Trading at Brasil Bolsa Balcão

Brasil Bolsa Balcao Exchange

What is Brasil Bolsa Balcão?

Brasil Bolsa Balcão SA (“B3”) is one of the world’s largest market infrastructure providers by market capitalization.

B3 has global offices in Brazil, The United States, China and the United Kingdom.

The enormous reach of its products, clearing and technology services makes B3 one of the preeminent global multi-asset exchange operators.

B3 products and services help individuals and institutions raise capital and provide liquid, global marketplaces to trade and clear a wide array of securities.

The publicly-traded company is headquartered in São Paulo, Brazil, and operates in multiple lines of business:

ServiceDescription
Exchange-Traded MarketsB3 develops, implements and operates exchange-traded markets for the following products:
  1. Equities
  2. Equity Derivatives
  3. Financial Derivatives
  4. Commodity Derivatives
  5. Bonds
  6. Federal Government Debt Securities
  7. Spot Currencies
  8. Agricultural Commodities
Clearing and SettlementB3 develops, implements and operates clearing and settlement services for the assets that trade on its exchanges.
ListingsB3 operates an international marketplace for the listing of financial products including:
  1. Equities
  2. Investment Funds in Shares
  3. Investment Funds in Real Estate
  4. Exchange Traded Funds (ETFs)
  5. Brazilian Depositary Receipts (BDRs)
Central Securities Depository (CSD)The CSD operates as a central securities depository for B3. This function allows the book-entry transfer of securities rather than the transfer of physical certificates.
Over-The-Counter (OTC) MarketsB3 registers trades executed in the OTC market
Technology
  • B3 provides trading software and market connectivity solutions for customers
  • B3 licenses indexes to customers
  • Vehicle and Real Estate Loans
  • Cetip, a B3company focused on the OTC market, operates a vehicle and real estate financing unit
  • Cetip provides products and services that help facilitate local credit analysis and approval of vehicle and real estate loans
  • History of Brasil Bolsa Balcão

    B3 formed in March 2017 when two leading Brazilian financial institutions merged:

    BM&FBOVESPA S.A. Securities, Commodity and Futures Exchange (BM&FBOVESPA): This relatively new exchange formed in 2008 when the São Paulo Stock Exchange merged with the Brazilian Mercantile and Futures Exchange. The resulting exchange became the leading South American marketplace for trading equities, fixed income, commodities and futures.

    Cetip S.A. Organized Markets (Cetip): Latin America’s largest depositary of private fixed income securities and Brazil’s largest private asset clearinghouse. Cetip provides electronic delivery solutions utilized for the registration of vehicle financing contracts and the custody of this information.

    BM&FBOVESPA is the division of B3 directly connected to the trading of listed financial markets. Both the Brazilian Mercantile and Futures Exchange (BM&F) and the São Paulo Stock Exchange (BOVESPA) have long and storied histories:

    History of BM&F and BOVESPA

    BM&FYear(s)BOVESPA
    1890Bolsa Livre, the first incarnation of the São Paulo Stock Exchange, began operations
    Early 1960sBecame a mutualized not-for-profit exchange
    1970sImplemented automated systems and begins price quotes via computer
    Early 1980sIntroduced mutual funds and began transition to an electronic booking system for trades
    Consolidated with Bolsa de Mercadorias de São Paulo to form a leading Latin American exchange for the trading of commodities and derivatives1990s
  • Introduced Computer-Assisted Trading System (CATS), which operates alongside trading pits
  • Organized the Brazilian Clearing and Depository Corporation (CBLC) for trade clearing
  • Implemented electronic system for trading derivatives and closed trading floor2000Integrated with other eight exchanges in Brazil to become the only local exchange operator for equities
    2005Closed trading floor and becomes fully electronic market
  • Began demutualization process to prepare for public offering
  • Trading of BM&F shares on the Novo Mercado segment of the BOVESPA began in November 2007 under ticker symbol BMEF3
  • 2007
  • De-mutualized to prepare for listing as a public company
  • Trading of BOVESPA shares on the Novo Mercado segment began in October 2007 under ticker symbol BOVH3
  • On May 2008, shareholders approved the integration of BM&F and BOVESPA, which created BM&FBOVESPA S.A. Securities, Commodities & Futures Exchange.

    History of the Combined BM&FBOVESPA

    YearEvent
    2011Technological cooperation with the Chicago Mercantile Exchange (CME) results in the development of a new multi-market and multi-asset electronic trading platform. The PUMA Trading System began operating in:
  • Derivatives
  • Spot Foreign Exchange
  • 2013PUMA Trading System began operating in the following BOVESPA segments:
  • Stock Market
  • Equity Derivatives
  • 2014PUMA Trading System began operating in private fixed income markets
    2016
  • In April 2016 the Boards of Directors of BM&FBOVESPA and Cetip approved the financial terms for a merger of the two companies’ operations
  • In May 2016 the shareholders of both companies met to vote on the merger
  • 2017In March 2017, three key regulators approved the merger of Cetip and BM&FBOVESPA:
    1. The Central Bank of Brazil
    2. The Securities & Exchange Commission of Brazil (CVM)
    3. Administrative Council for Economic Defense (CADE), which is Brazil’s antitrust authority

    Brasil Bolsa Balcao Homepage

    Who Are the Brasil Bolsa Balcão Executives?

    The Executive Board of B3 is comprised of five executive officers. Each of these individuals has extensive industry and financial services experience.

    Members of Brasil Bolsa Balcão Executive Board

    NamePositionInformation
    Gilson FinkelsztainChief Executive OfficerFinkelsztain has been the CEO of B3 since May 2017.

    His previous roles include:
  • CEO of Cetip S/A, the Brazilian Central Securities Depository (2013 – 2017)
  • Member of the Board of Directors of Cetip (2011 to 2013)

  • Finkelsztain has more than 20 years' experience in financial and capital markets with leading institutions:
  • Citigroup
  • J.P. Morgan
  • Bank of America Merrill Lynch
  • Santander

  • He has held management positions in the following areas:
    1. Foreign Exchange
    2. Fixed Income
    3. Equities
    4. Commodities
    Cícero AugustoVieira NetoChief Operating OfficerVieira Neto has been Vice-President of Operations, Clearing and Depository of B3 since 2008. His responsibilities include:
    1. Electronic trading
    2. Clearing & settlement
    3. Central counterparty (CCP)
    4. Central securities depository (CSD)
    5. Trade repository (TR)
    6. BM&FBOVESPA Custody and Settlement Bank
    He joined the exchange in 2001 having previously been head of risk management at Matrix Bank. He holds a PhD in economics.
    Daniel SonderChief Financial Officer
  • Chief Financial and Corporate Affairs Officer at B3 (2013)
  • Financial, Corporate and Investor Relations Vice-President (2015)

  • Sonder’s previous roles include:
  • Managing Director, Credit Suisse - Asset Management Division
  • Member of the senior staff of the São Paulo State Secretary of Treasury
  • Assistant to the Director of Structured Products at the Brazilian National Bank for Economic and Social Development (BNDES)
  • José Ribeiro De AndradeChief Product and Client OfficerMr. Andrade’s previous roles include:
  • Co-Head of Local Markets Trading Latin America for Bank of America Merrill Lynch
  • Member of the Latin American Executive committee - Bank of America Merrill Lynch
  • Head Trader on the Foreign Exchange and Derivatives, Citigroup Brazil responsible for Structuring and Products
  • Rodrigo Antonio Nardoni GoncalesChief Technology OfficerBM&FBOVESPA Career Highlights:
  • Managing Director - development of post-trading systems department (2010)
  • PMO Associate Director (2008)
  • Systems analyst and systems development manager (2002-2008)

  • His previous experience includes:
  • IT consultant at Citigroup Brasil (2000-2002) and Banco Bradesco (1998-2000)
  • Systems analyst at IBM Brazil (1995-1997)
  • How is Brasil Bolsa Balcão Regulated?

    B3 sets out some of its policies regarding regulation in its Compliance Policy manual. The document serves as an overview of the areas in which the exchange acts as a self-regulatory organization (SRO).

    This document and BM&FBOVESPA Corporate Governance Guidelines set out the principles that underpin B3’s regulatory and compliance framework:

    Guidelines/PrinciplesDescription
    Monitor Regulatory EnvironmentThe exchange monitors changes in regulatory policies so it can assure that the appropriate group within B3 adheres to laws and regulations.
    Verification of Compliance
  • B3 confirms with the appropriate regulators and internal personnel its compliance with laws and regulations
  • The exchange communicates with staff regularly about the importance of knowing and discharging obligations
  • Independence and AutonomyB3 believes its compliance personnel should act independently and autonomously to assure impartiality in all its operations.
    Periodic Review of Integrity ProgramThe exchange proactively endeavors to prevent, detect and combat violations of laws and regulations.
    Cooperation with RegulatorsB3 endeavors to do the following:
  • Oversee and follow up compliance with regulators
  • Facilitate the sharing of information with regulators
  • Assure proper execution of regulations
  • Guarantee timely communication with regulators
  • ReportingB3 reports information related to compliance activities to the Board of Directors and Executive Board.

    The Compliance Manual delineates the specific responsibilities of each department within the self-regulatory framework:

    DepartmentResponsibility
    Executive Board Conducts business policies that comply with norms issued by regulatory authorities.
    Department of Internal Controls, Compliance & Corporate Risk
  • Disseminates the Compliance Manual
  • Structures and implements the Integrity Program
  • Helps business divisions within B3 comply with requirements of regulators
  • Oversees plans to rectify and address policies that infringe on regulatory requirements
  • Reports alleged infractions, civil or criminal offenses to Board of Directors, Executive Board and Legal Department
  • Produce reports and participate in discussions concerning regulations
  • Coordinate processes related to Code of Conduct
  • Legal Department
  • Orients the company with regard to regulations, rules and laws
  • Conducts public consultations and hearings to coordinate proposed rules changes
  • Assists with developing and maintaining mandatory staff training courses on the Integrity Program
  • Department of Communications, Human Resources & Financial Market EducationHold periodic mandatory staff training courses on the Integrity Program

    Outside Regulators

    In addition to the self-regulatory compliance function within B3, outside regulators also have responsibility over enforcing regulations.

    The Brazilian financial sector regulatory structure is comprised of four specific regulators. Each one of these plays a role in regulating different aspects of B3’s businesses:

    1. Securities and Exchange Commission (CVM): Responsible for business conduct and market regulation of intermediaries and the other secondary markets, equity, derivatives and non-governmental debt
    2. Central Bank: Responsible for prudential and financial institution supervision
    3. Superintendent of Private Insurance (SUSEP): Responsible for regulation of the insurance sector
    4. National Superintendency of Complementary Social Security (PREVIC): Responsible for regulation of pension sector

    What Products Does Brasil Bolsa Balcão Trade?

    CateogryProductsProducts (See Codes Below)
    CommoditiesAnhydrous Fuel EthanolF
    Arabica Coffee 4/5F, O, SO
    Arabica Coffee 6/7F, O, SO
    CornF, CSF, O, SO
    Crystal SugarCSF, O, SO
    GoldF, O, FWD, SPOT
    Hydrous EthanolCSF, O, SO
    Live CattleCSF, O, SO
    OilCSF (based on CME mini WTI future)
    SoybeansCSF, O, SO
    Exchange Rates*Australian DollarCSF
    Canadian DollarCSF
    Chilean PesoCSF
    Chinese YuanCSF
    Euro
    Mini Euro
    CSF available for both regular and mini
    Japanese YenCSF
    Mexican PesoCSF
    New Zealand DollarCSF
    Pound SterlingCSF
    South African RandCSF
    Swiss FrancCSF
    Turkish LiraCSF
    US Dollar
    Mini US Dollar
    CSF available for both regular and mini
    Fixed IncomeGovernment BondsSPOT, FWD, REPO, AUC
    Sovereign Debt Instruments10-year US Treasury Cash Settled Future
    Interest RatesOne Day Interbank Deposit (DI)CSF, O, SO
    DI x Extended Consumer Price Index (IPCA) Spread FuturesCSF
    DI x US dollar Spread FuturesCSF, SO, SWAP
    IPCACSF
    US Dollar Spread Futures Contract Referencing One-Day Repurchase AgreementsCSF, SO, SWAP
    Futures on the Average Rate of One-Day Repurchase AgreementsCSF, O
    EquitiesBrazilian Depositary Receipts (BDRS)Financial and physical settlement for both sponsored and unsponsored BDRs, FWD
    Brics Index
  • BVMF FTSE/JSE Top40 Index Futures Contract
  • BVMF Hang Seng Index Futures Contract
  • BVMF MICEX Index Futures Contract
  • BVMF BSE Index Futures Contract
  • Ibovespa
    Mini Ibovespa
    F, O, SO
    F
    Brazil Index 50CSF, O
    Certificates of Potential Additional Construction (CEPACs)Cash market
    Stock ETFsBoth physical (delivery of the components in the fund) and financial settlement
    EquitiesCash market
    Investment FundsCash market for:
    1. Stock Investment Funds (FIAs)
    2. Amazon Investment Funds (FINAM)
    3. Northeast Investment Funds (FINOR)
    4. Sectoral Investment Funds (FISET)
    5. Economic Development Fund of Espirito Santo (FUNDES)
    S&P 500 IndexCSF, O, SO
    OTC MarketFlexible OptionsDefined at the parties’ discretion
    Forwards
  • FX Forwards: The Non-deliverable forward allows trading of foreign exchange rates or future parities
  • Commodity Forwards: Allows registration of forward trades in which the underlying asset is the price of agricultural, metal and energy commodities traded in several markets
  • SwapsCash flow exchanges based on the comparison of profitability between two indexers.
    IndexesB3 offers trading in a variety of indexes:
    1. Broad
    2. Corporate governance
    3. Segment
    4. Sustainability
    5. Sector
    6. S&P / BVMF
    7. Miscellaneous
    Traders can consult the Products section of the B3 website for details about each of these categories of products.
    AlternativeTesouro DiretoAn alternative investment in which the investor knows, at the time of investment, how his/her money will yield in the future.

    *Currencies trade in terms of Brazilian Reals (BRLs)

    Codes:

    F = Futures for physical delivery
    O = Options on futures
    SO = Structured Operations (futures calendar spreads)
    CSF = Cash Settled Futures
    FWD = Forward Contract
    SPOT – Spot Trading
    REPO = Repos
    AUC = Auction Forwards
    SWAP = Swap

    How Does Brasil Bolsa Balcão Conduct Trading?

    PUMA Trading System

    PUMA is the feature-rich electronic trading platform that traders on B3 use to execute trades in different asset classes as well as manage risk. B3 offers developers many tools to help connect to the platform.

    B3 PUMA Trading Systems

    Some of the key architecture of the PUMA platform includes the following:

    • EntryPoint: A multi-asset order entry messaging format for PUMA. Some advantages of using EntryPoint include the following:
      • Messages remain the same across all markets
      • Low latency for order processing
      • All PUMA Trading System functionality available via FIX messaging
      • Possibility to implement multiple trading strategies
    • United Market Data Feed (UDMF): This is a service that provides low latency access to market data. UMDF allows client systems to access the full set of exchange-traded instruments in different asset classes:
      • Derivatives (futures, options on futures, forwards, private bonds, cash equities, ETFs and options on equities)
      • BM&FBOVESPA’s indexes including Ibovespa and IBRX-50
    • The UMDF PUMA Conflated platform: A service that uses the TCP protocol, unlike UMDF which uses UDP.
      • This platform costs less to implement and maintain:
        • It requires reduced bandwidth due to the subscription mechanism (Client systems select what market data information they would like to receive.)
        • It throttles order book updates

    What Types of Memberships Does B3 Offer?

    The full trading member (PNP) is a broker or securities distributor that holds the right to access all BM&FBOVESPA’s trading markets.

    Commodities brokers can access financial derivatives, commodity and gold only.

    The financial requirements are as follows:

    BOVESPA Segment

    Membership CategoryEquity Capital (min.)Operating Performance Fund
    FullBRL 3.75 millionNot Required
    Fixed Income and CounterNot Required

    Financial Derivatives, Commodities and Gold Only

    Membership CategoryEquity Capital (min.)Net WorthDeposit Collateral
    Financial Derivatives, Commodities and GoldBRL 4 millionBRL 7.5 millionBRL 6 million

    The membership accreditation process involves four steps:

    1. Definition of Access Model: Applicant presents a business model to the exchange that outlines its needs to access particular categories of trading.
    2. Admission Procedure:
      1. Applicant must submit registration documents to the particular category for analysis by the exchange.
      2. BM&F Markets Supervision (BSM) conducts a pre-operation audit to verify compliance with the Professional Qualification Program.
      3. BSM then forwards documents to the Board of Directors for final approval.
    3. Operation and Technological Infrastructure SetupThe institution, once admitted for membership, finalizes the contracting of access to operational and technological infrastructure.
      • The institution finalizes contracting of services and solutions appropriate for its business model.
      • BM&FBOVESPA requires these steps for participants to go into operation.
    4. Conclusion
      1. Institution deposits securities for safeguarding funds.
      2. Institution assures that its employees are accredited and qualified to transact business on the exchange.
      3. After these steps are completed, the participant can transact in the exchange markets.

    Traders can obtain additional details about the registration and accreditation process along with fees and documents at the Trading Members section of the B3 website.

    What Are Brasil Bolsa Balcão Margin Requirements?

    B3 analyzes risk of traders’ portfolios by calculating the risk of a closeout of a portfolio consisting of several markets and asset classes. This risk measure is known as Closeout Risk Evaluation (CORE).

    CORE accomplishes the following:

      1. Calculates the worst case for accumulated cash flow during the portfolio closeout process
      2. Considers the joint risk for positions and collateral
      3. Models three types of risk: market, liquidity for positions and collateral and cash flow
      4. Forecasts an accurate closeout strategy: position closeout transactions and collateral execution
      5. Severe loss (stress test): confidence level of 99.96% or a 10-year crisis
      6. Considers 10,000 scenarios: historical (since 2002), quantitative and prospective
      7. Looks at positions over multiple horizons
      8. Applies full valuation

    Traders can learn the margining cycle and see examples of how CORE is used in the Risk Management section of the BM&FBOVESPA website.

    BM3 Risk Management

    What Fees and Charges Does B3 Assess?

    B3 charges trading, settlement, custody and registration fees for products traded on the exchange. These fees vary by product category.

    In addition, the exchange charges fees for services such as market data feeds, colocation of servers, infrastructure and other information services.

    B3 also charges fees to issuers and commodity grading and agricultural commodities depositary fees.

    Traders can find a full detailed explanation of these fees at the Fee Schedule section of the website.

    What Market Data Does B3 Make Available?

    BM&FBOVESPA market participants can access real-time market data through authorized distributors of the exchange. Authorized distributors have different rights depending on the market segment they cover.

    BM&F Segment

    Market quotes:

    • Financial and commodity derivatives
    • Foreign exchange (spot US dollar)
    • Federal securities (cash or forward and repo and lending transactions) for certain trades
    • News about the derivatives markets

    BOVESPA Segment

    • Quotes for equities trading on the cash, forward and options markets, including companies listed on the Novo Mercado and at Corporate Governance Levels 1 and 2
    • Indexes (Ibovespa, IGC, ISE and others)
    • Quotes for corporate fixed-income securities, securities lending and trades on the organized OTC Market
    • News about the market and the companies listed on the exchange

    The exchange also makes a variety of types of historical data available for additional fees:

    1. Daily Bulletins: Data from previous trading sessions
    2. Equities: Historical quote data
    3. Derivatives: Settlement prices, statistical summaries and information recovery systems
    4. Foreign exchange: A variety of market statistics and summaries

    What Educational Materials Does B3 Offer?

    B3 encourages visits to its headquarters in São Paulo. Visitors can go on guided tours and learn about financial and capital markets through several interactive resources:

    1. 3D Cinema
    2. Talks
    3. Display Panels
    4. Memory Center

    Traders also have online resources for learning about B3 products and strategies for trading them successfully. B3 has a section of its website called the B3 Educational Institute. Although the site is in Portuguese, web browser services allow easy translation into other languages.

    The Institute lists different Knowledge Areas and provides study guides that traders can download to get certified in different areas:

    1. Operations
    2. Risk
    3. Back Office
    4. Sale Off (settlement professionals)
    5. Customer Base
    6. Compliance
    7. Commercial
    8. Custody
    9. Record

    The Institute also offers online courses on areas such as fixed income, derivatives, clearing financial markets and behavioral finance.

    B3 Courses

    Does Brasil Bolsa Balcão Have Vendor Partners?

    B3 lists the following companies that are licensed as market data distributors on is BOVESPA and/or BM&F platforms:

    How Can You Get Started Trading?

    Memberships on the B3 exchange are costly and impractical for most retail traders. However, many regulated brokerage firms offer contracts for difference (CFDs) based on products traded on B3 such as commodities, foreign exchange and shares of companies.

    CFDs are a derivative instrument that offers retail traders a different way to invest in financial markets. CFDs allow traders to use leverage to bet on the price of financial assets. The value of a CFD is the difference between the price of a financial instrument at the time of its purchase and its current price.

    Many regulated brokers worldwide offer CFDs on shares, commodities, indices, forex and other financial assets Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that traders can have exposure to financial assets without having to purchase shares, ETFs, futures or options.

    Traders can open an account at one of these regulated brokerage firms and begin trading CFDs based on B3 products.

    Lawrence Pines is a Princeton University graduate with more than 25 years of experience as an equity and foreign exchange options trader for multinational banks and proprietary trading groups. Mr. Pines has traded on the NYSE, CBOE and Pacific Stock Exchange. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts.
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