We hear from Edemir Pinto about the creation of B3 - the combination of BM&FBOVESPA and CETIP - before he hands the reins to a new CEO in May 2017.
What does 2017 hold for the newly merged company?
In 2017, B3 will deliver important projects that will have a positive impact on our market, in particular phase two of the project to integrate our clearinghouses into a single clearinghouse. In this second phase, we will carry out the migration of the equities and corporate debt markets to the new B3 Clearinghouse, which will result in even greater efficiencies for market capital allocation, drastically reducing margin calls thanks to the CORE closeout risk evaluation system. CORE is able to offset risk among distinct assets, contracts, and collateral that have different liquidity profiles.
The BM&FBOVESPA-CETIP business merger was completed on 30 March 2017, and B3 was born. The consolidation of the two companies has created a Financial Market Infrastructure (FMI) leader that is able to position itself even more powerfully on the regional and global stages. Furthermore, these consolidated markets will bring greater efficiency to customers. I will remain as CEO until 28 April, and then hand over to Gilson Finkelsztain from 1 May onwards.
What’s your viewpoint on the current regulatory landscape in your jurisdiction, and indeed globally?
Globally, the main challenge for international markets is to create regulatory reform, including deregulation, that allows an environment that is favorable for economic growth while being systemically secure.
On a national level, the market has participated actively in the discussion phases, which began in March, of the Evolution of the Listing Segments (Novo Mercado and Level 2). All of the contributions that the Exchange has received so far have been analysed and embedded in the new draft of the Novo Mercado Rules.
Also worth mentioning is the recent International Monetary Fund (IMF) report that highlights how the Novo Mercado has created the highest standards of corporate governance and protection for minority shareholders, which are adopted voluntarily by companies that wish to join the segment – in addition to the legal requirements – and that this has resulted in major changes in the Brazilian equity market.
The Exchange is also engaged in enhancing the corporate governance of Brazil’s state-owned enterprises. In 2015, we launched the State-Owned Enterprise Governance Program, which was developed to help these companies enhance their corporate governance practices and structures. This encompasses furnishing information to help restore investors’ trust, and reducing these companies’ fundraising costs.
Do you think the role of exchanges and CCPs will evolve over the coming years, and if so, how?
There are some serious challenges ahead regarding the role of exchanges and CCPs. The CCPs should be looking at more customer-friendly services and treatment. At the same time, they should seek risk management models that require ever less capital from participants. For their part, exchanges have the challenge of remaining ahead of the innovation curve. In this regard, B3 is actively monitoring new technologies, such as blockchain, for the continuous assessment of and preparation for disruptions and new opportunities.
Finally, and importantly, there is the regulatory evolution of the past few years in the markets of the most developed economies, such as the US and Europe. This evolution is the pointer for global trends in the coming years. These economies are leaning towards a call for greater transparency and better control of financial and capital transactions throughout the world.
We can cite the move towards mandatory settlement of OTC trades at clearinghouses, for example in the case of Europe’s EMIR, the centralised clearing of determined OTC derivative contracts through CCPs, or the application of risk mitigation techniques. Regulation is already very advanced in Brazil, where there is a marked presence of exchange-traded instruments with a CCP operating at the final beneficial owner level. The Exchange also has high standards of regulation and supervision, which makes it more comfortable for investors to trade in our markets. (Furthemore, since 29 March, B3 has already been recognised by ESMA (European Securities and Markets Authority) as a third country CCP under Chapter 4 of Title III of EMIR.)
No doubt exchanges will increasingly perform their principal role, which is economic development. And the evolution of trading environments and regulations will ease access to the markets for more companies.