Brazil: Institutional Features

Article Index

Guarantee and Protection System for Clients and Monitoring of the Market

Negotiations on the Brazilian exchanges come under constant scrutiny by the respective departments responsible for monitoring the market. Furthermore, the Securities Commission (CVM) carries out the supervision of trading on the exchanges and the over-the-counter market. Through these means it is possible to identify not only the intermediary but also the principal in any given operation.

Market oversight is carried out both on- and off-line. On-line scrutiny occurs during trading sessions when previously defined price and quantity parameters are checked. Off-line observation occurs each night after the close of business.

The adherence to other rules and regulations applicable to the exchange floor and electronic trading, imposed by the exchangesí own regulations, is verified by inspectors present on the trading floors and in special rooms set aside for electronic monitoring. At any given moment brokers or distributors may be summoned to identify the principals in operations. The disclosure of relevant information which could have a bearing on prices also is followed. Possible instances of privileged use of such information are analyzed in the light of price variations and the strategies adopted by investors. Moreover, both the exchanges and the CVM make periodical audits of brokers.

The guarantee mechanisms are created by the clearinghouses and take the following form:

  • margins and guarantees deposited by clients
  • clearing agent guarantees
  • guarantee fund run by clearinghouse
  • assets held by the clearinghouse

The clearinghouses impose operational restrictions on the clearing agents working in their field. Clearing and Settlement are regarded as complementary activities to market observation and monitoring of transactions is a feature common to all these activities.