP

BVMF

CCP

BVMF

SSS

BVMF

CSD

BVMF

NEW

TP

NEW

CCP

NEW

SSS

TP

BVMF

CCP

BVMF

SSS

BVMF

CSD

BVMF

NEW

TP

NEW

CCP

NEW

SSS

NEW

CSD

SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4

M k t F t ti


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TP

BVMF

CCP

BVMF

SSSBVMF

CSD

BVMF

NEW

TP

SCENARIO 1 Main drivers of fragmentation:

Price

Performance and technological innovation

Price arbitrage between platforms interest of HFTs

Strategy and Main Competitive Differentials

Elimination of subsidies between trading and post-trade (0.5bp, 6% of revenue)

Elimination of technology gaps: PUMA state-of-the-art technology, RTT sub-

millisecond

Synergies resulting from a multiproduct platform (cash, options, futures, BTC etc.)

Established distribution network (trading desk screens, DMA, home broker, co-

location, vendors)

Costs of fragmentation

Adaptations of the screens, DMA, home broker, co-location, vendors

Network links and connectivity

Consolidation of market data and adaptation of market data systems

Implementation of best execution rules

Implementation of smart order routing systems

Possible adaptations in the self-regulation model

M k t F t ti


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SCENARIO 2Main drivers of fragmentation:

Price


Price arbitrage between platforms interest of HFTs


All of the barriers foreseen in scenario 1 remain

New integrated CCP of BM&FBOVESPA efficiency in settlement, efficiency in the allocation of collateral,

operational efficiency and credit quality of BM&FBOVESPA as central counterparty

Challenges for the new CCP

Risk calculation system

Clearing fund (R$300 million), equity at Central Bank (R$47 million), cash position (R$2 billion)

Trade capture, trade give-up, trade allocation (ICVM 505), position management, mark-to-market,

calculation of net multilateral balances until the final beneficiary level.

Collateral system (pricing, haircuts, integration with BVMF, CETIP, SELIC, DTCC, EUROCLEAR, banks that

issue letters of credit)

Credit analysis process/system

Securities lending system (BTC) to handle settlement failures

Corporate actions adjustment and treatment system Back-office system of brokerage houses and clearing members (SINACOR)

Secondary data center for disaster recovery

Challenges for sell side and buy side

Greater difficulty for price arbitrage between platforms due to the absence of netting

Absence of netting between purchases and sales in the same security executed on different platforms

(doubled margin, need to deliver cash and the security in arbitrage)

Two settlement and risk management processes encumbering the sell side and the buy side

TP

BVMF

CCP

BVMF

SSS

BVMF

CSD

BVMF

NEW

TP

NEW

CCP

M k t F t ti


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SCENARIO 3 Main drivers of fragmentation:

Price


Price arbitrage between platforms interest of the HFTs


All of the barriers foreseen in scenarios 1 and 2 remain

Challenges for the new SSS

Integration with the Reserves Transfer System (STR) of Central Bank and with

settlement banks (development of messaging system)

Integration with the CSD for instruction of the transfer of securities between

accounts

TP

BVMF

CCP

BVMF

SSS

BVMF

CSD

BVMF

NEW

TP

NEW

CCP

NEW

SSS


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P t t d I t ti IPN*


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Governmentbonds

Corporate fixedincome

Interbank spotforeign exchange

Futures, options,forwards

Securities lending

OTCderivatives

Other productsand assets

Equities, ETFs,BDRs

Organization of the post-trade environment by

process instead of

product type

Rationalization and

standardization of rules,

procedures, requirements

and documentation Establishment of a single

settlement window for all

markets

Development of an

integrated risk model and

single pool of collateral

Complete modernization

and simplification of thetechnological

infrastructure

Rules and Manuals

Structure of market participants

Participants and customer registration

Allocation and transfer

Position control

Clearing and settlement

Risk management

Pool of collateral

Post-trade Integration - IPN*Streamlining processes and operational efficiency

Reorganization of the post-trading environment will result in greateroperational efficiency for brokers back-offices

*The implementation of IPN/CORE depends on authorization by the regulators


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Post trade Integration IPN


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Post-trade Integration - IPNBM&FBOVESPA proposal for IPN certification

Strategic Drivers


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Strategic DriversFinancial and Corporate Department



STRENGTHENING

SHAREHOLDERRETURN

Main Goals of the Financial Area


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Additional revenue in current mainproducts/markets

Additional revenue diversificationin the medium term

Validation of pricing policies

Budget managementProcess governance

Efficient control tools

Feasibility analysis andprioritization of capital investment

Payout

Buyback program execution

Maintain balance sheet with highliquidity and financial flexibility

Revenues

Expenses

and CapEx

Return toshareholdersand Financial

Soundness

Main Goals of the Financial AreaMaximize shareholder return and maintain a robust balance sheet

Diversified Revenue


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192 206 209 240

344 369433

47988 65

7454

86 86

342381

331 320

10694

1,041 1,0471,164

1,249

1H10 1H11 1H12 1H13

Cash Equities (Trade)

Cash Equities (Post-Trade)

Equities Derivatives

(Trade and post-trade)

Financial and Commodities Derivatives

(Trade and post-trade)

Other

Products and markets developed in recent

years to leverage revenue diversificationBTC Tesouro DiretoOptions with Market Maker FIIsLCAs Non-Sponsored BDRsETFs

Diversified RevenueRevenue diversification as a strength of our business model

Highly diversified revenuebase

Elimination of cross-subsidies between trading

and post-trade

DIVERSIFIED REVENUE

REVENUE OF HIGH GROWTH PRODUCTSDELIVERING ON INCREASING DIVERSIFICATION

R$ millions

1 Includes depository revenue for investors who have only FIIs.

34.651.6

77.294.6

39.1

69.8 73.6

3.3%

4.9%

6.6%

7.5%

3.7%

6.5%6.5%

2010 2011 2012 2013

Revenue 1 half. (R$ million) Revenue 2 half. (R$ million)

Share in total revenue 1 (%) Share in total revenue 2 half. (%)

Control Expenses and CapEx


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Continued focus on cost control

Expense Control

Budgetmanagement:

changes to

culture

Governance:authority for

decisionmaking andbudget and

projectscommittees

Efficientcontrol tools:

ERP

Decrease in adjusted expenses in real termsGrew 7.6% versus inflation of 23.1% in the period

Efficiency in hiring services and prioritization of activities

Control Expenses and CapExContinuous search for efficiency

R$ millIon

ADJUSTED EXPENSES DECREASED IN REAL TERMS

CapEx ADJUSTED EXPENSES

1 Adjusted for depreciation, stock option plan, taxes related to dividends received from CME Group, provisions and others. Inflation accumulated in the period (IPCA - Jan/10 to Jun/13). Source: IBGE.

*Include expenses with maintenance in general, taxes adjusted by dividends from CME Group, board and committee members compensation and others (excluding provisions).

R$ millIonR$ millIon

239.0 257.1

40.7 2.9(3.3) (3.6) (9.3) (9.3)

1H10 Adj.

Exp.

Adj.

Personnel

Data proc. Third Party Commun. Marketing Others* 1H13 Adj.

Exp.

Financial Soundness


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Financial SoundnessHigh liquidity and low indebtedness

Sound financial position - an important factor for the Company, given itsrole as CCP, guaranteeing the settlement of trades executed by global

and Brazilian investors

Standard & Poor sBBB+ (counterparty credit rating)

A-2 (issuer)

Moody sA3 (global scale issuer)A3 (Brazilian local currency issuer)

Baa1 (global notes)

R$ million Dec/10 Dec/11 Dec/12 Jun/13

Available funds 1,677 1,582 1,964 1,967

Indebtedness 1,043 1,172 1,279 1,388

R$ million

CASH POSITIONSOUND FINANCIAL POSITION

*Includes collateral pledged by participants in the form of cash, receivables and rights in securities under custody, as well as payouts still undisbursed.

**Includes third party collateral and restricted funds at BM&FBOVESPA Settlement Bank (Banco BM&FBOVESPA).

993

1,551

1,191

1,139

496

380

346

351

269

270

350

475

1,677

1,582

1,964

1,967

3,435

3,782

3,851

3,932

4Q10

4Q11

4Q12

2Q13

Market participants cash collateral and others*

Restricted funds

Subsidiaries**

Available funds

Return of Capital to Shareholders


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Return of Capital to ShareholdersCommitment to maximizing return

Payout(% of GAAP earnings)

2009: 80%2010: 100%2011: 87%

2012: 100%

BuybackRoughly 8% of

free floatrepurchased ina 5 year period

(2H08-1H13)

+

CASHFLOW GENERATION AFTER INVESTMENTS AND INTEREST PAYMENTS (2009-1H13)

(Accumulated between Jan/09 and Jun/13 in R$ million)

Data of BM&FBOVESPA (not consolidated): excludes variation in financial transactions and collateral pledged by participants, proceeds raised and investment related to the acquisitionof CME Group shares in 2010. Dividend yield is the result of the sum of earnings per share for the year, divided by the average share price during the same year.

ROIC: Return On Invested Capital.

DIVIDEND YIELD

Change - GAAP EPS : +26.5%Change - Adjusted EPS : +36.8%

8.9%

ROIC

8.4%9.4%8.3%

EARNINGS PER SHARE (EPS) AND ROIC


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Build on growth opportunities in the Brazilian capitalmarket

Foster greater sophistication among participants andinvestors

Promote volume growth and revenue diversification

Strategic Drivers

OPERATING EXCELLENCE Strengthen the business model with investments in

technology for trading and post-trade platforms that bringsefficiency to BM&FBOVESPA and market participants

Continuously improve processes and services, focusing on riskmanagement

Assure market integrity

FOCUS ON THE CUSTOMER Deepen the relationship with clients (investors, brokers

and issuers), by delivering high quality services andproducts, ensuring that this relationship isBM&FBOVESPAs greatest differential

Expand the range and quality of services and productsoffered

INSTITUTIONAL STRENGTHENING

Develop initiatives that contribute to the safety, reliability andstrengthening of the market, inducing and fostering its growth

Maintain high standards of self-regulation

SHAREHOLDERRETURN


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www.bmfbovespa.com.br

Investor Relations Department+55 11 2565-4729 / 4418 / 4834 / 4207 / [email protected]

bvmf presentation - analyst day sp - august 2013

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