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BOVESPA
Key Corporate Facts
• Founded in 1890
• Diversified membership base
– Non-for-profit organization, equity-owned by 92 member brokerage
firms from local independent brokers to main global players
• Governance
– Board of Directors with broad representation: member brokerage
firms, listed companies, institutional and individual investors
– Group of Executives responsible for managing the exchange’s
activities and supervising its operations
• Self-regulatory organization supervised by the Brazilian
Securities and Exchange Commission – CVM
BOVESPA
Diverse Business Structure
BOVESPA CBLC
INFORMATION
BACK-UP SITE
TECHNOLOGY
MAIN INNOVATIONS
Introduced by BOVESPA
1974 - Centralized Depository System 1999 - Launching of the Home Broker
1979 - Introduction of the Options Market 1999 - Trading Session After Market
1980 - Fungible Custody Service 2000 - BOVESPA became the national stock
exchange for corporate securities
1985 - Creation of the BM&F
2001 – Launching of BOVESPAFIX –
electronic trading system for corporate fixed
1990 - Dematerialization of Securities income instruments
1998 - Incorporation of the CBLC 2005 - All transactions carried out electronically
BRAZILIAN CAPITAL MARKETS
Regulatory Environment
Ministry of
Finance
CMN
SRF 9 Organization of Exchanges and Guarantee
National Monetary Fund – CMN Resolution 2690/00
Brazilian Federal Revenue Council 9 Non-resident portfolio investments – CMN
Secretariat Resolution 2689/00
Resolutions
(Normative Instructions)
9 Price Manipulation – CVM Instruction
9 Income Tax - SRF Normative 8/79
Instruction 25/01 9 Special Procedures on Stock
BC CVM Trading – CVM Instruction 168/95
9 Low Tax Jurisdiction - SRF
Normative Instruction Brazilian Central Brazilian Securities and 9 Registration and disclosure for non-
Bank Exchange Commission resident portfolio investors – CVM
188/02 Instruction 325/00
9 Legal Entity Federal Circulars Instructions 9 Disclosure of Material Events – CVM
Taxpayer Registry (CNPJ) - Instruction 358/02
9 Non-resident
SRF Normative Instruction
251/02
portfolio investment BOVESPA 9 Foreign Investors Identification-
procedures – BC Self-regulatory organization CVM Instructions 387/03, 419/05 and
9 CPMF Operational Circular 2963/00 and 437/06
Procedures - SRF Normative 2975/00 Internal rules and operational 9 Public Offerings – CVM Instruction
Instruction 450/04 procedures 400/2003
BRAZILIAN CAPITAL MARKETS
Building Blocks
Almost 100 shares with daily trading value of US$ 2 million or more
EQUITY DERIVATIVES PRODUCTS
Options Markets
Top Ten Traded on Options on Equities
the BOVESPA´s Options Market Total 2006
2006
# of Notional
1. PETROBRAS - PN Exchange contracts – US$
2. IBOVESPA million billion
3. VALE R DOCE - PNA 1st International
584 n.a.
4. TELEMAR - PN Securities Exchange
5. NET - PN
2nd CBOE 391 n.a.
6. ELETROBRAS - ON
7. BRADESCO - PN 3rd São Paulo 286 516
8. CELESC - PNB
4th Eurex 273 969
9. EMBRATEL PAR - PN
10. CEMIG - PN 5th Philadelphia 265 90
Source: BOVESPA, WFE – World Federation of Exchanges and ISE - International Stock Exchange
EQUITY DERIVATIVES PRODUCTS
POP – Protected and Participative Investment
Main features ‘Collars’ listed
¾ It is a standardized product,
exchange traded, with 1. PETROBRAS PN
predetermined levels of capital 2. VALE DO RIO DOCE PNA
protection.
3. BRADESCO PN
4. USIMINAS PNA
¾ POP combines three financial
operations: buying shares in the 5. TELEMAR PN
cash market, buying a put option 6. ITAUBANCO PN
and selling a portion of a call
7. SIDERÚRGICA NACIONAL ON
option.
8. PIBB (ETF BASED ON THE IBRX-50)
¾ Series with 100% and 90% of the
capital protected are available,
corresponding respectively to 70%
and 80% participation on the upside
of the market. The expiration terms:
6 and 12 months.
FIXED INCOME PRODUCTS
20.000
Market capitalization: BRL 105 billion 15.000
10.000
5.000
-
2001 2002 2003 2004 2005 2006
Depository Service
– CBLC has an account structure that segregates securities in
individual acconts in the name of beneficial owners
– All movements of securities al well as corporate events are
processed on-line and in real time basis
FIXED INCOME PRODUCTS
Information disclosure • Real time dissemination of trades
prices available through vendors
• Wide information disclosure by internet
www.bovespafix.com.br
• Regular news report – BFix Bulletin
New
32.000 APPROVAL OF THE
AMERICAN ECONOMY
economic
TELECOMMUNICATIONS SPEED REDUCTION; NEW
ARGENTINEAN CRISIS
scenario in
GENERAL LAW
28.000 Brazil and
reduction
of the
24.000
Brazil Risk
REAL
20.000 INTERNATIONAL ECONOMIC ASIAN
INVESTORS PLAN CRISIS
ALLOWED IN
16.000 PORTIFOLIO CORPORATE
INVESTMENT TERRORIST
RUSSIAN SCANDALS IN US;
ATACK IN US PRESIDENT
12.000 CRISIS
IRAQ ELECTIONS IN
BRAZILIAN INVESION BRAZIL
CURRENCY
8.000 DEVALUATION
MEXICAN ARGENTINEAN CRISIS
CRISIS AND BARINGS
4.000 BANKRUPTCY
jan/91
jan/92
jan/93
jan/94
jan/95
jan/96
jan/97
jan/98
jan/99
jan/00
jan/01
jan/02
jan/03
jan/04
jan/05
jan/06
INDICES
IBOVESPA
Annual Performance in USD 2006
• Launched in 1968 IBOVESPA= + 45.5%
• The IBOVESPA is the main
indicator of the Brazilian stock
market’s average performance.
IBOVESPA
• IBOVESPA reflects the 25.000
oscillation of BOVESPA’s most
Base 5000 on Jan, 1995
traded stocks 20.000
• It maintained the integrity of its
historical series without any 15.000
P O IN T S
methodological change since its
inception in 1968.
10.000
• The stocks that integrate
Ibovespa’s theoretical portfolio 5.000
represent 80% of the number of
trades and the financial value
registered on BOVESPA’s cash 0
ja n / 9 5
ja n / 9 6
ja n / 9 7
ja n / 9 8
ja n / 9 9
ja n / 0 0
ja n / 0 1
ja n / 0 2
ja n / 0 3
ja n / 0 4
ja n / 0 5
ja n / 0 6
ja n / 0 7
market (round lot).
• The index is rebalanced
quarterly
Source: BOVESPA
INDICES
IEE, ITEL and INDX
• The Electric Power Index (IEE) was the first Annual Performance in USD 2006:
sector index created by BOVESPA. It was INDX = + 51.6%
launched in 1996 to measure the performance IEE = + 54.2%
of the electric power sector. In this sense, the
index is an instrument that makes possible the IBOVESPA = + 45.5%
performance analysis of portfolios specialized ITEL = + 21.2%
in the electric power sector.
IBOVESPA x ITEL x IEE x INDX
• The Telecommunications Sector Index Base 100 on Dec, 2002
(ITEL) launched in 2006, measures the 800
telecommunication sector performance. Such
700
index includes both wire-line telephony
companies and cellular-line telephony 600
companies listed on BOVESPA
P O IN T S
500
400
• The Industrial Sector Index (INDX), 300
launched in 2006, measures the performance 200
of the most representative companies of the
industrial sector, an important segment of 100
Brazilian economy. Its theoretical portfolio is 0
composed by the industry most representative
jun/03
jun/04
jun/05
june/06
april/03
aug/03
april/04
aug/04
april/05
aug/05
april/06
aug/06
dec/02
dec/03
dec/04
dec/05
dec/06
feb/03
oct/03
feb/04
oct/04
feb/05
oct/05
feb/06
oct/06
stocks, which are selected among
BOVESPA’s most actively traded securities in
terms of liquidity and are weighted according
to the outstanding shares’ market value.
IBOVESPA ITel IEE INDX
Source: BOVESPA
INDICES
IGC - Special Corporate Governance Stock
Index
Annual Performance in USD 2006
• Launched in 2001 IGC = + 54.7%
IBOVESPA = + 45.6%
• The IGC - Special
Corporate Governance IBOVESPA x IGC
Stock Index is designed Base 100 on Dec, 2002
to measure the return of a 1000
theoretical portfolio 900
POINTS
level of corporate 600
governance. 500
400
300
• Such companies should 200
be traded on BOVESPA's 100
"Novo Mercado" or should 0
jun/03
jun/04
jun/05
june/06
be classified at april/03
april/04
april/05
april/06
aug/03
aug/04
aug/05
aug/06
dec/02
dec/03
dec/04
dec/05
dec/06
oct/03
oct/04
oct/05
oct/06
feb/03
feb/04
feb/05
feb/06
BOVESPA's "Level 1" or
"Level 2".
IBOVESPA IGC
Source: BOVESPA
INDICES
ITAG – Special Tag Along Index
Annual Performance in USD 2006
ITAG = + 58.9%
• Launched in 2005 IBOVESPA = + 45.5%
P O IN T S
500
shareholders than those
400
required by law.
300
200
100
0
oc t/03
oc t/04
oc t/05
june/06
oc t/06
dec /02
feb/03
april/03
jun/03
aug/03
dec /03
feb/04
april/04
jun/04
aug/04
dec /04
feb/05
april/05
jun/05
aug/05
dec /05
feb/06
april/06
aug/06
dec /06
IBOVESPA ITAG
Source: BOVESPA
INDICES
ISE - Corporate Sustainability Index
Annual Performance in USD 2006
• Launched in 2005 ISE = + 50.9%
IBOVESPA = + 45.5%
POINTS
1.200
28/12/05
27/01/06
24/02/06
28/03/06
27/04/06
26/05/06
26/06/06
24/07/06
21/08/06
19/09/06
18/10/06
17/11/06
18/12/06
questionnaire that is constantly
improved, aiming at attending
ISE IBOVESPA
permanently the present
demands of society.
Source: BOVESPA
Points in USD
0
100
200
300
400
500
600
700
800
900
1000
Source: BOVESPA
dec/02
feb/03
INDICES
april/03
jun/03
aug/03
oct/03
dec/03
IBOVESPA
feb/04
april/04
Market Performance
jun/04
aug/04
oct/04
IBrX-50
dec/04
feb/05
april/05
Base 100 on December 2002
jun/05
IBOVESPA x IBRX 50 x IGC x ITAG
aug/05
ITAG
oct/05
dec/05
feb/06
april/06
IGC
june/06
aug/06
oct/06
dez/06
PRODUCTS AND INDICE
Sophisticated market
NO RESTRICTIONS TO
INTERNATIONAL INVESTORS
TRADING
INFRASTRUCTURE
TRADING INFRASTRUCTURE
State-of-the-art technology
62,2
CAGR 48%
53,8
39,5
28,2
26,8
22,4
in USD million
1120
767
667
568
394 410 419
347
283 265 272
198
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
BOVESPA IN NUMBERS
Cash Market
Trading Value Daily Average Number of
in USD Million Trading Value x Number of Trades Trades
1400 60000
1200
50000
949
1000
40000
800
30000
600 558
348 20000
400 345
220 220
166 10000
200
0 0
2000 2001 2002 2003 2004 2005 2006
Source: BOVESPA
BOVESPA IN NUMBERS
Options Markets
Trading Value Daily Average Number of
in USD Million Trading Value x Number of Trades Trades
70 30.000
60 25.000
50 42,3
20.000
40 35,3
28,2 15.000
30
21,6
18,3 10.000
20 14,5
12,1
10 5.000
0 0
2000 2001 2002 2003 2004 2005 2006
Source: BOVESPA
BOVESPA IN NUMBERS
Leadership in Latin America
Latin American Exchanges
Total Traded Value in 2006
Buenos
Colom bia Lim a Aires
Santiago 3% 1% 1%
7%
Mexico
23%
BOVESPA
65%
750
600
450
300
150
-
2001 2002 2003 2004 2005 2006
27 33 36
3 3 24
60% 7 4
4 6
25 26
22
26 25 22 28
40% 28 27
28
16 16 17
16
20% 19 18
26 28 25
20 22 22 23
12 16
10
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: BOVESPA
INTERNATIONAL INVESTORS
Trading by region
Europe
21%
North America
South America 58%
16%
Source: BOVESPA
INTERNATIONAL INVESTORS
A fully accessible market
PORTFOLIO
– No restrictions in terms of the type of investments
– No diversification rules
– No minimum permanence period requirement
TAXATION
– Exemption on capital gains for equity instruments and government bonds
– Low tax jurisdiction are taxed as domestic investors
INTERNATIONAL INVESTORS
A fully accessible market
REQUIREMENTS
– A local representative in Brazil
– Tax ID number required (CNPJ)
CUSTODY
– Assets must be deposited at a recognized depository service
– Accounts hold under an authorized custodian
– Final beneficiary market
INDIVIDUAL INVESTORS
Solid Retail Segment
Source: BOVESPA
Fixed Income Equities Real State Others
INSTITUTIONAL INVESTORS
482
341
255 234
217 229 225
161 185
148 124
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
397 companies
BOVESPA’S LISTED COMPANIES
Market Capitalization Evolution
Market Capitalization Market Capitalization
In USD billion GDP ratio
* estimated
BOVESPA’S LISTED COMPANIES
Largest Companies by market cap
Market Capitalization Ranking, in USD million (2006)
1. Petrobrás 107,750 11. Telesp 12,416
2. Vale R Doce (N1) 68,974 12. Gerdau (N1) 10,493
3. Itaubanco (N1) 40,529 13. Tim Part S.A. 10,011
4. Bradesco (N1) 39,693 14. Usiminas 9,295
5. Ambev 29,985 15. Sid Nacional 8,207
6. Banco do Brasil (NM) 24,705 16. Embraer (NM) 7,630
7. Itausa (N1) 17,356 17. Cemig (N1) 7,505
8. Unibanco (N1) 15,355 18. Vivo 7,358
9. Eletrobras (N1) 13,327 19. Telemar 7,312
10. Arcelor Br (N1) 12,788 20. Telemar N L 7,218
BOVESPA’S LISTED COMPANIES
A diverse market
Sectors Participation on the Market Capitalization
2006
Consumer non Construc. and Transp.
Cyclical 4,9%
Financial
8,7% 23,4%
Telecom.
9,9%
Info. Tech.
0,4%
Utilities
10,6%
Basic Materials
20,8%
Consumer Cyclical
Oil and Gas Capital Goods
3,5%
15,3% 2,5%
BOVESPA’S LISTED COMPANIES
Driving the growth
20,1 19,7
14.7 17,4
13.9
13.0 13.2
12.5
15,1
11.3
9.4
7.3 9,4
5.0 5.2
4.3
4,9
2.3
1.3 1.9
0.5
2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 jun/06
2002
2003
2004
2005
Sep/06
Source: BOVESPA and Morgan Stanley Capital International 2004 2005 2006 - 2nd Q
BOVESPA’S LISTED COMPANIES
Price Earning Ratio - still room for growth
%
BOVESPA Latin America BRICs Other Emerging
Markets
31,5
21,7
21 20,2 20,2
19,5
17,1 17,3 17,0
15,8 15 15,7
14,6 14,7 14,2
10,9 12,2 12,3
10,5 11,4
BOVESPA Argentina Chile Mexico India Russia China South Africa Egypt Korea
2005 2006
Source: BOVESPA and Morgan Stanley Capital International
ja
n/
0
25
50
75
100
125
150
175
200
225
250
275
300
9
ab 8
r/ 9
8
ju
l/9
8
ou
t /9
ja 8
n/ TELES PN
9
ab 9 BRASKEM PNA
r/ 9
9 GERDAU PN
ju
l/0
3
ou
t /0
ja 3
r/ 0
5
ju
l/0
5
ou
t /0
ja 5
n/
0
ab 6
r/ 0
6 TAM
ju
l/0
6
ou
t /0
6
Local Market vs ADRs – Custody Value
Expressly recorvery
of shares X ADRs
Source: BOVESPA
CORPORATE
GOVERNANCE
LISTING SEGMENTS
CORPORATE GOVERNANCE
Novo Mercado standard is set
Market Capitalization
In USD billion
723
• 75% provide financial
statements in USGAAP or
482
IFRS
44 51
NM
18 N2
2 7 10 14 14 N1
2 7
3
3
31 33 37 36 36
18 24
2005
2006
2007
CAPITAL RAISING ACTIVITY
Capital raised through shares - Top 10 Emerging Markets
US$ million – 2006
Shenzhen SE 6,021
Singapore 5,747
Profarma 70%
PLACE OF LISTING Brascan 87%
Abyara 83%
MMX 76%
Datasul 80%
Lupatech 78%
Source: BOVESPA
Initial Public Offerings
2004 and 2005
Number of IPOs
30
25
20 Actual Running
15
18
26
10
5 9
1 1 1 1 7 7
2 0 0 0 0
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
CAPITAL RAISING ACTIVITY
.... some others in the pipeline ...
– do not allow the effecting of trades which are being carried out when there
are signs of breaches in regulations, or of unfair practices; and
– cancel trades already carried out or ask the suspension of their settlement
to the clearing agents, in the cases where there are signs of breaches in
regulations, or of unfair practices, fraud or manipulation.
MARKET SUPERVISION
Self-Regulatory Powers
CVM INSTRUCTION No 387, DATED APRIL 28, 2003
– §1st Exchanges will keep at the disposal of CVM data and information obtained through the
activities of inspection developed by them.
– §2nd Whenever any of the entities mentioned in the caput of this article, in the exercise of self-
regulation, identifies the practice, by any people or entity submitted to this jurisdiction, of illicit
acts, as well as the existence of irregularities, the CVM should be immediately informed, also
in relation to the arrangements being made.
– §3rd Whenever any of the entities mentioned in the caput of this article suspects of the practice
of illicit acts, or of the existence of irregularities involving a person or entity that is not
submitted to its jurisdiction, it shall immediately communicate CVM of its suspicions.
MARKET SUPERVISION
Self-Regulatory Powers
BOVESPA conducts self-regulatory activities, under the supervision of the
CVM
– responsibility of maintaining and protecting an equitable market
– ensuring properly conducted trading and fair price formation
– 80 professionals, are engaged
• external auditing is conducted through audits carried out directly at brokerage firms.
MARKET SUPERVISION
Market Supervision – Structure
MARKET
SUPERVISON
MARKET
AUDITING
SURVEILLANCE
MARKET SUPERVISION
Self-Regulatory Activities
AUDITING
• Membership requirements
• Operational risks, tax law, accountancy and “money laundering”
• Compliance policies and internal procedures
• Sales compliance, Investment advice
• Financial examinations
• Investors registrations details, including the documents (as ID and
residence voucher)
• Trading limit
• Transfers between different custody account
MARKET SUPERVISION
Self-Regulatory Activities
MARKET SURVEILLANCE
– Monitors trading activity to confirm that it meets Exchange and CVM rules.
– CVM – Relationship
• Monthly report
MARKET SUPERVISION
Self-Regulatory Activities
SELF-REGULATORY ACTIVITIES 2006
Requests for clarification to companies 2,358
Listed companies suspended from trading 103
Trades submitted to auction 39,604
Trades cancelled by BOVESPA 4,802
Trades cancelled as requested by brokerage firms 1,916
Analysis of atypical transactions 54,802
Reports forwarded to the CVM 199
Routine auditing of brokerage firms 45
Internal control auditing of brokerage firms (compliance) 95
Specific inspection in brokerage firms (guarantee fund and claims
11
from clients)
INVESTORS’
PROTECTION
INVESTORS’ PROTECTION
A comprehensive framework
Investors’ Institute
– Support for the creation of the INI – National Investors Institute www.ini.org.br
– Assistance to individual investors and investment clubs
Investment Clubs
– Back-office facilities with CBLC
– Special commissions with brokerage firms
MARKET POPULARIZATION
Some results
• Establishment of a Capital Market Plan subscribed by more than 80
organizations.
• Working Group on the Capital Market Development composed by the
most important Ministers and Secretaries.
• Tax Reduction:
– Exemption of CPMF tax on stock investments
– Reduction of Income tax on stock investments
• What is it?
– A trading mechanism for social investments
• Why?
– Leverage BOVESPA’s experience as a marketplace to channel resources
to the social sector;
– Link investors and social projects through a mechanism that reproduces
the stock market
• Main concepts
– Listed companies: NGOs and their projects
– Social stocks
– Social profits
• How to participate?
www.bovespasocial.com.br
BOVESPA IN THE
WORLD
BOVESPA IN THE WORLD
Main initiatives
• BEST – Brazil Excellence in Securities Transactions
– Institutional effort to promote the Brazilian capital markets to investors in the
main financial centers – US, Europe and Asia
– Participation of regulators and market operators