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SECURITIES LENDINGPROGRAM

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BTC – BANCO DE TÍTULOS CBLCSECURITIES LENDING PROGRAM

• Legal Basis

• Main Characteristics

• Operational Procedures

• Risk Management

• Historical Data

• Next Steps

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LEGAL BASIS

• CMN- National Monetary Council (Resolution nº 2268 of April 10,1996)

• CVM – Securities Commission ( Ruling nº 249 of April11,1996)

• CBLC – Companhia Brasileira de Liquidação e Custódia ( Resolution nº 009 of April 22,1996)

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MAIN CHARACTERISTICS

• Settlement , registration and custodial entities are authorized to lend shares issued by publicly-held companies , subject to the CVM prior approval;

• All types of investors can participate as a lender or borrower in Securities Lending Program;

• The Custody Agent, lenders of the assets,must enter into an adhesion agreement with CBLC , whereby they expressly authorize the lending and transfer Assets to CBLC;

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MAIN CHARACTERISTICS

• The Custody Client, Lender of the assets, must enter into an agreement with his Custody Agent , whereby the former expressly authorizes the lending and transfer his Assets to CBLC;

• The Brokerage Firm and the Clearing Agent as a representative of a Borrower, must enter into an adhesion agreement with CBLC;

• The Eligible Assets ( stocks issued by publicly-held companies) must be deposited at CBLC´s Fungible Custody Services;

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MAIN CHARACTERISTICS

• Custody Clients and Custody Agents qualify as Asset Borrowers must be represented by a Brokerage Firm and under the responsibility of a Clearing Agent of CBLC;

• There´s no relationship between the borrowers and lenders ( CBLC assume the counterpart as a guarantor);

• Participants access the Securities Lending Program through CBLC´s Network

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MAIN CHARACTERISTICS• The original stock owner (Lender) is entitled to all

dividends, bonuses and subscription rights that may come to be declared by the company;

• The Borrower must deposit the required margin with CBLC , through the respective Clearing Agent

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MAIN CHARACTERISTICS• Use of Borrowed Assets:

– Sold on the cash market;

– Used to settle operations carried out on the cash market;

– Used as guarantee for operations carried out on futures markets;

– Used to cover call options;

– Used in any other way as may be established by CBLC.

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OPERATIONAL PROCEDURE• Through CBLC’s network the Participants ( Custodians

and Brokerage Firms) have the access to BTC;• In BTC the Participants can:

– Entry: Lenders and Borrowers’s offers– Closing against registered offers– Inquiry: registered closings,borrowers interested, securities

available for lending,etc.

• The Participants and Investor can also access information related the Securities Lending Program of CBLC through Bloomberg.

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BTC

Entry: OffersLenders

Borrowers

Inquiry: OffersLenders

Borrowers

Deletion: OffersLenders

Borrowers

Closing againstRegistered

Offer

Lender

CustodyAgent

Borrower

BrokerageFirm

ClearingAgent

CBLC’S NETWORK

BrokerageFirm

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RISK MANAGEMENT• Limits of Position

– Investor– Clearing Member– Whole Market

Limits are disclosed by CBLC’s website ( www.cblc.com.br)

Margin Calculation– By Investor– System employed CM-TIMS ( OCC)

• Measurement Risk in stress scenario– By Clearing Agent– System employed RiskWatch( Algorithimcs)

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RISK MANAGEMENT• Deposit of Guarantee

– Through The CBLC’s Guarantee System;– Collateral accepted

• Letters of Credit ( domestic and international);

• Brazilian Federal Public Instruments;

• Shares ( the most liquid);

• Gold certificates;

• CD’s; and

• International assets*

* CBLC has accounts in DTCC , EUROCLEAR and CLEARSTREAM

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M

E

T

O

D

O

L

O

G

Y

PORTFOLIOS

HIERARCHY

CONSOLIDATION

RULES

MODELS

Positions

CASH

OPTION

FORWARD

BTC

Prices

Curves

Volatil.

Parâmeters

Market data

Scenarios

RISK MANAGEMENT

ANALYSIS OF RISKS

REPORTS

BACK TESTING

FUTURE

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RISK MANAGEMENT

CASH

DERIVATIVES BTC

CM-TIMSMARGINING

COLLATERALSYSTEM

RISKWATCHSETTLE. FUND

SYSTEM DEVELOPED BYOCC- THE OPTIONS CLEARING

CORPORATION

SYSTEM DEVELOPED BY CBLC

SYSTEM DEVELOPED BY ALGORITHMICS INC

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HISTORICAL DATANUMBER OF PUBLICLY-HELD COMPANIES IN BTC - ANNUAL

1222

5257

74 78

0102030405060708090

1996 1997 1998 1999 2000 2001** = until 10/19/2001

NUMBER OF PARTICIPANTS( CUSTODIANTS AN BROKERAGE FIRMS) IN BTC - ANNUAL

2126

37 33

53

65

010203040506070

1996 1997 1998 1999 2000 2001*

* = until 10/19/2001

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HISTORICAL DATA

VOLUME OF REGISTRED CONTRACTS IN BTC(in million)

-

1.000,00

2.000,00

3.000,00

4.000,00

5.000,00

6.000,00

1996 1997 1998 1999 2000 2001*

R$ (million) US$ (million) * = until 10/19/2001

NUMBER OF CONTRACTS REGISTRED IN BTC

66 341983

1.4602.530

9.400

-

2.000

4.000

6.000

8.000

10.000

1996 1997 1998 1999 2000 2001** =until 10/19/2001

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NEXT STEPS• The Securities Lending Program ( BTC) will be

extended to:– Private Bonds ( Debenture,Commercial Papers,etc)– Public Bonds ( Brazilian Government Bonds);

• The settlement system will be automatically linked to BTC– In case of default in settlement process CBLC will

registered automatically, a securities lending position in the name of the defaulter.

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NEXT STEPS• The new version of BTC will be launched

in December/2001 with:– a new platform;– access through CBLC’s intranet;– new operational facilities

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