Brazil: Institutional Features

Brazilian Capital Market: Institutional Features

Intermediation System

The distribution and intermediation system of the Brazilian capital market is made up of 566 institutions, of which 227 are brokerage firms dealing in securities, 316 are distributors, 17 are categorized as investment banks and six can be described as development banks. Another three companies are responsible for custody and registration of operations. Bearer shares are not authorized in Brazil and almost all other transactions are registered, a method which demands a high level of operational sophistication from the companies looking after their custody.

All trades on the stock exchanges are made through brokers; that is, even financial institutions must use brokerage services. The commissions levied in Brazil are fixed at competitive rates and all negotiations are performed in the name of the end client.

Stock Exchanges

There are nine different stock exchanges operating throughout Brazil. They are:

  • The São Paulo Stock Exchange - BOVESPA
  • The Rio de Janeiro Stock Exchange - BVRJ
  • The Far South Stock Exchange - BVES
  • The Bahia - Sergipe - Alagoas Stock Exchange - BVBSA
  • The Minas Gerais - Espírito Santo - Brasilia Stock Exchange - BOVMESB
  • The Paraná Stock Exchange - BVPR
  • The Pernambuco - Paraíba Stock Exchange - BVPP
  • The Regional Stock Exchange - BVRg; and
  • The Santos Stock Exchange - BVSt

Of these nine exchanges, BOVESPA is responsible for the greatest part (85%) of the trades made in the country. The remaining eight exchanges are integrated within the SENN - Electronic System for National Negotiation - and account for around 15% of the total volume.

By December, 1995, there was a total of 874 public corporations registered with the Securities Commission, of which 578 with shares quoted on the stock exchanges, representing a total market valuation of US$ 147.6 billion.

The average volume of shares negotiated on a daily basis in Brazil was, in December of 1995, US$ 234.2 million on the sight market and US$ 47.6 million on the futures and options markets. The level of concentration in the Brazilian shares market is high. Also in December, 1995, the 10 most actively traded shares on the BOVESPA were responsible for 83.1% of the total volume negotiated, while at Rio de Janeiro the 10 most active after shares represented 79.8% of the total.


The São Paulo Stock Exchange, founded in 1895, is totally automated today. Its liquidation and custody systems are fully integrated and make use of real time systems to register transactions and transmit information. Transactions can be carried out viva voice on the floor of the exchange or, since 1990, through CATS (Computer Assisted Trading System). Brokers located in other parts of the country can use CATS to participate in the market at greatly reduced costs. Transactions on the exchange floor and via CATS take place between 10am and 4pm and embrace the cash, futures and options markets.

BOVESPA currently has 86 member-brokers, with another 47 brokers located outside of São Paulo who are authorized to operate on the exchange. This latter type of broker is called a permissionário or permitted member. By the end of 1995, 543 companies were listed on the BOVESPA.



Founded 50 years earlier than its counterpart in São Paulo (in 1845), the exchange at Rio de Janeiro today has 65 member-brokers and two permitted members, along with 570 listed companies. Its technological level is comparable to standards found anywhere in the world.

Transactions take place between 10am and 4pm through the SENN, Electronic System for National Negotiation - and viva voce on the exchange floor. The SENN is an electronic negotiation system which links together eight Brazilian exchanges -- BOVESPA is not a SENN member. Operations on the cash market and for derivatives are carried out simultaneously via voce on the exchange floor and through the SENN.

At the end of 1995, BVRJ began a pioneering effort by permitting specialists to operate trades on the exchange floor.

BVRJ and BOVESPA have signed several agreements leading to the interchange of information and cooperation with overseas exchanges. Both are active members of FIABV, the Iberian-American Federation of Stock Exchanges.


The over-the-counter market

As far as dealings in shares are concerned, the Brazilian over-the-counter market has little economic significance. The exchange markets account for almost all share transactions in the country. The success of electronic negotiation systems like CATS and SENN confer considerable advantages to the formal market. In recent times the CVM has taken over the regulation of the organized over-the-counter market for shares and the market maker in order to make the capital market more accessible to smaller companies and break up the concentration of the main market in which the exchanges deal.

The over-the-counter market for debt certificates and derivatives contracts is already highly significant. CETIP - the Central Office for the Custody and Liquidation of Private Bonds - is a company which operates a securities trading system throughout the country and recourse is made to it by financial institutions for the custody, negotiation and financial liquidation of certificates of deposit, interfinancial deposits, commercial paper, bills of exchange, gold, debentures, privatization certificates, future contracts, swaps, etc. Considered extremely reliable and secure, CETIP is the preferred system for participants in the Brazilian financial system.

The average daily volume of securities negotiated in this market in 1995 was US$29.0 billion, of which 95% corresponded to bank and inter-bank deposit certificates and other types of private securities, while 5% was accounted for by Swaps and other derivatives.


The Clearing and Settlement System

It is a legal requirement that the clearing and custody of securities on the Brazilian capital markets must be conducted by companies set up exclusively for this purpose. The custody of securities negotiated on the São Paulo stock exchange is the responsibility of the exchange itself and the financial settling of the operations falls to CALISPA - Liquidation Cashiers for São Paulo S.A., while at the stock exchange at Rio de Janeiro and in the SENN the custody of bonds and settling of operations is entrusted to CLC S.A. - the Liquidation and Custody Chamber S.A. Both offer a system for custody which is fully automated and allows securities to be delivered within three working days. Services such as appropriation of benefits, on-line queries and the issue of summaries of securities trading are also commonly performed by these two companies. Furthermore, both maintain an interface between their custody systems to facilitate the arbitrage between transactions at BVRJ / SENN and BOVESPA.

The system for clearing and settlement at BOVESPA is operated by CALISPA S.A., while BVRJ / SENN is operated by CLC S.A. The clearing of the cash market transactions takes place on the first working day after performance. Financial clearing takes place on the third working day.


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.