B3 S A Brasil Bolsa Balcão : Investor Days 2020 - Day Two

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English Presentation

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B3

DAY

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INFORMAÇÃO INTERNA	2
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New Products

Panel

B3

DAY

Juca Andrade

Chief Product and Client Officer

Marcos Vanderlei Belini

Executive Director Financing Unit

INFORMAÇÃO INTERNA	3
INFORMAÇÃO INTERNA - INTERNAL INFORMATION

In its role as the market infrastructure, B3 has been working to deliver new products and solutions

ListedOTC

Energy Insurance

Data

&

Analytics

CLIENTS ROADMAP

Roadmap: main products to advance in 2021

GENERATED BENEFIT

		Reduction of tariffs for non-day trade orders
	NEW TARIFFS FOR THE	Concession of more accelerated and deeper discounts for day trades
	Exemption of monthly fixed depository maintenance fee for local investors, and incentives for small investors with
	LISTED EQUITY MARKET
	outstanding positions up to R$ 20 thousand
	(intermediary model)
	Cost reduction for the market in the intermediary model will represent 2/3 of the total estimated benefit from the final
		model
		Equities
		Equity futures
	EXPANSION OF THE RLP TO	miniS&P (in discussion with CME)
	OTHER PRODUCTS	Other Currency Futures
		Fixed Income ETF
	AUTOMATIC EXERCISE OF	Operational simplification for clients, with mitigation of execution risk (relevant demand from local and international
	OPTIONS	clients)
	EDS/UDS	Improvement of B3's portfolio of products; increased transparency; operational ease; increased volumes; client attraction
	MODERNIZATION OF THE	US Dollar Tie Trade
	Spot (D+N) with price assurance
	FOREIGN EXCHANGE MARKET
	Modernization of the Foreign Exchange Clearinghouse
	SECURITIES LENDING	Evolution in the Listed Equity Market
	Expansion into new products - Real Estate Investment Funds, and Fixed Income ETF
	SOLUTIONS
	Implementation of lending and repo of government bonds
	DATA FOR THE FIXED INCOME	Studies with the market/clientes of how B3 can help in the transparency and liquidity of the secondary market for private
	MARKET	debt securities

OTC SEGMENT

OTC: favorable regulatory agenda for the development of new products

2018

Regulation of credit-focused fintechs

-Authorization and regulation for the operation of SCDse SEPs

>CMN resolution 4.656/18 and BCB Circular 3.898

-Legal framework for electronic receivables >Law 13.775/18

2020 BLOCK

• In a homologation environment.
• Central Bank Normative: expected january/2021

2019 Electronic CPR

• Authorization for electronic CPR
• • MP897/2019, law 13.986/20

electronic CCB

• Authorization for book-entry CCB
• • Lei 13.986/20 and BCB Circular 4.036

2021 Jan/21: CPR registration

• • Registration requirement for CPRs (Law 13.986/20)
    Feb/21: Credit Card Receivables registration
  • Registration requirement for credit card receivables
• Division of the receivables schedule for obtaining credit with multiple institutions
• • • • Beginning of credit card receivables agenda
    • Resolution 4.734 of BCB and Circular 3.924 & 3.928
      Aug/21 (estimate): Registration of receivables
    • • Regulated receivables bookkeeping
  • Mandatory book-entry receivables for negotiation with financial institutions
  • • Settlement on the SPB platform

OTC SEGMENT

OTC: favorable regulatory agenda for the development of new products

Context

Market Benefits

and

Opportunities

for B3

	Receivables		CPR		CCB		Credit Card
	Commercial receivables will be		Need for CPR bookkeeping in		Modernization of the security,	Receivables must be registered
	required to be negotiated on a		2021		allowing a book entry issue	into approved FMIs
	book-entry basis		(Law 13.986; Norm XYZ)		(Law 13.986 and Circular 4036)	(Circular 3952)
	(Resolution 4815 and Circular
	4016)
	Greater security in the		Greater security in the emission		Market security and	Serve as independent FMI for
	negotiation of comercial		of CPRs		transparency	registration and negotiation
	receivables by the market						(liens/ assignment)
			Integration with notaries for the		Increase in the volume of
	Approximation to players on the		constitution of warranties		registration and circulation of	High Market growth potential
	financing side				CCBs in the market (ex. between	with digitalization of payment
			Data & Analytics		fintechs, banks, and Investment	methods
	Data & Analytics				Funds for Credit Rights)
							Approximation to players on the
							financing side

Data & Analytics

NEW BUSINESSES: REAL ESTATE

Real Estate: B3 offers a complete solution for the financing chain

Real Estate Development	Contracts Origination	Portfolio Management
	Block - Management of Receivables
	Electronic Registration

Valuation Platform

Electronic Registration

AVM

Automated Valuation Model

Registration of Financing Contracts (res.

4.088)

Mark to Market

Securitization Produts/ Capital Markets

(OTC / Listed)

NEW BUSINESSES: REAL ESTATE

Real Estate: Block

Financial

Project Funding

Securitization

Investment Banks

Real Estate Funds,

FIDCs...

Fase 2

Block - UIF

NoMe - OTC

Entities

Construction

+ 20 thousand constructors

REAL ESTATE RECEIVABLES CHAMBER (BLOCK)

• Objective:
• Manage receivables from business plan operations
• Visibility and transparency regarding financial and operational indicators
• Creat exposure opportunities for constructors/projects without financing
• Effective date: 2021 (pending Central Bank)
• Strategic vision: BLOCK is B3's entry point to the construction market

	Pains- Banks and asset managers		Pains - Constructors
	•	Little transparency hinders the risk assessment process of investments		• Bureaucracy in the process of obtaining and transferring credit
		in new real estate projects		• Lack of synchronism between credit release and the need for cash flow
	•	Asymetric information in the construction stage (evolution of		from the project
		collateral/receivables and performance)		• Difficulty in financial and accounting management

NEW BUSINESSES: ENERGY

Energy: B3's action plan

3 Derivatives Exchange

• Financial Products that enable energy trading e hedge in Exchange environment

2• Collateral & Clearing products and services

- Collateral management

- Central counterparty capable of guaranteeing all transactions

1 • First benefits to enable clearing

• Leverage control
• Release of price curves
• Mechanisms against default

NEW BUSINESSES: ENERGY

Energy: phased development of complete infrastructure solution for the market

1º step:

Information

platform

Infrastructure for the energy market

2º step:

Risk

measurement

3º step:

CCP

Financial derivatives

Energy Exchange

Leverage control: rules and processes that prevent the registration of contracts beyond the risk / exposure limit defined by the Energy Market Regulations to be edited by B3

Disclosure of price curves: creation of price curves based on contracts that are registered on the platform

Facilitation and Settlement services: process to inform bilateral financial netting between agents, in a way to reduce the necessity for payments between parties

Collateral mechanism: B3 calculates the bilateral/multilateral risks and collateral value to be deposited as a function of such risks

CCP Physical Market: CCP for the sale of energy, with a complete safeguard structure and margin call

Derivatives: financial products without physical settlement for hedge and energy trading with a central counterparty, both in the OTC and listed environments

Exchange for Physical Market: Exchange for the negotiation of physical energy contracts

Beginning in 2020

After creation and

consolidation of the information platform

After the creation

of the Central

Counterparty

NEW BUSINESSES: INSURANCE

Insurance: insurance ecosystem, reinsurance, pension and capitalization

Ministry of Economy

PROJECTS 2019/2020

TECHNICAL

RESERVATION

CNSP - National Council

of Private Insurance

		SUSEP -	SRO	CCLP
		Superintendence of
		Private Insurance			Data &
ILS							Analytics
		BNO

Insurance companies,

Reinsurance companiesprivate pension and capitalization

FENABER - National		CNSeg - National
Federation of Reinsurance
	Confederation of Insurance
	Companies
				SERVICE
					CENTER

CNPC - National

Supplementary Pension

Council

PREVIC - National

Superintendence of

Supplementary Pension

Pension fund insurance

companies

ABRAPP - Brazilian

Association of Closed

Supplementary Pension

Entities

• SRO
• BNO

FenaSeg

FenaPrevi

FenaCap

FenaSaúde

NEW BUSINESSES: INSURANCE

Insurance: we started a project with the insurance registration platform (SRO)

SRO Objectives

• Electronic monitoring;
• Exchange of information;
• Availability of information.

Who must register?

• Insurance Companies (119);
• Open Pension Fund Entities (15);
• Capitalization Entities (17);
• Local Reinsurers (16).

What must be registered? (D+2)

• Operations of insurance, pension, capitalization and reinsurance;
• The set of events and transactions related to the same policy, ticket, contract, certificate, or series.

Who will be allowed to register?

• Entities that are authorized by the Central Bank and CVM to exercise the activity of registration of financial assets or securities;
• Pontential competitors of B3: CERC and CSD.
• • Pending authorization with Central Bank or CVM

Visualized Model

• Company A

			• Company B	registrators	betweenInteroperability
			• Company C
			• Comapany D
	Registrator B
			• Company E
	Registrator	• Company F
	C
ESTIMATED SCHEDULE - SUSEP
	Guaranteed	11/2020
	Insurance
Resolution	Insurance /
CNSP
	Pension
(Public				To be
Consultancy nº	Reinsurance
02/2019)	defined

Capitalization

NEW BUSINESSES: INSURANCE

Insurance: then, we launched the BNO platform

B3 AND BNO

• Provide an infrastructure to enable its members to create a shared representation of information or facts and use shared processing of those facts to reach an agreement or consensus on the operations in which they are involved
• BNO would allow being an integrated insurance and reinsurance bookkeeping, negotiation, and settlement platform
• B3 signed a MOU with IRB to create a BNO partnership in the insurance and reinsurance market

MAIN BNO MARKS

Oct/2020	Oct/2020
Structure of the	Announcement of the
BNO network in	partnership between
production	IRB and B3

PROPOSED BNO MODEL

S2	Connectivity SRO e S2 (Reinsurance)	S2
Trading / Settlement	via API
Bookkeeping
		B3/IRB

S1	SRO	B3
Registration	Registration

BNG	Reinsurance
BNO & Notary	Insurance

NEW BUSINESS: INSURANCE

Insurance: in the future, we may launch analytics products that will add value to the insurance supply and risk management process

Segmentation

Investor Profile	Propensity of subscription score
Asset diversification score	Equity monitoring/evolution
Propensity to exchange assets	Liquidity guarantee score

	Adherence Risks		Underwriting Risks
	Capacity to Pay		Credit consumption profile
	Fraud
		Score of propensity to claims
	Equity model (proxy for
		Frequency indicator of debts and	Underwriting
	income)
		fines	Risks
	Time participating in the
	markets

NEW BUSINESSES: DATA

B3 Solutions: intelligence applied to the credit cycle

	1	Locate
COLLECTIONRULE	2	Segment &	SOLUTIONSB3
Qualify
3	Offer for
	Negotiation

4	Trigger

Establish billing priority rules (relationship collateral vs liabilities) and use of deposited

asset as collateral.

Definition of more assertive fees, rules of installment payments and discounts that are adequate for the client's profile.

Ellaboration of differentiated strategies in Seasonal Collection Campaigns, based on the prioritization of clients.

Simplification and agility gains in the decision, search, seizure, judgment, and garnishment processes convert costs into revenues!

NEW BUSINESSES: DATA

B3's Product Pipeline

FinancialRetail

2020	Retail Banks	Financing Retail Companies		Real Estate	Insurance		Other Retail
Capital Markets	Vehicles	PIX
Credit
Billing
Capacity
Fraud
KYC
AML
Market Strategy
Audience
Segmentation

FinancialRetail

2021	Retail Banks	Financing Retail Companies		Real Estate	Insurance		Other Retail
Capital Markets	Vehicles	PIX
Credit
Billing
Capacity
Fraud
KYC
AML
Market Strategy
Segmentação de
audiência

Consolidated

Revenues

Tests

Thank You!

INFORMAÇÃO INTERNA	18
INFORMAÇÃO INTERNA - INTERNAL INFORMATION

Panel

Regulatory Discussions in equities

B3

DAY

Mario Palhares

Listed Products Director

Rogério Santana

Director of Relationship with Companies and Assets Areas

INFORMAÇÃO INTERNA	19
INFORMAÇÃO INTERNA - INTERNAL INFORMATION

2020 brought important regulatory discussions that may impact equities segment

1

Review of

ICVM461 and

ICVM 505

2

	3
SEAE Letter/	RLP expansion
Internalization	to the equity
Discussion	market

INFORMAÇÃO INTERNA	20
INFORMAÇÃO INTERNA - INTERNAL INFORMATION

1 REVIEW OF ICVM461 AND ICVM 505

The review of ICVM 461 comprised important topics on the operation of the capital market in Brazil (1/2)

CHANGES PROPOSED IN CVM'S MINUTES

• Authorization for trading out of the central

orders book, that is, in a special trading segment, or an organized over-the-counter market.

	• The block trade must be unique and indivisible,
Block Trade	and its size would be defined by the market's
unified self-regulation entity.
	• This proposal does not establish CCP
	requirements for block trades in organized
	over-the-counter markets.

B3'S POSITIONING

• Block Trades should take in place in a special exchange segment: higher probability of execution; isonomy of participants and investors; simplification of regulations and taxes, and less complex operations.
• Indication of a 15% cap for non-transparent trades or without interaction with the order book (Block Trades, Directs, RLP, etc) in order to ensure fairness and efficiency in asset price formation.
• Size of block trades defined by CVM, following models of developed markets.
• Highlight to the importance of using the CCP even in over-the-counter transactions, in order to reduce risks and costs for the market, broadening the access to these transactions.

1 REVIEW OF ICVM461 AND ICVM 505

The review of ICVM 461 comprised important topics on the operation of the capital market in Brazil (2/2)

Best

Execution

Rules

CHANGES PROPOSED IN CVM'S MINUTES

• Definition of criteria in determining the best execution for retailers and qualified investors:
• • Retailers: intermediates should use the criteria of total disbursement for the transaction;
  • Qualified Investors: maintenance of the current rule

B3'S POSITIONING

• • Regarding non-qualified investors, the best execution based only on total financial disbursement has important limitations, and it may not be in the investor's best interest. So, other criteria should be taken into account: price, cost, speed and probability of execution and settlement, volume, type and other important considerations
  • The OPR (order-protection-rule), which is used in the US, should not be adopted in Brazil, given to weak points and criticisms indicated by several US market participants.
  • Intermediates should not be forced to connect to all markets and platforms
  • The possibility of rebates or other order flow purchase mechanisms creates potential conflicts of interest, and, for this reason, it should be prohibited.
• B3 is analyzing international benchmarks to understand the functionalities that may help trading activities, based on best execution criteria, aiming at book centralization, fair and efficient price formation, and equal access to the market.

2 SEAE LETTER/ INTERNALIZATION DISCUSSION

SEAE sent a letter to CVM in August, asking it to consider authorizing the internalization of transactions in the Brazilian market

SEAE's Positioning

B3's Positioning

• SEAE/ME (Competition and Competitiveness Defense Office of the Ministry of Economy), pursuant opinion 13804/2020/ME, is favorable to a comprehensive discussion about the internalization of orders, which would favor competition environment.
• Recommends the performance of a study/sandbox by CVM, on the internalization of orders and its effects on competition.
• The intensification of discussions on the minimum size of direct offers and systematization of flow matching at brokerage firms, gives momentum this discussion.
• B3 is favorable to innovation and competition. However, this process must be based on certain rules and measures in order to ensure market integrity.
• • Any flexibilization in the rules must consider new business models for brokers and guarantee:
  • • Price formation: the orders would not interact in a competitive manner with the central trading book
    • Market transparency: reduces the incentive for liquidity providers to send orders to the central book
    • Equal access of customers to liquidity
• From the point of view of the investors, the internalization without limits may negatively affect the formation of prices and liquidity, resulting in overall higher costs for them.

3 POTENTIAL EXPANSION OF RLP TO THE EQUITY MARKET

RLP is seen as a tool that delivers benefits to the whole market

Market Participants

B3 and Market Operations

Investors

Regulators

•

Value generation from retail

•

Maintenance of the depth

•

Guarantee of improved prices

•

Full transparency and

order flow

and quality of the order

when spread is open

monitoring of transactions

book

•

Simultaneously access to private

•

Possibility to operate directly

•

Preservation of the market

and public book

•

Compliance costs

in the flow, or in its

pricing formation

•

Risk guaranteed by the CCP

maintained at the current

commercialization

•

Liquidity of assets and

•

Monitored and regulated

levels

• Available to all participants

likelihood of execution

environment by independent

(equality)

agents

3 POTENTIAL EXPANSION OF RLP TO THE EQUITY MARKET
Liquidity has increased during RLP testing period of mini-iBov and mini-FX derivatives
contracts		Padrão	CAGR1
RLP Start		Mini
	19 - 20
ADV of FX (USD/BRL)

(thousands)

							804							806	772	878	1.094	932	933	989	927	977	26%
629	643	742		710	627		618	646	702	605	629	681
573	570		348	263	275	308	273	271	-14%
		465			433	340	319
		433		422					400			386
359	371	345	366	327	358	379	350	360		746			681		707	65%
		432	559	669	659	654
270	273	309	288	260	339	260	267	302	255	269	295	373
228	244

Jan-19	Mar-19	May-19	Jul-19	Sep-19	Nov-19	Jan-20	Mar-20	May-20	Jul-20	Sep-20	Nov-20
Share	43	42 42 40	41 42	43	42 42 41	43 42	43	43 46 56	64 68	72	71 69 71	72
Mini (%)

ADV Stock Indices																							2.815 2.940 3.010
(thousands)																2.413		2.424		2.413 2.493 2.642		69%
																	2.084		2.154	157	162	153		12%
									1.416 1.751	1.472 1.547 1.648	1.503	208	1.973	181		158	147	157
		1.354 1.329 1.413 1.450 1.359	181		146
1.104	204
138	153	131	156	154	130	184	144	157	148	127										2.485	2.658	2.778	2.858		75%
						2.205			2.244			2.255	2.346
123					1.903	1.770		2.007
								1.567				1.500
1.216	1.176	1.282	1.295	1.205	1.286	1.328	1.390	1.376
981
	Jan-19		Mar-19		May-19		Jul-19		Sep-19		Nov-19		Jan-20		Mar-20	May-20	Jul-20		Sep-20		Nov-20
Share
Mini (%) 89	90	89	91	89	89	91	90	90	90	91	92	91	91	90	93		93	93	94	94	94	94	95

Nota: 1Compound Annual Growth from jan/19 to nov/20

3 POTENTIAL EXPANSION OF RLP TO THE EQUITY MARKET

Challenges on RLP implementation for equities

THE DYNAMICS OF THE EQUITY

MARKET MAY REQUIRE

ADJUSTMENTS IN THE RLP

MODEL ADOPTED FOR MINIS

ASYMMETRICAL FLOWS

LOWER PARTICIPATION OF

DAYTRADERS

ASSETS HAVE DIFFERENT LIQUIDITY LEVELS

B3

DAY