OPERATIONAL PERFORMANCE

All comparisons in this document are in relation to the third quarter of 2019 (3Q19), unless otherwise stated.

Listed

In the third quarter of 2020 (3Q20), the listed segment performance continued to be driven by the volatility in financial and capital markets arising from the effects of the COVID-19 pandemic and by the low interest rate environment, both in Brazil and worldwide.

Equities

Note: ADTV stands for Average Daily Traded Value; ADV stands for Average Daily Volume; RPC stands for Revenue per Contract; and bps stands for basis point; market turnover results from dividing the volume traded on the spot market in the period by the average market capitalization for the year.

The equities segment experienced a 67.7% growth in the cash equities market's ADTV and a 69.9% increase in stock indices futures contracts' volumes. In the cash equities market, this increase reflects a higher turnover velocity, which reached 169.1% in the quarter. For the stock indices futures contracts' market, the performance can be attributed to the continued growth in trading of mini contracts, particularly by individual investors and by High Frequency Traders (HFT).

The trading/post-trading margin in cash equities was 3.992 bps. The 0.290 bps decrease is mostly explained by the discounts given to the market in accordance with B3's pricing policy4 in force and by the greater participation of day traders, who pay lower fees. The average RPC of the stock indices futures contracts in the period remained practically unchanged.

The average number of active investors in the equities depository grew 120.9%, mainly due to the increased interest in diversifying investments in a lower interest rate environment. Through our incentive programs, B3 continues to support brokerage firms that focus on attracting new customers to the market.

FICC

The average daily traded volume totaled 4.0 million contracts, down 1.7%, reflecting mainly the decrease of 7.1% in ADV of interest rate contracts in BRL and of 35.1% in ADV of interest rate contracts in USD, which were partially offset by the 34.6% growth in ADV of exchange rate contracts, particularly the mini version of these contracts. Average RPC for the segment grew 45.2%, influenced primarily (i) by the 37.3% appreciation of the USD against the BRL in the period, with a positive impact on the RPC of FX Rate, Interest Rate in USD and Commodities contracts, since they are priced in US dollar, (ii) by the higher share of FX Rate contracts in the mix and (iii) by the increase in longer-term Interest Rate contracts in BRL, which have a higher RPC.

OTC

Fixed Income Instruments

During the quarter, the volume of new issues and the outstanding positions of bank funding instruments showed a 36.7% and 42.9% increase, respectively, mainly as a result of the growth in issues of Bank Deposit Certificates and Interbank Deposit Certificates, which represented 58.4% and 38.1% of all new issues, respectively. Additionally, the average outstanding balance of corporate debt increased by 8.8%, which demonstrates the increasing relevance of the local debt capital market as a source of financing for companies in Brazil, with leasing debentures accounting for 29.3% of outstanding balance (vs. 32.6% in 3Q19).

Treasury Direct also recorded a positive performance, with a 18.8% increase in the number of investors and a 3.9% increase in stock. B3 offers an incentive program for brokerage firms to increase their number of investors and outstanding positions in this product. This incentive program is revised on a yearly basis, and the targets established for the year were adjusted to consider the results obtained in 2019. Additionally, B3 and the National Treasury announced in Jul/20 that, as of Aug/20, Treasury Selic custody fee will be waived for the first R$10 thousand invested.

OTC Derivatives and Structured Operations

Note: does not include Outstanding position of OTC derivatives with CCP.

The registration of new issues on the OTC derivatives and structured notes market decreased 10.2%, mainly due to a reduction in registration of Swap contracts and other derivatives5. Despite the fall in new issues, average outstanding balance increased 56.3% during the quarter, since most of these contracts are referenced in US dollars.

Infrastructure for Financing

The number of inclusions in the National Liens System (SNG) decreased by 3.5%, impacted by the drop in economic activity resulting from the quarantine implemented in Brazil from Mar/20 onwards, in order to contain the spread of the COVID-19 pandemic. However, when compared to 2Q20, we see an increase of 165.6% in the number of vehicles sold, showing the first signs of recovery for the sector, as the government starts to relax social distancing measures and economic activity resumes. In the Contracts System, the number of transactions in 3Q20 was 9.5% lower, reflecting the decreased number of vehicles financed, combined with a reduction in B3's market share, which totaled 57.3% in the quarter.

Technology, Data and Services

The average number of clients that pay the monthly utilization fees related to services in the OTC segment was up by 6.3% resulting mainly from growth of the asset management industry in Brazil. The number of TEDs processed increased by 70.7%, resulting mainly from the change in habits of bank customers during the COVID-19 pandemic.

INCOME STATEMENT

Revenues

Total revenues: R$2,535.5 million, 48.6% higher reflecting stronger performances in all segments, with the exception of the Infrastructure for Financing business.

Listed: R$1,682.4 million (66.4% of the total), up by 48.0%.

• Equities and equity instruments: R$1,120.5 million (44.2% of the total), a 52.4% increase in the period.
  Trading and Post-Trading:R$985.8 million (38.9% of the total), a 57.9% increase reflecting the growth in volumes traded in cash equities and stock indices future contracts.
  Depository:R$42.1 million (1.7% of the total), up by 11.8% in the period. The 120.9% increase in the average number of accounts in the depository was partially offset by the reductions in revenue generated by the incentive program to expand the individual investor base in the equities market, which totaled R$56.5 million in 3Q206 (vs. R$17.1 million for 3Q19).
  Securities lending:R$50.4 million (2.0% of the total), a 21.6% increase resulting from 24.8% higher average financial volume of outstanding positions.
  Listing and solutions for issuers:R$42.1 million (1.7% of the total), up by 33.4%, mainly as a result of the higher number of public offerings in the quarter, which raised R$41.3 billion (13 IPOs and 12 follow-on) in 3Q20 versus R$28.0 billion (13 follow-ons) in 3Q19.
• FICC: R$562.0 million (22.2% of the total), up by 40.0%, resulting mainly from the appreciation of the US dollar, which had a positive impact on the RPC of FX rate contracts, Interest rate contracts in USD and Commodities contracts.

OTC: R$262.9 million (10.4% of the total), up by 9.5%.

• Fixed income instruments: R$159.5 million (6.3% of the total), up by 6.2%, mainly due to the new classification of expenses related to the Treasury Direct (Tesouro Direto) incentive program. In 3Q20, revenue from Treasury Direct was R$40.4 million (market incentives related to this product totaled R$15.0 million in the quarter and are classified as revenue-linked expenses). In 3Q19, revenue was R$7.2 million (R$40.6 million in revenue and R$33.4 million in incentives classified as revenue reducers7). It should be noted that the growth in new issues and outstanding balance of bank funding products is not fully translated into revenue growth due to the new pricing policy announced in the beginning of the year. Following this pricing policy change, B3 waived some service fees related to volumes and included these services in the monthly usage service package (reported in the Technology and Access revenue line), thereby sharing part of its operating leverage with the market.
• Derivatives and structured transactions:R$62.1 million (2.4% of the total), an increase of 28.7%, despite the fall of 10.2% in the volume of new issues, due to the combination of the effects of i) the increase in average price of new issues due to the mix of contracts in the quarter, mainly swaps; and ii) the appreciation of the dollar against the real, as a significant part of the OTC derivative contracts' face values are in US dollar.
• Other:R$41.3 million (1.6% of the total), down by 1.1% as a result of the Company's new pricing policy whereby part of the revenue related to the volume of services provided and maintenance of end users was transferred to the monthly utilization service, with a positive impact in the Technology and Access revenue line.

Infrastructure for financing: R$111.6 million (4.4% of the total), down by 19.0%. This drop can be attributed mostly due to the negative effects of the Covid-19 pandemic in the vehicle sales and financing market.

Technology, data and services: R$290.5 million (11.5% of the total), an increase of 51.1%.

• Technology and access: R$190.1 million (7.5% of the total), an increase of 66.8%, especially due to growth in the monthly utilization revenue line, which was driven by (i) changes in pricing for the monthly utilization service package and OTC fees, as previously explained, and (ii) a 6.3% increase in the number of market participants accessing the OTC segment platforms and (iii) the annual price adjustment for inflation (IGP-M).
• Data and analytics: R$61.0 million (2.4% of the total), an increase of 37.0%, which is mainly due to the appreciation of the US Dollar, given that 42.6% of this revenue was linked to the US Dollar in 3Q20.
• Bank: R$13.2 million (0.5% of total), a 16.0% increase, explained mostly by the appreciation of the US Dollar in the period.
• Others: R$26.1 million, (1.0% of total), a 16.8% increase.

Reversal of Provisions: R$188.1 million (7.4% of the total), mainly explained by the reversal of R$187 million provision relating to a legal dispute with Spread, which was settled in August.

The end of the legal dispute with Spread, upon settlement in the amount of approximately R$140 million, resulted in a provision reversal of R$239 million in 3Q20 and the exclusion of this liability from our financial statements, which at the end of 2Q20 amounted to R$379 million. This provision reversal was recognized in 3Q20 partly in the revenue line (non-recurring positive impact of R$187 million) and partly in the expense line (non-recurring positive impact of expense reversal in the amount of R$52 million), and also had an impact in the deferred income tax and social contribution line (R$81 million).

6 The incentive program to attract investors to the stock market offers bonuses in the form of partial exemption of custody fees for brokers reaching performance targets related to growth in the number of accounts and in the

This is an excerpt of the original content. To continue reading it, access the original document here.