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CPSS-IOSCO Principles The self- assessment experience ACSDA Senior Summit – Dec /13 PowerPoint PPT Presentation


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CPSS-IOSCO Principles The self- assessment experience ACSDA Senior Summit – Dec /13. INFORMATION CLASSIFICATION (CHECK WITH AN “X”):. RESTRICTED. CONFIDENTIAL. I NTERNAL USE ONLY. PUBLIC. X. Agenda. Context. CPSS-IOSCO Principles for FMIs – BM&FBOVESPA self-assessment.

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CPSS-IOSCO Principles The self- assessment experience ACSDA Senior Summit – Dec /13

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Cpss iosco principles the self assessment experience acsda senior summit dec 13

CPSS-IOSCO Principles

The self-assessmentexperience

ACSDA SeniorSummit – Dec/13

INFORMATION CLASSIFICATION (CHECK WITH AN “X”):

RESTRICTED

CONFIDENTIAL

INTERNAL USE ONLY

PUBLIC

X


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Agenda

Context

CPSS-IOSCO Principles for FMIs – BM&FBOVESPA self-assessment

Experience/Challenges


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Agenda

Context

CPSS-IOSCO Principles for FMIs – BM&FBOVESPA self-assessment

Experience/Challenges


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Context

  • Best practices

  • After2008 crisis: Higherstandards for CCPs

  • Introduction of capital requirements for central counterparty (CCP) credit risk exposure

  • Qualification of CCP: necessary condition for reduced capital allocation


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Context

  • Qualified CCP (QCCP) definition

  • BIS definition

  • Anentity that is licensed and permitted to operate as a CCP, subject to the provision that the CCP is based and prudentially supervised in a jurisdiction where the relevant regulator/overseer has established, and publicly indicated that it applies to the CCP on an ongoing basis, domestic rules and regulations that are consistent with the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMIs)

  • Each jurisdiction adopts its own QCCP definition, based on the same principles of the BIS definition.


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Agenda

Context

CPSS-IOSCO Principles for FMIs – BM&FBOVESPA self-assessment

Experience/Challenges


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Methodology for the development of the self-assessment

  • BIS Principles Methodology

  • April 2012 methodology

    • Working and understanding the principles

    • Internal discussions and involvement of several departments

    • One team was responsible for the internal alignment and final version

    • Pilot program with the World Bank

  • December 2012 methodology

    • Review of the document with focus on collecting evidence

    • Review of internal procedures in order to verify observance of the principles

    • Exposure draft version issued in November 2013


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Methodology for the development of the self-assessment

  • BIS principles: BM&FBOVESPA produced a self-assessment report about the observance of the Principles for Financial Market Infrastructures (PFMIs) by its CCPs

    • The banks may use the report to assess the qualification BM&FBOVESPA’s CCPs

    • Derivatives Clearinghouse and Equities Clearinghouse: BM&FBOVESPA deems that both observe the principles


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Agenda

Context

CPSS-IOSCO Principles for FMIs – BM&FBOVESPA self-assessment

Experience/Challenges


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Experience and Challenges

  • Multi-disciplinaryteam (different background andexpertise, understanding)

  • Hugeamountofinformation (200 pages for eachclearinghouse)

  • Importanceof management engagementtellingtheteamstheconsequencesofnothavingna accurate self-assessment

  • Howdo weshow evidences

  • Differentinterpretation

  • Differentmodels for eachclearing

  • Different framework thatwould lead tothesameresults

  • Actionplan for compliancewithallprinciples

  • Annualreviewofthedocument

  • For the CSD: final beneficial ownersegregatedaccounts (includingcollateral), new regulatory framework.


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Experience and challenges

  • Main themes covered by the principles and main challenges:


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Experience and challenges

  • Q.11.5.1: What segregation arrangements are in place at the CSD? How does the CSD ensure segregation between its own assets and the securities of its participants? How does the CSD ensure segregation among the securities of participants?

  • The accounts are segregated by final beneficial owner at the BM&FBOVESPA CSD, including the collateral accounts. The policies and procedures are described in the BM&FBOVESPA CSD’s rules and procedures, which are available on BM&FBOVESPA’s website. In addition, BM&FBOVESPA CSD provides separate accounts to segregate the securities belonging to participants.

  • The accounts are segregated by final beneficial owner at the CSD by law, including the collateral accounts. The accounts are segregated and are held in the name of the beneficial owner, totally segregated from the assets belonging to BM&FBOVESPA.

  • The policies and procedures are described in the BM&FBOVESPA CSD rules and procedures, included in the BM&FBOVESPA Equities rules and procedures, which are available at the BM&FBOVESPA website.

  • Q.11.5.2: Where supported by the legal framework, does the CSD support the operational segregation of securities belonging to participants’ customers from the participants’ book? Does the CSD facilitate the transfer from these customers’ accounts to another participant?

  • Yes, participant’s customer accounts are segregated from the participant’s accounts.

  • Transfers from of final beneficial owner account from one participant to another are allowed upon final beneficial owner request to its custody agent and upon acceptance of the addressee custody agent. Security transfers from a customer´s accounts to another customer’s account are only allowed if the transfer occurs due to a trade matched at the trading platform. Other than that, there are specific reasons listed by the regulators that would allow such transfers (e.g. causa mortis, donations).


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Experience and challenges

  • Q.11.6.1: Does the CSD provide services other than central safekeeping and administration of securities and settlement? If so, what services?

  • Yes, the CSD operates the services of “TesouroDireto”, which is a product/program managed by the Brazilian National Treasury that allows natural people to buy and sell federal government bonds through the internet (Brokers/Custodian Agents home broker websites). The CSD maintains the trade, settlement and custody environment of TesouroDireto. Additionally, the CSD conducts the registration and controls of investment clubs in Brazil.

  • Q.11.6.2: If the CSD provides services other than central safekeeping and administration of securities and settlement, how does it identify the risks associated with those activities, including potential credit and liquidity risks? How does it measure, monitor and manage these risks, including legally separating services other than safekeeping and administration of securities where necessary?

  • All of CSD’s activities and processes are mapped, measured and monitored by the CSD internal controls department. All potential risks are verified and controlled by the CSD. It is important to note that BM&FBOVESPA CSD does not have to deal with credit and liquidity risks: the SSS function is performed by the BM&FBOVESPA Equities Clearinghouse (which is a BM&FBOVESPA department segregated from the CSD), so the SSS is the one that has to mitigate liquidity risks; and the BM&FBOVESPA CSD does not allow negative balances, that is, it does not grant credit, not even intraday credit. If the investor does not have the security to deliver, that information goes to the SSS (the BM&FBOVESPA clearinghouse) with which treats it treated according to its risk management policies.

  • ...


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Experience and challenges

  • Q.11.4.2: How has the CSD determined that those rules and procedures are consistent with the legal framework?

  • The rules and procedures of BM&FBOVESPA CSD are consistent with legal framework. Law 12,810 as of May 13, 2013, states the following in the articles 22 to 25.

  • Art. 22. Within their respective capacities, it is the function of the BCB and of the CVM:

  • I – to authorize and supervise the exercise of central depository activity for securities; and

  • II – to establish the conditions for exercise of the activity foreseen in subparagraph I.

  • Art. 23. Central depository activity, executed by the duly qualified bodies, encompasses the centralized safekeeping of fungible and non-fungible securities, the control of their effective ownership and the treatment of their corporate actions.

  • Sole paragraph. The bodies referred to in the main section are responsible for the integrity of the systems that they operate and of the corresponding registrations of the securities under their centralized safekeeping.

  • Art. 24. For the purposes of central deposit of the securities, in physical or electronic form, there will be fiduciary ownership transfer to the central depository.

  • ...

  • Assessmentmadeby legal department, for example.


Cpss iosco principles the self assessment experience acsda senior summit dec 13

Experience and challenges

  • Q.11.2.1: How does the CSD prevent overdrafts and debit balances in securities accounts?

  • According to section 3.4.1. of the BM&FBOVESPA Equities Clearinghouse Operating Procedures Manual, securities traded must be made available in the securities settlement account the CCP holds at the Central securities Depository, as of the settlement date, within the Delivery window for corporate fixed-income securities established in the procedures timetable.

  • ...


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