BM&F Bovespa, the domestic Brazilian exchange group, has partnered with technology provider Calypso, as it seeks to modernise its risk management processes for OTC derivatives.
BM&F Bovespa will use the Calypso System to register and manage its OTC derivatives operations, after conducted a proof of concept evaluation at its data processing center in Brazil.
OTC derivatives trades in Brazil need to be officially registered, with either the exchange or the Brazilian depository CETIP, so that the national regulator – Comissão de Valores Mobiliários – and market participants have visibility on overall derivatives exposure and the intraday mark-to-market value of each trade. The Calypso System will provide valuation services for swaps trades in Brazil to ensure that they meet the pre-defied parameters set by BM&F Bovespa.
Phase one of the implementation is scheduled for next year, and will allow for the registration of contracts from banks with their non-financial customers as counterparties. The second phase will involve the registration of contracts from other counterparties and OTC derivatives clearing and is scheduled for completion in the first quarter of 2013. The final phase will provide collateral management services for bilateral risk mitigation with an implementation date to be announced in the future.
“With the Calypso platform, BM&F Bovespa intends to modernise, enhance and expand its OTC operations registration service, offering quality and agility to its customers, and complete analysis instruments for self-regulation and regulatory activities,” said Marcelo Maziero, chief products and customers officer at BM&F Bovespa.
The move helps Brazil fall in line with guidelines presented by leaders of the Group of 20 (G20) in September 2009. The G20 leaders have advised that by the end of 2012, all OTC derivatives that can be standardised should be traded on exchange and cleared through central counterparties with all contracts reported to central repositories. The G20 also said that derivatives that are not centrally cleared should be subject to higher capital requirements.