Annual and Extraordinary Shareholders' Meeting - 04.20.2010 - Practical Guide

PRACTICAL GUIDE TO THE ANNUAL AND EXTRAORDINARY SHAREHOLDERS MEETINGS OF BM&FBOVESPA S.A.
BOLSA DE VALORES, MERCADORIAS E FUTUROS

CONVENING ON APRIL 20, 2010
So Paulo, March 19, 2010.
Dear Shareholders, I am pleased to invite you to our combined annual and extraordinary shareholders meetings, which will be held on April 20, 2010, at 11 a.m. It may have come to your attention (per our call notice published in Valor Econmico and the Official Gazette of the State of So Paulo) that exceptionally this year these meetings will be held in our premises at Rua XV de Novembro 275, downtown in the city of So Paulo, state of So Paulo, Brazil, rather than at the registered office address. We, at BM&FBOVESPA, welcome this opportunity to provide you with an update on our growing business at a time when, having gone through the initial stage of integrating BM&F and Bovespa, the two leading local exchanges, amid the uncertainties brought about by the global financial crisis and economic slowdown, we are now on course to enjoying a period of growth and expansion to other international markets. In addition to capturing synergies, enhancing management and consolidating our business as an integrated securities, commodities and futures exchange, we have been working steadfastly towards implementing significant developments in our technology infrastructure, negotiating strategic international alliances, identifying cross border opportunities for partnerships, and strengthening our sustainability practices, while generating value for shareholders. This is the background scenario for many of our initiatives in recent months, some of which now bearing fruit and reflected in the financial statements you will be judging at the annual meeting this coming April 20. This is also the backdrop for the decision we will be asking you to make at the extraordinary meeting. The order of business has been provided in the call notice and in the practical guide I am now pleased to hand over to you. At the annual meeting you will be asked to review and judge the 2009 financial statements, decide on the net income allocation proposal and management compensation proposal for 2010. Lastly, but no less importantly, at the extraordinary meeting you will be asked to vote on the meaningful investment opportunity reported in our notice of material fact dated February 12, 2010, meaning the acquisition of shares in the CME Group Inc., the exchange operator of four designated U.S. contract markets, i.e., CME (the Chicago Mercantile Exchange), CBOT (the Chicago Board of Trade), NYMEX (the New York Mercantile Exchange), and COMEX (Commodity Exchange, Inc.). We value your opinion and consider extremely important that you participate in these meetings. Shareholders meetings provide a unique venue for discussions about the business, financial condition and performance of BM&FBOVESPA, and for informed decision-making on matters of consequence for our future. Therefore, as part of our commitment to follow best corporate governance and transparency practices, and for your convenience, we will be making available to you the Online General Meetings platform provided by Assembleias Online for electronic voting or voting by proxy,
which you may access at www.onlinegeneralmeetings.com or www.assembleiasonline.com. br, as you prefer, for instructions in English or in Portuguese. Furthermore, I would recommend that you read the Shareholders Meeting Guide carefully, as well as the other documents available to you at our investor relations gateway at www. bmfbovespa.com.br/ri/, or the Companys website at www.bmfbovespa.com.br or that of the Brazilian Securities Commission (Comisso de Valores Mobilirios), or CVM, at www.cvm. gov.br. You will find in the Guide information related to matters included in the order of business, along with detailed information on what to do to participate in these meetings, documents we may require from you, and so forth, including proxy and power of attorney forms. Come join us on April 20. I look forward to meeting you then. Yours sincerely, Arminio Fraga Neto Chairman of the Board
Table of ConTenTs
A practical guide................................................................................................................................................7 a. Annual Shareholders Meeting ................................................................................................................7 b. Extraordinary Shareholders Meeting ..................................................................................................7 C. How to participate; Appointing a delegate ........................................................................................8 C.1. Proxy .................................................................................................................................................8 C.1.1 Electronic proxy form. ...................................................................................................8 C.1.2 Paper proxy form. ........................................................................................................ 10 C.1.2.1 Prior registration. ...................................................................................................... 12 C.2. Public proxy solicitation .......................................................................................................... 13 D. Matters in the Order of Business ......................................................................................................... 13 D.1 Annual Shareholders Meeting ............................................................................................. 13 D.2. Extraordinary Shareholders Meeting ............................................................................... 16 e. Documents related to matters in the order of business of the combined shareholders meetings of bM&fboVesPa ...................................... 17 attachments..................................................................................................................... 19 Attachment I Managements Discussion and Analysis ................................................................. 19 Attachment II Required information on net income allocation proposal (CVM Instruction 481/09) ............................................................................................................................ 55 Attachment III Board and Management Compensation Proposal (Reference Form, Section 13) .................................................................................................................... 63
PRACTICAL GUIDE TO THE APRIL 20, 2010 COMBINED ANNUAL AND EXTRAORDINARY SHAREHOLDERS MEETINGS OF BM&FBOVESPA
a PRaCTICal GUIDe
This guide contains practical and substantive information aimed to facilitate attendance and participation at the combined annual and extraordinary shareholders meetings of BM&FBOVESPA called to convene on April 20, 2010. This initiative seeks to bring together communication practices currently adopted by the Company in the interest of enhanced transparency towards shareholders and the formal requirements of Brazilian Corporate Law (Law No. 6,404 dated December 15, 1975, as amended) and CVM Instruction 481 issued by the Brazilian Securities Commission (Comisso de Valores Mobilirios), or CVM (Instruction No. 481 dated December 17, 2009).
a. annUal shaReholDeRs MeeTInG

Pursuant to Brazilian Corporate Law, the Management of BM&FBOVESPA has called the annual shareholders meeting, which is scheduled to be held on: Date: April 20, 2010 Place: Rua XV de Novembro, 275, downtown, in So Paulo, state of So Paulo, Brazil Time: 11 a.m. The order of business for the annual meeting includes considering and deciding on the following matters: (1) Management report and the financial statements as of and for the year ended December 31, 2009; (2) Proposal on allocation of net income for the year ended December 31, 2009; and (3) Proposal on aggregate yearly compensation payable in 2010 to members of the board of directors and the board of executive officers. Substantive information on each of these matters is provided in item D.1 below and the attachments to this guide.
b. exTRaoRDInaRy shaReholDeRs MeeTInG

In addition, such as permitted by Brazilian Corporate Law, the Management of BM&FBOVESPA has called the extraordinary shareholders meeting, which for convenience of the
7
shareholders will be held in combination with the annual meeting, on the same date, and at the same time and place: Date: April 20, 2010 Place: Rua XV de Novembro, 275, downtown, in So Paulo, state of So Paulo, Brazil Time: 11 a.m. The order of business at the extraordinary meeting calls for a decision on BM&FBOVESPAs proposed acquisition of shares in the CME Group, Inc. (CME), as submitted by Management and previously announced in a notice of material fact released on February 2, 2010. Information regarding the proposed acquisition is provided in item D.2 of this guide.
C. how To PaRTICIPaTe; aPPoInTInG a PRoxy

Your participation is extremely important to the Company. Under the Bylaws, a quorum to convene the combined annual and extraordinary shareholders meetings requires attendance by holders of record representing at least 25% of the shares of capital stock, such that, absent a quorum, the Company will announce another date for the combined meetings to convene on second call with any number of attending shareholders. Shareholders may attend and participate in person, or as represented by an appointed delegate representative, or attorney-in-fact, as a delegate, or proxy, would qualify under Brazilian law. In addition to arranging for prior registration, pursuant to instructions set forth below in this item, the documents required for shareholders in attendance are the following, as applicable:
Natural persons Legal persons Identification document (either the original or a certified copy) Corporate documents evidencing capacity to act as legal representative for the shareholder (either the original or a certified copy) Identification document of the legal representative (either the original or a certified copy)
C.1.
PRoxy (PoweR of aTToRney)
C.1.1 electronic Proxy form In order to facilitate attendance and encourage shareholder participation, BM&FBOVESPA will be making available to you the Online General Meetings platform provided by Assembleias Online for electronic voting or voting by proxy. Shareholders that wish to vote by proxy may do so using a valid digital certificate, whether issued by a private certificate provider or by ICP Brasil, the certification authority for the
8
Brazilian public key infrastructure, established pursuant to Provisional Measure No. 2200-2 dated August 24, 2001. In any event, whether to vote or lodge the electronic proxy form, you will be required to register at the Assembleias Online, applying for the cost free certificate (or registering your existing IVP Brasil-issued certificate) and take other steps prior to the date of the meeting. Digital certification for this purpose is free of cost. Assembleias Online is prepared to start your registration process, and you may do so now by accessing their website at www. onlinegeneralmeetings.com or www.assembleiasonline.com.br, as you prefer. In the former gateway instructions are provided in English; in the latter, instructions are in Portuguese. Step 1 Registration a) Access the site at www.onlinegeneralmeetings.com for instructions in English, and click on register and receive you digital certificate for free. Select I already have a certificate or, as the case may be, I do not have a certificate. You will be asked to select your investor profile as a Brazilian resident or non-resident individual (retail) investor, or as a local or foreign institutional investor. This page includes a link to the list of documents you will be required to remit by mail after you register (see step 2). b) You should fill out the registration form, enter the form, and confirm your data. You will then be given access to the terms of adherence form, if you are an individual investor, or a corporate representation form, if you are a legal person. You must print the form, initial all pages, sign it, have your signature certified by a notary, and proceed as instructed. If you currently hold a certificate issued by ICP-Brasil, you may register and then have the terms of adherence digitally signed. This will qualify you to vote remotely at this website. If you wish to lodge a proxy you may do so after promptly registering, and proceed as set forth in Step 3. Step 2 Registration validation process; Issuance of digital certificate a) In response to your registration, Assembleias Online will send you an email listing the documentation required for the registration validation, including the terms of adherence form. These documents must be sent by mail to Assembleias Online, at the address stated in the email. b) Promptly upon verifying the documents and validating your registration, Assembleias Online will send you confirmation by email, indicating the procedure regarding issuance of the certificate to you. c) Following the certificate issuance you will be qualified to participate in the electronic voting process of the shareholders meetings of BM&FBOVESPA. Step 3 Electronic proxy form a) After completing the above steps, in order to vote by proxy, you will just log
9
in at www.onlinegeneralmeetings.com or www.assembleiasonline.com.br, as you prefer, select the link to shareholders meetings of BM&FBOVESPA, vote and lodge the proxy form by signing it digitally; b) Assembleias Online will provide you with email confirmation that your vote has been registered. The period to appoint your delegate and lodge the proxy form through the Assembleias Online website will open on April 6 and close on April 18, 2010. C.1.2 Paper proxy form If you would rather appoint a delegate by means of a paper proxy form (or power of attorney, as a proxy qualifies under local legislation) you may do so in accordance with Brazilian Corporate Law, by appointing any of the persons listed under article 126, paragraph 1, of the law, meaning by appointing any shareholders, lawyer, financial institution, or director or officer of the Company as your delegate. In any event, in case you cannot attend the meetings or would have difficulty appointing a delegate to vote for you at the annual and extraordinary shareholders meetings, the Company offers you the alternative of appointing three of our executive officers, who would vote your shares pursuant to your voting instructions and the proxy form provided below. The executive officers that would act as your delegates are: 1) to vote the shares IN FAVOR of the proposals and matters included in the order of business: edemir Pinto, Brazilian, married, chief executive officer, domiciled in the Capital City of the State of So Paulo, at Praa Antonio Prado, 48, bearer of Identity Card RG No. 6.572.298 and enrolled with the Individual Taxpayers Registry under CPF/MF No.614.304.988-20; 2) to vote the shares AGAINST of the proposals and matters included in the order of business: Carlos Kawall leal ferreira, Brazilian, married, chief financial officer, domiciled in the Capital City of the State of So Paulo, at Praa Antonio Prado, 48, bearer of Identity Card RG No. 7.272.675, and enrolled with the Individual Taxpayers Registry under CPF/MF No. 043.046.308-14; 3) to ABSTAIN FROM VOTING the shares regarding the proposals and matters included in the order of business: Ccero augusto Vieira neto, Brazilian, married, economist, chief operations officer, domiciled in the Capital City of the State of So Paulo, at Praa Antonio Prado, 48, bearer of Identity Card RG No. 14.189.028-9, and enrolled with the Individual Taxpayers Registry under CPF/ MF No. 128.501.208-98. The proxy form is provided below. The Company will not require the shareholders to have their proxy forms notarized and/or consularized.
10
PRoxy foRM (PoweR of aTToRney) PRoxy foRM (PoweR of aTToRney)

[NAME OF SHAREHOLDER], [IDENTIFICATION INFORMATION] (the Principal), acting in its/his/ her capacity of holder of record of shares (the Shares) issued by bM&fboVesPa s.a. - bolsa de Valores, Mercadorias e futuros, (the Company), hereby names and appoints: edemir Pinto, Brazilian, married, chief executive officer, domiciled in the Capital City of the State of So Paulo, at Praa Antonio Prado, 48, bearer of Identity Card RG No. 6.572.298, enrolled with the Individual Taxpayers Registry under CPF/MF No.614.304.988-20, to vote the Shares IN FAVOR of the proposals and matters included in the order of business, strictly in accordance with the express voting instructions of the Principal, as provided and set forth below. Carlos Kawall leal ferreira, Brazilian, married, chief financial officer, domiciled in the Capital City of the State of So Paulo, at Praa Antonio Prado, 48, bearer of Identity Card RG No. 7.272.675, enrolled with the Individual Taxpayers Registry under CPF/MF No. 043.046.308-14, to vote the Shares AGAINST the proposals and matters included in the order of business, strictly in accordance with the express voting instructions of the Principal, as provided and set forth below. Ccero augusto Vieira neto, Brazilian, married, economist, chief operations officer, domiciled in the Capital City of the State of So Paulo, at Praa Antonio Prado, 48, bearer of Identity Card RG No. 14.189.028-9, enrolled with the Individual Taxpayers Registry under CPF/MF No. 128.501.208-98, to ABSTAIN FROM VOTING the Shares regarding the proposals and matters included in the order of business, strictly in accordance with the express voting instructions of the Principal, as provided and set forth below. Each to act as proxy and attorney-in-fact for, and represent the Principal in its/his/her capacity of shareholder of the Company, for which purpose the Principal hereby grants them powers to attend and represent it/him/her at the Annual and Extraordinary Shareholders Meetings of the Company called to convene on April 20, 2010, at 11 a.m., exceptionally at Rua XV de Novembro, 275, Downtown, City of So Paulo, State of So Paulo, and not at the registered office address, and therein to review and speak in the name and on behalf of the Principal and, in particular, to vote the Shares regarding the proposals and matters included in the order of business, doing so strictly in accordance with the express voting instructions of the Principal, as provided and set forth below. order of business (I) at the annual shareholders Meeting:
(1) To review of the management report, and to review, deliberate and vote the financial statements as of and for the year ended December 31, 2009;
In favor ( ) against ( ) abstain ( )
(2) To consider the proposal on allocation of net income for the year ended December 31, 2009.
In favor ( ) against ( ) abstain ( )
11
(3) To set the aggregate compensation payable to members of the board of directors and the board of executive officers in 2010, pursuant to a board proposal. In favor ( ) against ( ) abstain ( )
(II) at the extraordinary shareholders Meeting:

(1) To vote on BM&FFBOVESPAs proposed acquisition of shares of common stock of the CME Group, Inc. (CME), pursuant to the Notice of Material Fact released on February 12, 2010. In favor ( ) against ( ) abstain ( ) For purposes of this power of attorney, the powers granted herein are meant only for the delegates (attorneys-in-fact) appointed herein to attend the Annual and the Extraordinary Shareholders Meetings and vote the Shares pursuant to the voting instructions set forth herein. This instrument neither includes nor assumes any right or obligation for any proxy to take any action other than as strictly required for faithful performance hereof. The delegates are hereby authorized to abstain from voting the Shares on any matter concerning which, in his discretion, proper and sufficiently detailed voting instructions have not been provided. This power of attorney has a term of effectiveness of two (2) months, commencing from the date hereof. [City], [Month] [day], [2010] _____________________________ Principal By: Title
This document will not require being notarized or consularized. C.1.2.1 Prior Registration In case you elect to issue a paper proxy form, the original or certified copies of the documents listed under C.1.1 and C.1.2 may be delivered to the registered office of BM&FBOVESPA up until before the meetings on April 20. However, in the interest of a smooth admittance process on the date of the meetings, a special request is made for any documents to be delivered to the Company as soon as practical starting from April 6, 2010. However, original or certified copies of documents delivered by fax or email only will still be required to be delivered to the registered office of BM&FBOVESPA before the time of the combined shareholders meetings. Documents addressed to the Company must be delivered to: Praa Antonio Prado, 48, 4 andar, Centro, CEP: 01010-901, So Paulo, SP Brazil Care of the Investor Relations Department
12
Telephone numbers +55 11 2565-5133 +55 11 2565-5151 + 55 11 2565-5152 Fax number +55 11 3101-0028 Email: ri@bmfbovespa.com.br. C.2. PUblIC PRoxy solICITaTIon Pursuant to Brazilian Corporate Law and CVM Instruction 481, shareholders whose interest in BM&FBOVESPA shares is in excess of half a percent (0.5%) of the shares of stock may enter proxy solicitations in the at the Assembleias Online system. Proxy solicitations must include a draft proxy form and the information and documents required by CVM Instruction 481, in particular under Annex 23 of the Instruction, and must also be delivered to: Praa Antonio Prado, 48, 7 andar, Centro, CEP: 01010-901, So Paulo, SP Brazil Care of: Chief Financial and Investor Relations Officer, Mr. Carlos Kawall Leal Ferreira. The Company and its directors and officers bear no responsibility for any information included in any proxy solicitations by shareholders. The Company will take steps to have public proxy solicitations from shareholders included in the Assembleias Online system within two (2) business days after receipt thereof, and be given the same visibility as any other document the Company is making available in that platform.
D. oRDeR of bUsIness foR The CoMbIneD annUal anD The exTRaoRDInaRy shaReholDeRs MeeTInGs of bM&fboVesPa
D.1 annUal shaReholDeRs MeeTInG
Under Brazilian Corporate Law, a corporation is required to hold the annual shareholders meeting within four months after the end of the year, at which shareholders typically review and judge the financial statements; decide on the allocation of net income for the year; decide on the mandatory dividend distribution, establish the aggregate annual compensation payable to directors and officers and, as the case may be, establish the fiscal council and elect the fiscal council members. Set forth below is additional information on the matters listed in the order of business for the annual shareholders meeting: first item in the order of business To review the management report; to review, deliberate on, and vote on the financial statements as of and for the year ended December 31, 2009. At a board meeting held on February 23, 2010, the directors approved the management report, the financial statements prepared under responsibility of management as of and for the year ended December 31, 2009, and the relevant independent auditors report, which were published on February 24, 2010 in the Valor Econmico newspaper and in the Official Gazette of the State of So Paulo.
13
financial statements The annual financial statements express the financial condition of BM&FBOVESPA as of and for the year presented, and the changes in shareholders equity occurred in the year, permitting shareholders to assess the business, results of operations, the net equity and the level of profitability of the Company. Our financial statements include the balance sheet, the statement of changes in shareholders equity, the cash flow statement, the income statement and the value added statement. These financial statements are supplemented by related notes and information added at the end of the financial statements as an additional source of information for shareholders and for clarification on line-items that are part of the financial statements. Management report The management report is a section of a companys annual report which discusses the financial condition and results of operations of the Company, including the main line items of the income statement, providing an overview of the previous year of operations and how the company fared in that time period, in addition to providing statistical and operating information. It also typically discusses the company in many other dimensions, including, for example, the business, the industry, the subsidiaries and affiliates, corporate governance, sustainability and corporate responsibility, among other things. Independent auditors report PricewaterhouseCoopers Auditores Independentes has audited our financial statements and issued a report stating that in their judgment the financial statements present fairly, in all material respects, the financial position and results of operations of the Company and its subsidiaries. Documents the board is submitting to shareholders Available at the Companys registered office and in the investor relations website, and in the websites of BM&FBOVESPA and the Brazilian Securities Commission (Comisso de Valores Mobilirios), or CVM, are the following documents related to this item of the order of business: a) Management report; b) Financial statements; c) Managements discussion and analysis of financial condition and results of operations, such as required under section 10 of the Reference Form adopted pursuant to CVM Instruction 480 dated December 7, 2009, and attached hereto as Attachment II; d) Independent auditors report; e) The annual information form, also known as standardized financial statement (demonstraes financeiras padronizadas, or DFP), as required by the CVM; and f ) Audit committee report, which presents the findings and conclusions of our audit committee regarding the audit activities performed in the previous year. second item in the order of business To consider the proposal on allocation of the net income for the year to December 2009. Rather shortly put, BM&FBOVESPAs net income for the year ended December 31, 2009, in the amount of R$881,050,370.16, as adjusted pursuant to the requirements of Brazilian Corporate Law.
14
At a meeting held on February 23, 2010, the board of directors approved and put forward a proposal regarding the following allocations of net income for the year to December 2009, which totaled R$881,050,370.16: (a) R$20,859,264.91 to offset losses related to sales of treasury stock; (b) R$155,191,105.25 to the bylaws reserve for investments and the special safeguard funds and clearing and settlement mechanisms adopted by the Company; (c) R$705,000,000.00 to the dividend account. A breakdown of this R$705,000.000.00 allocation is set out as follows: the amount of R$183,500,000.00 corresponds to interim dividends distributed in the course of 2009; R$273,500,000.00 is the amount previously distributed by way of interest on shareholders equity; and the balance of R$248,000,000.00 we propose to distribute as dividends. This is the proposal Management is submitting to the annual meeting, which also sets May 14, 2010, as the dividend payment date. As estimated by Management, the proposal will correspond to a distribution of R$0.12360196 per share (which amount may change as a result of treasury stock being reissued for fulfillment of stock options exercised pursuant to the Companys stock option plan). Attachment II to this guide provides the information on allocation of net income required pursuant to Annex 9-1-II of CVM Instruction 481 Third item in the order of business To set the aggregate compensation payable to members of the board of directors and the board of executive officers in 2010. At the February 23 meeting, the board approved and put forward a compensation proposal for the Company to pay to members of the board of directors an aggregate annual amount up to R$4,074,538.92, and to members of the board of executive officers an aggregate annual amount up to R$15,307,807.26. Set forth in the table below is the financial data related to the compensation proposal:
Compensation Proposal for 2010 (in thousands of R$)

Directors and/ executive officers Board members Board of executive officers ToTal fixed remuneration 4,074 4,420 8,494 10,154 10,154 734 734 short-term variable remuneration (maximum amount) benefits ToTal 4,074 15,308 19,382
15
fixed remuneration and benefits The fixed remuneration is paid in 13 installments, adjusted on a yearly basis as required under the collective bargaining agreement. Benefits represent the aggregate of the amounts attributable to health and dental care plan, life insurance, meal vouchers, car, and pension fund. short-term variable remuneration The key performance indicator the board elected as the 2010 target performance will be the adjusted net income, as determined on a quarterly basis. The aggregate amount of the 2010 short-term variable remuneration payable to executive officers and employees of the Company will represent 3.5% of adjusted net income actually ascertained, if the amount thus ascertained is within the range of 70% to 130% of the target. If adjusted net income actually ascertained falls under 70% of the target, the short-term variable remuneration will be reduced to 2.0% of adjusted net income. However, if adjusted net income actually ascertained exceeds 130% of the target, the aggregate of the short-term variable remuneration will equal the sum of: (i) the amount that corresponds to 3.5% computed over 130% of the target, and (ii) the amount that corresponds to 2.0% computed over that portion of adjusted net income which exceeds 130% of the target. A portion of this aggregate amount will be attributable to the executive officers, as allocated pursuant to certain base salary multiples that will differ based on individual performance. The aggregate compensation amount submitted to annual meeting, as set forth in the above table, assumes that quarterly adjusted net income is 10% above the elected target. In case adjusted net income ascertained at year-end exceeds this 10% threshold, it is conceivable the remuneration payable to the executive officers pursuant to the compensation policy set forth herein could exceed the aggregate remuneration proposed for approval at the annual meeting, in which event the excess amount will require confirmation from shareholders attending the 2011 annual meeting. Set forth in Attachment III to this guide is information on board and management compensation which CVM Instruction 480 requires to be provided under section 13 of the Reference Form. D.2 exTRaoRDInaRy shaReholDeRs MeeTInG To vote on BM&FBOVESPAs acquisition of shares of common stock of the CME Group, Inc. (CME), pursuant to the Notice of Material Fact released on February 12, 2010.
order of business
Under article 16, item (j) of the Bylaws it is incumbent on the extraordinary shareholders meeting to authorize the Company to take ownership interest in another company in case the investment transaction is in excess of 3% of shareholders equity, as determined in the most recent year-end financial statements.
16
Accordingly, at the February 23 meeting, the board of directors decided to call the extraordinary meeting for the shareholders, pursuant to the Bylaws, to decide on BM&FBOVESPAs proposed acquisition of shares in the CME Group, Inc. (CME), such as announced in the notice of material fact released on February 12, 2010. Assuming the consummation of this share acquisition, the Company would increase the equity interest it holds in CME shares to approximately 5% from 1.8% currently. The proposed transaction represents an investment by the Company on the order of US$620 million, which added by the market value attributable to existing shares as of the date of the notice of material fact will equate to total market value of US$1 billion. In addition, lock-up restrictions will apply to the shares through to February 26, 2012, which is the same lockup period originally applicable to the parties cross holdings. This proposal is submitted with a recommendation for you to approve the investment and authorize the Companys Management to proceed with the negotiations of definitive agreements and complete the transaction, pursuant to terms and conditions announced in the notice of material fact.
e. DoCUMenTs RelaTeD To MaTTeRs In The oRDeR of bUsIness of The CoMbIneD shaReholDeRs MeeTInGs of bM&fboVesPa
The following documents are available to shareholders at the Companys registered office, and in the investor relations website (www.bmfbovespa.com.br/ri/), the Companys website (www.bmfbovespa.com.br) or that of the CVM (www.cvm.gov.br): Notice of shareholders meetings Financial statements as of and for the year ended December 31, 2009 (management report, financial statement, independent auditors report and audit committee report) Annual information form, also known as standardized financial statement (demonstraes financeiras padronizadas), or DFP Form Audit committee report Minutes of the Board meeting held on February 23, 2010, with the net income allocation proposal. Board proposal, including the information on net income allocation required in Annex 9-1-II of CVM Instruction 481. Managements discussion and analysis, pursuant to section 10 of the Reference Form required by CVM Instruction 480. Information on board and management compensation, pursuant to section 13 of the Reference required by CVM Instruction 480. For additional clarification you should contact the investor relations department through the phone (+55 11 2565-4007, 2565-4729, 2565-4418 or 2565-4834) or by e-mail addressed to ri@bmfbovespa.com.br.
17
ATTACHMENT I
ManaGeMenTs DIsCUssIon anD analysIs of fInanCIal ConDITIon anD ResUlTs of oPeRaTIons seCTIon 10 of The RefeRenCe foRM
19
20
Managements discussion and analysis of financial condition and results of operations, required under section 10 of the Reference form under CVM Instruction no. 480 dated December 7, 2009
10.
Managements discussion and analysis
10.1 Management should discuss the following with regard to the financial statements: a) the financial condition and net equity position;
The year 2009 dawned in anxiety, amid the uncertainties of a distressed economic environment, bleak projections for the global economic future, which redoubled at every turn of events, and with every news headline or market development. This was the economic outlook that emerged from the subprime mortgage crisis started in the United States in 2007 to turn into the worst global financial crisis since the Great Depression in the 1930s. In the years before the crisis, in the folly of the housing derivatives feeding frenzy, lending behavior changed, credit policies became ever more liberal, securitization ubiquitous, players operated in highly-leveraged mode, regulation was lax or lacking, and there was too little transparency in over-the-counter transactions. As a result, the scenario that emerged early in 2009 after the crisis peaked was one of severe credit crunch, pointing to general deleveraging, amidst a lively debate over the need for more stringent and efficient regulation for the financial and capital markets, strong contraction in the prices of commodities and financial assets, and governments across the board moving towards quantitative easing. This combination of factors directly impacted performance in markets BM&FBOVESPA operates. In the equities market (Bovespa segment), volumes tumbled due mainly to the falling prices of stocks prompted by bearish sentiments and risk aversion, whereas in the derivatives market (BM&F segment), hedging activities sank due mainly to the credit crunch, which coupled with general risk aversion and deleveraging significantly depressed volumes. This low-volume scenario prevailed for most of the first half of 2009. However, despite the doom-and-gloom facing world economies, Brazil differently from developments in previous crises reacted positively and was one of the few countries to emerge relatively unscathed from the crisis. While the level of economic activity did decrease, the country was less affected by the downturn than most other countries, flow of foreign investment increased in strides in the second half of the year, pushing strong appreciation in the Brazilian real against the U.S. dollar. In the latter half of the year, an improved landscape and brighter prospects for the domestic economy positively impacted the equities markets. The Bovespa Index soared in the highest rise on record, the biggest gainer among securities markets across the world. The IPO market rebounded and boomed as the worlds most active after China, closing 2009 as our second best year on record in total proceeds, making Brazil the 4th best performing country in terms of proceeds from IPOs, and 7th by overall offering proceeds, in addition to having hosted the countrys largest IPO ever, conducted by Banco Santander Brasil. These movements were topped by a surging stock market, which in the fourth quarter reached the highest ever
21
average daily trading volume. Meanwhile, in the BM&F segment the market move towards deleveraging continued to affect volumes traded negatively including in the second half of 2009. Key indicators that directly affect our overall performance include the following: target interest rate, or Selic Meta, defined by the Brazilian Monetary Policy Committee (Comit de Poltica Monetria), or Copom, fell to 8.75% in December 2009 from 13.75% at start-of-year, evidencing the expansionist monetary policy the Brazilian government has adopted; l The exchange rate for the Brazilian real against the U.S. dollar (per the PTAX selling rate compiled by the Central Bank) closed the year at R$1.7412, down 25.5% in the year from a March 3 peak of R$2.4218, but up from November 9 when it reached its lowest at R$1.7024; l Availability of domestic credit grew, with the credit-to-GDP ratio going up to 45.0% in December from 40.0% in January 2009; and l The market prices for some of the most actively traded commodities produced in Brazil and exported by the country, such as oil, pulp and soybean, rebounded.
l The
However, while these improvements in the economic landscape and the outlook for the local market positively impacted our performance and results of operations for the second half of the year, they were insufficient to prevent 2009 revenues from falling on a year-over-year basis. Another factor influencing performance in our markets was the creation of two new types of taxes on financial transactions (IOF). On October 20, 2009, with the stated objective of arresting the appreciation of the Brazilian real, the government adopted a 2.0% tax on money inflows for portfolio investments (stocks, fixed-income securities and derivatives) in domestic capital markets Then, because the actual impact of the tax (IOF) would have been to divert trading away from the local markets, draining precious onshore liquidity, on November 19 the Brazilian government announced a 1.5% IOF tax on issuances of American Depositary Receipts (ADRs), admittedly in a move to eliminate the competitive disadvantage it had created with the IOF tax on money inflows, for it increased the cost of raising capital in the Brazilian market. These two measures negatively impacted our markets, in particular the equities markets, both because of the increased cost foreign investors now incur to invest in the local market and as a result of uncertainty about additional measures the Brazilian government could take. These two government measures impacted the flow of foreign capital to our markets and negatively affected trading activities particularly in the Bovespa segment, as they increased the cost of trading in local markets, in addition to having added to the equation an element of uncertainty about other measures the government may take in the future. Finally, differently from the economic outlook at the end of 2008, this time there are good prospects for Brazilian economy to resume the growth trend, whereas there are encouraging signs recovery is on course in most economies. If the positive projections do materialize, this will positively impact our results of operations. In addition, while 2010 should continue see the roaring debate evolve around re-regulating the international financial and capital markets, which was so pervasive last the year, in Brazil substantive regulation already is in place, more or less in keeping with the models in debate, including in the form of regulation by BM&FBOVESPA, which encourages and prefers transactions in exchange-traded assets to over-the-counter trades. b)
22
the capital structure and likelihood of a redemption of shares or quotas, including:
i) ii)
events of redemption; reimbursement value calculation method.
Other than as legally provided, the Company is not contemplating any share redemption, nor any event that would trigger redemption rights. c) the Companys capacity to service its debt;
Our financial income for the year to December 2009 reached R$253,862 thousand and breaks down as follows: interest income R$289,686 thousand, down 20.6% year-on-year, mainly due to decline in the benchmark interest rate paid to financial investments; and R$35,824 thousand in financial expenses, which were 39.2% down from a year ago. EBITDA was R$975,108 thousand, representing a 6.7% rise from R$913,493 thousand in the previous year, whereas EBITDA margin rose to 64.9% from 57.0% previously. Net income for the year amounted to R$881,050 thousand, 36.5% up year-on-year, primarily due to the reduction in expenses. Our year-end consolidated balance sheet registered total assets of R$21,201,183 thousand, where 15.3% or R$3,236,211 thousand represent cash and cash equivalents and financial investments. As a percentage, non-current assets of R$18,422,215 thousand accounted for 86.9% of total assets, under which the main account is intangible assets of R$16,117,930 thousand, followed by investments totaling R$1,319,439 thousand. As a percentage of total liabilities, current liabilities of R$1,162,075 thousand accounted for 5.5% and correlates mainly with cash collaterals received from customers in the amount of R$810,317 thousand, and liabilities under repurchase agreements on the order of R$144,513 thousand. Non-current liabilities of R$313,002 thousand accounted for 1.5% of total liabilities, primarily made up of deferred income tax and social contribution amounting to R$261,060 thousand, which correlate with the provision on temporary differences from tax amortization of goodwill in the year. Shareholders equity as of December 31, 2009, totaled R$19,709,749 thousand, composed by capital stock of R$2,540,239 thousand (12.9%), capital reserve of R$16,666,489 thousand (84.6%), revaluation reserves of R$23,551 thousand (0.1%), statutory reserves of R$706,119 thousand (3.6%), legal reserve of R$3,453 thousand (0.02%) and in addition, by treasury stock resulting from the share buyback program and recorded in a contra-equity account at R$230,102 thousand. We should note that our policy calls for low risk investment of cash balances, earning relatively low interest rates, which correlates with a substantial volume of government bonds in our portfolio, often bought through investment funds. We typically direct our financial investments to more conservative investment funds, whose assets are invested in diversified bond portfolios whose performance benchmark follows the interbank deposit rate or the Selic rate. Given the above, reflecting our consolidated short- and long-term liabilities, our low indebtedness, and liquidity and cash positions, we understand our Company is fully capable of paying the service of out short- and long-term indebtedness. d) the sources of financing for working capital and capital expenditures (noncurrent assets);
23
e)
the sources of financing for working capital and capital expenditures (noncurrent assets), which the Company plans to use to cover liquidity deficiencies;
We primarily finance our working capital and investments in non-current assets from our operating cash flow. In addition, we have entered into certain leasing agreements, which substantially correlate with IT-related equipment. Pursuant to the accounting standard under pronouncement CPC 06 Leases, approved by CVM Resolution 554/08, we classify lease contracts as either financial or operating leases based on the characteristics of each. The balance of lease arrangements as of December 31, 2009 was R$11,790 thousand, with future payments through to 2011, versus a balance of R$4,087 thousand as of December 31, 2008. f) the level of indebtedness level and the characteristics of such debt obligations, including the following particular information: i) material financing arrangements and loan agreements; ii) other long-term arrangements with financial institutions; iii) degree of subordination of debt obligations; iv) restrictions possibly applicable to the registrant under existing financing arrangements, including in particular restrictions concerning indebtedness level and capacity to undertake new debt, and on dividend distributions, asset sales, issuance of new securities and disposition of control;
Not applicable. g) limitations on use of the proceeds of financing previously undertaken;
Not applicable. h) significant changes to any line item in the financial reports;
Statements of income comparison - Years ended December 31, 2009 and 2008
Gross operating revenues Gross operating revenues in the amount of R$1,672,894 thousand for the year to December 31, 2009, declined 6.2% from R$1,783,358 thousand one year ago, primarily as a result of a 4.3% fall in volumes traded on the equities markets and a 3.3% drop in volumes for the derivatives markets, in either case due to factors correlated with the global financial crisis which peaked in 2008 but continued to adversely affect the capital markets primarily in the first half of 2009. Trading and/or settlement system BM&F segment The revenues from transaction fees we charge on trading and clearing activities on the derivatives markets (BM&F segment) tumbled 12.9% to R$552,492 thousand at year-end from R$634,230 thousand in the prior year. This decrease correlates mainly with the following items: Derivatives The revenues from fees charged on derivatives trading and clearing transactions (derivatives
24
clearinghouse) fell 14.2% year-on-year, to R$516,052 thousand for the year from R$601,275 thousand previously, as a result of the 3.3% decline in volume traded in derivatives contracts and 10.3% slump in average revenue per contract (RPC). Foreign exchange The revenues from fees charged on forex trading and clearing transactions (foreign exchange clearinghouse) tossed 2.1% year-on-year, to R$20,849 thousand for the year from R$21,302 thousand in the earlier year, due mainly to appreciation of the Brazilian real against the U.S. dollar. Government securities The revenues from fees charged on trades in government bonds and debt securities, and on clearing transactions (debt securities clearinghouse) sank 53.0% year-on-year, to R$155 thousand at end of year from R$330 thousand the year before, as a result of the 76.9% plunge in volume traded. Bolsa Brasileira de Mercadorias The revenues from trades in agricultural commodities on the exchange operated through Bolsa Brasileira de Mercadorias fell 9.1% year-on-year, to R$7,146 thousand for the year from R$7,865 thousand in the year before, due to the fall in volume traded in agricultural notes. Settlement bank The revenues from the operations of BM&FBOVESPAs settlement bank increased by 139.7% year-on-year, to R$8,290 thousand at end of year from R$3,458 thousand previously, as a result of the rise in volume of services sold. Trading and/or settlement system Bovespa segment The revenues from trading and transaction fees we charge on trading and clearing activities in the equities markets (Bovespa segment) fell 2.2% year-on-year, to R$1,032,201 thousand for the year from R$1,055,028 thousand one year earlier. This drop correlates mainly with the following items: Trading trading fees The revenues from fees charged on trading in equities tossed 2.2% year-on-year, at R$617,000 thousand at year-end from R$635,091 thousand one year ago, reflecting the 4.3% decline in volumes traded on the equities markets. Clearing and settlement transaction fees The revenues from fees charged on clearing and settlement transactions tumbled 10.5% year-on-year, to R$232,166 thousand at the close of year from R$259,355 thousand in the year before, also the 4.3% decline in volumes traded on the equities markets and due to a change in our pricing policy. Loans of marketable securities The revenues from securities lending services through the depository facility known as CBLC fell 32.0% year-on-year, to R$48,528 thousand for the year from R$32,989 thousand in the
25
prior year, due to a slump in the volume of securities lending. Listings of marketable securities The revenues from listing fees we charge on securities listings climbed 32.8% year-onyear, to R$39,549 thousand from R$29,776 thousand in the previous year, mainly due to implementation of a new price schedule for listings of securities which we adopted in January 2009, gradually terminating discounts we had been granting in the last few years to promote listings in our special corporate governance trading segments. Depository, custody and back office The revenues from fees charges for depository, custody and back-office services increased by 12.3% year-on-year, to R$62,523 thousand at year-end from R$70,231 thousand in the earlier year, primarily as a result of a 3.1% increase in the number of custody accounts, and to implementation of our new pricing policy as of May 2009, which adopted a custody fee by volume deposited with the depository facility. Participant access fees We charge access fees from participants acquiring trading rights for access to our markets. The revenues from access fees soared 103.8% year-on-year to R$40,266 thousand from R$19,755 thousand one year ago, due primarily to the new policy for access to our markets which we adopted in January 2009. Other operating revenues Other operating revenues decreased 6.3% year-over-year, to R$88,201 thousand from R$94,100 thousand in the previous year. This drop correlates mainly with the following items: Vendors market data The revenues from distribution and sale of market data comprising quotations and other market information were up 33.1% year-on-year to R$57,691 thousand from R$43,359 thousand the year before, as a result of our new pricing policy for these services implemented as of April 2009. Commodity classification fees The revenues from fees we charge for grading commodities have climbed 21.8% year-overyear, to R$4,304 thousand at end of year from R$3,535 thousand in the prior year, due mainly to increase in the volume to cotton bags graded at our testing facilities. Other Other revenues dropped 44.5% year-on-year, to R$26,206 thousand at end of year from R$47,206 thousand in the earlier year, due primarily to lower than average dividends paid to us by the CME Group, and to the reversal of provisions recorded in previous years. Deductions from revenues The deductions from revenues decreased by 6.1% to R$170,350 thousand at end of year from R$181,347 thousand previously, which is consistent with the fall in gross operating revenues.
26
Net operating revenue As a result of the year-over-year changes in revenues discussed above, net operating revenue fell 6.2% to R$1,502,544 thousand for the year versus R$1,602,011 thousand one year ago. Operating expenses The operating expenses tossed 21.3% year-on-year to R$569,832 thousand from R$723,658 thousand one year ago, due primarily to the synergy identification plan we established in connection with the integration of BM&F S.A. and Bovespa Holding S.A., and implemented with the aim of capturing synergy savings by eliminating duplicate work and through action related to the items discussed below. Personnel and related charges The expenses with personnel and related charges increased by 17.2% year-on-year to R$289,806 thousand from R$247,349 thousand in the previous year, due primarily to increase in expenses for the year with stock options granted to key management personnel 2009, which reached R$59,634 thousand versus R$26,359 thousand in the year before. Data processing The data processing expenses dropped 27.4% year-on-year to R$102,596 thousand from R$141,282 thousand in the prior year, due primarily to synergy savings captured from the integration process (Bovespa and BM&F). Depreciation and amortization The expenses with depreciation and amortization increased by 20.6% year-on-year to R$42,396 thousand from R$35,140 thousand one year earlier, due primarily to acquisitions in the asset group of computer equipment and IT facilities. Outsourced services The expenses with outsourced services remained virtually unchanged with slight rise of 3.3%, to R$45,495 thousand for the year versus R$44,043 thousand the year before. The synergy savings we had captured in connection with this line item were more than cancelled out by expenses with outsourced services related to specific and strategic projects, in particular in the quarter to December 2009 when ongoing projects included, among other things, some of the magnitude of the partnerships with the CME Group and Nasdaq OMX, and the operating qualification program (PQO) for brokerage firms. General maintenance The expenses with general maintenance dropped by 18.7% year-on-year to R$11,007 thousand from R$13,536 thousand in the earlier year, due to synergy savings captured from the integration process (Bovespa and BM&F). Communications The expenses with communications were up 25.1% year-on-year to R$23,428 thousand from R$18,721 thousand in the prior year, due mainly to increase in volume traded on Bovespa
27
markets, as the exchange sends notices of trade execution by mail addressed to the investors, for confirmation of the transactions. Rents The expenses with rents incurred in the year to December 31, 2009, dropped 30.0% to R$3,032 thousand from R$4,351 thousand one year ago, due to synergy savings captured from the integration process (Bovespa and BM&F). Supplies The expenses with supplies fell 30.8% year-on-year to R$2,510 thousand from R$3,629 thousand one year ago, due to synergy savings captured from the integration process (Bovespa and BM&F). Promotion and marketing The expenses with promotion and marketing declined 37.8% year-on-year to R$19,555 thousand from R$31,446 thousand the year before, due to synergy savings captured from the integration process (Bovespa and BM&F). Taxes Taxes on fees paid by us increased by 40.4% year-on-year to R$2,323 thousand from R$1,655 thousand one year ago, primarily due to taxes charged on remittances abroad for payment of outsourced services related to certain specific and strategic projects of ours. Board members compensation The expenses with remuneration paid to directors in the year to December 31, 2009, dropped 43.0% year-on-year to R$5,252 thousand from R$9,219 thousand in the earlier year. This decline is due to the existence of two exchanges and two different boards prior to the May 2008 integration process that combined Bovespa and BM&F into BM&FBOVESPA, and due also to the fact that the members of both boards continued to provide services to our Company for a few more months during the transition period towards our consolidation. Integration expenses The expenses with the integration process amounted to R$129,576 thousand in the year ended December 31, 2008, and did not recur in the year to December 31, 2009. Sundry Sundry expenses dropped 48.7% year-on-year to R$22,432 thousand form R$43,711 thousand one year earlier, due to synergy savings captured from the integration process (Bovespa and BM&F). Goodwill amortization The expenses with amortization of goodwill which in the year to December 31, 2008, amounted to R$324,421 thousand collapsed to R$0 (naught) in the year to December 31, 2009, due to the change in the accounting standard determining the accounting treatment of goodwill, as under certain CPC pronouncements issued in 2008, starting from January 1,
28
2009, goodwill is no longer subject to amortization recognized in the income statement. Financial income Financial inform for the year ended December 31, 2009, dropped 17.0% to R$305,972 thousand from R$ 253,862 thousand in the prior year, due mainly to the decline in interest rates that remunerate our demand deposits and financial investments. Income before taxes Income before taxes increased by 38.0% to R$1,186,574 thousand for the year from R$859,904 thousand a year ago, and correlates mainly with the 21.3% decrease in operating expenses and the change in the accounting standard that determines the accounting treatment of goodwill, as previously discussed. Income tax and social contribution Income tax and social contribution for the year increased 43.1% and amounted to R$304,505 thousand at end of year, as compared to R$212,741 thousand one year earlier as follows:
l
The line item for current income tax and social contribution, which at December 31, 2008, registered an expense of R$331,879 thousand, at December 31, 2009, registered revenue of R$32,085 thousand, or a 109.7% decrease. The line item for deferred income tax and social contribution, which at December 31, 2008, registered a revenue of R$119,138 thousand, at December 31, 2009, registered an expense of R$336,590 thousand, or a 382.5% decrease.
After Bovespa Holding S.A. merged with BM&F S.A. in November 2008, the goodwill came to be deductible for purposes of income tax and social contribution on net income. As a result, starting from December 2008 we took advantage of the tax benefit, such that the portion of goodwill which had been amortized but not taken as a deduction gave rise to income tax and social contribution credits recorded as tax assets in the amount of R$76,702 thousand. In addition to recording tax assets from amortized goodwill, we recorded tax assets for tax losses in the amount of R$35,036 thousand. Deferred income tax and social contribution liabilities as of December 31, 2009, derived from recognition of the temporary difference between the tax base of goodwill and its carrying value in the balance sheet, considering that while goodwill continued to be amortized for tax purposes, starting from January 1, 2009, goodwill is no longer amortized for accounting purposes, thus resulting in a goodwill tax base that is lower than its carrying value. As of December 31, 2009, the total deferred tax liabilities related to amortization of goodwill for tax purposes was R$333,917 thousand. In the second quarter of 2009, we recognized income tax and social contribution credits in the amount of R$35,503 thousand, as related to tax losses and negative tax base of social contribution of the former Bovespa Holding, which had not been used at the time of the merger of Bovespa Holding due to the supposed deductibility limitation set at 30% of adjusted net income. Our Company reconsidered this procedure in the second quarter of 2009, in conjunction with our legal advisors, based on the understanding that this limitation is not applicable in the event of a merger of the investee, as in such case there is no continuity and the investee ceases to exist, such that therefore the purported limitation on deductibility is removed and the tax losses may be used in full. As a result, the Company has recorded the
29
tax credits previously mentioned. Minority interests Minority interests refer to those portions of our subsidiaries Bolsa Brasileira de Mercadorias and Bolsa de Valores do Rio de Janeiro consolidated in our financial statements, which are not owned by us. Minority interests amounted to R$1,019 thousand in the year to December 31, 2009, versus R$1,567 thousand the year before, a 35.0% decrease. Net income for the year Net income for the year of R$881,050 thousand surged 36.5% year-over-year from R$645,596 thousand one year ago. This rise is due primarily to the 21.3% reduction in operating expenses and expenses from the change in the accounting standard determining the accounting treatment of goodwill, which were only partially counterbalanced by the 43.1% increase in the income tax and social contribution line item, resulting from recognition of deferred tax liabilities. Comparison of the main line items in the balance sheet years ended December 31, 2009 and 2008 Current assets Current assets as of December 31, 2009, increased 41.4% year-on-year to R$2,778,968 thousand (13.1% of total assets) from R$1,965,461 thousand one year earlier (9.6% of total assets). The main changes to current assets were the following: Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with short- and long-term, liquid investments through prime banks, financial investment funds, government bonds and so forth. As of December 31, 2009, cash and cash equivalents and financial investments amounted to an aggregate of R$3,236,211 thousand, which accounted for 15.3% of our total assets at that date, and represented increase of 34.0% over R$2,414,241 thousand one year ago, when they accounted for 11.8% of our total assets. This increase in cash and cash equivalents and financial investments was pushed by the higher volume of cash collaterals deposited by market participants as margin for transactions, which in turn was driven by the soaring volume of trades on the equities markets in the quarter to December 2009, versus the same quarter one year earlier. The collaterals are included in current assets and in current liabilities. Accounts receivable, net Accounts receivable largely comprise trading and transactions and other fees receivable from customers, and market data transmission fees receivable from vendors. Accounts receivable dropped by 61.8% year-over-year, to R$40,205 thousand from R$105,169 thousand in the prior year. This fall is attributable to change in the due date for payment of most trading and transaction fees charged in the equities markets, which starting from October 1, 2009, we collect as of the third business day after the trade date, whereas previously these fees would be paid up to two months after the trade date. Deferred income tax and social contribution
30
Deferred income tax and social contribution recorded under both current and non-current assets were reduced by 61.9% year-on-year, from R$122,070 thousand in the prior year to R$46,541 thousand as of December 31, 2009. This decrease resulted from a change in the accounting standard related to the accounting treatment of goodwill amortization, according to which we now recognize a deferred tax liability on tax amortizations of goodwill. The balance of deferred tax assets recorded one year ago (in the amount of R$76,702 thousand) was reclassified as a liability in 2009, thus representing the net amount of tax credit attributable to goodwill. Non-current assets Non-current assets were substantially unchanged, with slight drop of 0.2% to R$18,422,215 thousand as of December 31, 2009 (86.9% of total assets) from R$18,464,628 thousand one year ago (90.4% of total assets). Other than previously explained, the main changes to noncurrent assets were the following: Judicial deposits Judicial deposits totaled R$84,895 thousand at end of year, a 9.6% declined as compared to R$93,885 thousand in the prior year. This drop correlates mainly with deposits withdrawn from court in 2009. Other investments Other investments which at end of year amounted to R$1,319,439 thousand, representing 6.2% of total assets, kept a steady line from the year before when it totaled R$1,318,282 thousand representing 6.5% of total assets. This line item correlates primarily with our ownership interest in the CME Group recorded at R$1,276,199 thousand. In 2010 this investment will be reclassified pursuant to the standard provided by technical pronouncement CPC 38, as discussed in item 10.4.b below. Property and equipment Property and equipment climbed 8.5% to R$268,895 thousand at end of year, representing 1.3% of total assets, from R$247,850 thousand one year earlier when it represented 1.2% of total assets, mainly as a result of increase in computer equipment and IT facilities. Intangible assets Intangible assets went up slightly by 0.2% year-on-year to R$16,117,930 thousand from R$16,089,633 thousand previously. Intangible assets comprise (i) goodwill, which kept a steady line at R$16,064,309 thousand at end of year in either year, and represented 75.8% and 78.6% of total assets as of December 31, 2009 and 2008, respectively; and (ii) software and projects, which went up 111.7% to R$53,621 thousand at end of year from R$25,324 thousand one year ago, due mainly to acquisition, implementation and development of new software and systems. Current liabilities Current liabilities rose 8.0% to R$1,162,075 thousand as of December 31, 2009 (5.5% of total liabilities) from R$1,075,744 thousand one year earlier (5.3% of total liabilities). The main changes to current liabilities were the following:
31
Collaterals for transactions Collateral for transactions which at end of year amounted to R$810,317 thousand (3.8% of total liabilities) jumped 38.3% when compared to R$585,963 thousand one year ago (2.9% do total liabilities). This change correlates with an increase in margin received from market participants and deposited in the form of cash, as a result mainly of volume growth in the quarter to September 2009 as compared to the same period in the prior year. Earnings and rights on securities in custody The 11.4% decline in earnings and rights on securities in custody, which at end of year amounted to R$31,897 thousand as compared to R$36,020 thousand one year ago, is due primarily to the fall in earnings from judicial deposits. Financing The 127.4% climb in financing, which at end of year amounted to R$9,295 thousand as compared to R$ 4,087 thousand in the year before, is due mainly to financial lease arrangements for IT-related equipment. Other liabilities The line item other liabilities climbed 15.7% to R$194,895 thousand at end of year (0.9% of total liabilities) from R$168,404 thousand in the previous year (0.8% of total liabilities), which correlates primarily with deposits and repurchase agreements related to the operations of Banco BM&F, the settlement bank. Non-current liabilities Non-current liabilities in the amount to R$313,002 thousand at December 31, 2009, (1.5% of total liabilities) surged 569.8% when compared to R$46,729 thousand at the end of the prior year (0.2% of total liabilities). This change is due primarily to our having recognized deferred income tax and social contribution at end of year in the amount of R$261,060 thousand, as derived from the temporary difference between the tax base of goodwill and its carrying value in the balance sheet, considering that while goodwill continues to be amortized for tax purposes, starting from January 1, 2009, goodwill is no longer amortized for accounting purposes, thus resulting in a goodwill tax base that is lower than its carrying value. Shareholders equity Shareholders equity rose 2.2% to R$19,709,749 thousand at December 31, 2009, when it represented 93.0% of total liabilities, from R$19,291,724 thousand one year earlier, when it represented 94.4% of total liabilities, and as resulting from the formation of a reserve for investments and funding of safeguard mechanisms and guarantee funds we keep in connection with clearing and settlement activities, as required under our bylaws (under the statutory reserve line item) and pursuant to the proposal on allocation of net income for the year. 10.2 Management is expected to discuss: a) The results of operations and, in particular:
32
i)
Important revenue components;
Our consolidated gross operating revenues for the year ended December 31, 2009, totaled R$1,672,894 thousand, down 6.2% from R$1,783,358 thousand one year ago, primarily reflecting the following: l revenues from transaction fees we charge on trading and clearing activities on the equities markets (Bovespa segment) accounted for 50.8% of gross operating revenues, or R$849,166 thousand, in a 5.1% year-on-year decline as a result of the 4.3% drop in volumes traded when compared to the prior year. Despite having tumbled in the first half of 2009, volumes bounced significantly in the second half, and revenues from fees on trading and clearing transactions surged 34.5% over the period to June 2009, to peak in the quarter to December 2009, which registered record high volumes; and l revenues from transaction fees we charge on trading and clearing activities in BM&F markets accounted for 32.1% of gross operating revenues, or R$537,056 thousand, plunging 13.8% year-over-year. This decline correlates with a 10.3% fall in average revenue per contract (RPC), while overall volume traded tossed 3.3% from one year earlier. As a result, revenues derived from transaction fees we charge on trading and clearing activities in the equities and derivatives markets accounted for 82.9% of our total revenues in the year to December 2009, versus 85.1% of total revenues for 2008. Taxes charged on these revenues amounted to R$170,350 thousand, or approximately 10.2% of our gross operating revenues. ii) factors that have materially affected the results of operations;
Income tax, social contribution and goodwill amortization Income before taxes for the year amounted to R$1,186,574 thousand. The income tax and social contribution line item totaled R$304,505 thousand, substantially represented by deferred income tax and social contribution in the aggregate of R$336,590 thousand, and with no effect on cash flow. As recorded, income tax and social contribution resulted from the following: l deferred tax liabilities amounting to R$333,917, and recognized in relation to taxable temporary differences from amortization of goodwill in the year, with no impact on cash flow; l recognition of tax credits in the amount of R$35,503 thousand related to tax losses and negative tax base of social contribution absorbed from former Bovespa Holding. EBITDA of R$975,108 thousand rose 6.7% year-over-year from R$913,493 thousand, whereas EBITDA margin climbed to 64.9% from 57.0% one year ago. Net income for the year to December 2009, in the amount of R$881,050 thousand, is 36.5% up from the year before, due mainly to certain previously mentioned cost savings. In addition, (i) unlike 2008, when we incurred R$129,576 thousand in non-recurring expenses from the integration of the former two exchanges, BM&F S.A. and Bovespa Holding S.A., in 2009 we incurred no such expenses; (ii) also in 2008 we recognized through profit and loss the expense related to proportionate amortization of goodwill from the merger of shares of Bovespa Holding S.A., in the amount of R$324,421 thousand, with net impact of R$235,075 thousand; whereas (iii) in the year we recorded deferred tax liabilities of R$333,917 thousand on temporary differences from tax amortization of goodwill in the year, with no impact on cash flow.
33
Taking the above amounts into account, the actual tax rate for 2009 was 25.7%. b) any variation in revenues attributable to changes in prices, exchange rates, inflation rates, changes in volumes and offerings of new products and services;
Variations in our revenues correlate primarily with changes in our pricing policy and the impact of fluctuations in exchange rates, as set forth below.
l
Listing fees: a 32.8% year-over-year climb in listing fees, due to a change in prices and the end of certain discounts previously granted to companies listing securities to trade on our special corporate governance trading segments; Depository facility: revenues from depositary and custody and back office services went up 12.3% from one year ago, following a change in our pricing policy which established an additional fee charged from Brazilian-resident investors holding custody accounts in excess of R$300,000 thousand, which is based on the market price of securities and other assets held in custody; Access fees: revenues from access fees surged 103.8%, as a result of the policy for access to markets within both segments; Sales of market data to vendors: sales of market data rose 33.1% year-on-year due to implementation of our revised pricing policy in April 2009; Securities lending: revenues from securities lending dropped 32.0% primarily due to the plunge in transaction volume in the first half of 2009, after which however volumes in this market bounced back to show significant improvement; and Average revenue per contract (RPC) traded on BM&F markets: RPC fell 10.3% from a year ago primarily due to (i) the August 2008 decision to terminate certain discounts on transaction fees after November 2008. The discount period had pushed volumes driving revenue per contract upwards in the period; (ii) strong appreciation of the Brazilian real against the U.S, dollar, which negatively influenced revenues from FC contracts, from USD interest rate contracts, and from commodities contracts; and (iii) the granting of discounts for access to our systems via certain DMA (Direct Market Access) models, and for high frequency traders. The impact of inflation, of changes in the prices for the principal raw materials and other supplies, and of changes in exchange and interest rates, on the results of operations and financial condition.
c)
For information on impacts of our pricing policies and changes in exchange rates impacting the results of operations, see item (b) under paragraph 10.2 above. 10.3 Management should discuss the material effects any of the events listed below have had or are expected to have on the financial statements and results of operations: a) formation a new operating segment; disposition of an operating segment;
No new operating segment has been formed and not operating segment was disposed of by the Company in the years to December 2009 and 2008, and no such event has had or is
34
expected to have effects on our financial statements and results of operations. b) organization of associate entities, acquisition or disposition of equity interest;
On February 11, 2010, we released a notice of material fact disclosing negotiations held within the scope of the relationship we maintain with the CME Group, Inc, which resulted in the execution of a protocol of intent pursuant to which the two exchanges agree a global preferred strategic partnership (i) for both parties to cooperate in identifying and pursuing opportunities for co-investment in, and joint commercial partnerships with, third-party international exchanges on a shared and equal basis; (ii) for the two exchanges to combine efforts for joint development of a multi-asset class electronic trading platform; and (iii) for the Company to acquire additional shares in the CME, and increase to 5% its total ownership interest in CME shares, which as of the date of the notice of material fact would represent aggregate investment of approximately US$1 billion. The investment the Company will be making in raising its equity interest in the CME is on the order of US$620 million, and will give BM&FBOVESPA the right to designate a representative to the CME board. The transaction will require approval from our shareholders. In addition, the definitive transaction documents for implementation of this global strategic partnership will require, among other things, approval from our board of directors. Depending on the terms of the definitive agreements, after consummated our investment could be designated investment in an associate entity, meaning one where the investor has significant influence but not control or joint control of the entity, which under the accounting standard provided in CPC 18 would require us to record the investment pursuant to the equity method of accounting. c) special events and operations.
In the years to December 31, 2009 and 2008, there were no special or unusual events or operations related to the Company and/or its activities, which have had, or are expected to have a material impact on our financial statements or results of operations. 10.4 Management should discuss: a) significant changes in accounting practices; law 11,638/07 and Provisional Measure 449/08, as converted into law 11,941/09 With the enactment of Law 11,638/07 and publication of Provisional Measure 449/08, converted into Law 11,941/09, certain provisions of Brazilian Corporation Law were changed, revoked and introduced as regards accounting practices and the presentation of the financial statements, effective as from the fiscal year ended December 31, 2008. The main purpose of this law and MP was to adapt Brazilian corporate legislation to facilitate the process of convergence of the accounting practices adopted in Brazil with the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB). Moreover, as a result of the enactment of this law and provisional measure, certain accounting pronouncements were published in 2008 by the Brazilian Accounting Pronouncements Committee (CPC), applicable to all corporations, including publicly traded and large-sized companies. The main changes to the accounting practices and their effects on the financial statements of BM&FBOVESPA as of and for the years ended December 31, 2009 and 2008 include the
35
following: (i) Share-based Compensation Pursuant to CPC 10 Share-based compensation, approved by CVM Deliberation 562/08, BM&FBOVESPA recognized as expense portions of the contracts existing at December 31, 2008 relating to the Stock Option Plans granted to administrators and employees. The main features and information relating to the stock option plans are presented in Note 19. (ii) Deferred Charges Expenditures recorded in deferred charges related to software licenses acquired and software development were reclassified to intangible assets. (iii) Non-operating results MP 449/08, converted into Law 11,941/09, eliminated the segregation of the non-operating result group in the statement of income for the year. The revenues and expenses previously presented as non-operating results are now presented in the operating results group. (iv) Financial Leases BM&FBOVESPA had financial lease agreements mainly related to information technology equipment. In accordance with the provisions determined in accounting pronouncement CPC 06 Leases, approved by CVM Resolution 554/08, the Company classified the lease agreements as either financial or operating, based on their specific characteristics. The IT equipment leased under the financial lease agreements was recorded in property and equipment and the corresponding obligation in the Financing account. In the addition, the related effects were recognized in the statement of income. Recent accounting Pronouncements The standards and interpretations listed below were published and are mandatory for financial years starting as of or after January 1, 2010. Besides these, other standards and interpretations were published that change generally accepted accounting principles adopted in Brazil, or BR GAAP, in the process of convergence towards International Financial Reporting Standards, or IFRS. The standards and interpretations set forth below are expected to impact our financial statements:
36
CVM Resolution 577/2009 CPC 20 Borrowing Costs; CVM Resolution 581/2009 CPC 21 Interim Reporting; CVM Resolution 582/2009 CPC 22 Segment Reporting; CVM Resolution 583/2009 CPC 27 Fixed Assets; CVM Resolution 592/2009 CPC 23 Accounting Practices, Changes in Accounting Estimates and Correction of Errors; CVM Resolution 593/2009 CPC 24 Events After the Balance Sheet Date; CVM Resolution 594/2009 CPC 25 Provisions, Contingent Liabilities, Contingent Assets; CVM Resolution 595/2009 CPC 26 Presentation of Financial Statements; CVM Resolution 597/2009 CPC 30 Revenues; CVM Resolution 598/2009 CPC 31 Non-Current Assets Held for Sale and Discontinued Operations; CVM Resolution 599/2009 CPC 32 Income Taxes; CVM Resolution 600/2009 CPC 33 Employee Benefits; CVM Resolution 601/2009 ICPC 08 Accounting for Proposed Dividend Payments; CVM Resolution 604/2009 CPC 38 Financial Instruments: Recognition and Measurement; CVM Resolution 604/2009 CPC 39 Financial Instruments: Presentation; CVM Resolution 604/2009 CPC 40 Financial Instruments: Disclosures; CVM Resolution 605/2009 CPC 18 Investments in Associates;
CVM Resolution 606/2009 CPC 19 Interests in Joint Ventures; CVM Resolution 607/2009 CPC 35 Separate Financial Statements; CVM Resolution 608/2009 CPC 36 Consolidated Financial Statements; CVM Resolution 609/2009 CPC 37 First-time Adoption of International Financial Reporting Standards; CVM Resolution 610/2009 CPC 43 First-time Adoption of Accounting Pronouncements CPC 15 to 40; CVM Resolution 613/2009 ICPC 03 Supplemental Aspects of Lease Accounting; CVM Resolution 614/2009 ICPC 04 Scope of Accounting Pronouncement CPC 10 Share-based Payments; CVM Resolution 615/2009 ICPC 05 Accounting Pronouncement CPC 10 Sharebased Payments Transactions in Equity Instruments of a Group Entity or Treasury Stock; CVM Resolution 618/2009 ICPC 09 Individual Financial Statements, Separate Financial Statements, Consolidated Financial Statements and Application of the Equity Method; CVM Resolution 619/2009 ICPC 10 Clarifications on Accounting Pronouncements CPC 27 Fixed Assets and CPC 28 Investment Properties.
The above pronouncements and interpretations are applicable to the financial statements for the year ending December 31, 2010, and also to the 2009 financial statements which will be presented together with the 2010 financial statements for comparison purposes. b) significant effects of changes in accounting principles;
Management does not expect the adoption of the new pronouncements and interpretations above to generate significant impacts on the net income and shareholders' equity of the Company, except with respect to the accounting for the investment in CME Group CPC38 financial Instruments: Recognition and Measurement Under the accounting standards effective up to December 31, 2009, the investment in CME Group has been recorded at historical cost as an investment, in accordance with CPC 14, and the carrying value of the investment has been subject to an impairment analysis. This impairment analysis has been based on the discounted cash flow from the investment (value in use), as allowed by CPC 01 for investments recorded under the cost method. Effective from January 1, 2010, which is the date of CPC 38, the investment in CME Group will be reclassified to financial instruments as a financial asset available for sale and adjusted to fair value. In accordance with CPC 38, the quoted stock price of the investee should be used to determine the fair value. As a financial asset available for sale, CPC 38 will require the impairment analysis to be made by comparing the market value of the shares with their acquisition cost, and a loss should be recognized if there is a significant or prolonged decline in the market price of the shares. Because of the significant decline in the market price of the shares of CME Group in the fourth quarter of 2008, the initial adoption, for comparison purposes, of CPC 38 as of December 31, 2008 (beginning of 2009) will result in the recognition of an impairment of the investment in CME Group in the amount of R$ 460,610, net of tax, which will be recognized in shareholders equity as of December 31, 2008. The new cost basis of the investment at that date will therefore become R$ 578,306. Additionally, during the year ended December 31, 2009, using this new cost basis as a reference, the market value of the investment in CME Group stock increased, generating a positive effect of R$ 77,396, net of tax.
37
Under the new accounting standards, considering the effects mentioned above, the adoption of CPC 38 will reduce the balance of shareholders equity of the Company at December 31, 2009 by R$ 383,214, net of tax effects. It should be noted that these adjustments will not alter the bases for the distribution of dividends and interest on own capital in 2008 and 2009, which were based on the standards in effect at the time. CPC10 share-based Payments Pursuant to pronouncement CPC 10 Share-Base Payments, approved and confirmed by CVM Resolution 562/08, our obligations under stock options existing at December 31, 2008, were recognized for the period in which the options vested (typically at the end of the period in which the services are provided), which impacted our financial statements in the following ways: (i) directly, on shareholder equity for the previous year, with regard to share-based payments for services provided prior to the date of adoption of the accounting standard under pronouncement CPC 10, i.e., January 1, 2008; (ii) in the statement of income, through recognition of expenses regarding stock options attributable to services provided over 2008; (iii) prospectively, for the coming three years, which is the period for fulfillment of the agreed exercise conditions (provision of future services). Accordingly, as a result of having adopted pronouncement CPC 10, the Company recognized R$229,519 thousand in profit reserves with a contra account to capital reserves and, in addition, recognized expenses of R$26,359 thousand incurred in 2008 in a contra account to capital reserves in the statement of income . c) Qualifications and emphasis of matter paragraphs included in the independent auditors report.
There have no qualifications or emphasis of matter paragraphs in the independent auditors reports regarding the financial statements as of and for the years ended December 31, 2008 and 2009. 10.5 Management is expected to indicate and discuss critical accounting practices adopted by the registrant, analyzing in particular estimates requiring Managements judgment on, and subjective assumptions related to future events and uncertainties, which can materially influence the financial condition and results of operations. Critical accounting estimates may relate to provisions, contingencies, recognition of revenues, tax credits, long-term assets, the useful life of non-current assets, pension plans, adjustments from foreign currency translations, environmental recovery costs, or impairment and recoverability testing standards for assets and financial instruments, among other things. In preparing the financial statements Management is required to use estimates and assumptions for the measurement and recognition of certain assets, liabilities and other transactions. As a result, our financial statements include estimates related to contingent provisions, the fair value of certain financial instruments, the determination of certain income tax provisions and the useful life of certain assets, recognition of asset impairment and analysis of recoverability and similar other elements. Actual results may differ from our estimates and assumptions, which we revise at least once every year at the time of preparation of the financial statements of BM&FBOVESPA and the consolidated entities. significant accounting practices
38
a.
Determination of income
Income and expenses are recognized on an accrual basis. The amounts received as annual fees, such as fees for listings of securities and certain contracts for sale of market data, are recognized proportionately on a monthly basis in the statement of income for the period. b. Cash and cash equivalents The balances of cash and cash equivalents for cash flow statement purposes comprise cash and bank deposits. c. (i) financial instruments Classification; measurement
The Company classifies financial assets in the following categories: recorded at fair value through profit or loss, loans and receivables, held to maturity and available for sale. The classification depends on the purpose for which the financial assets are acquired. Management determines the classification of the financial assets when they are first recorded. Financial assets measured at fair value through profit and loss Financial assets measured at fair value through profit or loss are financial assets held for active and frequent trading or assets designated by the entity, when first recorded, as measurable at fair value through profit or loss. Derivatives are also classified as held for trading and accordingly, are recorded in this category. The assets in this category held for trading are classified as current assets. Gains or losses arising from changes in the fair value of financial assets recorded at fair value through profit or loss are recorded in the statement of income in the "financial results" line item for the period in which they occur. Loans and receivables These comprise loans granted and receivables which are non-derivative financial assets with fixed or determinable payments, not quoted in an active market. Loans and receivables are included in current assets, except for those maturing more than 12 months after the balance sheet date (which are classified as non-current assets). The Company's loans and receivables comprise trade accounts receivable and other accounts receivable. Loans and receivables are recorded at amortized cost, based on the effective interest rate method. Financial assets held to maturity These are financial assets quoted in an active market which are acquired with the intent and financial ability to be held in the portfolio up to maturity. They are recorded at the acquisition cost, plus related earnings with a contra-entry to income for the year, based on the effective interest rate method. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives which are classified in this category or not classified in any other. They are included in non-current assets, unless management intends to sell the investment within 12 months subsequent to the balance sheet date. Available-for-sale financial assets are recorded at fair value. Interest on available-for-sale securities, calculated based on the effective interest rate method, is recognized in the
39
statement of income as interest income. The amount related to changes in fair value is recorded in shareholders' equity, in the carrying value adjustments account, and is realized in net income when the asset is sold or becomes impaired. Fair value Fair values of investments with public quotations are based on current market prices. For financial assets without an active market or public quotation, the Company determines fair value through valuation techniques, such as option pricing models. The Company evaluates, at the balance sheet date, if there is objective evidence that a financial asset or a group of financial assets is overstated (impaired) in relation to its recoverable value. (ii) Derivatives Instruments and hedging activities
Derivatives are initially recognized at fair value as of the date of the derivatives instrument and, subsequently, measured at their fair value, with changes in fair value recorded in income, except where a derivative is recorded as a cash flow hedge. While the Company trades in derivatives through exclusive investment funds for protection purposes, it does not adopt hedge accounting. d. accounts receivable, other credits; allowance for doubtful accounts
Accounts receivable and other receivables are initially stated at present value, less the allowance for doubtful accounts. Management adopts a policy of recording a full provision for doubtful debts on credits overdue for more than 60 days. e. Prepaid expenses
Prepaid expenses mainly recognize amounts related to software maintenance contracts and insurance premiums, which are amortized based on the terms of the contracts in force. f. Investments
Investments in entities and subsidiaries are recorded and evaluated based on the equity method of accounting, with the related income (or expense) recognized in income for the year as operating income (or expense). The accounting practices of the subsidiaries are consistent with the practices adopted by the Company. Other investments are recorded at cost of acquisition or merger, less the provision for adjustment to realizable value when the loss is considered permanent. g. Intangible assets
An intangible asset is an identifiable non-monetary asset without physical substance, such as goodwill. Goodwill Goodwill or negative goodwill on the acquisition of an investment is calculated as the difference between the purchase amount and book value of the shareholders' equity of
40
the company acquired. Goodwill or negative goodwill is subdivided into two categories: (i) market value adjustment, either upward or downward, of assets, comprising the difference between the book value of the company acquired and the fair value of assets and liabilities and (ii) future profitability, comprising the difference between the fair value of assets and liabilities and the purchase amount. The portion corresponding to the market value adjustment of assets was allocated to the corresponding acquired/merged assets. The upward market value adjustment is amortized as the corresponding assets are realized over a period of up to 22 years. The portion based on estimated future profitability is recorded in the intangible group and until December 31, 2008, was amortized over a 10-year period, to the extent of and in proportion to the projected results on which it was based. The portion based on the expectation of future profitability is no longer amortized as from January 1, 2009. Software and projects Software licenses acquired are capitalized and amortized over their estimated useful life, at the rates described in Note 9. Costs of software development or maintenance are expensed as incurred. Expenditures directly associated with identifiable and unique software, controlled by the Company and which will probably generate economic benefits greater than the costs for more than one year, are recognized as intangible assets. Direct expenditures include remuneration of the software development team Expenditures for development of software recognized as assets are amortized using the straight-line method over their useful lives. h. Property and equipment (fixed assets)
Fixed assets are recorded at cost of acquisition or construction. Depreciation is calculated on the straight-line method and takes into consideration the useful economic life of the assets, i. Contingent assets and liabilities, and legal obligations
The recognition, measurement, and disclosure of contingent assets and liabilities and legal obligations comply with the criteria defined in CVM Resolution 489/2005 Contingent assets - These are not recorded, except when management has full control over their realization or when there are secured guarantees or favorable decisions to which no further appeals are applicable, such that the gain is almost certain. Contingent assets with realization considered probable, where applicable, are only disclosed in the financial statements Contingent liabilities - These are recognized based on a number of factors including: the opinion of legal advisors; the nature of the lawsuits; similarity to precedents; the complexity of the proceedings; and prior court decisions. They are recognized whenever the loss is evaluated as probable, since this would give rise to a probable outflow of resources for the settlement of the obligations, and the sums involved are measurable with sufficient reliability. The contingent liabilities classified as possible losses are not recorded and are only disclosed in the notes to the financial statements, and those classified as remote are neither recognized nor disclosed.
41
Legal obligations Legal obligations result from tax lawsuits in which the Company is discussing the validity or constitutionality of certain taxes and charges. These are fully recognized in the financial statements, regardless of the assessment of their probability of success. j. Judicial deposits
Judicial deposits are monetarily restated and presented in non-current assets. k. other assets and liabilities
These are stated at their known and realizable/settlement amounts plus, where applicable, related earnings and charges and monetary and/or exchange rate variations up to the balance sheet date. l. Impairment of assets
Property, plant and equipment and other non-current assets, including goodwill and intangible assets, are reviewed annually to identify evidence of unrecoverable losses, and also whenever events or changes in the circumstances indicate that the book value may not be recoverable. In this case, the recoverable value is calculated to verify if there is any loss. Loss is recognized at the amount by which the book value of the asset exceeds its recoverable value, which is the higher of net sales price and the value in use for an asset. For evaluation purposes, assets are grouped at the lowest level (smallest identifiable group of assets) for which there are separately identifiable cash flows. m. leases
Leases of property and equipment in which the Company substantially assumes all ownership risks and benefits are classified as financial leases. These financial leases are recorded as a financed purchase, by recognizing at the beginning of the lease a property and equipment item and a financing liability (lease). A lease in which a significant portion of the ownership risks and benefits remains with the lessor is classified as an operating lease. Operating lease payments (net of all incentives received from the lessor) are charged directly to results n. Provisions
Provisions are recognized when the Company has a legal or informal present obligation as a result of past events, a cash outflow to settle the obligation is probable and a reliable estimate of the amount can be made. o. (i) employee benefits Pension obligations
The Company has no defined benefit plans. The Company offers its employees a defined contribution plan and pays contributions on contractual or voluntary bases. Once the contributions have been made, the Company has no obligations related to additional payments. The regular contributions comprise net periodic costs for the period in which they are payable and, therefore, are included in the personnel costs. A
42
(ii)
Share-based compensation (stock options)
The Company offers to its employees and executives share-based remuneration plans, to be settled in Company stock, according to which the Company receives services in consideration for stock options. The fair value of options granted related to services to be provided is recognized as an expense during the period in which the right is obtained, i.e., the period during which specific vesting conditions must be met. On the date of the balance sheet, the Company revises the estimated number of options which will vest and subsequently, recognizes the impact of the change on initial estimates, if any, in the statement of income, with a contra-entry to the capital reserve in shareholders' equity on a prospective basis. p. financing
Financing is initially recognized at fair value, upon receipt of the funds, net of transaction costs. Subsequently, the financing is presented at amortized cost, that is, plus charges and interest in proportion to the period incurred ("pro rata temporis"). q. Current and non-current assets and liabilities
The segregation between current and non-current assets/liabilities is based on a period of 365 days as from the base date of the financial statements. r. foreign currency translation
Transactions in foreign currency are translated into Brazilian reais using exchange rates as of the transaction dates. Balance sheet account balances are translated at the exchange rate in effect on the balance sheet date. Foreign exchange gains and losses resulting from the settlement of these transactions and from the translation of monetary assets and liabilities denominated in foreign currency are recognized in results. s. Taxes and contributions
BM&FBOVESPA is a for-profit business corporation, and its income is thus subject to certain taxes and other contributions which are listed below. Provisions for income tax, social contribution and other taxes are calculated at the rates set forth below. Income tax 15,00% Additional income tax CSLL (contribution on net income) 10,00% 9,00% 1,65% 7,60%
PIS (social participation program contribution) Cofins (social security financing contribution)
Banco BM&F de Servios de Liquidao e Custdia S.A. calculates the contributions to PIS and to COFINS at the rates of 0.65% and 4%, respectively, and CSLL at 15% from May 1, 2008. The subsidiaries Bolsa Brasileira de Mercadorias and BVRJ are not-for-profit entities and calculate the contribution to PIS at the rate of 1% on payroll. The subsidiaries Bolsa Brasileira de Mercadorias (Brazilian Commodities Exchange) and
43
Bolsa de Valores do Rio de Janeiro (Rio de Janeiro Stock Exchange), or BVRJ, are not-for-profit entities and calculates PIS contributions at the rate of 1% over the payroll. t. Deferred income tax and social contribution
Deferred taxes are calculated on income tax and social contribution losses and the temporary differences between the tax calculation bases of assets and liabilities and the respective book values in the financial statements. The currently defined tax rates of 25% for income tax and 9% for social contribution are used to calculate deferred tax assets and liabilities Deferred tax assets are recognized to the extent that it is probable sufficient future taxable profit will be available to be offset by temporary differences and/or tax losses, considering projections of future income prepared based on internal assumptions and future economic scenarios which may, accordingly, undergo change. Deferred tax liabilities are recognized in relation to all taxable temporary differences, that is, differences that will result in taxable amounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled. u. net Income per share
Net income per share is determined based on the number of outstanding shares at the date of the financial statements 10.6 with respect to internal controls used to ensure reliable financial reporting, Management is expected to discuss: a) the degree of efficiency of such controls, possible imperfections and actions adopted to correct them;
Internal Audit Internal audit activities at BM&FBOVESPA are under responsibility of the internal audit officer, who runs the internal audit department. Internal audit activities performed by the department in the year to December 2009 comprised evaluations of the internal controls of the Company pursuant to the internal audit plan approved by the audit committee, and included internal audits of the financial and accounting department; the IT general control department; the market monitoring and management department, and the activities of the settlement bank, or Banco BM&F. The internal audit reports are presented to the audited departments, the chief executive officer and the audit committee. The internal audit findings and evaluation results are reviewed, discussed and action plans designed for improvement of internal controls. In addition, the internal audit department monitors compliance with the policy and guidelines on trading in securities by employees, as established in the Companys Code of Conduct, addressing notices of violations to the code of conduct committee, where appropriate. Information Security Policy A new information security management model was adopted in 2009, which defines and implements new and improved controls. In addition, the information management security
44
department was entirely restructured pursuant to the ISO/IEC 27001 standard, the only auditable international standard which defines the requirements for an Information Security Management System (ISMS). These measures permitted reconciling, integrating and unifying policies and procedures previously adopted by Bovespa and BM&F, improved our internal controls, reduced risks and the Companys exposure to potential loss, in addition to strengthening important governance support mechanisms. Improvements to Internal Controls The improvements to internal controls planned for 2009 were part of an audit and action plan designed to ensure efficient and reliable controls and procedures for financial reporting across the combined structure emerged from the integration of the two former exchanges as BM&FBOVESPA and its subsidiaries. For this purpose, multiple initiatives were implemented with the aim of improving our internal controls, which included revising financial reporting procedures, mapping and revising processes and the information flow, monitoring the first stage of the ERP system integration, and improving accounting support reports. Going forward, we intend to implement in 2010 a coordinated ERP workflow model for all purchases, hirings and payments; a new budget and management information system and a costing by activity system; in addition to a unified chart of accounts for the BM&FBOVESPA group and the formation of a corporate risk department. These planned initiatives, coupled with those that have been implemented previously, will enhance our the quality of internal controls structure and financial reporting procedures, ensure the reliability of our internal processes, whereas giving us the ability to capture gains from efficiency, and reinforce our dependability vis--vis customers and suppliers. b) Deficiencies and recommendations on internal controls included in the independent auditors report.
Having received preliminary internal controls report prepared by our independent auditors, and considered their findings and recommendations, we discuss below those that we believe to be their more meaningful recommendations: Issue raised
The auditors find that although BSM is a wholly-owned subsidiary of BM&FBOVESPA, the investment in this company is recorded at the acquisition cost.
Recommendation:
The Company should reconsider the consolidation principles pursuant to which it prepares financial reports for compliance with the express requirements of Brazilian Corporate Law with regard to BSM.
45
The auditors note that approximately 700 meters separate the data center located at Rua XV de Novembro, in downtown So Paulo, and the backup data center facility located at Rua Florncio de Abreu, also downtown in So Paulo, which is not in keeping with best recommended practices and international standards, since these propose it is advisable for the recovery location to be sufficiently afar to ensure the backup system will not be exposed to similar risks as the primary data center in case a disaster were to disable the primary location. The auditors remark the following regarding our business continuity and IT contingency plan: Absence of a business impact analysis, or BIA, defining recovery priority requirements regarding key business processes. The business continuity and IT contingency plan was not released for publication. Absence of business continuity plans for the RM, TEM, SGR, CTB, EB and SRE systems.
The Company should reconsider location of the contingency data center to ensure the primary and backup data centers are appropriately afar and offer reasonable safety margin.
The business continuity and IT contingency plan should be revised for improvements and the Company should consider the following: (i) conducting business impact analysis under disaster and contingency scenarios; (ii) gradually raising complexity levels to test for multiple and increasingly adverse disaster scenarios, assigning ever shorter recovery point objectives (RPO) and recovery time objectives (RTO), which for an effective response demand well trained and highly integrated teams, quite familiar with the recovery process and the procedures for specific crisis types; (iii) establishing a crisis management plan and process to continually improve the plan, the procedures and the documentation related to damage assessment, recovery and validation; to manage and circulate the plan and the updates, and to manage team training.
10.7 In the event an offering of securities has been carried out, Management should discuss: a) b) c) how the proceeds of the offering have been used; whether any of the proceeds of the offering were materially diverted from the proposed allocation and use stated in the relevant offering documents; if a diversion did occur, which were the reasons determining this event.
Not applicable. 10.8 Management is expected to discuss off-balance sheet arrangements, and indicating: a) off-balance sheet items (assets and liabilities directly or indirectly held by the registrant), such as:
Collaterals for transactions Transactions carried out in BM&FBOVESPA markets require customers to provide guarantees in the form of margin deposits, and consist mainly of cash, government bonds, private debt securities, sureties and stocks, among other things. These collaterals are segregated and treated off-balance sheet, except for cash collaterals deposited as margin. For additional information, see the discussion under item 10.9 below.
46
i)
operating lease arrangements, as both lessor and lessee;
Operating leases The table below sets forth the minimum non-cancellable future payments under operating leases for IT-related equipment, expressed as aggregates payable under and over one year:
year to December 31, Under one year Over one and under five years Total 2009 (in thousands of brazilian reais) 2,451 2,451 13,729 5,425 19,154 2008
ii)
any obligation retained, or risk supported by the registrant under any written off pool of receivables; discuss the related liabilities;
Not applicable. iii) commitments for future purchase or sale of products or services;
Not applicable. iv) Unfinished construction contracts;
Not applicable. v) Commitments to accept future financing;
Not applicable. vi) other off-balance sheet arrangements.

There are no other material arrangements not recorded in the financial statements.
10.9 with regard to each off-balance sheet arrangement reported under item 10.8, Management should discuss: a) b) c) how these arrangements could impact future revenues, expenses, the results of operations, financial expenses and other line items in the financial reports; the nature and purpose of any such arrangement; and the nature and amount of obligations undertaken by the registrant and of the interest or rights held by the registrant as a result of these arrangements.
Central counterparty risk Credit risk BM&FBOVESPAs role as central counterparty to ensure multilateral clearings and settlements in our markets BM&FBOVESPA manages the following central counterparty clearing facilities absorbed during the exchange integration process of BM&F and Bovespa, which the Central Bank deems to
47
perform systemically material roles: (i) equities clearinghouse (formerly CBLC), (ii) derivatives clearinghouse, (ii) FX clearinghouse; and (iii) government securities clearinghouse. Our clearing facilities operate pursuant to Law No. 10,214 dated March 27, 2001, which authorizes multilateral clearings and settlements, regulates the role of central counterparty performed by systemically material clearing facilities, and permits the use of collaterals posted by defaulting participants to settle their obligations within the scope of our clearing and central counterparty activities, including in the event of insolvency, intervention, bankruptcy and extrajudicial liquidation. Through these clearing facilities, BM&FBOVESPA acts as central counterparty to ensure multilateral clearings and settlements (CPP) for the derivatives market (including futures, forward, options and swap markets), and the spot FX market, as well as and the government debt securities markets (cash, forward and repo markets, in addition to securities lending market) and, in addition, for the equities markets (including cash, forward options, futures and securities lending markets), and the private debt securities market (cash and securities lending markets). This means that in acting as central counterparty, and guaranteeing all transactions carried out or registered in our markets pursuant to applicable regulations, BM&FBOVESPA is responsible for ensuring full completion to a substantial portion of all trading activity in the domestic capital markets. The central counterparty clearing facilities are responsible for providing efficiency and stability to the market by ensuring trades are properly cleared and settled. A CCP interposes itself between counterparties to financial transactions, becoming the buyer to the seller and the seller to the buyer. Acting in the capacity of central counterparty, we absorb the risks of the counterparties in-between a trade transaction and its clearing and settlement, carrying out multilateral activities for financial settlement and clearing of securities and financial assets, and in the event of default resort to certain established safeguard mechanisms, or in extreme situations may have to resort to our own net assets. In modeling and managing CCP risks, we focus on calculation, controls and mitigation of credit risk intrinsic to clearing participants. Our clearing facilities are not directly exposed to market risks, as they do not hold net long positions or net short positions in either contracts or assets traded in our markets. However, an increase in price volatility could affect the magnitude of amounts to be settled by market participants, which in turn could increase the default rate amongst these participants. In addition, as the clearing facilities ensure the clearing and settlement of transactions carried out by participants that fail to perform or pay perform subsequently defaults, this could result in losses for the Company if settlement amounts were to exceed those of existing margin. Thus, while we are not directly exposed to market risks, they may impact and heighten the credit risks to which we are exposed. For proper risk mitigation, each clearing facility has its own risk management system and safeguard structure. These structures comprise the universe of mechanisms and remedies a clearinghouse may resort to in order to cover losses from failed settlement by a participant. The key components of these safeguard structures include collateral deposited by market participants, often in the form of margin, plus special funds intended to cover possible losses due to default and, in addition, co-liability undertaken by brokers and clearing agents regarding transactions they intermediate or clear. These risk management systems and safeguard structures are described in detail in applicable regulations and the operating manuals of our clearinghouses, which were tested and homologated by the Central Bank, pursuant to Resolution 2,882 of 2001 issued by the Brazilian National Monetary Council and Circular 3,057 of 2001 issued by the Central Bank.
48
a)
Collateral received from trading, clearing and settlement transactions
The table below sets forth data on collaterals deposits at year-end in the periods presented:
Clearing facilities Derivatives clearinghouse Brazil Government bonds Bank letters of guarantee Stocks Bank deposit certificates (CDBs) Gold Cash deposits (1) BM&F FoF (FIC BM&F) BB BM&F Financial Investment Fund (FIF BB BM&F) Rural Product Notes Subtotal Foreign exchange clearinghouse Brazil government bonds Cash deposits (1) Subtotal
Securities clearinghouse Brazil government bonds Equities clearinghouse (CBLC) Brazil government bonds Stocks Foreign government bonds Bank letters of guarantee Cash deposits (1) Gold BB BM&F Financial Investment Fund (FIF BB BM&F) Other Subtotal Total
(1) (2) (2)
year ended December 31, 2009 (in thousands of brazilian reais) 53,754,858 1,479,341 3,351,593 1,307,762 60,865 555,106 95,595 343 60,605,463 3,766,090 3,766,090
832,125 15,665,732 17,208,344 1,944,896 997,944 296,442 247,230 2,476 8,179 65,884 36,437,127 101,640,805 21,481,271 125,676,805
2008 89,760,722 3,690,835 2,678,991 2,161,736 319,831 327,644 78,130 29,049 829 99,047,767 3,550,223 174,060 3,724,283
1,423,484 10,185,946 9,101,835 1,219,499 467,649 239,625 101,927 25,958 6,140 132,692
Bank deposit certificates (CDBs)
The balance of cash deposits is recorded under current liabilities in the collaterals for transactions line item. U.S. Treasuries and German Bunds, as well as ADRs.
b)
other information: Clearing fund (fundo de liquidao de operaes) Derivatives Clearinghouse
The clearing fund comprises collateral provided by the clearing agents to ensure settlement of transactions registered with the clearinghouse in the event of default by one or more clearing agents. Contributions to the participation fund may be made in the form of cash, gold and bank letters of guarantee or, subject to prior approval by us, in government bonds, private debt securities or other financial instruments satisfactory to us, in our discretion. The clearing agents are jointly and severally liable for maintaining the fund, subject to a limit. The table below sets forth data on year-end positions for the clearing fund in the periods presented:
49
Clearing Fund
Year ended December 31, 2009 2008 314,304 33,000 20,200 6,634 2,925
(1)
(in thousands of Brazilian reais) Brazil government bonds Bank letters of guarantee Bank deposit certificates (CDBs) Stocks Gold Cash deposits Total deposits Entry contribution by clearing participants and holders of settlement and trading access permits Surplus collateral
(1)
324,979 30,000 18,560 7,763 1,928 4,005 1 387,236 (333,500) 53,736
1,050 378,113 (319,500) 58,613
BB BM&F Financial Investment Fund (FIF BB BM&F)
The balance of cash deposits is recorded under current liabilities in the collaterals for transactions line item.
c)
other information: special Clearing Participant fund (fundo de desempenho operacional) Derivatives Clearinghouse
This special clearing participant fund was set up as a mutual fund to ensure the settlement of collateralized transactions in the event of default by one or more clearing participants that also hold access permits granting settlement and trading rights, irrespective of the type of transaction involved. Participants applying for settlement and trading access rights are required to make minimum contributions to the fund, and as fund members are liable for maintaining the fund. Contributions to the participation fund may be made in the form of cash, gold and bank letters of guarantee or, subject to prior approval by us, in government bonds, private debt securities or other financial instruments satisfactory to us, in our discretion. The table below sets forth data on year-end positions for the special clearing participant fund in the periods presented:
Special Clearing Participant Fund
Year ended December 31, 2009 (in thousands of brazilian reais) 2008 863,451 160,730 98,683 17,647 4,177 1,220 1,145,908 (1,026,700) 119,208
Brazil government bonds Bank letters of guarantee Bank deposit certificates (CDBs) Stocks BM&F FoF (FIC BM&F) Gold Cash deposits Total deposits Entry contribution by clearing participants and holders of settlement and trading access permits Surplus collateral
(1) (1)
859,804 156,200 81,310 20,098 1,781 582 6,351 1,126,126 (1,009,500) 116,626
50
d)
other information: Participation fund (fundo de participao) foreign exchange Clearinghouse
The participation fund was set up to cover financial losses resulting from risks related to the banking operations in our clearinghouse. Banks granted permits to operate in our FX clearinghouse are required to contribute to the fund. Contributions may be in the form of currencies or financial instruments. The table below sets forth data on year-end positions for the participation fund in the periods presented:
Participation fund at December 31, Brazil government bonds Total deposits 2009 (in thousands of brazilian reais) 154, 056 154, 056 140,584 140,584 2008
e)
other information: Guarantor fund for the spot U.s. dollar pit (fundo garantidor da roda de dlar pronto) foreign exchange Clearinghouse
As of December 31, 2008, contributions to the guarantor fund included deposits in cash and asset made by both our Company and participants in our FX clearinghouse to cover financial losses resulting from mistakes or failures related to procedures adopted by the participants during the trading cycle, which correlated with changes in exchange rate between a trade on the spot U.S. dollar pit and final acceptance by the bank for whom the trade was intended. In the quarter to September 2009 this fund was discontinued when we shut down the trading floor and that pit. The table below sets forth data on the position for the guarantor fund at December 31, 2008:
Guarantor fund at December 31, Brazil government bonds Investments in exclusive investment funds, government securities and repurchase agreements Cash deposits Total deposits
(1) (1)
2008 (in thousands of brazilian reais) 190,629 159,580 350,209
f)
other information: settlement fund (fundo de liquidao) of the equities Clearinghouse, commonly known as CblC
All clearing agents are required to contribute to this mutual settlement fund, which is intended to solely cover possible losses due to defaults by clearing agents, in particular in stress situations or systemic risk. The table below sets forth data on year-end positions for the settlement fund in the periods presented:
51
settlement fund at December 31, Brazil government bonds Investments in exclusive investment funds, government securities and repurchase agreements Cash deposits Total deposits
(1) (1)
2009 322, 261 7 322,268
2008 190,629 159,580 350,209
(in thousands of brazilian reais)
10.10 Management is expected to discuss and analyze the key components of the strategic plan, analyzing the following topics in particular: a) i) investments, including: a quantitative and qualitative description of ongoing and planned investments;
Currently ongoing projects correlate mainly with updates of existing trading and other systems to increase throughput and reduce round-trip time latency, to improve cost effectiveness and expand distribution capacity. Investments of this nature in the year to December 2009 amounted to approximately R$80,925 thousand. On February 11, 2010, we released a notice of material fact disclosing negotiations held within the scope of the relationship we maintain with the CME Group, Inc, which resulted in the execution of a protocol of intent pursuant to which the two exchanges agree a global preferred strategic partnership (i) for both parties to cooperate in identifying and pursuing opportunities for co-investment in, and joint commercial partnerships with, third-party international exchanges on a shared and equal basis; (ii) for the two exchanges to combine efforts for joint development of a electronic trading platform for derivatives, equities, fixedincome securities and other financial instruments traded on exchange and OTC markets; and (iii) for the Company to acquire additional shares in the CME, and bring to 5% its total ownership interest in CME shares, which as of the date February 11, 2010, would represent aggregate investment of approximately US$1 billion. In our estimate, implementing all stages of the platform development project, including acquisition of technology and related intellectual property, will entail investments on the order of US$175 million over a ten-year period, or present value of US$100 million. The investment the Company will be making in increasing to 5% its equity interest in the CME is on the order of US$620 million, and will require approval from our shareholders. In addition, the definitive transaction documents regarding this global strategic partnership will require, among other things, approval from our board of directors. Additionally, we estimate investing in 2010 about R$302,100 thousand in the following projects: l an aggregate of R$276,900 thousand will be allocated to acquiring technology and enhancing the post-trading infrastructure to support growth in our business capacity (R$47,000 thousand); jointly with the CME, development of a new multi-asset class electronic trading platform (R$46,000 thousand); restructuring of our primary and backup data centers (R$55,000 thousand); improvements to our IT systems (R$45,000 thousand); and other projects, including projects as the integration of our
52
clearinghouses; the new SINACOR project (Broker Management Integrated System, or Sistema Integrado de Administrao de Corretoras); and the information security project (R$84,000 thousand); and R$25,200 thousand will be allocated to the institutional strengthening project, with creation of a research and business projects department, and plans to reinforce the sustainability department and internal controls and project management. sources of financing for these investments;
ii)
The primary source of funds we use to finance our strategic investment plans is operating cash flow. We may also consider alternative sources of financing, such as bank loans or some government or development bank financing program, or financing through accessing the either the local or the international capital markets. iii) ongoing and planned material divestments;
Not applicable. a) as long as previously disclosed, Management should discuss any acquisitions of plants, equipment, patents and other assets, which are expected to materially influence the registrants productive capacity;
Not applicable. b) i) new offerings of products and services, including: a description of ongoing research and development processes previously disclosed;
Not applicable. ii) total research expenses for development of new products or services;
Not applicable. iii) disclosed development projects;
BM&F Segment:
l l
Ongoing development of back office and middle office solutions targeted to Futures Commission Merchants (FCM); and Launch of cash-settled ethanol futures contracts.
Bovespa Segment:
l
l l
DMA Developments: enhanced direct market access solutions for the segment, such as the DMA Model 2 (DMA via providers), the DMA Model 3 (sponsored direct connectivity) and the DMA Model 4 (DMA via co-location arrangements), which currently are pending approval by the Brazilian Securities Commission (Comisso de Valores Mobilirios), or CVM.; MegaLine tool: a pre-trade risk management tool and exposure control mechanism; Market maker for options on stocks;
53
l l
Foreign ETFs: foreign indices will be listed to traded on our markets; Single Clearing facility: the integration of clearing activities into just one clearing facility will improvement cash and risk management, whereas permitting crossmargining; and Fixed-income market: agribusiness and real estate.
Both segments: l iMercado (iMarket): electronification and standardization of the information flow among market participants. iv) total expenses with development of new products or services.
Not applicable. 10.11 Management should discuss other material factors that materially influenced operating performance, and were not discussed in previous items under this section. Bovespa Segment: l equities clearing facility: starting from November 2009 the throughput capacity at our equities clearing facility increased to 1.5 million daily trades, from 770 thousand previously; l MegaDirect: starting from October 20, we launched this communication software for automated connectivity between brokerage firms and the MegaBolsa and GTS systems. This solution, which replaced the Multigateway solution, reduced roundtrip time latency to estimated 10 milliseconds from 153 milliseconds previously. In addition, it gave market participants the ability to use trading screens solutions offered by independent software vendors (ISVs); and l BM&FBOVESPA Communication Network: Given the growing demand and increasing level of sophistication of electronic trading, starting from July 13, 2009, we launched the BM&FBOVESPA Communication Network, or RCB, which supplements the services we currently provide through the Financial Community Communication Network, or RCCF. The RCB is an open communication network for connectivity between market participants and the Exchanges electronic trading systems, based on a high performance structure with heightened data transmission capacity and greater flexibility, which gives participants the ability to make choices as to alternative telecommunications providers, data transmission technologies, network capacity and velocity, and contingency resources.
54
ATTACHMENT II
neT InCoMe alloCaTIon PRoPosal
InfoRMaTIon ReQUIReD UnDeR CVM InsTRUCTIon 481/09
55
56
Information on net income allocation required pursuant to annex 9-1-II of CVM Instruction no. 481 dated December 17, 2009
1. state the net income for the year.
Net income for the year ended December 31, 2009, amounted to R$881,050,370.16. 2. state the proposed aggregate dividend and dividend per share amounts, as including interim dividends and interest on shareholders equity previously declared.
The aggregate amount allocated to the dividend account is R$705,000,000.00. Assuming the annual shareholders meeting approves the proposed dividend distribution, the aggregate dividend per share distributed for 2009 would be R$0.351777, which includes interim dividends and interest on shareholders equity previously declared, as set forth in the table below. This amount represents our best estimate of dividends per share, because the balance of net income (currently R$0.12360196 per share) that will ultimately be available for dividend distribution is subject to change related to treasury stock set to be reissued for fulfillment of stock options exercised pursuant to the Companys stock option plan.
Gross yearly dividend per share (in Brazilian reais) 0.055931 0.070653 0.016727 0.074888 0.009976 0.228175 0.123602 0.351777 Gross aggregate yearly dividend (in Brazilian reais) 112,000,000.00 141,500,000.00 33,500,000.00 150,000,000.00 20,000,000.00 457,000,000.00 248,000,000.00 705,000,000.00
Description Interest on shareholders equity Interest on shareholders equity Dividends Dividends Interest on shareholders equity subtotal Proposed dividends Total proposed distribution for 2009
3.
state the ratio of dividends declared to net income for the year:
As a percentage of net income for the year, the aggregate dividend distributions for the year to December 31, 2009 represent 80%. 4. state the aggregate dividends and dividends per share paid out of income ascertained in previous years:
There have been no dividend distribution proposals based on income ascertained in previous years.
57
5. a.
state the following, net of interim dividends and interest on shareholders equity previously paid out: Gross amount of dividends and interest on shareholders equity, as segregated by kind and class of shares.
The gross amount of the proposed dividend distribution is R$0.12360196 per common share issued by the Company, which is the only type or class of outstanding shares. This is an estimate subject to change related to treasury stock to be reissued for fulfillment of stock options exercised pursuant to the Companys stock option plan. b. form and date of payment of dividends and interest on shareholders equity being distributed.
Contingent on the proposed dividend distribution being approved at the annual shareholders meeting called to convene on April 20, 2010, payment is scheduled to take place as of May 14, 2010. c. Possible adjustments for inflation or interest payable on dividend and interest on shareholders equity distributions.
Payments by way of dividends or interest on shareholders equity typically include no accruing interest or adjustments for inflation. d. Date of dividend or interest on shareholders equity declaration, for identification of ownership structure and the shareholders entitled to payouts (book closure date).
The book closure date that will determine the ownership structure pursuant to which holders of record will be entitled to dividends declared is April 30, 2010. 6. In case interim dividends or interest on shareholders equity have been declared previously based on income ascertained pursuant to semiannual or other interim financial reports: state the amounts declared by way of dividends and interest on shareholders equity.
a.
See the table below. b. state the payout date(s).

Date of bVMf board Meeting May 12, 2009 Aug. 11, 2009 Aug. 11, 2009 Nov. 10, 2009 Dec. 17, 2009 Payment date May 29, 2009 Aug. 26, 2009 Aug. 26, 2009 Nov. 24, 2009 Jan. 8, 2010 Dividend per share (in Brazilian reais) 0.055931 0.070653 0.016727 0.074888 0.009976 Gross aggregate dividend (in Brazilian reais) 112,000,000.00 141,500,000.00 33,500 ,000.00 150,000,000.00 20,000,000.00 457,000,000.00
Distribution description Interest on shareholders equity Interest on shareholders equity Dividends Dividends Interest on shareholders equity Total interim distribution for 2009
7. Provide a table setting forth comparative data, by kind and class of shares, regarding the following:
58
a. net income for the year and for the three (3) preceding years.
year to December 2009 In Brazilian reais Net income for the year Number of outstanding common shares Earnings per share (R$) 881,050,370.16 2,004,766,312.00 0.439478 year to December 2008 In Brazilian reais 645,595,591.50 2,010,990,091.00 0.321034
b.
Dividends and interest on shareholders equity declared in the three (3) most recent years.
Gross dividend per share (in Brazilian reais) 0.020320 0.072995 0.069969 0.069307 0.030276 Kind of shares Common Common Common Common Common Gross aggregate dividend (in Brazilian reais) 20,539,417.12 149,203,000.00 143,019,000.00 139,375,702.67 60,623,580.55 512,760,700.34 Gross dividend per share (in Brazilian reais) 0.055931 0.070653 0.016727 0.074888 0.009976 Gross aggregate dividend (in Brazilian reais) 112,000,000.00 141,500,000.00 33,500,000.00 150,000,000.00 20,000,000.00 457,000,000.00
Distribution description Interest on shareholders equity Interest on shareholders equity Dividends Interest on shareholders equity Dividends Total distribution for 2008
Distribution description Interest on shareholders equity Interest on shareholders equity Dividends Dividends Interest on shareholders equity Total distribution for 2009
Kind of shares Common Common Common Common Common
It should be noted the Company issues shares of common stock only. The information above encompasses just the last two full years because the company that eventually came to be BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros was organized on December 14, 2007, and started actual operations in May 2008 as a result of the integration process between the two companies that formerly operated as BM&F and Bovespa. 8. a. In case of a net income allocation to the legal reserve: state the amount of the net income allocation to the legal reserve.
Pursuant to paragraph 1 of article 193 of Brazilian Corporate Law (Law No. 6.404/76), no allocation is proposed to be made to the legal reserve based on net income for the year to December 2009 because the sum of the balances recorded in the legal reserve and in the capital reserves foreseen in paragraph 1 of article 182 of Brazilian Corporate Law currently exceeds 30% of the capital stock, therefore dispensing with this otherwise mandatory allocation. b. Detail the form of calculation of the allocation to legal reserve.
59
Pursuant to item a above, no allocation is proposed to be made to the legal reserve. 9. In case the capital stock is represented also by shares of preferred stock bearing rights to fixed or minimum dividends: a. b. c. d. e. Describe the form of calculation of fixed or minimum dividends. state whether net income for the year suffices to pay the full amount attributable to fixed or minimum dividends. Clarify whether or not any amount of dividend not being paid is a cumulative amount. state the aggregate dividend amount by class of preferred stock entitled to fixed or minimum dividends. state the amount per share, by class of preferred stock, payable by way of fixed or minimum dividends.
Under the Bylaws, the Company issues shares of common stock only. 10. a. with regard to the mandatory dividend: Describe the form of calculation established in the bylaws.
Under article 54 of the Bylaws, the balance of net income remaining after the allocation to the legal reserve, must be adjusted for any allocation t contingency reserves or a writeback of previously reserved and unused amounts, if any. The balance of net income then outstanding will be available for distribution of the yearly mandatory dividend. b. state whether the mandatory dividends are set to be paid in full.
The mandatory dividend is being paid in full. As supplemented by previous interim distributions, the yearly dividend distribution the board of directors is proposing represents 80% of net income for the year to December 2009. c. state the amount of any profit retention.
No profit retention or recommendation for retention has been made. 11. a. b. In case net income is to be retained in lieu of the mandatory distribution due to circumstances related to the financial condition of the Company: state the retention amount. Give a detailed account of the financial condition of the Company, addressing also aspects related to the analysis of liquidity, working capital (net current assets) and positive cash flows.
c. Justify the profit retention.
60
Not applicable. 12. a. b. c. d. In case of a net income allocation to a contingency reserve: state the amount allocated to the contingency reserve. Identify the anticipated losses that are deemed probable, stating the reasons for anticipating said losses. explain why the losses are deemed probable. Justify the formation of a contingency reserve.
No proposal has been made for allocation of net income to contingency reserves. 13. a. b. In case of a net income allocation to the unrealized profit reserve: state the amount allocated to the unrealized profit reserve. Clarify the nature of the unrealized profits being reserved.
No proposal has been made for allocation of net income to unrealized profit reserves. 14. a. In case of any net income allocation to a bylaws reserve Identify the bylaws provisions that establish the bylaws reserve.
Under article 54 of the Bylaws, after establishing the legal reserve, the balance of net income is adjusted for allocations to contingency reserves or a write-back, if any, and subsequent allocations are as follows: (i) a 25% allocation for distribution and payment of the yearly mandatory dividend (which may be limited to the amount of any realized profits for the year, such that the unrealized profits are reserved in an unrealized profit reserve, until their realization); and (ii) allocation to a bylaws reserve, for future investments in the business and for the special safeguard funds and clearing and settlement mechanisms adopted by the Company. Amounts allocated to bylaws reserves may not exceed the amount of the capital stock. In addition, years in which amounts previously allocated to the bylaws reserves are more than sufficient to meet business requirements, the board of directors may (i) propose lower net income allocations to the bylaws reserve than required under the Bylaws, (ii) propose allocations as provided in the Bylaws; or (iii) propose a reversal of part of the funds so reserved to distribute them to the shareholders. b. state the amount allocated to the bylaws reserve.
The amount allocated to the bylaws reserve is R$155,191,105.25. c. explain the calculation of the allocation amount.
61
See item a above and the table below.

brazilian reais Net income for 2009 Losses from sales of treasury stock Dividends Interest on shareholders equity bylaws reserve 881,050,370.16 (20,859,264.91) (431,500,000.00) (273,500,000.00) (705,000,000.00) 155,191,105.25
15. a. b.
In case any profit retention is contemplated in a capital expenditure budget: state the amount of the retention. Provide a copy of the capital expenditure budget.
No such profit retention has been proposed. 16. a. b. In case of any net income allocation to a tax incentive reserve: state the amount allocated to the tax incentive reserve. explain the nature of the allocation.
No allocation proposal has been made regarding any tax incentive reserve.
62
ATTACHMENT III
BOARD AND MANAGEMENT COMPENSATION
INFORMATION PURSUANT TO SECTION 13 OF THE REFERENCE FORM
63
64
board and management compensation information required under section 13 of the Reference form under CVM Instruction no. 480 dated December 7, 2009
13.1 Description of compensation policy and practices of the board of directors, board of executive officers, members of management, the fiscal council members, the advisory committee members and the audit, risk, financial and compensation committee members as regards the following aspects. a. Purposes of compensation policy and practices.
As the Company is the result of the integration process that combined BM&F and BOVESPA into BM&FBOVESPA in May 2008 and as there were significant changes in the organization structure and new policies and practices were defined during the year, we have decided to provide the information only regarding financial year 2009 for better understanding of the information disclosed herein, as permitted by CVM Instruction No. 480 of December 7, 2009. Our compensation policy seeks to encourage alignment with the corporate purpose of the Company, and drive employee productivity and efficiency, besides maintaining competitiveness in the market in which we operate. b. Compensation breakdown.
(i) Description and purpose of the compensation components board of Directors: For the directors, the compensation is in the form of a fixed monthly remuneration and, for the chairman of the board, the remuneration includes an additional semi-annual fixed payment equivalent to double the compensation received in the sixmonth period. In the event an executive and management member (though not a member of the board of executive officers) or any other employee is appointed to a position on the board of directors, this professional will not be entitled to any additional compensation. In addition, under article 22, paragraph 1, of our By-laws, no director may be elected to the board of executive officers. board of executive officers and members of management: The compensation policy for executive officers and other management members breaks down as follows: A monthly base salary consisting of thirteen monthly compensation payments per year; Benefit package including health and dental care plan, life insurance, meal voucher, private pension fund, use of Company car, parking and use of Company cell phone; Semiannual (short-term) variable remuneration established and paid under our profit sharing program according to Law No. 10101, dated December 19, 2000. Our profit sharing program defines potential multiples of monthly base salary attributable pursuant to profit-based overall performance targets, job level responsibilities and evaluation of individual performance; and Long-term share-based remuneration granted once a year under our stock option program, pursuant to profit-based overall performance targets, job level responsibilities and evaluation of individual performance.
Committees: The members of the board advisory committees are entitled to a fixed monthly remuneration. Directors that take part in these committees are entitled to an additional fixed monthly remuneration, limited however to participation in three committees. At this time we
65
have an audit committee, a nomination and corporate governance committee, a compensation committee and a risk committee, all advising the board of directors. To advise the board of executive officers, we have the following committees: agribusiness committee, market committee, market risk committee, athletic club committee and regulation committee. Only the members of the regulation committee receive a fixed monthly compensation. Officers (whether an executive officer or other management member) or other employees that are appointed to serve on any management advisory committee are not entitled to additional remuneration. fiscal Council: The Companys fiscal council is not active. The compensation policy for fiscal council members, if and when active, will be established in accordance with applicable law. The Company believes the absence of an active fiscal council is leveled and adequately covered by the audit committee, since under article 57 of our Bylaws the scope of the committee responsibilities goes far beyond that which is assigned to a fiscal council under Brazilian Corporate Law. The audit committee is composed of five independent members, four of them being outside members, and one an independent director. Audit committee members serve for two-year terms. The members of the audit committee are nominated by the nomination and corporate governance committee, and appointed by the board of directors. Outside members must have auditing, compliance/controls, accounting, taxation and similar other specialized knowledge and/or experience, in addition to being required to meet the independence standards established in article 46 of the Bylaws, so as to ensure they will perform their duties with exemption, for the benefit and in the interests of the Company and the shareholders. (ii) Proportion of each component of the total compensation The average proportion of each compensation component in the year 2009 according to our current compensation policy is set forth in the table below.
Monthly remuneration Board of directors Board of executive officers and other members of management Committees 90.83% Participation in committees 9.17% short-term variable remuneration (profit-sharing) 0% long-term variable remuneration (stock option) 0%
benefits 0%
Total 100%
28.53%
0%
4.01%
33.80%
33.66%
100%
100%
0%
0%
0%
0%
100%
(iii) Method of calculation and adjustment of each compensation component The compensation of paid to directors and officers is revised every year and submitted for approval at the annual shareholders meeting. The compensation paid to members of the audit committee, nomination and corporate governance committee, risk committee and compensation committee is revised every year and submitted to the board of directors for approval. The fixed monthly compensation paid to management is adjusted yearly at rates defined in a collective agreement entered into with the trade union. In addition, under our salary policy, an increase may possibly be given for individual merit. The rules and definitions of the policies for short-term variable compensation (profit-sharing) and longterm variable compensation (stock option) are proposed by the compensation committee and approved by the board of directors according to the guidelines set in the stock option plan of BM&FBOVESPA (Stock Option Plan), which was approved by the extraordinary shareholders meeting held on May 8, 2008. Typically we conduct periodic salary surveys to ensure the Company is in line with good market practices and to sustain our retention strategy of paying commensurate and competitive compensation.
66
Moreover, in keeping with our retention policy we constantly survey market practices on benefits and make adjustments as necessary to remain competitive. (iv) Reasons that justify compensation composition Our compensation strategy seeks to balance the short-, medium- and long-term compensation components to ensure alignment with the Companys corporate purpose, whereas permitting us to offer a compensation package that is fair and competitive in our market, can influence attraction and retention, and motivates and compensates our professionals according to the responsibilities of their jobs. Our compensation strategy thus seeks to position the fixed remuneration of our executives at market average, while rewarding them with the differential of short- and long-term variable compensations in line with the overall performance of the Company and the individual. c. Key performance indicators considered in defining each compensation component.
Performance target indicators we adopt in allocating short- and long-term variable compensation, meaning profit-sharing and stock option programs, consist of individual targets and goals we analyze in individual performance evaluations, which are based on factors that are specific to function and job level, and the overall performance target indicators. In 2009, the overall performance indicator adopted by the Company was EBITDA margin. In 2010, the overall performance target indicator established by the board of directors will be the quarterly adjusted net income. The total amount of the short-term variable compensation to be paid to officers and employees in 2010 will represent 3.5% of quarterly adjusted net income actually ascertained, if the amount thus ascertained lies within the range of 70 to 130% of the target. If adjusted quarterly net income actually ascertained falls under 70% of the target, the shortterm variable remuneration will be reduced to 2.0% of adjusted quarterly net income. However, if adjusted quarterly net income is more than 130% of the target established by the board, the aggregate short-term variable remuneration will equal the sum of: (i) the amount that corresponds to 3.5% computed over 130% of the target, and (ii) the amount that corresponds to 2.0% computed over that portion of adjusted net income which exceeds 130% of the target. A portion of this aggregate amount will be attributable to Company executive officers, as allocated pursuant to certain base salary multiples that will differ based on individual performance. As for the fixed remuneration and benefits, no performance indicators are taken into account. These compensation components depend on the level of responsibility of the job, and in the specific case of additional fixed remuneration, qualification for the job is also taken into consideration. d. Discussion on how the compensation is structured to reflect the evolution of performance indicators.
According to our short- and long-term variable compensation policy, the pool of profitsharing and stock options is affected by the scope of the overall performance target we adopt (EBITDA margin in 2009, and adjusted net profit in 2010); in other words, the size of the pool is determined according to year-end results of operations (in 2010, adjusted net income) and the extent to which the performance targets for the year were or were not achieved. In addition, our policy provides for different compensation levels based on individual
67
performance by any of the officers, (meaning both the executive officers elected pursuant to the Bylaws and the executive performing functions as officers) and the employees, taking into account job level and responsibilities. e. Discussion on how the compensation policy or practices are aligned with the interests of the Company on short, medium and long term.
We aim to keep a competitive compensation policy vis--vis the marketplace in order to attract and retain talent, and keep a capable team of skilled and dedicated people with ability to help the Company attain its short-, medium- and long-term goals and strategic objectives. Given that our integrated business model is inextricably linked to the Companys objectives of promoting, developing and expanding the domestic capital markets, which per se imply longer and sustainable cycles, it is crucial for us to have the ability to retain talent, such that our compensation policy must include mechanisms to encourage our people to stay with the us for the long haul. Pursuant to this compensation strategy, we aim to balance short-term compensation (profit sharing) and medium- and long-term compensation (stock option program). Our employees are thus encouraged to attain and exceed the half-yearly and yearly targets which are linked to our profit-sharing program. We also structure our compensation policy so our executives will be motivated to pursue medium- and long-term goals aimed to benefit the business, add value to the Company and drive share appreciation, the incentive for this being our stock option program. f. existence of compensation supported by a subsidiary, affiliate or direct or indirect controlling shareholder.
There is no compensation supported by a subsidiary, affiliate or direct or indirect controlling shareholder of the Company. g. existence of any remuneration or benefit tied to occurrence of any particular corporate event, such as disposition of registrants control.
There is no compensation or benefit tied to occurrence of any corporate event involving the Company, such as disposition of control, forming strategic partnerships or otherwise. With regard to the stock option program, in the event of dissolution of the Company, or of a transformation of the corporate type, or any merger, consolidation or spin-off transaction, or corporate restructuring transaction, from which the Company does not emerge as the surviving company, or if it does survive, in case of a delisting or going private process, any outstanding stock options may be transferred to the surviving company or vest at a predefined earlier date, in the discretion of our board, provided the option will then be exercisable within a limited period of time, following which, the stock option program will end and options not exercised will forfeit lapse with no right to indemnity. 13.2 Information on compensation recognized in the income statement for the year to December 31, 2009, and compensation forecast for the current year, as attributable to directors, officers and fiscal council members. The tables and notes below set forth the annual compensation allocated to directors, executive officers and audit committee members, as (i) recognized in the income statement for the year to December 31, 2009, taking into account the yearly average number of members by body, on a monthly basis, as shown in the table below1; and (ii) the forecast for the current year.
(1)
Sum of number of members of each body in each of the months of 2009, divided by 12 (months). This calculation is made pursuant to CVM/SEP Official Letter/Circular No. 03/2010.
68
Month January February March April May June July August September October November December Total average
board of directors 11 11 11 10 11 11 11 11 11 11 11 11 131 10.92
board of executive officers 8 6 6 6 5 5 6 6 6 6 6 6 72 6.00
year ended December 31, 2009 board of Directors Number of members Yearly fixed remuneration (in R$) Salary or remuneration Direct and indirect benefits Compensation committees Other Variable compensation (in R$) Bonuses Profit Sharing Compensation for participation in meetings Commissions Other Post-employment benefits Benefits upon leaving job Share-based compensation Compensation amount
( )
board of executive officers 6.00 4,855,869.38 4,249,518.66 606,350.72 n/a n/a 5,674,487.40 n/a 5,674,487.40 n/a n/a n/a n/a n/a 7,295,700.00 17,826,056.78
fiscal Council(*) n/a n/a n/a n/a n/a n/a n/a n/a n/a
Total 17 8,558,217.75 7,612,.454.46 606,350.72 339,412.57 0 5,674,487.40 n/a 5,674,487.40 0
10.92 3,702,348.37 3,362,935.80 n/a in 339,412.57 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 3,702,348.37 service
for
n/a n/a n/a n/a n/a n/a
0 0 0 0 7,295,700.00 21,528,405.15
* As discussed in section 13.1, while the fiscal council is not active, its responsibilities are adequately covered by the audit committee whose scope of responsibilities under article 47 of the Bylaws goes beyond those Brazilian Corporate Law prescribes for the fiscal council. The audit committee consists of five independent members, four of them being outside members, and one an independent member, all of whom serve for two-year terms. The compensation paid to the outside committee members in 2009 amounted to R$ 733,668.40 (not included in the above table).
The table and note below set forth information about the compensation of the board of directors, the board of executive officers and the audit committee of the Company for 2010. Since the short-term variable compensation for executive officers (profit-sharing) depends on whether and how the overall performance targets for the year are achieved, the forecasts set forth in the table below assume a scenario based on estimate of probable results, which thus may change based on actual results determining adjusted net income for of the year (basis of determination of the profit-sharing pool). For example, according to the rule described in section 13.1 c, if at year end adjusted net income reaches exceeds the target by 10%, the profit-sharing pool (short-term variable compensation) will be increased by R$ 923,115.12, or 10% of the total estimate.
69
In addition, as decided by our board of directors in connection with the long-term variable compensation, stock option grants under the 2010 program will only be awarded in January 2011. Such as approved by the board of directors, the maximum number of shares under the 2010 program is 3,685,000 shares, or 0.18% of the outstanding shares issued by the Company. According to the stock option plan, the strike price will be defined based on the closing price at which the shares trade in the last 20 exchange sessions of 2010.
Current year forecast for 2010 board of directors
Number of members Yearly fixed remuneration (in R$) Salary or remuneration Direct and indirect benefits Compensation for service in committees Other Variable compensation (in R$) Bonuses Profit Sharing Compensation for participation in meetings Commissions Other Post-employment benefits Benefits upon leaving job Share-based compensation Compensation amount
______________________________________
board of executive officers

6 5,153,540.91 4,419,457.00 734,083.91 n/a n/a 9,231,151.23 n/a 9,231,151.23 n/a n/a n/a n/a n/a n/a 14,384,692.14
fiscal council(*)
n/a n/a n/a n/a n/a n/a n/a n/a n/a
Total
17 9,228,079.83 7,743,582.28 734,083.91 750,413.64 0 9,231,151.23 0 9,231,151.23 0
11 4,074,538.92 3,324,125.28 n/a 750,413.64 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 4,074,538.92
n/a n/a n/a n/a n/a n/a
0 0 0 0 n/a 18,459,231.06
( )
* As discussed in section 13.1, while the fiscal council is not active, its responsibilities are adequately covered by the audit committee whose scope of responsibilities under article 47 of the Bylaws goes beyond those Brazilian Corporate Law prescribes for the fiscal council. The audit committee consists of five independent members, four of them being outside members, and one an independent member, all of whom serve for two-year terms. The estimated compensation for outside committee members in 2010 amounts to R$816,565.59.
13.3 Information on variable compensation for the year to December 31, 2009, and variable compensation forecast for the current year. Our variable compensation policy for the executive officers is based on the concept of multiples of monthly base salaries varying based on job seniority. At each job level, individual performance accounts for the differences. The tables below set forth information on variable compensation for the executive officers, as (i) recognized in the income statement for the year ended December 31, 2009, taking into account the number of members in each body actually granted the variable compensation; and (ii) the forecast for the current year.
year ending December 31, 2009 board of directors Number of members Bonuses (in R$) Minimum forecast in compensation plan Minimum forecast in compensation plan Amount forecast in compensation plan if the targets are attained Actually recognized in income statement n/a n/a n/a n/a n/a n/a n/a n/a n/a board of executive officers 6 fiscal council n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Total 6
70
year ending December 31, 2009 board of directors Profit Sharing (in R$) Minimum forecast in compensation plan Minimum forecast in compensation plan Amount forecast in compensation plan if the targets are attained Amount actually recognized in income statement n/a n/a n/a 4,353,266.96 6,097,751.36 5,890.,667.01 5,674,487.40 n/a n/a n/a 4,353,266.96 6,097,751.36 5,890,667.01 5,674,487.40 board of executive officers fiscal council Total
The table below sets forth information about the variable compensation forecast for year 2010. Since the short-term variable compensation for executive officers (profit-sharing) depends on whether and how the overall performance targets for the year are achieved, the forecasts set forth in the table below assume a scenario based on estimate of probable results, which thus may change based on actual results determining adjusted net income for of the year (basis of determination of the profit-sharing pool). According to the rule described in section 13.1 c, the total amount of the short-term variable compensation to be paid to officers and employees in 2010 will be 3.5% of adjusted net profit of the Company actually ascertained if this income lies within the range of 70 to 130% of the target. If the adjusted net income is less than 70% of the target, the amount allocated to total shortterm variable remuneration will be reduced to 2% of adjusted net income. If the adjusted quarterly net income is more than 130% of the target established by the board, the aggregate short-term variable remuneration will equal the sum of: (i) the amount that corresponds to 3.5% computed over 130% of the target, and (ii) the amount that corresponds to 2.0% computed over that portion of adjusted net income which exceeds 130% of the target. A portion of this aggregate amount will be attributable to Company executive officers, as allocated pursuant to certain base salary multiples that will differ based on individual performance. On forecasting the minimum and maximum, we took a percentage 10% above or below the expected adjusted net income. In addition, as decided by our board of directors in connection with the long-term variable compensation, stock option grants under the 2010 program will only be awarded in January 2011. Such as approved by the board of directors, the maximum number of shares under the 2010 program is 3,685,000 shares, or 0.18% of the outstanding shares issued by the Company. According to the stock option plan, the strike price will be defined based on the closing price at which the shares trade in the last 20 exchange sessions of 2010.
Current year forecast for 2010 board of Directors Number of members Bonuses (in R$) Minimum forecast in compensation plan Minimum forecast in compensation plan Amount forecast in compensation plan if the targets are attained Actually recognized in income statement Profit Sharing (in R$) Minimum forecast in compensation plan Minimum forecast in compensation plan Amount forecast in compensation plan if the targets are attained Amount actually recognized in income statement n/a n/a n/a n/a 8,308,036.10 10,154,266.35 9,231,151.23 n/a n/a n/a n/a n/a 8,308,036.10 10,154,266.35 9,231,151.23 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a board of executive officers 6 fiscal Council n/a Total 6
71
13.4 Information on share-based compensation plan for directors and executive officers as effective in the most recent full year and as forecast for the current year.
a. General terms and conditions.
The board of directors approved a proposal prepared by the compensation committee for the yearly stock option programs (stock option programs) defining: (i) the beneficiaries; (ii) the total number of shares to be granted; (iii) the division of option grants into lots, if applicable; (iv) the option strike price; (v) the vesting period and the period for exercise of the option; (vi) the restrictions on transfers of shares deriving from exercise of an option; and (vii) any penalties. Each stock option program establishes further that, based on a proposal of the compensation committee the board in its discretion after hearing the chief executive officer, may increase by an elected percentage the base number of shares allocated to the stock options of any particular program, in order to reward outstanding overall and/or individual performance, limited however by the total number of shares allocated to that particular program. On adopting a particular stock option program, the board will take into consideration the proposal prepared by the compensation committee, and approve the terms and conditions of the stock option agreement which the Company and each beneficiary will be executing at a later date. The stock option agreement stipulates at least the following conditions: a) the number of shares that a beneficiary will be entitled to purchase or subscribe for upon exercising the option, at the strike price per share, pursuant to the stock option program; b) the percentage increase in the base number of options allocated to a beneficiary and the criteria for determining it, as well as the period of management evaluation to determine it c) the initial vesting period during which the option may not be exercised and the option expiration date and last date for total or partial exercise of the option; d) transfer restrictions regarding the shares delivered upon exercise of the option and penalties for not respecting these restrictions; and e) any other terms and conditions not conflicting with the stock option plan (as defined below) or the relevant stock option program. The shares resulting from exercise of an option will enjoy rights established in the stock option plan, in the relevant stock option program and in the stock option agreement, in addition to being assured rights to dividends and other distributions after acquired under an option, whether through subscription or a purchase of shares. The stock option programs and agreements are also subject to the following general conditions: a) no share may be delivered to a beneficiary upon exercise of the option unless all legal and regulatory requirements have been fully satisfied; b) No provision of the stock option plan, the program or the stock option agreements may be construed as assurance that the relevant beneficiary will continue to provide services to the Company as an officer or employee or service provider, or construed in any way that would hinder our right to remove an officer or terminate an employee or service provider as we may deem fit.;
72
c) the stock options granted under the stock option plan, and the option exercise by a beneficiary, are not in any way related to, nor bound to the beneficiarys fixed remuneration or profit-sharing payment; d) the beneficiary will not have shareholder rights or privileges other than those that are provided under the stock option plan and program for options covered by relevant the stock option agreement; and e) the beneficiary will only enjoy full shareholder rights and privileges after having actually subscribed for, or purchased the shares for which the option was exercised. b. Key plan objectives.
The purpose of the Companys stock option plan, which was established according to article 168, paragraph 3, of Brazilian Corporate Law (Law 6404/76), is to give the officers, employees and service providers of the Company and of the companies in which it is the direct or indirect controlling shareholder the opportunity to become a shareholder of the Company. The aim is to align the interests of these officers, employees and service providers with those of the Company and the shareholders, including by having them share in the risks inherent in investments in the capital markets, whereas permitting the Company and its affiliates to attract and retain talent at any level, including officers, employees and service providers. c. Information on how the plan contributes to these objectives and fits into the compensation policy.
The stock option plan contributes substantially to the total compensation of management members, thus motivating the officers and encouraging strong pursuit of agreed goals. It is an additional incentive for the officers to take medium and long-term actions that aggregating value to the Company, which ultimately reflects on the market price of the shares, besides representing a strong instrument for attraction and retention of talent. e. Information on how the plan aligns the interests of management members with those of the Company on medium and long term.
Our stock option plan provides for different levels of compensation based on performance, which is the incentive for redoubling efforts to attain the overall performance targets of the Company and taking medium and long-term actions to aggregate value to the Company, and positively influence the market price of the shares. The officers are strongly encouraged to pursue sustainable results for the Company to the extent that, as shareholders, they have a vested interest in pushing efficient management practices for enhanced results, and in attracting and retaining highly qualified professionals, driving growth and adding value to the business. f. Maximum number of shares allocated to the plan; e g. maximum number of option grants.
According to the stock option plan approved at the extraordinary shareholders meeting of May 8, 2008, any stock option program encompasses at most 51,000,000 shares, or up to 2.5% of the capital stock as of the grant date. Based on the number of shares issued by the Company as of December 31, 2009, the total number of shares included in the stock option plan reached 51,100,357. After giving effect to stock options granted before December 31, 2009, there are still 36,521,307 options to be granted, which represent 1.79% of the total number approved under
73
the stock option plan. Other than the total limit established in number of shares under the stock option plan, there is no requirement or express provision setting a maximum number of options attributable to the officers. In addition to the stock option plan, as a result of the merger transaction with BM&F S.A., the Company succeeded to the stock option plan of BM&F S.A. (BM&F stock option plan), approved at the annual shareholders meeting of BM&F S.A. on September 20, 2007. The purpose of this plan which was to grant stock option rights to reward and retain BM&F employees and, after May 8, 2008, BM&FBOVESPA employees, up to the limit of 3% of the shares of stock. This limit is specific for this plan originated from the former BM&F. Also in this case there is no express provision limiting the number of options attributable to the officers. As of December 18, 2007, a total of 27,056,316 options were granted under this plan. There have been no and will be no further option grants after that date, nor any changes in the vesting conditions established under that plan. In connection also with long-term compensation (stock option program), the board of directors decided that no options will be granted during the year 2010 but only on January 1, 2011. h. Conditions for acquisition of shares.
A description of the conditions for acquisition of shares under the Companys stock option plan and respective stock option programs is contained in items (a), (j) and (l) of this paragraph 13.4. i. Criteria for pricing the option (strike price).
As established in the Companys stock option plan, the strike price is the average of the closing price at the last 20 trading sessions before the date of the option grant under the relevant stock option program. In approving any particular stock option program, the board of directors may authorize up to 20% discounts on the option strike price, provided that the circumstance of a given program authorizing a discount will not require the same or other discounts being authorized under subsequent stock option programs. For the stock option program of 2009, the exercise period was January 29 to February 27, 2009 and the grant date was March 1, 2009, whereas For the stock option program of 2010, the strike price will be established according to the average closing price of the shares in the last 20 trading sessions of the year and the options will be granted in January 2011. None of these programs authorized any discount. j. Criteria determining the exercise period.
Under the stock option plan, we grant staggered options. Beneficiaries under any particular stock option program can exercise their options at a rate of one quarter per year. The 2009 stock option program provides the following staggered exercise periods: (i) after December 31, 2009; (ii) after December 31, 2010; (iii) after December 31, 2011; and (iv) after December 31, 2012. At each installment, the options may be exercised fully or partially after the end of the vesting period but in any event within at most seven years from the date on which any portion of the option first vested. In case of partial exercise, the remainder of that particular option will be exercisable, pursuant to the terms and conditions of the relevant program, in any subsequent exercise period through to the expiration of the program, at which time any unexercised options will be automatically forfeited with no right to indemnity.
74
k.
form of settlement.
Assuming other conditions and requirements are met, a beneficiary that wishes to exercise vested stock options under any particular program must give the Company written notice of exercise specifying the number of shares he aims to acquire. Validity and effectiveness of this notice are contingent on the options being exercised within the appropriate periods other applicable requirements of exercise is only valid and effective if delivered within the periods established on account of the need to program the availability of shares for acquisition under the stock option programs. After the option is exercised, the Company, the beneficiary and any other parties concerned with the transaction will sign the relevant documents required for consummation of the transaction and delivery of the shares. The transaction documents will include provisions regarding transfer restrictions and ensure the formalities provided in the law and the Bylaws are fulfilled. Shares thus acquired will enjoy the same rights as the other shares issued by the Company. In addition, the beneficiary and the Company will be under obligation of complying with, and ensuring compliance with disclosure requirements related to information on ownership of, and trading in the shares and the options, in accordance with legal and regulatory rules applicable in Brazil and, in certain cases, abroad. Moreover, we may temporarily suspend the exercise rights at any time applicable law or regulations restrict or prevent the beneficiary from trading in Company shares. Payment of the option strike price is to be made in one lump sum by the beneficiary, provided no share will be delivered to the beneficiary unless all the legal, regulatory and other requirements have been fully met. l. Transfer restrictions.
Unless the compensation committee proposes, or our board decides otherwise, a beneficiary may only sell, transfer or otherwise dispose of shares acquired under our stock option plan, or any additional shares he may have acquired as stock dividends, or as a result of a share split, share issuance or by any means other than a disbursement of additional funds, or any securities convertible into, or exercisable or exchangeable for shares issued by the Company, provided any such additional shares and other securities correlate with, and are attributable to ownership of shares acquired by exercise of a stock option granted under our stock option plan. In addition, in the discretion of the board and on proposal from the compensation committee, a beneficiary may be subject to transfer restrictions after acquiring the shares for which an option is exercisable, in any event for a period not to exceed two years from the option grant date. Nevertheless, a beneficiary may at any time sell any number of shares, as necessary to pay for all or some of the strike price (in the latter case, provided staggered payment arrangements are permitted under the relevant stock option program). Where staggered payment arrangements are permitted under a stock option program, shares acquired under the relevant program will be subject to transfer restrictions for as long as the strike price has not been paid in full, such that any sale during this period will require prior consent from the board of directors, including as the case may be consent granted upon recommendation of the compensation committee. If consent is granted, the proceeds from the sale will be used primarily to pay off any outstanding balance of the strike price. Additionally, a beneficiary will not be permitted to establish any lien on his shares as long as payment is pending for any portion of the strike price, and for as long as the shares are
75
subject to transfer restrictions. In any event, beneficiaries will undertake not to encumber the shares in any way that would hamper enforcement of the provisions of the stock option plan, the program and the stock option agreement. While any transfer restrictions will apply as provided under the stock option program and the agreement, the Company upon delivering the shares will make a record of the transfer and register the shares to the beneficiary. m. Criteria and events triggering suspension, alteration or termination of the stock option plan.
The criteria and events triggering suspension or termination of a beneficiarys rights under the stock option plan are the following: a) removal from office for violation of his responsibilities, or dismissal for cause; b) termination of service agreement for cause; c) removal or resignation from office without cause, or dismissal or termination of service agreement without cause; d) voluntary resignation from office; e) retirement, death or permanent disability. Additionally, in the event of dissolution of the Company, or a transformation of the corporate type, or any merger, consolidation or spin-off transaction, or corporate restructuring transaction, from which the Company does not emerge as the surviving company, or if it does survive, in case of a delisting or going private process, any outstanding stock options may be transferred to the surviving company or vest at a predefined earlier date, in the discretion of our board, provided the option will then be exercisable within a limited period of time, following which the stock option program will end and options not exercised will forfeit with no right to indemnity. The beneficiaries will be given reasonable prior notice of any of the above events so that they can exercise their options at their discretion and within the period established by the board of directors or proposed by the compensation committee, as the case may be. n. Information on how a director or officer leaving the Company impacts his rights under the share-based compensation plan.
In the event of removal from office for a violation of the office responsibilities or any fiduciary or other duties intrinsic to the position, or for dismissal with cause or for termination of service agreement with cause, as defined under Brazilian civil and labor law, any unexercised options will forfeit with no right to indemnity regardless of whether or not the options vested. If the legal relationship between the Company and a beneficiary, whether an employee or service provider, terminates without cause either through removal or resignation from a management office, or due to dismissal or termination of the service, or also due to voluntary resignation, then: (i) vested options will be exercisable within 90 days after the event , provided this period must not exceed the original exercise period under the vested option if the latter is due to expire before the end of a 90-day period; and (ii) vesting options will forfeit. In the event of death or permanent disability of a beneficiary, whether an officer or employee or service provider, vesting options will vest, and his option rights under any existing options will be exercisable by the heirs and successors, or in case of disability, by the beneficiary, within one year after the death or permanent disability. Options not exercised within this one-year period will forfeit with no right to indemnity. In any such event the options will be exercisable either fully or partially for payment in one lump sum, provided that in the case of death of a beneficiary the option rights will be apportioned amongst the heirs and successors according to the relevant will or probate. Shares acquired in any such event will be free of any transfer restrictions and clear for sale at any time.
76
The above applies similarly in the event of retirement, if the beneficiary agrees to a noncompete clause, meaning he must not work, as an employee or otherwise, for companies or institutions operate in any way in the same market as the Company for a 120-day period. No provision of the stock option plan, the program or the stock option agreements may be construed as assurance that the relevant beneficiary will continue to provide services to the Company as an officer or employee or service provider, or construed in any way that would hinder our right to remove an officer or terminate an employee or service provider. 13.5 number of shares and convertible securities issued by the Company or its direct or indirect controlling shareholders, or subsidiaries or companies under common control, which at end of year were held directly or indirectly, in brazil or abroad, by directors, executive officers and fiscal council members, as grouped by body.
Company shares Board of directors Board of executive officers Fiscal council Total Company shares 150,193 2,062,491 n/a 2,212,684 (%) 0.007% 0.101% n/a 0.108%
13.6 share-based payments to directors and executive officers recognized in the income statement for the year ended December 31, 2009, and share-based payments forecast for the current year. The tables below set forth information about the share-based remuneration of the board of executive officers (i) recognized in the year ended December 31, 2009, considering the number of members of each body actually receiving share-based remuneration; and (ii) forecast for the current year.
year ended December 31, 2009 board of directors Number of beneficiaries Regarding each option grant: - Date of grant - Number of options grants - Vesting dates n/a n/a n/a 3/1/2009 2,490,000 622,500 - 12/30/09 622,500 - 12/30/10 622,500 - 12/30/11 622,500 - 12/30/12 12/30/2016 n/a R$ 6.60 R$ 6.60 R$ 6.60 R$ 6.60 R$ 6.60 R$ 2,93 0.12% R$ 6.60 R$ 6.60 R$ 6.60 R$ 6.60 R$ 6.60 R$ 2.93 0.12% n/a board of executive officers 6 Total 6
- Last exercise date Transfer restrictions period Strike price: price-weighted average for the following option groups: - Outstanding at start of year - Lost during the year - Exercised during the year - Expired during the year Fair value as of the option grant date Possible dilution for other shareholders after giving effect to exercise of all options granted
n/a n/a n/a n/a n/a n/a n/a n/a n/a
77
Under the BM&F stock option plan which BM&FBOVESPA absorbed through merger as of December 18, 2007, a total of 7,859,384 options were granted to the officers at a set strike price of R$1.00 per share. No further grants were made after that date, nor any changes to the vesting conditions provided under the plan. During this period, some of the officers were granted right to exercise their options on leaving the Company. As of December 31, 2009, there were 2,929,692 outstanding stock options granted to officers under the BM&F stock option plan, which have yet to vest. Pursuant to BM&FBOVESPAs stock option plan, as of December 19, 2008, we granted a number of options which on vesting will be exercisable at a strike price of R$5.174 per share, which was the average closing price in the 20 trading sessions preceding the grant date. This lot comprised a total of 1,540,000 staggered options granted to Company officers, which vest evenly over a period of four years. A first installment of these options vested in 2009. Moreover, also in 2009, some of the options granted to the officers under the 2008 stock option program entered the exercise period. In addition, stock options held by officers that were leaving the Company vested as of the termination date, such that the related expenses we incurred have been recognized in the income statement for the year to December 2009. . As of December 31, 2009, 630,000 vesting stock options granted to Company officers under the 2008 program were outstanding. In connection still with long-term compensation and the 2010 stock option program, the board of directors decided that the grant date for these options will be granted January 1, 2011, rather than any date in the course of 2010.. We estimate that the number of options the board will award to executive officers under the 2010 program could reach approximately 3,685,000 shares, representing 0.18% of outstanding shares issued by the Company. Under the stock option plan, the strike price will be defined based on the closing price at which the shares traded in the last 20 exchange sessions of 2010.
Current year forecast for 2010 board of directors Number of beneficiaries Regarding each option grant: - Date of grant - Number of options grants - Vesting dates - Last exercise date Transfer restrictions period Strike price: price-weighted average for the following option groups: - Outstanding at start of year - Lost during the year - Exercised during the year - Expired during the year Fair value as of the option grant date Potential dilution for other shareholders after giving effect to exercise of options grants n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a board of executive officers n/a Total n/a
13.7 outstanding stock options held by directors and executive officers at the end of the most recent full year. The tables below set forth information regarding the outstanding options of the executive officers (i) recognized in the year ended December 31, 2009 considering the number of
78
members of each body actually receiving variable remuneration; and (ii) forecast for the current year.
year ended December 31, 2009 board of directors Number of beneficiaries Vesting options: Number of vesting options Vesting dates n/a n/a 2,490,000 622,500 12/30/09 622,500 - 12/30/10 622,500 - 12/30/11 622,500 - 12/30/12 Last exercise date Transfer restrictions period Strike price in the year: weighted average Fair value as of end of year Vested options: Number of vested options Last exercise date Transfer restrictions period Strike price in the year: weighted average Option fair value as of end of year Fair value for all options as of end of year n/a n/a n/a n/a n/a n/a 12/30/2016 n/a R$ 6.60 R$ 7.86 R$ 7.86 R$ 6.60 R$ 7.86 R$ 7.86 n/a n/a n/a 12/30/2016 n/a R$ 6.,60 R$ 7.86 R$ 6.60 R$ 7.86 n/a board of executive officers 6 Total 6
As set forth in paragraph 13.6 above, as of December 31, 2009 (i) a total of 2,929,692 vesting stock options related to the BM&F stock option plan were held by Company officers, whereas (ii) a total of 630,000 vesting stock options had been granted under the 2008 stock option program. 13.8 options exercised and shares delivered to directors and executive officers as share-based compensation in the year to December 31, 2009. The table below sets forth information regarding (i) options exercised and shares delivered to executive officers as part of our share-based compensation policy, which we recognized in our financial information for the year to December 2009 (the data below is provided by administrative body); and (ii) our forecast for 2010.
year ended December 31, 2009 board of directors Number of beneficiaries Exercised options: Number of shares from option exercise Strike price in the year: weighted average Difference between strike price and the market price of the shares Shares delivered: Number of shares from option exercise Strike price: weighted average Difference between strike price and the market price of the shares n/a n/a n/a n/a n/a n/a n/a 0 0 0 0 0 0 0 0 0 0 0 0 0 0 n/a board of executive officers 0 Total 0
79
As set forth in paragraph 13.6 above, (i) the officers of the Company were granted 7,859,384 stock options under the BM&F stock option plan with a fixed strike price of R$1.00 per share; and (ii) a lot of options was granted under the 2008 stock option program with an strike price of R$5.174 per share equivalent to the average closing price of the last 20 trading sessions before the date of granting, with due regard for the vesting periods. Under the 2008 stock option program 1,540,000 share purchase options were granted to the officers, distributed equally over four vesting dates during a period of four years. As set forth in paragraph 13.6 above, as of December 31, 2009, we had granted (i) a total of 7,859,384 vesting stock options under the BM&F stock option plan, exercisable at a set strike price of R$1.00 per share, and (ii) a total of 1,540,000 staggered stock options had been granted under the 2008 stock option program, which on vesting will be exercisable at a strike price of R$5,174 per share, or the weighted average of the closing price at which the shares traded in the last 20 trading sessions preceding the grant date. These options will vest evenly over a period of four years. A first installment of these options vested in 2009. Moreover, also in 2009, some of the options granted to the officers under the 2008 stock option program entered the exercise period. In addition, stock options held by some officers that were leaving the Company vested as of the termination date, such that the related expenses we incurred have been recognized in the income statement for the year to December 2009. 13.9 summary information required for a clear understanding of the data provided under paragraphs 13.6 to 13.8, such as an explanation of the method for pricing the shares and options. a) pricing model; Because of the factors described in item (c) of this paragraph 13.9, in determining the options fair value we used the binomial pricing model. Due to its simple and iterative structure, the model presents advantages, and since it allows for the specification of nodes, or points in time, it is useful for valuing derivatives such as American options which allow exercise at any point in time until expiration, therefore permitting us to set nodes to account for early exercise and for dividend distributions at different points in time over the option lifespan. The model is also somewhat simple mathematically when compared to counterparts such as the Black-Scholes model, used in valuations of European options, and is therefore relatively easy to build. b) data and assumptions used taken into account in the pricing model, including price-weighted average, strike price, expected volatility, option lifespan, expected dividends and risk-free interest rate;
The main assumptions used in pricing the options were:

l l l l l
the options were valued according to market conditions as at the grant dates under each stock program; the risk-free interest rate was estimated by using interest-based futures contracts assuming a count convention spanning the duration of the option; the prices for the shares were adjusted to account for dividend payments; the expected volatility used for pricing was defined pursuant to item (d) of this paragraph 13.9; and the assumed expiration date of the options was the last exercise date under the option.
80
Other classic assumptions for option pricing models were used, such as removing the possibility of arbitrage and constant volatility over time. The key assumptions are thus the following:
Data and assumptions Date of grant Share price (R$) Strike price (R$) Expected volatility (year) Option lifespan (last vesting) Expected dividends Risk-free interest rate (per year of 252 business days) 2009 Program 3/2/2009 5.80 6.60 67.57% 7 years 50% 13.47%
c)
method used and assumptions adopted to incorporate expected effects of early exercise;
In determining the fair value of the options we took into account the following aspects: l the stock option model we adopt allows for early exercise after a certain future date (the vesting date) between the grant date and the last exercise date; l the underlying shares pay dividends between the grant date and the last exercise date. Therefore, through to the vesting date, the options mimic European-style options (early exercise not permitted) whereas after vested the options may be exercised earlier than anticipated under certain circumstances, mimicking American-style options. Similar options are known as Bermuda or Mid-Atlantic options, and by construal their price must lie between the price of a European option and the price of an American option of like characteristics. For the payment of dividends, two effects on the option price should be taken into consideration: (i) a typical drop in the market price for the shares after they start trading ex-dividend; and (ii) the influence these payments have on an early-exercise decision. d) form of determining expected volatility; Given the low liquidity of the shares underlying the options as of the grant dates, the implied volatilities are relatively immaterial. In addition, at the time our stock option plan was approved our shares were a recent listing, such that historic volatility also does not provide enough information on implied volatilities. As a result we estimated the options volatility based on the implied volatility of stocks of similar entities (international stock exchanges) with sufficient liquidity to warrant the relevant data. e) any other option feature included in measuring the option fair value fair value.
All major characteristics of the options are described and covered in the preceding paragraphs. 13.10 Private pension plans granted to directors and executive officers.
board of directors Number of members Name of plan Number of officers eligible for retirement Conditions for early retirement n/a n/a n/a board of executive officers 6 Mercaprev 1 n/a 1 0 Total 6
81
board of directors Updated amount of contributions accrued in private pension plan up to end of previous year, net of direct contributions by the officers Total accrued contributions over previous year, net of direct contributions by the officers Is early redemption possible and on what conditions n/a
board of executive officers 3,199,169.17
Total 3,199,169.17
n/a n/a
328,643.83 Yes, only the employees portion
328,643.83 -
13.11 average remuneration paid to directors, executive officers and fiscal council members. Due to changes in board composition as of April 2009, the information on lowest remuneration takes into account just the five members actually in office throughout the 12-month period, whereas the information on highest remuneration takes into account the aggregate amount recognized in the income statement. This notwithstanding the board member earning the highest remuneration was in office for just the period from May to December 2009. In the case of the board of executive officers, it should be noted two members left the Company in February and one in March, whereas a new officer joined our Company in July. The information on lowest remuneration takes into account the five members actually in office throughout the 12-month period, whereas information on the highest remuneration takes into account the aggregate amount recognized in the income statement for the year to December 31, 2009. The executive officer that earns the highest remuneration was in office for the full year.
year ended December 31, 2009 board of directors Number of members Amount of highest individual remuneration (in R$) Amount of lowest individual remuneration (in R$) Average individual remuneration (in R$) 10.92 936,091.88 204,000.00 339,042.89 board of executive officers 6.00 5,453,734.08 2,326,769.28 2,971,009.46 fiscal Council n/a n/a n/a n/a
Two members of the board of directors received no remuneration in 2009. The average remuneration of the nine members who did receive remuneration in 2009 was R$415,061.48. 13.12 Discussion on contractual arrangements, insurance policies and other documents used in structuring compensation schemes or indemnity mechanisms covering removal from office or retirement of directors and officers; including information on related financial effects impacting the Company. The Company has D&O insurance, which covers civil liability of directors and officers, so that the officers can take decisions with the support of modern protection that significantly reduces the risk of their jobs. Already widely used in the United States and Europe, the D&O insurance assures the Company financial protection and peace of mind for all and management members, who can thus focus on day-to-day management decisions without too much concern, which is a competitive advantage in retaining qualified talent. We do not adopt any specific policy for the compensation and/or indemnification of officers in the event of termination or retirement, except for benefits granted under the relevant private pension plans in the event of retirement.
82
13.13 Information on percentage of total compensation paid to each of the board of directors, board of executive officers and fiscal council, which is attributable to members qualifying as parties related to the direct or indirect controlling shareholders, as defined under applicable accounting principles. There is no compensation recognized in the income statement regarding directors or officers deemed to be parties related to direct or indirect controlling shareholders. 13.14 Information (segregated by body) on amounts recognized in the income statement as remuneration paid to members of each of the board of directors, board of executive officers and fiscal council for any reason other than their responsibilities as members of these bodies, such as, for example, fees and commissions for consulting or advisory services. There is no amount recognized in the income statement as remuneration paid to directors or officers for reasons other than their responsibilities as members of the board of directors or the board of executive officers. 13.15 Information (segregated by body) on amounts recognized in the income statements of subsidiaries, companies under common control and direct or indirect controlling shareholders, as remuneration paid to members of each of the board of directors, board of executive officers and fiscal council, including information specifying on what account these amounts were paid. There are no amounts recognized in the income statements of subsidiaries, companies under common control, or direct or indirect controlling shareholders, as remuneration paid to directors or officers of the Company. 13.16 other information deemed relevant by the registrant. There is no further information regarding this Section 13 not set forth above.
83
Praa Antonio Prado, 48 01010-901 So Paulo, SP Brazil Rua XV de Novembro, 275 01013-001 So Paulo, SP Brazil 5511-2565-4000 Fax 5511-2565-7737 www.bmfbovespa.com.br

Annual and Extraordinary Shareholders&#39; Meeting - 04.20.2010 - Practical Guide

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Annual and Extraordinary Shareholders&#39; Meeting - 04.20.2010 - Practical Guide

Uploaded by

Copyright:

Available Formats

PRACTICAL GUIDE TO THE ANNUAL AND EXTRAORDINARY SHAREHOLDERS MEETINGS OF BM&FBOVESPA S.A.

BOLSA DE VALORES, MERCADORIAS E FUTUROS

So Paulo, March 19, 2010.

a. annUal shaReholDeRs MeeTInG

b. exTRaoRDInaRy shaReholDeRs MeeTInG

C. how To PaRTICIPaTe; aPPoInTInG a PRoxy

PRoxy (PoweR of aTToRney)

PRoxy foRM (PoweR of aTToRney) PRoxy foRM (PoweR of aTToRney)

(II) at the extraordinary shareholders Meeting:

Compensation Proposal for 2010 (in thousands of R$)

Managements discussion and analysis

the capital structure and likelihood of a redemption of shares or quotas, including:

events of redemption; reimbursement value calculation method.

Not applicable. g) limitations on use of the proceeds of financing previously undertaken;

Important revenue components;

Share-based compensation (stock options)

operating lease arrangements, as both lessor and lessee;

Not applicable. iv) Unfinished construction contracts;

Not applicable. v) Commitments to accept future financing;

Not applicable. vi) other off-balance sheet arrangements.

Collateral received from trading, clearing and settlement transactions

Bank deposit certificates (CDBs)

other information: Clearing fund (fundo de liquidao de operaes) Derivatives Clearinghouse

324,979 30,000 18,560 7,763 1,928 4,005 1 387,236 (333,500) 53,736

1,050 378,113 (319,500) 58,613

BB BM&F Financial Investment Fund (FIF BB BM&F)

Special Clearing Participant Fund

other information: Participation fund (fundo de participao) foreign exchange Clearinghouse

2008 (in thousands of brazilian reais) 190,629 159,580 350,209

2009 322, 261 7 322,268

2008 190,629 159,580 350,209

(in thousands of brazilian reais)

Not applicable. iii) disclosed development projects;

InfoRMaTIon ReQUIReD UnDeR CVM InsTRUCTIon 481/09

See the table below. b. state the payout date(s).

Kind of shares Common Common Common Common Common

c. Justify the profit retention.

See item a above and the table below.

INFORMATION PURSUANT TO SECTION 13 OF THE REFERENCE FORM

board of directors 11 11 11 10 11 11 11 11 11 11 11 11 131 10.92

board of executive officers 8 6 6 6 5 5 6 6 6 6 6 6 72 6.00

Total 17 8,558,217.75 7,612,.454.46 606,350.72 339,412.57 0 5,674,487.40 n/a 5,674,487.40 0

n/a n/a n/a n/a n/a n/a

board of executive officers

n/a n/a n/a n/a n/a n/a

n/a n/a n/a n/a n/a n/a n/a n/a n/a

The main assumptions used in pricing the options were:

board of executive officers 3,199,169.17

328,643.83 Yes, only the employees portion

You might also like

Annual and Extraordinary Shareholders' Meeting - 04.20.2010 - Practical Guide

Annual and Extraordinary Shareholders' Meeting - 04.20.2010 - Practical Guide