World’s largest clearing project goes live in Brazil – Derivatives is the first of BM&FBOVESPA’s four clearing houses to be integrated


As of yesterday, Brazil’s BM&FBOVESPA (“Bolsa de Valores de São Paulo” São Paulo Stock Exchange, in English) began operating the BM&FBOVESPA Clearinghouse, a new post-trade infrastructure which in a single platform will include exchange-traded and OTC derivatives; equities and corporate bonds; spot FX; and federal government bonds. Previously all of these markets used separate clearinghouses. As well as unifying the four existing clearinghouses, there is the major development of introducing of one of the world’s most modern and secure risk management systems: Closeout Risk Evaluation (CORE) *Details below. The BM&FBOVESPA Clearinghouse will bring greater robustness and competitiveness to Brazil’s financial and capital markets, representing a milestone in their evolution and history.

Trade panel.
Trade panel

“Sometimes the market goes for several years without any changes. In this case we’ll leap forward several years in a single day,” says BM&FBOVESPA CEO Edemir Pinto. “The Single Clearinghouse and CORE represent a revolution in modernity, security and efficiency in central counterparty and risk management services. As was the case with the Brazilian Payment System (SPB), the market will be divided into before and after the new clearinghouse and CORE,” adds Mr. Pinto.

The first phase of the Project for the Integration of the Clearinghouses (IPN) is migration of the financial and commodity derivatives markets to the new clearinghouse. After the migration of the other markets is concluded, the Exchange will have brought together into its new clearinghouse the registration, position control, settlement and risk management processes of the trades executed in its several market segments, with the generation of important benefits for all participants.

According to Cícero Vieira, BM&FBOVESPA’s Chief Operating Officer, “this pioneering project will result in one of the most secure and sophisticated clearing systems in the world. The new clearinghouse will reduce the market’s back-office costs and make trade settlement and the allocation of collateral more efficient. It will also bring greater flexibility and reduce time frames for the launch of new products. The new technological infrastructure that has been installed will support growing volumes in Brazil’s financial and capital markets for the next 20 years.”

*CORE: Greater efficiency in allocating capital to investors

The new risk management system CORE simulates thousands of possible price trajectories for assets, contracts and collateral in investors’ portfolios, through different modeling techniques that complement each other, providing more robust risk calculation. CORE assesses the market risk, liquidity risk and cash flow risk of multimarket and multiproduct portfolios in an integrated manner, encompassing exchange-traded and OTC contracts. In addition to incorporating the effects of clearing and risk diversification in investors’ portfolios, making collateral allocation more efficient, it is extremely reliable and secure. When all of the assets and products have migrated to the new clearinghouse, Core will calculate the risk in near real time, of tens of thousands of investor portfolios with exchange-traded and OTC derivative positions.

The implementation of the BM&FBOVESPA Clearinghouse will generate the following important benefits for the market:

Reduced costs for market participants and the Exchange – in regard to the full range of clearing and back office processes, through the standardization of rules and procedures, unification of systems and greater automation of processes.

Greater efficiency in participants’ cash flow management – resulting from the unification of the settlement processes of the four clearinghouses and from the clearing of the different markets’ debits and credits in a single net balance.

Greater efficiency in the allocation of capital by participants – due to the implementation of the new portfolio-based risk calculation system, which is able to recognize and compensate risk among the four markets’ distinct (and with different liquidity profiles) assets, contracts and collateral.

Complete technological modernization – with simplification of the “IT architecture” and reduced operational and systemic risk, due to the substitution of all of the old clearing systems by a state-of-the-art platform with sufficient processing capacity to support growing markets during the next two decades, and due to a more robust business continuity plan and disaster recovery plan.

To read more about the rulebooks which describe all BM&FBOVESPA clearinghouses’ click here.

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World's largest clearing project goes live in Brazil - Derivatives is the first of BM&FBOVESPA's four clearing houses to be integrated

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