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					                                                                                                                                                                                                                                                               FX Clearinghouse

THE BRAZILIAN PAYMENT SYSTEM                                                                 Brazilian currency into the FX Clearinghouse settlement account at the Central Bank of            Number of transactions                                   298,773
                                                                                             Brazil, and all sellers of U.S. Dollars deliver them to the FX Clearinghouse account at one                                                        USD                     BRL
          During 2002, the Central Bank of Brazil, in line with international trends,        of its correspondent banks abroad. Such amounts are transferred on a netting basis by no          Gross contracted amount               1,405,367,086,846.46      4,067,792,085,928.46
decided to restructure the Brazilian payment system, in order to provide it with the         later than 13:05, Brasília time. All sellers of U.S. Dollars receive Brazilian currency di-       Cleared amount                           202,531,075,066.78       589,961,956,458.61
appropriate operating conditions to manage risks that are intrinsic to the cash settle-      rectly in their reserve accounts at the Central Bank of Brazil, and all buyers of U.S. Dollars    Amount settled on a net basis          1,202,836,011,779.68     3,477,830,129,469.85
ment process in general and that have the potential to produce a systemic crisis in          receive them in their accounts at their correspondent banks abroad. These amounts are             Funds transfer reduction in settlement process      85.59%                   85.50%
particular.                                                                                  also transferred on a netting basis by no later than 14:05, Brasília time.                                                                                                Amount on 6/30/2005

          The new payment system was designed by the Central Bank in consideration of                   Another BM&F concern in the creation of the FX Clearinghouse was to cover a
the internationally recommended core principles, among which the following are note-         significant part of a transaction’s exchange rate market risk, in case of the default of a
worthy:                                                                                      participant, during the period from contracting to settlement. This is made possible by
                                                                                             fixing a percentage of the exchange rate variation, which is then backed by collateral
(a)    The adaptation of the legal and regulatory basis;                                     previously pledged by the participants, according to the criteria established by the FX
(b)    The establishment of a real-time gross settlement system (RTGS) for the payment       Clearinghouse.
       of large amounts directly to the accounts held by banking institutions at the                    The FX Clearinghouse accepts transactions to be contracted for settlement
       Central Bank;                                                                         within a maximum of two business days—about 95% of the Brazilian interbank FX
(c)    The irrevocability and unconditionality of transactions and payments, as well as      market fits into this time frame.
       the adoption of the delivery versus payment (DVP) settlement system; and
(d)    The creation of clearinghouses with mechanisms to guarantee transactions and          THE STATISTICS
       payments made through their systems.
                                                                                             Market share
           In light of the aspects related to the payment system, FX transactions in the
Brazilian interbank market are systemically important, and are subject to risk during the               The FX Clearinghouse started its operations on April 22, 2002. From that date
settlement process. This affects both the price discovery of exchange rates and the          to June 30, 2005, its average market share had reached 90%. The following chart illus-
market concentration on large institutions which bear low credit and liquidity risks.        trates this evolution.
           The Brazilian Mercantile & Futures Exchange (BM&F)—which was the first
clearinghouse in the world to assume the counterparty risk for OTC derivatives and to                                                                                                         THE SAFEGUARD SYSTEM
guarantee their settlement—has demonstrated its capacity to develop and implement
the Foreign Exchange Clearinghouse for the interbank market. BM&F also provides other                                                                                                                    By virtue of its operational and risk management features, the FX Clearing-
advantages, such as structure, working capital, credibility, tradition, and most impor-                                                                                                       house is only exposed to operational and liquidity risks. The first is controlled by a
tantly its large experience in risk management and control.                                                                                                                                   reliable IT structure and stringent operational procedures—borne out by the fact that
                                                                                                                                                                                              the FX Clearinghouse is ISO 9001 certified—while the latter is minimized by liquidity
THE BM&F FX CLEARINGHOUSE                                                                                                                                                                     facilities—the right to buy and sell U.S. Dollars—contracted with each of its correspon-
                                                                                                                                                                                              dent banks.
           The BM&F Foreign Exchange Clearinghouse is in tune with the characteristics
of the Brazilian FX market, and operates in accordance with all premises for clearing-
houses established by the Central Bank of Brazil. In turn, the new Brazilian payment
system, restructured by the Central Bank, follows all the core principles for payment
systems elaborated by the task force of the Bank for International Settlements.
          BM&F’s major project development concern for the FX Clearinghouse was to
guarantee participants the elimination of the principal risk from the settlement process.
This was achieved by the introduction of payment versus payment (PVP) on a netting
basis into the transactions carried out through the FX Clearinghouse. This means that, for
settlement purposes, the FX Clearinghouse is the contracting party, as defined by the        Settlement process
Central Bank of Brazil, in all transactions executed by its participants and registered,
analyzed, and accepted by its systems.                                                                  One of the major benefits that the FX Clearinghouse has brought to the Brazil-
          To render the PVP settlement operational, the FX Clearinghouse maintains a         ian financial system as a whole is the reduction of the amount needed to settle transac-
settlement account in Brazilian currency at the Central Bank of Brazil and accounts in       tions in the interbank FX market. Since the beginning of its activities, through June 30,
U.S. Dollars at its correspondent banks—Bank of America, Citibank, and the Standard          2005, the FX Clearinghouse has reduced the need for funds transfers by about 85%, as
Chartered Bank—located in New York. All buyers of U.S. Dollars pay the corresponding         illustrated in the following table and chart.                                                                                                                             Amount on 6/30/2005

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FX Clearinghouse


                                                                                                                          FX Clearinghouse
   Banco ABC Brasil S.A.
   Banco ABN Amro Real S.A.
   Banco Alfa de Investimento S.A.
   Banco Banif Primus S.A.
   Banco Barclays S.A.
   Banco BBM S.A.
   Banco BMC S.A.
   Banco BMG S.A.
   Banco BNP Paribas Brasil S.A.
   Banco Bradesco S.A.
   Banco Brascan S.A.
   Banco BVA S.A.
   Banco Cacique S.A.
   Banco Cargill S.A.
   Banco Citibank S.A.
   Banco Comercial Uruguai S.A.
   Banco Cooperativo Sicredi S.A.
   Banco Credibel S.A.
   Banco Credit Lyonnais Brasil S.A.
   Banco da Amazônia S.A.
   Banco Daycoval S.A.
   Banco de Investimentos CSFB S.A.
   Banco de la Provincia de Buenos Aires
   Banco de Tokyo-Mitsubishi Brasil S.A.
   Banco do Brasil S.A.
   Banco do Estado de São Paulo S.A. (Banespa)
   Banco do Estado do Espírito Santo S.A. (Banestes)
   Banco do Estado do Rio Grande do Sul S.A. (Banrisul)
   Banco do Nordeste do Brasil S.A.
   Banco Fibra S.A.
   Banco Industrial e Comercial S.A.
   Banco Industrial do Brasil S.A.

                                                                                                              June 2005
   Banco Indusval S.A.
   Banco Itaú BBA S.A.
   Banco Itaú S.A.
   Banco J.P. Morgan S.A.
   Banco KEB do Brasil S.A.
   Banco Mercantil do Brasil S.A.
   Banco Morgan Stanley Dean Witter S.A.
   Banco Nossa Caixa S.A.
   Banco Pactual S.A.
   Banco Paulista S.A.
   Banco Pine S.A.
   Banco Prosper S.A.                                                  São Paulo Headquarters
   Banco Rabobank International Brasil S.A.                             Praça Antonio Prado, 48
   Banco Rendimento S.A.                                             01010-901 São Paulo, SP Brazil
   Banco Rural S.A.                                                        55-11-3119-2000
   Banco Safra S.A.                                                      Fax 55-11-3107-9911
   Banco Santander Brasil S.A.                                   
   Banco Schahin S.A.
   Banco Société Générale Brasil S.A.
   Banco Sofisa S.A.                                                       New York Office
   Banco Standard de Investimento S.A.                             61 Broadway, 26th Floor, Suite 2605
   Banco Sudameris Brasil S.A.                                       New York, NY 10006-2828 USA
   Banco Sumitomo Mitsui Brasileiro S.A.                                     212-750-4197
   Banco UBS Warburg S.A.                                                  Fax 212-750-4198
   Banco Votorantim S.A.                                        
   Banco WestLB do Brasil S.A.
   BankBoston Banco Múltiplo S.A.                                          Shanghai Office
   BankBoston N.A.                                           200 Yincheng (M) Rd, Suite 404 Pudong New Area
   BES Investimento do Brasil S.A. – Banco de Investimento              Shanghai 200120 China
   BPN Brasil Banco Múltiplo S.A.                                           86-21-5037-2886
   BRB Banco de Brasília S.A.
                                                                          Fax 86-21-5037-2885
   Deutsche Bank S.A. – Banco Alemão
   Dresdner Bank Lateinamerika A.G.
   HSBC Bank Brasil S.A. Banco Múltiplo
   ING Bank N.V.                                                               Internet
   União de Bancos Brasileiros S.A. (Unibanco)                    


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