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Brazil Market Profile Stocks Bonds 2009 2010

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Brazil Market Profile Stocks Bonds 2009 2010 Powered By Docstoc
					Joint Initiative of:

BRAZIL

MARKET PROFILE

Supporters:

ANCOR

Associação Nacional das Corretoras de Valores, Câmbio e Mercadorias

April 2008

April 2008
MARKET PROFILE 1

BRAZIL

MARKET PROFILE

Updated April 2008

TABLE OF CONTENTS

Introduction ......................................................................5 Abbreviations ...................................................................6 Institutions Profiles ..........................................................9
BOVESPA (São Paulo Stock Exchange) ............................................. 9 BOVESPA Supervisão de Mercados - BSM ..................................... 11 BM&F (Brazilian Mercantile & Futures Exchange) ........................ 12 CBLC (Brazilian Clearing and Depository Corporation) ................ 15 CETIP (Custody and Settlement) .................................................... 17 CIP (Interbank Payment Clearing House) ...................................... 18 BCB (Brazilian Central Bank) .......................................................... 19 STN (Brazilian National Treasury) .................................................. 21 ANBID (National Association of Investment Banks) ..................... 22

Government Bonds ..................................................................................30 Depository ................................................................................................31 Clearance and Settlement .......................................................................31 Risk Management ....................................................................................32 Self Regulation .........................................................................................32 Others .......................................................................................................33

Brazilian Payment System .............................................34
Overview ......................................................................................... 34 STR (Central Bank Money Transfers System) ................................. 34 RSFN (National Financial System Network) ................................... 34 TED (Electronic Transfer) ................................................................ 34 DOC (Credit Order Document) ....................................................... 34 Check ............................................................................................... 34

Regulatory Environment ................................................23
Regulators ....................................................................................... 23
CMN (National Monetary Council)..........................................................23 CVM (Brazilian Securities and Exchange Commission) ..........................24 BCB (Brazilian Central Bank) ...................................................................25 SRF (Secretariat of Federal Revenues) ....................................................25

Cash Accounts.................................................................35
Cash Account Structures ................................................................. 35 Foreign Exchange Scenario ............................................................ 35

Voluntary Self-regulators ............................................................... 26
ANBID (National Association of Investment Banks)...............................26 ANDIMA....................................................................................................27

Capital Markets ..............................................................36 Market Highlights ..........................................................37 Equities and Equity Derivatives ....................................40
Instruments ..................................................................................... 40 Trading Environment ...................................................................... 40 Settlement System .......................................................................... 42 Risk Controls.................................................................................... 44 Securities Lending ........................................................................... 46

Legal Reference .............................................................................. 28
Foreign Investment in Brazil ...................................................................28 Taxation ....................................................................................................29 Capital Market Structure .........................................................................30

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TABLE OF CONTENTS

Corporate Actions ........................................................................... 49 Market Meeting Information......................................................... 50 Market Voting Information............................................................ 51 Shareholder Rights and Disclosure ................................................ 52 Disclosure Requirements ................................................................ 54 Indexes............................................................................................. 54
BOVESPA Index (IBOVESPA) ....................................................................54 IEE - Índice de Energia Elétrica (Electric Power Index)...........................54 IBrX - Índice Brasil (Brazil Index) .............................................................54 IBrX50 - Índice Brasil 50 (Brazil Index) ....................................................54 IVBX2 - Valor BOVESPA Index .................................................................55 ITEL - Telecom Index ................................................................................55 IGC - Corporate Governance Index .........................................................55 ITAG - Special Tag Along Stock Index ...................................................55 ISE - Corporate Sustainability Index ........................................................55 INDX - Industrial Sector Index .................................................................56

Instruments ..................................................................................... 60 Trading Environment ...................................................................... 60 Settlement System .......................................................................... 61 Risk Controls.................................................................................... 62 Securities Lending ........................................................................... 65 Indexes............................................................................................. 66
IMA Global (ANDIMA Market Index) ......................................................66 IRF-M (Fixed Rate Government Bonds Index).........................................66 IMA-S ( Floating Interest Rate Government Bonds Index) ....................66 IMA-B, IMA- B5, IMA B5+ (Consumer Price indexed Government Bonds Index) ........................................................................................................66 IMA-C, IMA-C5, IMA-C5+ (General Price indexed Government Bonds Index) ........................................................................................................66

Derivatives ......................................................................67
Instruments ..................................................................................... 67 Trading Systems .............................................................................. 67 Settlement System .......................................................................... 69 Risk Controls.................................................................................... 71

Restrictions ...................................................................................... 56

Corporate Bonds.............................................................57
Instruments ..................................................................................... 57 Trading System ................................................................................ 57 Settlement System .......................................................................... 58 Risk Controls.................................................................................... 59 Securities Lending ........................................................................... 59

Taxes ................................................................................74 Taxes - Non Resident Portfolio Investors Tax Regime (CMN Resolution 2689/00)................................................74
All Jurisdictions - Except Low-tax Jurisdictions ............................. 74 Low-tax Jurisdiction ........................................................................ 78

Government Bonds ........................................................60

G-30 Requirements (2003) .............................................83

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INTRODUCTION

The Market Profile is the main reference on the Brazilian Financial and Capital Markets. It is published by the organizers of BEST Brazil, an initiative aiming at disclosing detailed information on the Brazilian capital markets and facilitating access to it by international investors. This joint publication is a pioneer initiative and it contains the necessary information an international investor need to better understand the country’s infrastructure for financial markets. The Brazilian Securities and Exchange Commission, the Central Bank, the National Treasury, BOVESPA (São Paulo Stock Exchange), CBLC (Brazilian Clearing and Depository Corporation), BM&F (Brazilian Mercantile and Futures Exchange) and ANBID (National Association of Investments Banks) have produced a guide detailing the main characteristics of the financial and capital markets in Brazil, its operational features, market institutions and regulatory environment. First distributed in 2004 at the BEST Seminar in New York, the Market Profile has proved to be a rich source of information. Since then, the content has been frequently updated in order to better fit the international investors’ information needs and to reflect changes in the capital market infrastructure and its regulatory framework. This material is available for download at www.bestbrazil.org.br and is distributed during the BEST Seminars in the main world financial centers. Further information on Brazil and the BEST initiative, such as the main rules regarding the Brazilian capital market, the date and venue of upcoming BEST events, and relevant news are also displayed in the website. Investors are also encouraged to contact any of the sponsoring institutions for further information. We hope you find this material useful. Any suggestions and comments are greatly welcome (http://www.bestbrazil.org.br/pages/contact.asp) as we are constantly adding new information to the Profile to better suit your needs.

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ABBREVIATIONS

ACSDA AGM ANBID ANDIMA BCB BDI BDR BIC BIS BM&F BOVESPA BSM BTC CBLC CCP CETIP CIP CMN CNPJ

Americas’ Central Securities Depositories Association Annual General Meeting Associação Nacional de Bancos de Investimento (National Association of Investment Banks) Associação Nacional das Instituições do Mercado Financeiro (National Association of Financial Institutions) Banco Central do Brasil (Brazilian Central Bank) Boletim Diário de Informações (BOVESPA’s Daily Bulletin) Brazilian Depository Receipt Banking Identification Code Bank for International Settlements Bolsa de Mercadorias e Futuros (Brazilian Mercantile and Futures Exchange) Bolsa de Valores de São Paulo (São Paulo Stock Exchange) BOVESPA Supervisão de Mercados (BOVESPA Market Surveillance) Banco de Títulos da CBLC (CBLC Securities Lending Service) Companhia Brasileira de Liquidação e Custódia (Brazilian Clearing and Depository Corporation) Central Counterparty Câmara de Custódia e Liquidação (CETIP - Custody and Settlement) Câmara Interbancária de Pagamentos (Interbank Payment Clearing House) Conselho Monetário Nacional (National Monetary Council) Cadastro Nacional de Pessoas Jurídicas (Legal Entities Federal Taxpayer Registry)

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ABBREVIATIONS CPSS CRI CSD CVM DOC DTCC DVP EGM FIDC G30 GM IASC IOF IOSCO IPE IFRS ISIN ISO ISSA OTC
April 2008

Committee on Payment and Settlement Systems Certificado de Recebíveis Imobiliários (Mortgage Backed Securities) Central Securities Depository Comissão de Valores Mobiliários (Brazilian Securities and Exchange Commission) Documento de Ordem de Crédito (Credit Order Document) The Depository Trust and Clearing Corporation Delivery versus Payment Extraordinary General Assembly Fundo de Investimento em Direitos Creditórios (Receivable Investment Funds) Group of Thirty General Assembly International Accounting Standards Committee Imposto sobre Operações Financeiras (Tax over Financial Transactions) International Organization of Securities Commissions Informações Periódicas e Eventuais (Periodic and Occasional Information System) International Financial Reporting Standards International Securities Identification Number International Organization for Standardization International Securities Services Association Over the Counter
MARKET PROFILE 7

ABBREVIATIONS RDE REIT REPO RSFN RTGS SD SELIC SILOC SITRAF SPB SRF SRO SSS STP STR T TED TN US-GAAP XML
April 2008

Registro Declaratório Eletrônico (Electronic Declaratory Registration) Real Estate Investment Trust Repurchase Agreement Rede do Sistema Financeiro Nacional (National Financial System Network) Real Time Gross Settlement Settlement Date Sistema Especial de Liquidação e de Custódia (Special System for Settlement and for Custody) Sistema de Liquidação de Ordem de Crédito (Credit Orders Settlement System) Sistema de Transferências de Fundos (Funds Transfer System) Sistema de Pagamentos Brasileiro (Brazilian Payment System) Secretaria da Receita Federal (Secretariat of Federal Revenues - Brazilian Tax Authority) Self Regulatory Organization Securities Settlement System Straight Through Processing Sistema de Transferência de Reservas (Brazilian Central Bank Money Transfers System) Trade Date Transferência Eletrônica Disponível (Electronic Transfer) Tesouro Nacional (Brazilian National Treasury ) Generally Accepted Accounting Principles in the United States Extensible Markup Language
MARKET PROFILE 8

INSTITUTIONS PROFILES

Exchanges, CSDs, SSSs, CCPs… BOVESPA (SÃO PAULO STOCK EXCHANGE) Address Rua XV de Novembro, 275 São Paulo 01013-001 Brasil Telephone +55 (11) 3233 2000 Website www.bovespa.com.br/English Year Established 1890 About BOVESPA The São Paulo Stock Exchange – BOVESPA – was founded in 1890 and has a long tradition in serving the Brazilian capital market. As a result of the Brazilian capital market restructuring process, which was concluded in 2000, BOVESPA became Brazil’s only stock exchange, being the largest stock exchange in Latin America and the fourth largest equity options exchange in the world, in terms of number of contracts Equity and equity derivatives In 2007, after the reorganization of its ownership, BOVESPA became a subsidiary of BOVESPA Holding Group. BOVESPA Holding is a for-profit public listed company that holds all the capital of BOVESPA and CBLC, which are operational private companies. BOVESPA Holding also holds an interest in BOVESPA Institute, a socio-environmental responsibility institution organized as a nonprofit association. In October 2007, following the international trend, the exchange concluded the process of demutualization and reorganization of ownership, to go public and have its own shares listed. The operational companies BOVESPA and CBLC hold interests in the equity of BSM - Bovespa Supervisão de Mercado, whose role is supervising and monitoring markets managed by BOVESPA and CBLC.

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INSTITUTIONS PROFILES

Current Shareholders (Financial Institutions / Others) 59%

New Shareholders 41% BOVESPA Institute of Social and Environmental Responsibility

100%

100% 50% 50%

100%

BOVESPA manages the stock exchange and organized over-the-counter markets where shares, options, fixed-income bonds, fundshares and other assets are traded. Tradings are fully electronically executed, through an order driven trading system called Megabolsa. BOVESPA’s brokerage houses offer Direct Market Access facilities to both retail and institutional clients, allowing investors to transmit orders directly to the Exchange. BOVESPA also manages the BOVESPA FIX and SOMA FIX, electronic trading systems for corporate fixed-income instruments. In recent years, BOVESPA has played a prominent role in disseminating corporate governance standards through the creation of the Novo Mercado and Bovespa Mais. BOVESPA has spearheaded, social responsibility and financial education to increase the participation of individual investors in stock market trading. It plays an important role in several international bodies, such as IOSCO, the World Federation of Exchanges and the Ibero-American Federation of Exchanges. BOVESPA has a permanent commitment to adapting to international standards, recommendations and best practices. For additional information, please see BOVESPA’s website: www.bovespa.com.br/English. Trading System Megabolsa (Euronext) for equity and equity derivatives and SIOPEL for fixed-income instruments Trading Hours Equity: Regular time (GMT – 03:00): Megabolsa 10:00 am – 5:00 pm - During Brazilian daylight saving time (GMT – 04:00): 11:00 am to 6:00 pm Fixed-Income: SIOPEL10:00 am – 5:00 pm Capitalization USD 1,399 billion* Listed Companies 449*
*As of December 2007

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INSTITUTIONS PROFILES

BSM – BOVESPA SUPERVISÃO DE MERCADOS Address Rua 03 de Dezembro, 38 São Paulo 01014-020 Brasil Telephone +55 (11) 3233 2880 Website www.bovespa.com.br/English Year Established October 1, 2007 About BSM BSM is a non-profit civil association owned in equal parts by BOVESPA and CBLC. It is a functional and financially autonomous organization with a high degree of independence, its own specialized human resources, infrastructure and budget. It was created with the aim of analyzing, supervising and inspecting the market independently, in addition to being responsible for the administration of the Loss Reimbursement Mechanism (MRP), formerly the Guarantee Fund, which was set up to reimburse investors for losses caused by fraud, bad execution of orders, or other causes. MRP funds come from brokers and all investors may access the funds making a claim directly to BSM. BSM’s Board of Directors comprises three independent members, one of them being the Organization’s Director for SelfRegulatory affairs. All members of the board are elected by the general meeting for a three-year mandate. Its Board is responsible for approving its own regulatory and operational rules, supervising the administration of the Director for Self-Regulatory Affairs and the main executive officers, and electing and removing the members of the Self-Regulatory Council, a body organized and maintained by BSM. BSM’s Self-Regulation Committee (CSB) is composed of eleven members, of whom eight are independent and the remaining three are appointed by the market participants of BVSP, CBLC and the issuers listed on BVSP, respectively. All of the Committee’s members have a three-year mandate, allowed the reelection (however, in the first election, half of the independents have a two-year mandate). Among the main duties of this Committee are: judging appeals against the penalties applied by the Director of Self-regulatory affairs, by BVSP and by CBLC; establishing penalties to BVSP, to CBLC, to the members of the board and to the Director of Selfregulatory affairs, and judging investors’ claims directed to the Loss Reimbursement Mechanism (MRP). Except for the judgments related to the MRP, the BSM’s Self-Regulation Committee’s decisions are final, thus appeals to the Securities and Exchange Commission (CVM) can not be made.
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INSTITUTIONS PROFILES

BM&F (BRAZILIAN MERCANTILE & FUTURES EXCHANGE) Address Praça Antônio Prado, 48 São Paulo 01010-901 Brasil Telephone +55 (11) 3119 2000 Website www.bmf.com.br/indexenglish.asp Year Established 1986 About BM&F BM&F was incorporated in July 1985 as a not-for-profit organization and began operations in January 1986. Since its inception, the Exchange has played an important role in the consolidation of the domestic futures and commodities markets in Brazil. In 1991, BM&F entered into an agreement with the Bolsa de Mercadorias de São Paulo (São Paulo Commodities Exchange), or BMSP, a traditional commodity exchange founded in 1917, to create the Bolsa de Mercadorias & Futuros — BM&F (Brazilian Mercantile & Futures Exchange). In 1997, BM&F entered into an agreement with the Bolsa Brasileira de Futuros (Brazilian Futures Exchange), or BBF, acquiring an important competitor based in the city of Rio de Janeiro. In 2002, the Exchange acquired a controlling stake in the Bolsa de Valores do Rio de Janeiro, strategically extending its operations throughout Brazil. In the same year, it completed important reforms resulting from the implementation of the new Sistema de Pagamentos Brasileiro (Brazilian Payment System), or SPB, and commenced operations of its Foreign Exchange Clearinghouse. Also in 2002, BM&F launched the Brazilian Commodities Exchange, one of its subsidiaries. The Brazilian Commodities Exchange encompasses the commodity exchanges located in the states of Ceará, Goiás, Mato Grosso do Sul, Minas Gerais, Paraná, Rio Grande do Sul, and also in the city of Uberlândia (state of Minas Gerais) and serves to integrate the agricultural commodity market in Brazil. More recently in 2004, BM&F started to operate its Securities Clearinghouse and the CMN authorized futures exchanges to incorporate commercial banks to settle transactions and act as central custodians, offering their services to exchanges. As a result, the Exchange created the BM&F Settlement Bank, which began operations in November 2004.

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INSTITUTIONS PROFILES

In 2007, in preparation for BM&F’s initial public offering, it initiated its demutualization process and was converted into a for-profit company. The Exchange is currently a for-profit company with by-laws instituting corporate governance practices into a new shareholder structure, as approved at its shareholders’ meeting held on September 20, 2007. Since October 1, 2007, BM&F’s business has been oriented towards building long-term shareholder value. As part of BM&F’s demutualization process, the equity rights of its former members were detached from the access rights to the Exchange’s markets and systems and converted into share participation. BM&F also approved an organizational corporate structure with an independent selfregulatory division. This structure segregates exchange activities from self-regulatory activities related to registration, trading, clearing and settlement systems. To ensure independence, BM&F created a Self-Regulation Board with full autonomy to oversee and monitor its markets and participants. Strategic Alliances On September 20, 2007, BM&F entered into an acquisition agreement with General Atlantic pursuant to which General Atlantic agreed to acquire from the Exchange’s current shareholders 10% of BM&F capital stock at a purchase price of up to R$1.0 billion. General Atlantic is a global private equity firm investing in companies with growth and consolidation opportunities. General Atlantic has a long and successful investment track record in the financial services industry. Among other investments, General Atlantic has invested in National Stock Exchange of India Ltd., the NYSE Euronext, NYMEX Holdings, Inc., Computershares Limited, RiskMetrics Group Inc., Net 1 UEPS Technologies, Inc., Saxo Bank A/S and E*TRADE Group, Inc. On 26 February 2008 the Special Shareholders’ Meeting approved the partnership agreement signed between the Bolsa de Mercadorias & Futuros - BM&F SA (BM&F) and CME Group Inc., controlling shareholder of the Chicago Mercantile Exchange and the Chicago Board of Trade. As a result, BM&F now holds a 2.18% stake in CME Group – becoming its seventh largest shareholder – and CME Group now holds a 10% stake in BM&F. The agreement foresees cross-investment, order-routing arrangements, and future business opportunities. Open Outcry; Electronic Trading (Global Trading System-GTS for derivatives, SISBEX for government bonds, Web Trading System for derivatives mini contracts); Registration Facility (OTC Products). Futures, forwards, options on actuals, options on futures, flexible options, swaps, spot, structured transactions, government bonds.

Trading Systems Instruments Traded

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Trading Hours (Brazilian Time)

Open Interest Pledged Collateral Guarantee Fund BM&F Equity
* As of December 2007

- Derivatives Clearinghouse: Open Out Cry 10:00 am – 5:00 pm; Electronic Platform (GTS): 9:00 am – 6:00 pm; Web trading System (WTr) 9:00 am – 6:00 pm - Securities Clearinghouse (SISBEX): 8:30 am- 6:00 pm (except on Fridays and days before holidays – when it closes at 4:00 pm) - Foreign Exchange Clearinghouse (for registration): 9:00 am - 5:00 pm - Derivatives OTC Products (for registration): 9:00 am - 6:15 pm - Securities OTC Products (for registration): 12:00 am - 6:00 pm 19.9 million contracts* USD 45.3 billion* USD 52 million* USD 756 million*

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INSTITUTIONS PROFILES

CBLC (BRAZILIAN CLEARING AND DEPOSITORY CORPORATION) Address Rua XV de Novembro, 275 São Paulo 01013-001 Brasil Telephone +55 (11) 3233 2416 / +55 (11) 3233 2335 Website www.cblc.com.br/cblc/Ingles/ Year Established About CBLC 1997 The Brazilian Clearing and Depository Corporation (CBLC) was created in response to the market needs and international trends. It provides the Brazilian market with a modern, efficient, and safe infrastructure of depository, clearing and risk management services. CBLC is the sole central securities depository (CSD) for the equity market and provides the same services to the corporate bonds market. It is also the only central counterparty (CCP) for the Brazilian equities, derivatives on equities and corporate bonds markets. CBLC is a for-profit corporation and is under the supervision of the Brazilian Central Bank and the Brazilian Securities and Exchange Commission. As a self-regulatory organization, CBLC lays down rules and defines procedures regarding its activities. All CBLC regulations are clearly defined and publicly disclosed together with all relevant information, by-laws, rules and operational procedures. All securities traded at BOVESPA are deposited at the CBLC Depository Service and all trades executed in the stock exchange are matched and sent locked-in for settlement to the CBLC Clearing Service. CBLC calculates a single net cash position for equities, derivatives on equities and fixed income instruments, reducing participant’s liquidity requirements and allows the optimization of collateral. The trades settled on a net basis must be pre-collateralized. The risks are controlled in real time and the brokers must respect trading operational limits. The link with BOVESPA (STP) allows CBLC to act as a CCP on real time basis. CBLC renders operational support services for all public offerings. It centralizes the institutional and the retail investors’ allocation process providing transparency and efficiency and allowing the participation of small brokers and investors on equal basis. The participants of the CBLC services are banks and brokers.The CBLC services are designed to allow participants to focus on their core business either in depository settlement or clearing activities.

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INSTITUTIONS PROFILES

Besides its core activities, CBLC offers back-office services to private pension funds’, investment funds’ and clubs’ administrators and managers. CBLC also offers a securities lending service created to reduce delivery failures and expedite settlement, as well allow the possibility of arbitrage between securities and markets. Since its inception CBLC plays an active role in international forums and maintains constant interaction with depository, clearing and settlement institutions in many countries around the world. It is a founding member and the current chairman of CCP12, a founding member of ACSDA (America’s Central Securities Depository Association) and was President of its Board between March 2001 and March 2003. CBLC is also a Brazilian member of ISSA (International Securities Services Association). CBLC internally supports extensive studies on international trends in capital market infrastructure, allowing CBLC to implementation of the best practices. As a result, CBLC complies with the most important international recommendations established by G-30, ISSA, IOSCO and BIS. Equities, equity derivatives (options, futures, forward), corporate bonds, REITs, asset-backed securities USD 634 billion*

Instruments Settled Assets Under Custody - in US million Agents Collateral Deposited Settlement Fund

Custodians – 227*; Clearing Agents – 57* USD 25,1 billion* USD 166,6 million*

* Exchange rate (As of December 2007) R$/US$ 1,771

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INSTITUTIONS PROFILES

CETIP - CUSTODY AND SETTLEMENT Addresses Rua Líbero Badaró, 425 24º andar São Paulo 01009-000 Brasil Avenida República do Chile, 230 11º andar Rio de Janeiro 20031-170 Brasil Telephone Website Year Established About CETIP +55 (11) 3111 1400 / +55 (21) 2276 7400 www.cetip.com.br 1986 CETIP was established on March 6, 1986 through an initiative of a group of associations representing the participants of the Brazilian financial market. CETIP provides depository, clearing and settlement services to the Brazilian market, offering OTC registering facilities. CETIP holds in custody corporate bonds and other private issued securities, including financial instruments as banks certificates of deposits and overnight deposits. OTC swaps and other derivatives and some special securities issued by the National Treasury. All assets are held in dematerialized form by electronic book-entry. The system automatically handles the payments of interest, redemptions, etc., for each type of asset. CETIP offers four settlement alternatives, depending on the type of transaction; real-time gross settlement in STR; real-time gross settlement via book transfer; multilateral netting at CETIP; and bilateral netting at CETIP. CETIP also provides trading facilities. The CETIP’s electronic trading system (CetipNET) is a screen-based portal for trading government and private securities and request for quote services; it also processes many types of auctions for fixed income securities. Corporate bonds, credit securities, agribusiness securities, mortgage-backed securities, banks certificates of deposits, investment funds units and OTC derivatives. USD 106.2 million*

Instruments Settled CETIP Net Worth

* Exchange rate (As of December 2007): R$/US$ 1,771

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INSTITUTIONS PROFILES

CIP (INTERBANK PAYMENT CLEARING HOUSE) Address Rua Líbero Badaró, 337 22º andar São Paulo 01009-000 Brasil Telephone +55 (11) 3188 8400 Website www.cip-bancos.org.br Year Established 2002 About CIP CIP is a payment Clearing House owned by local banks and operates two systems, SITRAF and SILOC. SITRAF is a multilateral real time settlement system that allows same day funds transfers and is an alternative to the Central Bank RTGS. Participants are required to make an early cash deposit to CIP’s account at Central Bank of Brazil based on their net daily activity. After this, they are authorized to send their payments to be settled through the clearing house. By 05:00 pm the net positions are settled in the central bank books. Participants are not allowed to go overdrawn intra-day or overnight. SILOC is a delayed net settlement system through which DOCs are settled. It is a retail payment system. System SITRAF SILOC Working Hours 6:30 am - 5:25 pm Two cycles: 8:00 – 8:20 am and 3:50 – 4:10 pm Participant 91 107 Members Daily Average USD 10.8 billion* USD 1.9 billion* Volume Daily Average 237.1 thousands* 6,548.8 thousands Number of Transactions
* Exchange rate (As of December 2007): R$/US$ 1,771

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INSTITUTIONS PROFILES

BCB (BRAZILIAN CENTRAL BANK) Address SBS Quadra 3 Edifício Sede do Banco Central do Brasil Brasília Brasil Telephone +55 0800 99 2345 Website www.bcb.gov.br/?english Year Established 1964 About BCB Besides being in charge of conducting the open market operations for monetary policy purposes, the BCB provides settlement and custody services. Under this role it operates two systems: • Sistema de Transferência de Reservas - STR (Reserves Transfer System) STR is a real time gross settlement (RTGS) system that comprises all Brazilian commercial banks and clearinghouses which have special settlement accounts at the BCB, as well as STN – Secretaria do Tesouro Nacional (National Treasury Secretariat). All fund transfers are settled with intraday finality (funds transfers are considered final – i.e., irrevocable and unconditional – at the moment they are posted in the accounts held at the BCB). The STR, which has been the hub of the Brazilian payments system since it was launched in April 2002, is crucial for the settlement of inter-bank transactions carried out in the monetary, foreign exchange and capital markets, including clearinghouses’ net outputs. In order to achieve a smooth system functioning, the BCB extends a fully collateralized, unlimited and free of charge intraday credit facility through repurchase agreement transactions to banks holding reserve accounts. • Sistema Especial de Liquidação e de Custódia – SELIC (Special System for Settlement and for Custody) The SELIC started its operations in 1979, result of a joint effort of the CB and market participants represented by the National Association of Financial Market Institutions (A). Since then, the relevant government securities in Brazil were fully dematerialized and kept in custody in SELIC. With the restructuring of the Brazilian payment system in 2002, SELIC has changed to follow international recommendations for securities settlement systems, providing immediate, simultaneous and final transfer of securities and, through a direct link with STR, bank reserves (genuine DVP-1). Further to outright purchases/sales and to repurchase agreements (repos), some facilities were developed in SELIC to enhance liquidity in the secondary market. One such mechanism allows the association of an outright purchase to an intraday repo operation, so that the buyer can settle
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it using funds provided by the repos and, later on, by means of a similar association, repurchase the bonds with the resources obtained by simultaneously selling them. Among SELIC’s extensions, the most important, under a monetary policy perspective, are the auction systems used for National Treasury’s public sales and to BCB’s open market operations. Commercial banks, investment banks and broker houses participate directly in SELIC, but mutual funds, pension funds and other institutional investors may also hold individual accounts. Special services have also been developed in SELIC to meet requirements of clearinghouses, such as special accounts where guarantees are held. STR SELIC 6:30am – 6:30pm 6:30am – 6:30pm 142 5,537 USD 288.4 billion 51.6 thousand USD 243.4 billion 7.1 thousand

System Working Hours Participant Members Daily Average Volume Daily Average number of Transactions Value of Assets Under Custody

...

USD 669.2 billion

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INSTITUTIONS PROFILES

STN (BRAZILIAN NATIONAL TREASURY) Address Esplanada dos Ministérios Bloco P Edifício Anexo 70048-900 Brasil Telephone +55 (61) 3412 3549 Website www.tesouro.fazenda.gov.br e-mail: stndivida@fazenda.gov.br Year Established 1986 About STN The National Treasury Secretariat was created on March 10, 1986, as set forth by Decree Nº 92.452, by joining the former Financial Programming Commission and the Internal Control Secretariat of the Ministry of Finance. It is the central agency of the Federal Financial Administration and the Federal Accounting System. Its creation was an important measure towards the strengthening of the nation’s Public Finances. The mission of the Brazilian National Treasury is to defend current and future taxpayers by permanently seeking a dynamic balance between revenue and disbursements, as well as transparency in public spending. Toward this end, the following principles are upheld: • Efficiency in domestic and external public debt management; • Effective participation in the definition of the public sector’s borrowing policy; • Assurance of permanent transparency in public spending; and • Efficiency in the government’s financial assets management.

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INSTITUTIONS PROFILES

ANBID (NATIONAL ASSOCIATION OF INVESTMENT BANKS) Address Avenida Brigadeiro Faria Lima, 2179 2º andar São Paulo 01451-001 Brasil Telephone Website Year Established About ANBID +55 (11) 3471 4227 www.anbid.com.br 1967 The National Association of Investment Banks (Associação Nacional dos Bancos de Investimento – ANBID) is the principal representative of the financial institutions operating in the Brazilian capital markets. Its membership comprises investment banks, asset management companies and multiple banks with investment portfolios, operating in the areas of fund management and administration, public offerings, M&A, project finance, private banking and custody, among other capital market-related services. ANBID’s activities encompass four key areas: Representation, Self-Regulation, Investors Education & Professional Certification and Information. • Representation: The representation is the basis of ANBID’s activities and aims at safeguarding the interests of its associates, through means of the dialogue with regulatory bodies, and at promoting actions and practices that allow greater efficiency, transparency and safety to the capital markets. The industries represented are: Investment Funds, Corporate Finance, Private Banking and Custody. • Self Regulation: ANBID has launched Self-regulation Codes in which the market participants go the extra mile by undertaking to create and comply with rules and best practices prepared by the institutions themselves, which, once implemented by all, result in an improvement in the quality of their activities, the Brazilian capital markets as a whole, as well as constituting additional investor protection. ANBID’s self-regulation activities are recognized by the Brazilian Securities Commission (CVM), which recommended and supported ANBID’s affiliation with IOSCO’s Self Regulatory Organizations Consultive Committee in 2005. • Information: ANBID organizes the most comprehensive database about the Brazilian capital market, providing structured information and periodical reports to its associates, market participants, press and to the public in general. • Education & Certification: ANBID develops a wide educational work focused at two main intents: Certification of Professionals who sell investment products, and Education of Investors aimed at helping individual investors to understand the mechanisms involved in their investment decisions.
April 2008 MARKET PROFILE 22

REGULATORY ENVIRONMENT

Regulators CMN (NATIONAL MONETARY COUNCIL) Address SBS Quadra 3 Bloco B Edifício Sede do Banco Central do Brasil 21º andar Brasília 70074-900 Brasil Telephone +55 (61) 414 1945 Website www.fazenda.gov.br/portugues/orgaos/cmn/cmn.asp Year Established 1964, by Law nr. 4.595, of December 31 About CMN The CMN is the highest regulatory entity within the national financial system and is responsible for setting the inflation target, to be pursued by the Central Bank, and is also responsible for guide lining the Brazilian monetary, credit and foreign exchange policies. It is made up of the Minister of Finance, who presides over the council, the Minister of Financial Planning and Budgeting, and the Governor of the Banco Central do Brasil. The CMN is the regulatory body that issued Resolution 2689 on January 26, 2000, governing international investment in Brazilian financial and capital markets. The Central Bank and the Brazilian Securities and Exchange Commission – CVM provide additional support to the CMN.

April 2008

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REGULATORY ENVIRONMENT

CVM (BRAZILIAN SECURITIES AND EXCHANGE COMMISSION) Address Rua Sete de Setembro, 111 31º andar Rio de Janeiro 20159-900 Brasil Telephone +55 (21) 3233 8242 Website www.cvm.gov.br Year Established 1976 About the CVM The CVM was created by Law 6.385 of December 7th, 1976. CVM is an independent regulatory agency with nationwide jurisdiction over securities markets, excluded government and financial institutions debt securities. Besides regulating and enforcing the related laws and its own rules, CVM is empowered to investigate and punish market participants. Market participants subject to CVM´s authority comprise issuers, exchanges, OTC and derivative markets, intermediaries, custodians, registrars, CSDs, clearing houses, asset managers, investment funds, auditors, analysts, investment consultants and investors, both institutional and retail. The Commission is composed by five members, being one Chairman and four Commissioners, appointed by the President and approved by the Senate, for alternate five year terms. Decisions are taken by majority vote. There are twelve executive divisions, coordinated by one CEO, and an independent Law Department. CVM is an active ordinary member of IOSCO and Member of the Emerging Markets Committee Advisory Board. Currently CVM co-chairs one of the five working groups set up by the Emerging Markets Committee - EMC. WG#5 is a working group on investment management (Investment Funds) and the current mandate is on Collective Investment Schemes’ administration among emerging markets. Besides WG#5 CVM participates in various groups and task forces. CVM is also a member of the Council of Securities Regulators of the Americas – COSRA.

April 2008

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REGULATORY ENVIRONMENT

BCB (BRAZILIAN CENTRAL BANK) Address SBS Quadra 3 Edifício Sede do Banco Central do Brasil Brasília 70074-900 Brasil Telephone +55 (61) 0800 99 2345 Website www.bcb.gov.br/?english Year Established 1964 About BCB The core objectives of the BCB are the stability of the purchasing power of the national currency and the soundness of the financial system. Based on Laws 4,595 and 10,214, the BCB has a mandate to regulate issues related to safety and efficiency in Brazilian Payment System. As overseer of the Brazilian payment system and, following Resolution 2,882 of the Conselho Monetário Nacional (National Monetary Council), the BCB must ensure soundness, normal functioning and development of the Payment System, regarding safety and efficiency issues improvement. The Resolution empowers the BCB to regulate, authorize the functioning – and supervise all clearing and settlement systems. Please refer to “Market Participants” section for information on its activities as custody and settlement services provider.

SRF (SECRETARIAT OF FEDERAL REVENUES) Address Rua Avanhandava, 55 1º andar Bela Vista São Paulo 01306-900 Brasil Telephone +55 (11) 2113 2211 Website http://www.receita.fazenda.gov.br/principal/Ingles/Versao2/default.asp Year Established About SRF The Secretariat of Federal Revenues (SRF) is the Brazilian Tax Authority subordinated directly to the Finance Ministry. It is responsible for the administration of the federal internal taxes and customs duties. The goals of the SRF are to enhance voluntary compliance of tax-related obligations, collect funds for the State, and undergo auditing and law enforcement actions in order prevent tax evasion and promote fiscal justice. Among its functions are the revision, update and edition of normative acts and the formalization and interpretation on tax legislation. It defines the fiscal aspects of the Brazilian Financial Market.

April 2008

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REGULATORY ENVIRONMENT

Voluntary self-regulators ANBID (NATIONAL ASSOCIATION OF INVESTMENT BANKS) Address Avenida Brigadeiro Faria Lima, 2179 2º andar São Paulo 01451-001 Brasil Telephone +55 (11) 3471 4227 Internet www.anbid.com Year Established 1967 The National Association of Investment Banks (Associação Nacional dos Bancos de Investimento – ANBID) is the principal representative About ANBID of the financial institutions operating in the Brazilian capital markets. Its membership comprises investment banks, asset management companies and multiple banks with investment portfolios, operating in the areas of fund management and administration, public offerings, M&A, project finance, private banking and custody, among other capital market-related services. ANBID’s activities encompass four key areas: Representation, Self-Regulation, Investors Education & Professional Certification and Information. • Representation: The representation is the basis of ANBID’s activities and aims at safeguarding the interests of its associates, through means of the dialogue with regulatory bodies, and at promoting actions and practices that allow greater efficiency, transparency and safety to the capital markets. The industries represented are: Investment Funds, Corporate Finance, Private Banking and Custody. • Self Regulation: ANBID has launched Self-regulation Codes in which the market participants go the extra mile by undertaking to create and comply with rules and best practices prepared by the institutions themselves, which, once implemented by all, result in an improvement in the quality of their activities, the Brazilian capital markets as a whole, as well as constituting additional investor protection. ANBID’s self-regulation activities are recognized by the Brazilian Securities Commission (CVM), which recommended and supported ANBID’s affiliation with IOSCO’s Self Regulatory Organizations Consultive Committee in 2005. • Information: ANBID organizes the most comprehensive database about the Brazilian capital market, providing structured information and periodical reports to its associates, market participants, press and to the public in general. • Education & Certification: ANBID develops a wide educational work focused at two main intents: Certification of Professionals who sell investment products, and Education of Investors aimed at helping individual investors to understand the mechanisms involved in their investment decisions.
April 2008 MARKET PROFILE 26

REGULATORY ENVIRONMENT

ANDIMA Address Telephone Internet Year Established About ANDIMA

Avenida República do Chile, 230 13º andar Rio de Janeiro 20031-170 Brasil Avenida Nações Unidas, 8.501 11º andar Conj. 113/114 Pinheiros São Paulo Brasil +55 (21) 3814 3803 +55 (11) 3115 1313 www.andima.com.br or www.andima.com.br/english 1971 ANDIMA – The National Association of Financial Market Institutions is a not-for-profit civil entity that brings together banks, brokers, dealers and asset management institutions and works toward the strengthening of the Brazilian fixed-income market. The initiatives of the Association are aimed at offering the players in this market security, agility, transparency and liquidity in their operations by representing its participants, supplying self-regulatory instruments, developing suitable infrastructure and widely disclosing information to society, as detailed bellow. • Representation: ANDIMA’s activities include technical proposals, improvement of rules, dialogue with authorities, new products and information issues that are raised and discussed through its structure of permanent committees and provisional working groups. • Self Regulation: through the Ethics Committee and the Code of Ethics, the Association promotes conciliation among members and discloses principles for members’ conduct. The Market Operations Code sets rules and procedures for transactions and consolidates pricing and contracts standards for the main domestic bonds. • Transparency: ANDIMA discloses daily indicative prices for government and private bonds traded in the domestic market. It also provides studies, updated rules and electronic tools concerning the bonds market, as well as a price reporting system and benchmarks for Treasury bonds. • Infrastructure: the Association works in close cooperation with private and public entities, and regulatory bodies in the process of enhancing communication and trading and settlement conditions of the OTC fixed income market in Brazil.

April 2008

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REGULATORY ENVIRONMENT

Legal Reference FOREIGN INVESTMENT IN BRAZIL Foreign Investments Law 4131/62 amended by Law 4390/64 Decree 55762/65 – regulates the law 4131/62 Foreign Portfolio CMN Resolution 2689/00 Investments CVM Instruction 325/00 BCB Circular 2963/00 BCB Circular 2975/00 Foreign Investors CVM Instruction 437/06 Identification CVM Instruction 419/05 CVM Instruction 387/03 CVM Instruction 325/00 CVM Instruction 301/99 Agricultural CMN Resolution 2687/00 Commodities

April 2008

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REGULATORY ENVIRONMENT

TAXATION Legal Entity Federal Taxpayer Registry (CNPJ) Income Tax Income Tax Exemption on Government Bonds Low Tax Jurisdiction Investors Taxation on Financial and Capital Markets

RFB Normative Instruction 568/05 (Amended by RFB NI 748/2007) SRF Normative Instruction 25/01, 487/04 and 489/05 Law 11.312/06 SRF Normative Instruction 188/02 Law 11033/04

April 2008

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REGULATORY ENVIRONMENT

CAPITAL MARKET STRUCTURE Capital Market Law Law 6385/76 (amended by Law 10303/01, Law 10411/02 and Decree-law 3995/01) Corporate Law Law 6404/76 (amended by Laws 9457/97 and 10303/01) Organization of CMN Resolution 2690/00 (amended by CVM Instruction 461/07) Exchanges and Guarantee Fund Public Offerings CVM Instruction 400/03 Tender Offerings CVM Instruction 361/02 Material Facts’ CVM Instruction 358/02 Disclosure and Trading CVM Instruction 369/02 Limits GOVERNMENT BONDS National Treasury Issuance of Bonds Government Bonds Characteristic

Law 10179/01 amended by MP2181-45/01 Decree 3859/01

April 2008

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REGULATORY ENVIRONMENT

DEPOSITORY Fiduciary Ownership Identification of Beneficial Owners Dematerialization Depository and Custodian Activities

CVM Instruction 115/90 CMN Resolution 1656/89 Law 6404/76 CVM Instructions 122/90, 310/99 and 387/03 Law 6404/76 Law 6385/76 CVM Instruction 89/88 CVM Instruction 212/84 CVM Instruction 261/97

CLEARANCE AND SETTLEMENT Minimum Capital Central Bank Circular 3057/01 Requirements for Clearinghouses Finality and CMN Resolution 2882/01 Irrevocability of Central Bank Circular 3057/01 Settlements Net Settlement Law 10214/01 Central Bank Circular 3057/01 Settlement Account at Central Bank Circular 3101/01 STR Delivery vs. Payment CMN Resolution 2882/01 Central Bank Circular 3057/01 Clearinghouses’ CMN Resolution 2882/01 Governance Transparency on CMN Resolution 2882/01 Clearinghouses’ Activities
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REGULATORY ENVIRONMENT

RISK MANAGEMENT Risk Controls (operational limits, collateralization, mutualization, credit lines, segregated net worth, insurance) Lamfalussy-Plus Criteria Priority access on the securities posted as collateral Certainty of Settlements

Law 10214/01 CMN Resolution 2882/01 Central Bank Circular 3057/01

CMN Resolution 2882/01 Law 11101/05 Law 10214/01 Law 10214/01 Central Bank Circular 3057/01

SELF REGULATION ANBID

ANDIMA Stock Exchanges, Clearing Houses and Depositories

Self-Regulation Code for Public Securities Offerings Self-Regulation Code for the Investment Funds Industry Self-Regulation Code for Qualified Service to the Capital Market Self-Regulation Code for the Private Banking Activity in the Domestic Market Code of Ethics Market Operational Code Regulations, Operational Procedures and Circulars

April 2008

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REGULATORY ENVIRONMENT

OTHERS Anti-money Laundering

Securities Lending Bonds Lending Buy/ Sell-back (repo) Transactions (operações compromissadas) Basel Rules Contingency Plan

Law 9613/98 Central Bank Circular 2852/98 Central Bank Circular 2826/98 Resolution CMN 3278/05 Resolution CMN 3197/04 Resolution CMN 3278/05

Auditing RDE (Eletronic Declatory Registration) Investment Funds

Resolution CMN 2099/94 (amended) and 3444/07; and CB Communication 2746/04 Law 10214/01 CMN Resolution 2882/01 Central Bank Circular 3057/01 CMN Resolution 2267/96, 2554/98, 2882/01, 3056/02 CMN Resolution 3455/07 Instruction CVM 409

April 2008

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BRAZILIAN PAYMENT SYSTEM

OVERVIEW In 2002 the BCB launched a huge reform on the Brazilian Payment System. The aim of the restructuring was the reduction of systemic risk and the improvement of the market infrastructure towards the adoption of the best practices following the international recommendations (BIS, World Bank, etc). A real time gross settlement system (STR - Sistema de Transferência de Reservas) and a national messaging system (RSFN – Rede do Sistema Financeiro Nacional) support the functioning of the new infrastructure. STR (CENTRAL BANK MONEY TRANSFERS SYSTEM) The Brazilian Central Bank owns and operates the STR that functions on a real time basis gives intraday, giving real time finality to the transactions settled through it. All commercial banks and systemically important clearinghouses must have an account at Central Bank and are able to transfer funds through the STR. RSFN (NATIONAL FINANCIAL SYSTEM NETWORK) The National Financial System Network (RSFN – Rede do Sistema Financeiro Nacional) was developed by the participants, including the Central Bank, to support communication amongst financial institutions. The system is based on the XML language and the message and content technology are standardized. Banks and clearinghouses send payment instructions to the Central Bank through this messaging system. The funds transfers occur via STR. TED (ELECTRONIC TRANSFER) TED is a same-day good funds wire transfer, which is settled in a real-time basis. TEDs can be settled either through the STR or the CIP, a private payments clearing house. DOC (CREDIT ORDER DOCUMENT) DOC is a next day good funds wire transfer for values below BRL 5,000, approximately USD 2,000. CHECK Brazil has a very efficient clearing system that covers all the country and whereby nationwide check clearing takes place in no more than 2 working days.

April 2008

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CASH ACCOUNTS

Foreign exchange scenario and cash account structures available for international investors CASH ACCOUNT STRUCTURES Final investors (called Passengers) are registered under a main registration entity (called the Omnibus Account Holder). Assets are registered in segregated safekeeping accounts in the name of the Passengers. All transactions are settled through local accounts denominated in local currency (Real). Cash accounts are set as part of the overall investor registration process, with no further requirements. Different structures for safekeeping / cash accounts are offered in the market. Please contact your local custodian bank for further information. Activity through the local cash accounts must be necessarily linked to the settlement of securities transactions. FOREIGN EXCHANGE SCENARIO Foreign exchange transactions are registered at the Central Bank. Each Omnibus Account Holder is registered at the Central Bank for foreign exchange statistical purposes under the RDE (“Registro Declaratório Eletrônico”), Electronic Declaratory Registration system. All foreign exchange purchases and sales related to Passengers’ securities transactions are registered through the RDE in the name of each Omnibus Account Holder. There are no restrictions on FX sales. The local custodian is responsible for updating the RDE on a monthly basis by sending Omnibus Account portfolios – duly marked to market – to the Central Bank. Outflows can be booked within the marked to market portfolio. FX transactions must be booked through a local foreign exchange dealer authorized by the Central Bank, and can be initiated locally by any one of the parties concerned: the Local Custodian and/or the Legal Representative (on behalf of the Omnibus Holder), the Omnibus Holder directly or even by the underlying Passengers. Regardless the participant that initiated the FX deal, the Legal Representative, on behalf of the Omnibus Holder, and the local FX dealer are always the counterparts in the FX agreement. Third party foreign exchange transactions are also freely permitted.

April 2008

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CAPITAL MARKETS

CAPITAl

MARKETS

April 2008

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MARKET HIGHLIGHTS

Types of Securities

Numbering System Exchanges

Equities and Equity Derivatives Common and Preferred Shares, Exchange Traded Funds, Closedend Funds, Rights and Receipts, BDRs. POP (Protected Participative Investment) Futures, Forward and Options on Equities ISIN BOVESPA (Brazil’s Stock Exchange)

Derivatives Futures, Options and Swaps on interest rates, stock indexes, price indexes, FX and actuals

Corporate Bonds Debentures, Promissory Notes, Asset-backed Securities, REIT (Real Estate Investment Trust), Mortgage backed Securities

Government Bonds Fixed rate bonds, InflationIndexed Bonds, Floating interest rate bonds, Foreign Exchange-Indexed Bonds. Maturities from 6 months up to 40 years ISIN BM&F (Brazilian Mercantile & Futures Exchange)

ISIN BM&F (Brazilian Mercantile & Futures Exchange) BOVESPA (Brazil’s Stock Exchange) BM&F (Brazilian Mercantile & Futures Exchange) BOVESPA (Brazil’s Stock Exchange, CETIP - Custody and Settlement Derivatives organized market at BM&F: Open Interest*: 19.9 million contracts/US$ 1.2 trillion (notional amount) 2007 daily average*: 1,740,268 contracts/ US$ 67.8 billion

ISIN BOVESPA (Brazil’s Stock Exchange)

OTC Market

Organized OTC managed by BOVESPA

Registration Systems: BOVESPA (SOMA FIX and BOVESPAFIx) and CETIP (CETIPNet) Corporate Debt & Securitization Capitalization: USD 126.32 billion*

BM&F and SELIC (Central Bank’s Special System of Settlement and Custody)

Market Statistics

Market Capitalization*: USD 1,399 billion / Number of Trades (daily average)*: 153 thousands / Daily Average Traded Value*: USD 2,555 million / Listed Companies*: 449

Domestic Government Debt: USD 692.03 billion (December 2007) / Daily Average Traded Value*: USD 9.3 billion (BM&F/SISBEX) Daily Average Traded Value***: USD 5,4 billion (SELIC) Daily average traded volume***: 207 transactions

April 2008

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MARKET HIGHLIGHTS

Equities and Equity Derivatives Options on Equities: Open Interest (in December 2007): 2.7 million contracts Notional value (in 2007): US$ 1,156.5 billion) Daily average (number of contracts traded –in 2007): 1.5 million contracts (US$ 81.2 million) Capital Raised in 2007: USD 42.8 billion Number of IPOs in 2007: 64 Market Indexes IBOVESPA – BOVESPA Equity Index, IBrX, IBrX-50, IVBX, IEE – Electric Power Index, ITEL – Telecom Index, IGC – Corporate Governance Index and ITAG – Special Tag Along Stock Index ISE - Corporate Sustainability Index INDX – Industrial Sector Index

Derivatives

Corporate Bonds

Government Bonds Secundary Market Daily Average Traded Value*: Cash transactions among financial institutions: USD 8.3 billion Repo transactions among financial institutions: USD 133.7 billion Daily Average Traded Volume: Cash transactions among financial institutions: 1,665 transactions Repo transactions among financial institutions: 3,679 transactions IRF-M, IMA-B, IMA-B5, IMAB5+, IMA-C, IMA-C5, IMAC5+, IMA-S, IMA GLOBAL SELIC

N/A

N/A

April 2008

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MARKET HIGHLIGHTS

CSD / SSS CCP Settlement Cycle

Equities and Equity Derivatives CBLC CBLC T+3 (equities) T+3 of the expire date (Futures) T+n (n=expire date, Forward) T+1 (settlement of option premiums and daily settlement of accounts – variation margin – for futures)

Derivatives BM&F and CETIP BM&F T+0 and T+1

Corporate Bonds CBLC and CETIP CBLC T+0 and T+1

Government Bonds SELIC BM&F T+0 and T+1 (mostly); can be customize up to T+23

* As of December 2007 ** Exchange rate (December 2007): R$/US$ 1.77. *** The value includes the repo transactions and cash transactions with the participation of Brazilian Central Bank and theBrazilian National Treasury and other different kinds of transactions.

Settlement Method Funds Availability Overdraft Restrictions Currency (ISO)

Equities and Equity Derivatives Funds: central bank money Securities: Book Entry Same day Yes Brazilian Real (BRL)

Derivatives Funds: central bank money Securities: Book Entry Same day Yes Brazilian Real (BRL)

Corporate Bonds Funds: central bank money Securities: Book Entry Same day Yes Brazilian Real (BRL)

Government Bonds Funds: central bank money Securities: Book Entry Same day Yes Brazilian Real (BRL)

April 2008

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EQUITIES AND EQUITY DERIVATIVES

INSTRUMENTS Common Shares, Preferred Shares, Options on Stocks and on Indexes, Forward Contracts Depositary Receipt Programs (BDR - Brazilian Depositary Receipts), ETFs, Warrants and POP. TRADING ENVIROMENT Trading Mechanism: MEGABOLSA Direct Market Access - DMA Facilities

MEGABOLSA, BOVESPA’s trading system, is the local version of the NSC system, developed by Athos Euronext in France and used in other 20 exchanges around the world. DMA facilities are available for individual and institutional investors to send orders directly to BOVESPA’s order book. Participant Brokerage Houses can offer an automatic and direct access to BOVESPA’s MEGABOLSA trading system, using different routing alternatives. For retail investors, it was implemented a gateway for internet access, known as Home Broker. Individuals are allowed to send orders via the internet, accessing their Brokerage House’s website. Institutional investors can also send orders directly to BOVESPA’s order book through a similar mechanism known as Institutional Connection. DMA represents 35% of total trades at BOVESPA. In both cases, a Straight Through Processing (STP) concept is adopted from the entering of the order, its execution, to its final and irrevocable settlement. All investors must be previously registered and authorized by the Brokerage Firm and each trade has to be identified with the investor identification code. BOVESPA does not establish any technical limits (minimum or maximum) for the orders; nevertheless, each Brokerage House has the ability to establish specific trading limits according to the credit limits for each investor. The market makers are not mandatory in the Brazilian market. In BOVESPA they are competitive and are obliged to fulfill certain requirements established by the exchange such as: be present in the market on a continuous basis; enter bid and ask prices for a given volume of equities; and respect a maximum bid and ask spread. It is important to emphasize that the market maker orders compete on equal basis with other orders, which means that they do not have any execution or visibility privileges. The order book is organized and executed according to best price/time priority. Full transparency of the order book. All the offers are displayed in real time.

Market Makers

Order Precedence Rules Pre-trade Transparency

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EQUITIES AND EQUITY DERIVATIVES

Post-trade Transparency Price Fluctuation Limits

Trading Halts

Circuit Breaker

Opening Procedures

Closing Procedures

Types of Orders Tick Size Trading Hours and Off Hours Trading Turnarounds
April 2008

BOVESPA disseminates all trading data in real time. The market data associated with these trades (including the last price, higher and lower, intra-day oscillation) is made available through BOVESPA’s market data feed facility to data vendors. There are maximum daily fluctuation limits for stock prices, CVM’s Instruction no.168 and BOVESPA’s own regulations define procedures to be taken when a stock price varies above certain parameters in relation to the last trade or to the previous day’s closing price (for the most liquid stocks 3% oscillation is enough to trigger those procedures). According to this rule, whenever the parameter for a specific stock is reached, the operation has to pass through an auction. In those cases, BOVESPA will interrupt trading on the specific stock and start an auction, according to the price oscillation observed. The higher the oscillation observed, the longer the auction. The price established in the auction is registered and trading on the stock resume. BOVESPA may halt the trade on a particular stock due to: - Abnormal conditions arising from the issuer filing for bankruptcy, judicial or extra-judicial reorganization - Determination from the Securities and Exchange Commission - Information asymmetry arising from the issuer failing to disclose any material information The circuit breaker mechanism was adopted by BOVESPA in October 1997. This mechanism is activated only in case of a large market decline, based on the IBOVESPA closing level of the previous session. The rule currently in force is: - Trading halt of 30 minutes for a decline of 10%; - An additional trading halt of 1 hour if the index turns down another 5%, completing a total decline in the day of 15%. In the last half-hour of the trading session, there is no halt in trading. On the regular trading session, there is a fifteen-minute pre-opening phase, which consists in the placement of orders in the system to establish the opening price (“opening call”). The opening price of the stocks not traded during this preopening phase will be the price of the first trade of the day on the trading session. There are “closing calls” during the last five minutes of trading for all the stocks included in the hypothetical BOVESPA Index and IBrX100 index portfolios. The purpose of the “call” is to provide a more transparent definition of the closing price of the day. BOVESPA’s trading system accepts the following types of orders: market order, limit order, managed order, discretionary order, order for funding, stop order, matched order and iceberg order. Short selling and day-trade operations are allowed. The minimum price variation unit is R$ 0,01. The regular trading session goes continuously from 10:00 a.m. to 5:00 p.m. (or from 11:00 a.m. to 6:00 p.m. during daylight saving time months – October to February). The trading after regular hours goes from 5:30 p.m. to 6:30 p.m. on the cash market for the stocks that had prices established during the regular trading session. Allowed
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EQUITIES AND EQUITY DERIVATIVES

SETTLEMENT SYSTEM Settlement Process CBLC technological infrastructure is able to link the BOVESPA´s trading systems and the clearinghouse on a real time basis (STP). The trades executed at BOVESPA are then locked-in for settlement at CBLC, which becomes a central counterparty for all clearing agents at the time of the trade. CBLC calculates a single net cash position for all markets (equities, derivatives on equities and fixed income instruments) reducing participant’s liquidity requirements and allows the optimization of collateral. The regular equities settlement cycle is T+3. Options premiums are settled on T+1. For futures the daily settlement of accounts also occurs on T+1 while the settlement date is T+3 of the expiry date. For forward trades the settlement date is T+n, the expiry date. The Brazilian Securities and Exchange Commission (CVM) requires that all trades be allocated at the beneficial owner level, brokers having until 9:30 pm on T+1 to do so for trades carried out in the cash market and until 9:30 pm on T+0 for the derivatives market. In the allocation process of trades with equities, brokers must identify the investor’s account for settlement if different from the ones under their own responsibility and the custodian must confirm these instructions by 8:00 pm on T+2. For settlement purposes, at 10:00 am on T+3, the custodians must instruct the securities transfers from their clients’ accounts to a CBLC’s transitory securities settlement account. Securities remain in this account until final settlement. Based on the securities actually delivered, at 2:00 pm on T+3 a message is sent to the clearing agents’ settlement banks through the Central Bank’s messaging system (known as National Financial System Net - RSFN) with the final net cash positions encompassing all markets (equities, derivatives and corporate bonds). The net cash balance is calculated on an individual Clearing Agent basis. The latter is responsible before CBLC for its obligations and the obligation of its clients (brokers, dealers, institutional investors). The clearing agent’s bank must instruct the transfer of funds until 3:00 pm to the CBLC cash settlement account at the Central Bank. At 3:25 pm, DVP (model 3) occurs with the simultaneous, final and irrevocable transfer of securities from the securities settlement account to the buyers’ account at the Depository Service and payment of the funds to the clearing agent’s bank to the selling broker through the STR.

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EQUITIES AND EQUITY DERIVATIVES

Delivery Fails/ Short Selling

Buy-ins

Public Offerings

If shares are not delivered at 10:00 am on T+3, CBLC automatically assigns the failed position to the BTC (Securities Lending System) for potential borrowing. If the failed position is available for borrowing, CBLC opens a borrowing transaction in the name of the failing investor. Should the position not be available, CBLC keeps the delivery outstanding and charges the failing clearing agent a 0.20% penalty fee. The seller has until T+4 to cover the failed delivery. If securities have not been delivered by 10:00 am on T+4, CBLC again assigns the position to the BTC Lending Program for potential borrowing. If the position be again not available, then the clearing agent is charged further 0.20%. CBLC then starts the buy-in procedure. On T+4, CBLC issues a buy-in order to the buyer for execution by T+6. The buyer’s broker must confirm the completion of this buy-in order to CBLC by T+7. Once confirmed, the seller must pay all the related execution expenses, as well as the difference between the buy-in value and the value of the original trade. Public offerings are settled on real time gross basis. In this case, there is no need to pledge collateral.

April 2008

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EQUITIES AND EQUITY DERIVATIVES

RISK CONTROLS Overview

Minimum Participants Requirements Operational Limits

Margin Requirements

Settlement Fund

Credit Lines

Risk Analysis

CBLC acts as central counterpart for the equity, equity derivatives and other instruments traded at BOVESPA, as well as, the securities lending service (BTC). Once the trades are matched in the trading systems, the information is sent electronically to CBLC who became a central counterpart in real time. The Law 10214 of 2001 provides a solid legal basis for CCP activities and guarantees the priority over securities posted as collateral. Clearing Agents have to satisfy a minimum set of conditions. Participants are required to prove operational and financial capacity in order to comply with the responsibilities that are inherent to their role and must be approved by the Central Bank and by CBLC Board. In order to operate in the markets in which trades are settled by CBLC (equities, equity derivatives and fixed income markets), the Clearing Agents are required to have previously posted collateral proportional to the risks that will result from their trades. According to the amount of collateral that has been posted, CBLC defines operational trading limits for each Clearing Agent. The Clearing Agents, in turn, define limits for their clients, brokers, dealers and qualified investors. The limits are calculated and controlled in real time. They can also be increased if the Clearing Agent pledged more collateral at CBLC. The system CM-TIMS (acquired from the OCC, the Option Clearing Corporation) calculates the margins required from each individual investor to cover the risk of the open positions in the derivatives markets and in the securities lending service. The risk calculation is made within a 95% confidence level based on historical scenarios. Brokers, dealers and Clearing Agents have direct access to CM-TIMS system. In addition, the market participants must contribute to CBLC’s Settlement Fund. In order to stipulate the Clearing Agents contribution to the Settlement Fund, the RiskWatch system (acquired from the Canadian company, Algorithmics) calculates daily the participants’ exposure by stress testing the entire portfolio (both for regular settlement cycle and open positions in derivatives markets and securities lending service) under crisis scenarios (Mexican, Asian, Russian and Brazilian crisis) at a 99% confidence level. The Settlement Fund considers the potential default of the two Clearing Agents with the largest exposure. CBLC maintains stand-by credit lines with a set of banks to deal with payment failures over a short period. CBLC’s credit lines allow it to borrow against the assets involved in the failures not immediately available. The credit lines are large enough to cover the two largest debt positions (in compliance with the Lamfalussy-Plus criteria). For the risk analysis purposes, all CBLC participants have access to the same systems CBLC employs in the risk management process. The participants can simulate their risks and calculate their collateral requirements.

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Collateral Management

Risks and collateral pledged CBLC’s derivatives markets and the securities lending service are segregated and controlled at the level of the final investor. In the case of a default by the Clearing Agent and/or the broker, the positions and respective collateral of the non-defaulting investors are transferred to a non-defaulting Clearing Agent and/or broker. The collateral of the defaulting investor is used to cover the losses on its position and respective broker and Clearing Agent are co-responsible for covering such losses. The system CBLC uses to control the collateral posted by the Clearing Agents, brokers and final investors, has the following characteristics: • permits the deposit, transfer and withdrawal of assets; • shows the total value of collateral required at the level of the final investor, broker and Clearing Agent; • marks to market the value of the collateral and applies the respective discount on a daily basis; • controls the diversification limits as required by the CBLC; • up-dates the pledged positions in real time; • links all the Clearing Agents and brokers with the CBLC service CBLC accepts securities traded in the international markets as collateral. These securities must be transferred to CBLC’s collateral accounts held at the Depository Trust Company & Clearing Corporation (DTCC) or Euroclear. In an event of a payment fail, CBLC applies the following procedures: 1) Execution of the collateral pledged by the defaulting participant; 2) Execution of the contribution made by the defaulting participant to a mutualized Settlement Fund; 3) Use of the contribution made by all Clearing Agents to the Settlement Fund in order to cover losses still uncovered by the above mechanisms (loss-sharing among the Clearing Agents). 4) Use of the contribution made by CBLC to the Settlement Fund in order to cover the remaining losses; 5) Use of its Segregated Net Worth.

Collateral Accounts Abroad Payment Fail

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SECURITIES LENDING Overview

Participation

Registration of Offers

The CBLC Securities Lending Service (BTC) is a system developed and operated by CBLC in order to centralize lending and borrowing transactions with equities and fixed income instruments traded at BOVESPA. The system, launched in 1996, provides investors and market participants with many facilities such as registration of lending and borrowing offers, adjustment of corporate actions (dividends, interests, earnings, subscription etc) and settlement of transactions. CBLC acts as a central counterparty for all trades which are fully collateralized. CBLC Depository Agents and brokers are the direct participants of the CBLC Securities Lending Service. The participants need to adhere to the BTC rules signing a specific contract with CBLC. The final investors also need to sign a contract authorizing the Depository Agents or brokers to operate on their behalf. The BTC system allows the registration of offers by lenders and borrowers. The offers are registered in the BTC system through the intermediation of Depository Agents and the brokers. The amount of securities, the interest rate, the maturity and modality of contract are defined in the offer. After the registration of a lending offer, the system verifies if the investor holds the securities at the CBLC Depository Service. The securities are kept in the name of the investor until the closure of the loan transaction. When the transaction is closed, the system verifies if the borrower has pledged enough securities as collateral and automatically applies a lien on them. Lenders and borrowers are able also to register closed transaction in the BTC system without the interference of third parties. Participants and investors may engage themselves in three modalities of lending contracts: • Fixed-term contracts • Contracts where the borrower may deliver the securities prior to the maturity • Contracts where both the lender and the borrower may terminate the transaction prior to the maturity. In this case, if the lender calls back the lent securities, the borrower has four days to deliver them.

Modality of Contracts

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Corporate Actions Adjustment

BTC system makes the necessary adjustments to any corporate actions announced by the issuer whose securities are involved in a loan transaction. In relation to dividends, interests and any corporate actions involving money, the respective amount is debt from the borrower’s account and credit to the lender’s account at the same time the other entitled investors are credit by CBLC Depository Service, taking in to consideration the borrower tax condition. In relation to corporate actions involving securities, the amount of lent securities is adjusted proportionally to the announced corporate action. The settlement of a loan transaction is made according to the adjusted amounts. In relation to subscription and other voluntary corporate actions, the lender must communicate CBLC through its Depository Agent, within the announced period, his intention to exercise his/her rights, providing the necessary payment. In case the borrower do not return the subscriptions rights to the lender, it is assured to the lender the possibility to subscribe those shares he is entitled through the use of the BTC. CBLC acts as a Central Counterparty for all lending/borrowing transactions. The risk controls encompasses margin calculation (System: CM-TIMS), risk valuation measured in stress scenarios (System: Riskwatch) and definition of position limits. The required collateral to cover a borrowing transaction must be 100% of the value of the borrowed securities plus an amount corresponding to two days of volatility in the price of the referred securities. The margin percentage mentioned before is calculated for each security and is disclosed at the CBLC website. The margins are daily recalculated and consider all the investor’s positions in the derivative markets. The investor must pledge, through the intermediation of a broker, the securities accepted as collateral in order to cover the risks brought by his/her open positions. CBLC defines limits for open positions by investor, broker, Clearing Agent, and for the entire market. The limits are established based on the free float of the equities and aim at preventing concentration of open positions. CBLC discloses the defined limits at its website.

Risk Controls

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Information Disclosure

CBLC makes available to BTC participants screens, reports, electronic files and XML messages that allow the total control of loan transactions since the registration of offers until the conclusion of the settlement process. Besides statements sent by CBLC, final investors receive every fifteen days a specific statement with all the borrowing and lending positions. In addition, investors can verify their open positions through the Internet (CEI – Electronic investors’ Channel) and, in case of any transfer of shares (any debt in the investor’s account), an alert is sent. Investors can also request reports showing the open and settled positions. These reports can be obtained with brokers and Clearing Agents that have registered the transactions. CBLC also discloses to the whole market the aggregated open positions through the BOVESPA’s Daily Bulletin, newspapers and at the CBLC website. Investors and participants can also find at the CBLC website the average interest rates negotiated at the BTC contracts closed in the last fifteen days. The Brazilian Tax Authority – SRF Normative Instruction 742, of May 25th, 2007, governs the taxation applicable on Securities Borrowing and Lending (SBL) transactions in Brazil (See more detail in the section “TAXES”). Securities borrowing and lending transactions are permitted and regulated by National Monetary Council’s (CMN) Resolution 3539/08 and by Brazilian Securities and Exchange Commission (CVM) Instruction 441/2006.

Tax Legal Basis

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CORPORATE ACTIONS Peak Seasons Types Information Sources Announcement Timing Pay Date Time Lag (Ex-date and Record Date)

Payment (May), AGMs (March, April). Rights issues, subscription rights, bonus issues, subscription receipts, dividends, interest on equity capital, coupon payment, amortization, redemptions, interest distribution, stock dividends, splits, reverse splits, spin-offs, mergers, conversions. BOVESPA’s website, CVM website, Newspapers, Diário Oficial (The Official Gazette), BOVESPA’s Daily Bulletin (Boletim Diário de Informações - BDI), Companies, Vendors. Announcements can be made on the date of the AGM convening notice (if the corporate actions are previously defined) or following the AGM (usually, one day before ex-date). According to the Brazilian Corporate Law, within 60 days of the AGM (standard rule) or as determined by the AGM. Equities: ex-date is one day after the shareholders meeting (or as established by the meeting). The current owners and the buyers on the last cum rights trading session (ex-date–1= record date) are entitle to receive dividends, interests and any other right related to theirs stocks. From CBLC perspective, the entitlement is granted to investors who have the stocks in their portfolio at the night of the third day after the last cum rights trading session (Record Date = Settlement Date). Fixed income: Similarly, entitlements are granted to the current owners and the buyers on the last cum rights trading session (ex-date–1). From the depository perspective, record date is SD, being T+0 or T+1. All decisions and any changes shall be informed to BOVESPA and CVM on the same day as the shareholders meeting. Brazilian Law determines that the CVM is the competent authority to establish penalties according to the type of irregularity. Entitlements are determined based on the record date after settlement is completed. CBLC automatically adjusts entitlements through the appropriate clearing agents in case of late settlement.

Notice Changes Penalties for Improper Announcements Entitlement Procedures for Claims

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MARKET MEETING INFORMATION Securities with Voting Common shares; preferred shares only if the company fails to pay dividends during three consecutive years; Rights preferred shares of companies listed on the BOVESPA’s Corporate Governance Level 2 are granted voting rights in specific circumstances, such as merger and spin off of the company etc, (for full information please see SHAREHOLDER RIGHTS section). AGM Peak Season AGMs are held in the first four months after the fiscal year-end (normally the fiscal year coincides with the calendar year); EGMs, when required. Notification of GMs Determined by local Corporate Law and enforced by the CVM. Notice Publication BOVESPA’s website, CVM website, newspapers, Diario Oficial (The Official Gazette), BOVESPA`s Daily Bulletin (BDI), Companies and Vendors. Notification Period Companies are required by law to announce the meeting date at least three times prior to the event. Additionally, the first announcement must be at least 15 days in advance of the meeting. Meeting Results The legislation requires that BOVESPA and the CVM be advised of the results of the meeting within 24 hours or before Publication the opening of the following market session. The meeting’s minutes must be published in the press.

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MARKET VOTING INFORMATION Voting Entitlement Voting entitlements are calculated according to the shareholding position on the date of the GM or on a specific date defined by the company. Voting Restrictions There are no voting restrictions. Method of Voting Attendance is required. Investor is allowed to delegate attendance to a representative indicated through a Power of Attorney. Representative must necessarily be a lawyer or another shareholder. Trade Halting Shares are not blocked for trading during the GMs. Re-registration Market is fully dematerialized and re-registration is completed automatically upon trading. Requirement Vote Counting Method One share corresponds to one vote. Split Voting There are no restrictions in the local regulations forbidding split voting. Partial Voting There are no restrictions in the local regulations forbidding partial voting. Required Documents Shareholding statement and Power of Attorney, if representative attends. Power of Attorney POA is valid for one year from date of issue, as per determined by Brazilian Corporate Law.

SHAREHOLDER RIGHTS AND DISCLOSURE BOVESPA created the NOVO MERCADO as a special listing segment for companies committed to higher corporate governance Overview: practices, over and above those required by the Brazilian law and established in BOVESPA’s regular listing rules. The admission to Novo Mercado implies the compliance with the “good practices of corporate governance”, which are more rigid than those required by the current legislation in Brazil. These rules, consolidated in the Listing Regulation, increase shareholder’s rights and enhance the quality of information commonly disclosed by companies. The main innovation of Novo Mercado concerns the issuing of only voting rights stocks, each stock representing “one share, one vote”. The NOVO MERCADO rules are enforced through a Private Contract, enforceable by BOVESPA itself, and the Market Arbitration Panel for conflict resolution between investors and companies offers a safer, faster and specialized alternative to investors.

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EQUITIES AND EQUITY DERIVATIVES SHAREHOLDER RIGHTS AND DISCLOSURE BOVESPA has also launched two levels of corporate governance so companies can adhere gradually to the Novo Mercado Overview: Rules. Level 2 Companies, have rules very close to those of the Novo Mercado and preferred shares are accepted, but they gain tag along rights at, at least, 80% of the price and also are granted voting rights in very sensitive decisions, like corporate restructurings (merger, spin off of the company). The Level 1 Companies requires the companies to comply with the much higher disclosure standards than those requested by the Brazilian regulation. BOVESPA MAIS is the listing segment designed for companies that want to access the stock market and gradually develop themselves in the capital markets. Small and medium business companies are the main target, since they consider the Brazilian stock market as an important capital-raising alternative. These are the companies whose intention is normally to adopt distinctive listing strategies, such as lower volume offerings, increased market visibility in order to add value to their shares and more concentrated offerings. The listing rules of BOVESPA MAIS are similar to those of Novo Mercado. Likewise, companies listed on it are committed to implement good corporate governance and transparency through the signature of a contract with BOVESPA. To find out more information about the special segments: www.bovespa.com/english, click Companies, then Corporate Governance. Types of Shares (Voting Rights) Companies constituted prior to the Corporate Law of October 2001 may hold a maximum of 2/3 of their capital in preferred non-voting shares. Following the publication of the Corporate Law of October 2001, companies newly incorporated can hold a maximum of 50% of their capital in preferred non-voting shares. Level 2 Companies - have to give preferred (non-voting) shares the right to vote at least on the following issues: (a) transformation, merger, consolidation or spin-off of the company; (b) approval of contracts between the company and the controlling shareholder, whether directly or through third parties; (c) appraisal of assets to be used in the company’s capital increase; (d) selection of a specialized company for evaluating the company’s economic value for delisting purposes; (e) amendment or revoking of any provisions contained in the company’s bylaws, whenever such acts alter or modify any requirement under BOVESPA’s Level 2 Rules. Novo Mercado companies - voting shares only.
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Tag-Along Rights

According to the Corporate Law, voting shares have mandatory tag-along rights of at least 80% of the price paid for the controlling shareholding. Level 2 companies - Full tag-along rights for voting shares and 80% of the price paid for acquiring the controlling shareholding payable to preferred shares. Novo Mercado companies - Full tag-along rights. According to the Corporate Law public tender offer at ‘fair value’: either book value, market value of the net worth, discounted cash flow, market comparables, stock market price or other criteria acceptable to the CVM.Novo Mercado and Level 2 Companies - public tender offer at economic value. According to the Corporate Law any listed company has to disclose the following required information: 1) quarterly and yearend financial statements in Brazilian GAAP; 3) any shareholders’ agreement; 4) stock options plans, if any; Level 1 Companies - in addition to what is required by the Corporate Law: 1) disclosure of quarterly and annual cash flow statements; 2) disclosure of related parties’ transactions; 3) annual publication every January of an agenda of all scheduled corporate events; 4) monthly disclosure of insiders´ trades with company’s securities. Novo Mercado and Level 2 companies - in addition to the requirements of Level 1 and the Corporate Law: 1) quarterly and year-end financial statements in IFRS or US GAAP. CVM’s Rule 457 of July, 13th 2007, establishes that Consolidated Financial Statements will have to comply with International Accounting Standards Board – IASB international accounting standards from 2010 (voluntarily from 2007).

Delisting Procedure

Disclosure

New Initiative for the Future

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INVESTOR DISCLOSURE REQUIREMENTS Every investor (domestic or international) is required to notify the Brazilian Securities and Exchange Commission (CVM), whenever their holdings reach 5% of either type of a company’s shares (voting or nonvoting). Each subsequent increase of 5% must also be reported. This requirement applies to all companies listed on the Exchange.

INDEX BOVESPA INDEX (IBOVESPA) This Index is composed of stocks listed at BOVESPA, jointly representing 80% of the total cash volume traded over the Composition previous 12 months. The Index is revised quarterly. Base Date (year) 1968 IEE –ÍNDICE DE ENERGIA ELÉTRICA (ELECTRIC POWER INDEX) Made up of the electricity sector’s most important companies. The Index is revised quarterly. Composition Base Date (year) 1994 IBrX – Índice Brasil (Brazil Index) 100 stocks, selected among BOVESPA’s most actively traded stocks by number of trades and financial value. The Index is Composition revised quarterly. Base Date (year) 1995 IBrX50 – Índice Brasil 50 (Brazil Index) 50 stocks, selected among BOVESPA’s most actively traded stocks by number of trades and financial value. The Index is Composition revised quarterly. Base Date (year) 1997

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IVBX2 – VALOR BOVESPA INDEX 50 stocks chosen from a list of shares classified in descending order according to liquidity, measured by their negotiability Composition index. The Index is revised quarterly. Base Date (year) 1999 ITEL – TELECOM INDEX Composition Base Date (year)

Telecommunications sector’s 23 stocks (wire and mobile telephony), weighted according to the market value of the outstanding stocks (“free float”). The Index is revised quarterly. 1999

IGC – CORPORATE GOVERNANCE INDEX Shares of companies, participants of the Novo Mercado or classified according to the Special Levels of Corporate Governance: Composition Novo Mercado companies weight: 2, Level 2 companies weight: 1.5, Level 1 companies weight: 1 (Please see Shareholder Rights section for more information on Novo Mercado). Base Date (year) 2001 ITAG – SPECIAL TAG ALONG STOCK INDEX All stock whose companies offer special tag along and which have been traded in at least 30% of the trading sessions in the Composition last twelve months, weighted according to their number of outstanding shares (free float). Base Date (year) 2002 ISE - CORPORATE SUSTAINABILITY INDEX Approximately 40 stocks issued by companies highly committed to corporate sustainability and social responsibility. These Composition stocks are selected among BOVESPA’s most actively traded securities in terms of liquidity, weighted according to their number of shares outstanding. Base Date (year) 2005

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INDX – INDUSTRIAL SECTOR INDEX Its theoretical portfolio is composed by the industry most representative stocks, which are selected among BOVESPA’s most Composition actively traded shares, and weighted according to their number of outstanding shares. Base Date (year) 1999

RESTRICTIONS Type of Restrictions

Details by Sector

Non-resident investors can invest in all products available to domestic investors. In general terms, there are no foreign ownership limits or restrictions other than those which are applicable in most countries, such as air transportation, highway cargo transportation, media, defense and financial services. Such restrictions generally apply only to the ownership of common shares, i.e. shares with voting rights. At present, most of the shares traded on the Brazilian Stock Exchanges are freely negotiable by foreign investors. Banks – The common share ownership limit is established for each bank and trading is restricted to those limits; there are no limits for nonvoting preferred shares. Air and Highway cargo transportation – Up to 20% for common shares; there are no limits for nonvoting preferred shares. Media companies (Newspaper, Radio and TV Broadcasting) – Up to 30% for both common and preferred shares. Cable TV service companies – 49% for common shares; there are no limits for nonvoting preferred shares.

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CORPORATE BONDS

INSTRUMENTS Corporate Bonds and Commercial Papers, Asset-backed Securities, REIT (Real Estate Investment Trust) and Mortgage backed Securities, Asset Backed Securities.

TRADING SYSTEM Trading Mechanism

Instruments Traded

BOVESPA FIX is an order driven market. SIOPEL, the electronic trading system was designed specially for fixed-income trading, allowing percentage or price quoting. The same system is adopted by BM&F for the government bonds market, MAE (Mercado Abierto Electrónico S.A., Argentina), BEVSA (Bolsa Electrónica de Valores del Uruguay S.A.), the Central Bank of Colombia and Colombia Stock Exchange. BOVESPA FIX trades Corporate Bonds, Commercial Papers, Asset Backed Securities and Mortgage Backed Securities. Repurchase operations (repos) with fixed-income securities are allowed by National Monetary Council’s (CVM) Resolution 3339/2006 and can be registered at BOVESPA FIX. Bovespa’s Participant Brokerage Firms, underwriters and banks. The information of the characteristics of the securities traded, reference prices, events (interest payments, amortizations, redemptions), relevant information of the issuers, trades, etc, are available at the site www.bovespafix.com.br – an English website. It is possible to register trades executed on BOVESPA’s fixed-income OTC market, SOMA FIX, for the clearing and settlement procedures. BOVESPA FIX allows the participation of market makers in its order driven environment. These are obliged to be present in the market twice a day, during a half-hour period, with a maximum bid-ask spread and a minimum volume of securities pre-established by the Exchange. Trading at BOVESPA FIX for settlement in T+0 on a net basis starts at 10 a.m. and closes at 1 p.m. For gross settlement in T+0 and for net basis in T+1 the trading hours are from 10:00 a.m. to 5:00 p.m. Trading at SOMA FIX is in gross settlement T+0 basis and the trading hours are from 10:00 a.m. to 5:00 p.m. Full transparency of the order book for all participants in real time.

Access to the Trading System Information to the Public OTC Trades Registration Market Maker

Trading Hours

Pre-trade Transparency
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Post-trade Transparency Turnarounds SETTLEMENT SYSTEM Settlement Process

BOVESPA disseminates all trading data in real time. The market data associated with these trades (including the last price, higher and lower, intra-day oscillation) is made available through BOVESPA’s market data feed facility to data vendors. Allowed.

Corporate bonds traded at BOVESPAFIX CBLC calculates a single net cash position for all markets (equities, derivatives on equities and fixed income instruments) what provides many benefits to market participants. A single netting reduces participant’s liquidity requirements and allows the optimization of collateral. There are three settlement cycles for corporate debt transactions according to the specific trading environment: T+0 on a net basis: the trading of corporate bonds ends at 11:45 am and the allocation process continues until 12:00 am. Clearing agents have until 12:50 pm to deliver the corporate bonds. Based on the securities actually delivered, at 2:00 pm a message is sent to the clearing agents’ settlement banks via the RSFN with the final net cash positions for all markets. The net cash position is calculated for all markets (equities, derivatives, corporate bonds) and thereafter the settlement process follows the standard procedures adopted for the cash equities market. CBLC also acts as CCP for the corporate bonds market. T+0 on a gross real-time basis: trading ends at 5:00 pm T+0 and the allocation process continues until 5:30 pm. Settlement occurs on a gross real-time basis until 6:30 pm. T+1 on a net basis: trading of corporate bonds finishes at 5:00 pm T+0 and the allocation process continues until 8:00 pm T+0. The corporate bonds must be transferred to the securities settlement account up to 12:50 pm SD. As already mentioned, the net cash position is calculated for all markets (equities, derivatives, corporate bonds) and thereafter the settlement process follows the standard procedures adopted for the cash equities market. CBLC also acts as CCP for the corporate bonds market. • OTC Trading registered at SOMA FIX (BOVESPA) Corporate bonds traded on the OTC market can be registered at SOMA FIX and settled through CBLC. T+0 on a gross real-time basis: trading ends at 5:00 pm T+0 and the allocation process continues until 5:30 pm. Settlement occurs on a gross real-time basis until 6:30 pm.

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Failure

OTC Trading Registered at CETIP

If securities have not been delivered by 10.00 am, the seller must pay a 0.20% penalty fee on the undelivered securities. The seller has until SD+1 to deliver the securities. If securities have not been delivered by 10:00 am on SD+1, then the seller must pay another 0.20% penalty fee and CBLC can invoke buy-in procedures. Corporate bonds traded on the OTC market can also be settled through CETIP. Once the trades are registered by the counterparties in the CETIP system (dual entry principle), they are settled on a real time gross basis through the transfer of the securities and the concomitant transfer of the respective funds through the STR (DVP). Primary market trades are settled on a multilateral net basis.

RISK CONTROLS NOTE:

The risk controls are the same applied by CBLC for the equities market. Please see the section “Equities and Equity Derivatives Market – Risk Controls”.

SECURITIES LENDING NOTE:

The CBLC Securities Lending Service also works for corporate debt instruments. Borrowing and lending transactions with corporate debt securities are permitted and regulated by National Monetary Council’s (CMN) Resolution 3278/05 and by Brazilian Securities and Exchange Commission (CVM) Instruction 441/2006. Please see the section “Equities and Equity Derivatives – Securities Lending”.

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GOVERNMENT BONDS

INSTRUMENTS Fixed Rate Bills (LTN), Floating Rates Bills (LFT), Inflation Linked Bonds (NTN – B, NTN – C), Fixed Rate Bonds (NTN – F). TRADING ENVIRONMENT Trading Mechanisms: Government bonds are traded over the counter by telephone and on a screen based trading platform called SISBEX SISBEX which is operated by BM&F. SISBEX is a trading system specially designed for the trading of fixed income securities. SISBEX is composed of two modules: an order matching module, where direct market participants, member banks and brokers, may enter quotes or hit existing quotes displayed on the screen, and a registration module, where market participants report trades executed in other trading environments (e.g. over the counter), for submission to the BM&F Securities Clearinghouse, which clears, settles and guarantees submitted and accepted trades. The SISBEX Order Matching Module is an order driven system where trades are executed according to price and time priority rules. All participants trade under anonymity. All quotes and executed trades are disseminated to all direct market participants on a real time basis. Direct market participants also have access to the entire order book. Best quotes and executed trades are disseminated in real time to all major vendor organizations. Outright purchase and sales—same day settlement: 8:00 a.m. – 10:15 a.m. Outright purchases and sales—forward settlement: 8:00a.m – 6:00 p.m. Repos (same day settlement of opening leg): 8:00 a.m. – 10:15 a.m. In the SISBEX Registration Module, market participants report trades performed outside of Sisbex. Trade reporting is based on the double entry principle. For reporting a trade, any one of the counterparties enters the details of the trade, consisting of the name of the security, its maturity, its operational modality, its price and quantity. The details of the trade are submitted to the other counterparty which, if in agreement, confirms the details. Non-confirmed trades are not registered. Trades will only be registered if their prices are within the predetermined price ranges related to the BM&F Securities Clearinghouse reference price.
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SISBEX Order Matching Module

Trading Hours

SISBEX Registration Module

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SETTLEMENT SYSTEM Settlement Process

Government bonds traded on the OTC market or at CETIP Net are settled through the SELIC and STR systems operated by the Brazilian Central Bank (BCB). Once the counterparties register the trades in the SELIC system (dual entry principle), they are settled on a real time gross basis and on a delivery versus payment model 1 basis (DVP 1), i.e., through the transfer of the securities and the concomitant transfer of the respective funds. Government bonds traded or registered on the BM&F SISBEX system are settled on a DVP model 3 basis with the BM&F Securities Clearinghouse acting as central counterparty, according to the following procedures: • On a daily basis, the BM&F Securities Clearinghouse calculates the multilateral net balances of all market participants who have executed trades for settlement due on that day; • No later than 1:30 pm, the BM&F Securities Clearinghouse informs the net balances in securities and cash that must be delivered by market participants at the settlement window; • Market participants must deliver the cash and securities due for settlement, according to their net balances, to the Clearinghouse by 2:30 pm; • The Securities Clearinghouse transfers the net balance of cash and securities due at 3:30 pm to the market participants. Should a market participant fail to make a cash payment or fail to deliver the securities due for settlement, the Securities Clearinghouse uses that participant’s pledged collateral, in order to fulfill the obligation by making the corresponding cash payment or securities delivery to that participant’s counterparty. In the event of failure, the Securities Clearinghouse can resort to one of the following mechanisms: an automatic borrowing transaction by the defaulter; purchase; the offer of equivalent securities to the non-defaulting participant; the payment of the equivalent cash amount to the non-defaulter.

Failure

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GOVERNMENT BONDS

RISK CONTROLS Overview

The BM&F Securities Clearinghouse is considered systemically important by the Brazilian Central Bank. It acts as the central counterparty of all federal government bond transactions registered in its electronic trading system (SIXBEX). To the extent that the mechanism of DVP applies, the Securities Clearinghouse is not exposed to the principal risk, but only to the price variation risk. Law 10214, CMN Resolution 2882 and the Central Bank Circular Letter 3057 provide the legal basis for the BM&F CCP activities. The Securities Trading Participants (PNAs) are BM&F DN Members that are authorized to execute securities transactions for their proprietary accounts and on behalf of their customers. The Clearing Members (MCs) and Centralized Settlement Participants (PLCs) maintain a direct relationship with the Securities Clearinghouse. The MCs are responsible for the proper settlement and legitimacy of the trades they submit for clearance and settlement through the Clearinghouse. They must provide the timely delivery of the securities and cash required for the fulfillment of their obligations and for the obligations of the PNAs and the customers that use their clearing and settlement services. The PLCs are investment funds and pension funds. Third-party fund managers represent a special category, called the PLMs, which can execute trade orders for the PNAs in order to meet the needs of the PLCs whose funds are under their management. Clearing Members, PLC and intermediaries must comply with minimum requirements regarding operational capacity. The operational limit corresponds to the difference, as calculated by the Clearinghouse under stress scenarios, between the participants’ rights and obligations including the collateral pledged by them. The Clearinghouse may, for prudential reasons and at its sole discretion, set a maximum amount as the operational limit of any given participant, notwithstanding the Collateral pledged by the participant. In order to mitigate its liquidity risk the Securities Clearinghouse may determine, for each participant, maximum limits for the amount of securities to be settled and for the net financial obligation per settlement date. There is an Intraday Marking to Market mechanism, whereby accumulated losses in respect of current market conditions are accounted for in the calculation of the operational limits. The Securities Clearinghouse establishes dynamic price ranges for order acceptance.

Participants

Minimum Participation Requirements Operational Limits

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GOVERNMENT BONDS

Margin Requirements

The methodology applied to estimate risk and calculate collateral amounts was developed by BM&F, and is based on the concepts of stress testing and primitive risk factor (FPR) that are similar to those employed by the Derivatives Clearinghouse. In general, the FPRs of a government bond are all financial variables that directly affect its price formation. Given a customer portfolio, comprising both transactions and collateral, the risk management system determines its consolidated exposure to the different FPRs. After that, the consolidated positions are confronted with the several stress scenarios that are used, as defined by the BM&F Risk Committee. From among the various scenarios, the risk management system establishes the one that is able to cause the largest loss to the portfolio, which is going to impact the participant’s operational limit. To define the stress scenarios, the Risk Committee bases its decisions on both quantitative and qualitative analyses, including, but not restricted to, Extreme Value Theory econometric models; information embedded in the implied volatility surfaces; historical simulations; and economic and political analyses. Margin requirements are based on full portfolio assessment and potential losses in worst case scenario under stress conditions. Methodology as well as its parameters is public information, available at BM&F website. The BM&F Securities Clearinghouse has two funds: one effective and the other planned: 1) The Operational Fund, which is effective and composed of BM&F’s own funds, covers potential losses arising from operational and/or administrative errors. 2) The Guarantor Fund will be made up of funds to be deposited by the Clearing Members and may be used in the event of a default by one or more Clearing Members. Nowadays, the risk that erises from participants’ portfolio is entitely covered by the DVP and the collateral they pledge. The Clearinghouse counts on previously approved credit facilities with large-sized banks, in order to be able to meet its obligations in the settlement window. To back these credit facilities up should they need to be used, the Clearinghouse offers these banks the collateral pledged by the defaulting participant. In order to solve any liquidity problems that might arise, the Clearinghouse also maintains the possibility of accessing, through the BM&F Settlement Bank, the credit facility of the Central Bank of Brazil. The securities clearinghouse fully complies with the Lamfalussy-Plus criteria. The Securities Clearinghouse monitors its participants intraday risk exposure in real time. The participants can simulate their risks and calculate their collateral requirements in the Securities Clearinghouse risk systems.

Clearing Funds

Credit Lines

Risk Analysis

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GOVERNMENT BONDS

Collateral Management

The BM&F Securities Clearinghouse accepts federal government bonds and cash from its participants as collateral. Its risk management system is based on the participant’s portfolio and takes into consideration all trades pending settlement and pledged collateral. As the securities traded and those pledged as collateral are exactly of the same type, this feature reinforces the appeal of developing an integrated risk assessment system, that is, one that deals with the risks of traded securities and those pledged as collateral in a uniform manner. In case of a default in the obligations assumed before BM&F, there will be the execution of the collateral deposited in its favor by the Clearing Member and the Centralized Settlement Participants (PLCs). Should such collateral be insufficient, BM&F shall use the Operational and Guarantor Fund.

Payment Fail

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GOVERNMENT BONDS

SECURITIES LENDING BM&F Securities Clearinghouse has implemented in 2005 its Securities Lending Facility (SET), for the borrowing and lending of government securities, aimed at providing institutional investors, hedge funds and other investors with an alternative and attractive tool designed to improve portfolio management actions. The SET will allow three types of transactions: securities driven repos, loans and interchanges. Securities driven repos, which were implemented in September, 2005, are very much similar to ordinary repos, with the difference that, instead being cash driven, are directed towards the obtainment of a specific type of security, which is pledged as collateral with rehypothecation allowed. The interest rate on this kind of repo is negotiated as a percentage of the accumulated SELIC rate from the date of the opening leg, inclusively, to the date of the closing leg, exclusively. In a security loan, not introduced yet, planned to be introduced during 2007, a lending participant delivers a certain quantity of a security, to be loaned for a specified time, upon the receipt of a cash premium. The borrower receives securities delivered by the lender and pays said lender a premium in T+0 or T+1, depending on the terms of negotiation. On T+n (n up to 66 business days) the securities are returned to the lender’s account. In the process, BM&F acts as the CCP. As for securities interchange transactions, also expected to be implemented in a near future, a participant offers a certain quantity of either a specific type of security or a basket of securities, in exchange for a quantity of another specific type of security or basket of securities (baskets x baskets are not allowed), for a specified time, upon the payment or receipt of a premium. BM&F acts as CCP. All types of SET transactions are carried out through the SISBEX Trading System or traded directly between the participants and afterwards registered at the SISBEX-Registration. Outside of SET, government securities can be lent and borrowed via ordinary cash driven repos, traded in the OTC market and registered in SELIC or traded at BM&F, provided these repos are negotiated with a rehypothecation clause. All BM&F repo contracts which are traded or registered in the SISBEX Trading System allow rehypothecation. Repo transactions of government securities are subject to CMN Resolution 3.339/2006.

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GOVERNMENT BONDS

INDEXES IMA GLOBAL (ANDIMA MARKET INDEX) Theoretical portfolio composed by outstanding government bonds. The portfolio includes the different types and maturities Composition of government bonds weighted accordingly to the current composition of the public debt. The index evolution reflects the daily variation in the market value of this portfolio. The Global Index is composed by different types of sub indexes, as indicates below. Benchmark for fixed income investments, alternative to the short term rates (SELIC and DI). Base Amount (year) 2005 IRF-M (FIXED RATE GOVERNMENT BONDS INDEX) Theoretical portfolio composed by fixed rate Government Bonds (LTN and NTN-F) held by the public. It was developed by Composition ANDIMA and BM&F. Base Amount (year) 2000 IMA-S ( FLOATING INTEREST RATE GOVERNMENT BONDS INDEX) Theoretical portfolio composed by the floating short term rate Government Bonds (LFT – Selic indexed) held by the public. Composition Base Amount (year) 2005 IMA-B, IMA- B5, IMA B5+ (CONSUMER PRICE INDEXED GOVERNMENT BONDS INDEX) Consumer price index Government Bonds (NTN-B IPCA indexed) held by the public. IMA-B is composed of all maturities, IMA Composition B5 of maturities up to 5 years. IMA-B5+ of maturities greater than 5 years. Base Amount (year) 2005 IMA-C, IMA-C5, IMA-C5+ (GENERAL PRICE INDEXED GOVERNMENT BONDS INDEX) General Price indexed Government Bonds (NTN-C – IGP-M indexed) held by the public. IMA-C is composed of all maturities; Composition IMA-C5 is composed of maturities up to 5 years, and IMA-C5+ is composed of maturities greater than 5 years. Base Amount (year) 2005

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DERIVATIVES

INSTRUMENTS Futures, Options and Swaps on interest rates, stock indexes, price indexes, FX and actuals.

TRADING SYSTEMS Trading Mechanisms

The derivatives can be traded through the open outcry, the electronic platform and/or through the web-trading platform. For the open outcry, BM&F has a trading floor where trades are executed by the brokers who represent the Brokerage Houses, and by the Locals (an individual who buys and sells contracts for his/her own account) in trading pits that are predetermined for each asset or commodity. This represents 27% of the volume traded. Through the electronic platform, Global Trading System (GTS), the participants can trade electronically all of the markets it offers for trading, some of which with exclusivity. The new GTS version is based on the Financial Information Exchange (FIX) Protocol system developed by the exchange itself. The new GTS version presents the routing order function ability that allows users from others trading platforms to send, though specific communications channels, their orders to be executed at BM&F. At the same time, enable users sending their orders to be executed in others environments. In the first semester of 2008, BM&F will allow some participants, previously authorized by their brokers and clearing members, to access the electronic trading platform directly. With the FIX connection, the current participants will be able to provide direct access for their clients, as well as being able to offer them execution reports in real time, via limits and risk management integrated systems. These clients, in their turn, will be able to integrate their transactions into their own systems by Straight Through Processing (STP). Algorithmic trading is also possible, as the systems that comprise the trading participant model are able to receive market data in real time, process information and send offers for buying and selling to the selected instruments, as well as keeping track of the results of the execution of these offers, modifying them or canceling them as required. In October 2005 BM&F initiated a two year Market Maker program which is restricted to the webtrading platform. This was done in order to create liquidity for the Ibovespa, Dollar and Live Cattle mini-contracts that are traded on this platform. In turn, the Market Makers are obliged to fulfill some requirements established by the Exchange, such as: to be present in the market on a continuous basis, to enter a bid and ask prices for a given volume of contracts; and to respect a maximum bid and ask spread. It is important to emphasize that the market maker orders compete on an equal basis with all other orders, which means that they do not have any execution or visibility privileges.

Direct Market Access - DMA Facilities

Market Makers

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DERIVATIVES

Order Precedence Rules Pre-Trade Transparency Post-Trade Transparency

Price Fluctuation Limits

Trading Halts Circuit Breaker

Trading Hours and Off Hours Trading

The order book is organized and executed according to best price/time priority. Full transparency of the order book. All the offers are displayed in real time. BM&F disseminates all trading data in real time. The market data associated with these trades (including the last price, highest and lowest, intra-day oscillation and daily settlements) are made available to data vendors through BM&F’s market data feed facility. There are maximum daily fluctuation limits for the trades in BM&F, these limits are different for each contract and they can be changed by BM&F at any time, even during a trading session, by communicating said changes to the market with a 30 minute advance notice. According to BM&F’s own regulations, if a price varies above a certain parameter in relation to the last trade or to the previous day’s closing price, the transaction can be passed through to an auction. This procedure is not adopted by BM&F, because it has price fluctuation limits. This mechanism has been adopted only by BOVESPA, and it is activated only in the case of a large market decline of more than 10%, in such a case, BM&F will suspend the negotiations of its Ibovespa futures contracts until BOVESPA returns to normality. The most liquid contracts are traded from 10:00 a.m. to 5:00 p.m. during the open outcry session, the same contracts are traded in GTS before the open outcry session (beginning at 9:00 a.m.), and during the lunch break. The rest of the contracts are traded in GTS from 9:00 a.m. to 6:00 p.m., also with different trading hours for each contract. The after-hours session runs from the end of the regular trading hours for each contract to 6:00 p.m., and is valid for the next day of negotiations. For further information access: http://www.bmf.com.br/portal/pages/boletim2/HorariosNegociacao2.asp Before every GTS session, there is a five-minute pre-opening phase, which consists of the placement of orders in the system to establish the opening prices. Before the open outcry session there is a fifteen-minute pre-opening phase. This procedure varies from contract to contract. For further information access: http://www.bmf.com.br/portal/pages/contratos2/ContratosPrincipal2.asp BM&F’s trading system accepts the following types of orders: market order, limit order, stop order, matched order, discretionary order, valid for the day order and valid for a determinate period order.

Opening Procedures Closing Procedures Types of Orders

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DERIVATIVES

Tick Size Turnarounds

For further information access: http://www.bmf.com.br/portal/pages/boletim2/HorariosNegociacao2.asp?slocation=derivativos Allowed.

SETTLEMENT SYSTEM Derivatives Clearinghouse has been considered systemically important by the Central Bank of Brazil. Consequently, some changes had to be made in its settlement process. The major change is related to the opening of an exclusive Clearinghouse settlement account at the Central Bank via the Reserve Transfer System (STR). As a result, it has been possible to substantially reduce the credit risk inherent to the settlement process. The settlement window of the Derivatives Clearinghouse – that is, the time interval between payments received and payments made – occurs from 14:50 to 15:25, Brasilia time. Up to the hour of 14:50, the Clearinghouse receives funds from the debtor Clearing Members and at 15:25 sharp it sends payment orders to the creditor Clearing Members. • The settlement of transactions registered at BM&F observes the following rules: • The delivery of assets is made by the net amount traded; • The financial values corresponding to the physically delivered contracts and to the net financial result (including direct and indirect costs) of contracts that are exclusively cash settled are incorporated into the multilateral net amount destined to the Clearing Member, which results from the netting of its debits and credits with the Clearinghouse. For nonresident clients under the resolution n° 2687, of BACEN, of January 26, 2000, who trade in the BM&F agricultural commodity markets cash settlement of variation margin, premiums, and fees occurs directly between the Clearinghouse and the nonresident customer, by means of the Settlement Bank of the Clearinghouse in New York City.

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DERIVATIVES

Failure

The financial default of a Clearing Member will be characterized when for any reason it fails to settle its obligations and does not transfer the multilateral net balance due to the Clearinghouse, in the manner and within the terms established by the Clearinghouse. In a physical delivery, the default of a Clearing Member will be characterized when the corresponding asset delivery does not occur in the manner and within the terms defined in the contract specifications. Regarding a Settlement Bank, its default will be characterized when it does not send the credit order to the Clearinghouse, within the terms established by the Clearinghouse, in spite of the previous confirmation of the total or partial availability of funds to meet the Clearing Member’s obligations. When that occurs the Clearinghouse will transfer the settlement values to the creditor Clearing Members through their secondary Settlement Bank. The BM&F risk coverage model was structure in a hybrid manner for it combines defaulters pay with survivors pay principles, being the largest part of the risk assumed by BM&F covered under the defaulters pay principle, that is, by means of the deposit of individual and segregated collateral.. In case of a default in the obligations assumed before BM&F, the execution of the collateral deposited in its favor shall obey the following order: • The debtor’s own; • That presented by third parties; • That presented by Commodities Brokerage Houses, Agricultural Commodities Brokerage Houses, or Special Brokerage Houses which executed the trade; • That presented by the Clearing Members that registered the trade. Should such collateral be insufficient, BM&F shall use the following ordered resources: the special clearing member fund; the clearing fund; other safeguard mechanisms creates for this purpose.

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DERIVATIVES

RISK CONTROLS Overview

The BM&F Derivatives Clearinghouse is considered systemically important by the Brazilian Central Bank.The clearinghouse acts as the central counterparty of all the financial (stock indices, exchange rates, interest rates, sovereign debt bonds) and commodities derivatives contracts (coffee, soybeans, sugar, cotton, corn, ethanol, live and feeder cattle) traded at BM&F including the OTC market and the spot market for gold.For the contracts that can be physically delivered (coffee, soybeans, sugar, cotton, corn and ethanol) the DVP principle is applied. Law 10214, CMN Resolution 2882 and the Central Bank Circular Letter 3057 provide the legal basis for CCP activities. The Clearing Members and intermediaries must tender their monthly balance sheets to BM&F for minimum working capital verification purposes. The Clearing Members must post initial collateral established by BM&F that will compose the BM&F Clearing Fund. Brokerage Houses must comply with PQO’s (Operational Qualification Program) minimum requirements regarding operational and financial standards. BM&F Derivatives Clearinghouse attributes an intraday risk limit for each participant, that is, Brokerage House, PLD, Local and PAPE, which have direct access to the BM&F trading systems. The system reassesses each participant’s portfolio risk every 15 minutes during a session, by adding the new trades executed on that day to the positions verified at the previous day’s close. Should a participant violate its intraday risk limit, the BM&F Derivatives Clearinghouse will require the pledge of additional collateral on the same day (T+0) or the trade specification for the originating customers. Under these situations, the participant can also require the pledge of additional collateral from their customers on T+0. Position and daily price limits are imposed to impede market concentration, avoid market manipulation, and control liquidity and credit risks. The Derivatives Clearinghouse monitors positions on a customer level and occasionally on the level of a group of customers acting in concert. The Clearinghouse may require the pledge of additional collateral from customers who concentrate positions in one or more contracts/maturities. The methodology applied to estimate risk and calculate collateral amounts was developed by BM&F itself, based on the concepts of stress testing and primitive risk factors (FPR). In general, the FPRs of a derivatives contract are all financial variables that directly affect its price formation. Given a customer portfolio, the risk management system determines

Minimum Participation Requirements

Operational Limits

Margin Requirements

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DERIVATIVES

Margin Requirements

its consolidated exposure to the different FPRs. After that, the consolidated positions are confronted with the several stress scenarios that are used, as defined by the BM&F Risk Committee. From among the various scenarios, the risk management system establishes the one that is able to cause the largest loss to the portfolio, which then must be covered by collateral. To define the stress scenarios, the Risk Committee bases its decisions on both of quantitative and qualitative analyses, including, but not restricted to, Extreme Value Theory econometric models; information embedded in the implied volatility surfaces; historical simulations; and economic and political analyses. Methodology as well as its parameters is public information, available on the BM&F website. The safeguard structure also comprises a Special a Clearing Member Fund; a Clearing Fund; and an Agricultural Market Trading Fund to ensure on an additional level the proper settlement of the transactions executed on the floor or in the electronic systems. The Special Clearing Member Fund is formed by the funds constituted to this end and by a part of the Exchange equity held by the Clearing Members to cover the default of one or more Clearing Members. The Clearing Fund is composed of the funds posted by the Clearing Members themselves, and it may also be used in the event of a default by one or more Clearing Members. Each Clearing Member has joint and several liabilities for the default of any other Clearing Member, limited to the Clearing Member share in the Clearing Fund. In turn, the Agricultural Market Trading Fund was established through the allocation of BM&F’s own funds, and its purpose is to act as a risk buffer for agricultural commodity contracts, reducing thus their margin requirements. Finally, there is the Guarantee Fund, which is an institutional fund with the sole and exclusive purpose of ensuring that the customers of Commodities Brokerage Houses will be reimbursed for any losses resulting from errors in the execution of their accepted trade orders and from the misuse of the financial proceeds they obtain by trading in the BM&F markets for registration with the Derivatives Clearinghouse. The Clearinghouse counts on previously approved credit facilities with large-sized banks, in order to be able to meet its obligations in the settlement window. To back these credit facilities up should they need to be used, the Clearinghouse offers these banks the collateral pledged by the defaulting participant. In order to solve any liquidity problems that might arise, the Clearinghouse also maintains the possibility of accessing, through the BM&F Settlement Bank, the credit facility of the Central Bank of Brazil. The derivatives clearinghouse fully complies with the Lamfalussy Plus criteria.

Clearing Funds

Credit Lines

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DERIVATIVES

Risk Analysis

The Market Risk Department of the Derivatives Clearinghouse monitors the participant’s Intraday Risk exposure, recalculated every 15 minutes. The participants can simulate their risks and calculate their collateral requirements in the Derivatives Clearinghouse risk systems. Margins are called on a gross basis, that is, from each individual customer. Initially it is required in cash, however, at the discretion of the derivatives clearinghouse it can me met with any of the eligible assets – Brazilian federal government bonds, gold, shares of stocks that compose the BOVESPA Index portfolio, private securities, bank letters of credit, U.S. Treasury bonds. Collateral will be subject to haircuts, in accordance with its respective risks (market, credit, liquidity, and others) and by considering possible relevant execution costs. BM&F Clearinghouse can apply limits to the aggregate amount of each one of the types of assets posted as collateral. In case of a default in the obligations assumed before BM&F, the execution of the collateral deposited in its favor shall obey the following order: • The debtor’s own; • That presented by third parties; • That presented by Commodities Brokerage Houses, Agricultural Commodities Brokerage Houses, or Special Brokerage Houses which executed the trade; • That presented by the Clearing Members that registered the trade. Should such collateral be insufficient, BM&F shall use the following ordered resources: the Agricultural Market Trading Fund, in case of payment fail due to transactions involving Agricultural commodities, the special clearing member fund; the clearing fund; other safeguard mechanisms creates for this purpose.

Collateral Management

Payment Fail

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TAXES NON RESIDENT PORTFOLIO INVESTORS TAX REGIME (CMN Resolution 2689/00) ALL JURISDICTIONS - EXCEPT LOW-TAX JURISDICTIONS EQUITY INCOME TAX ON CAPITAL GAINS WITHHOLDING TAX ON SALES TRANSACTIONS

EXEMPT EXEMPT

CASH DIVIDENDS INCOME TAX

EXEMPT

INTEREST ON EQUITY INCOME TAX Basis for calculation 15% Gross value approved by issuer

April 2008

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TAXES NON RESIDENT PORTFOLIO INVESTORS TAX REGIME (CMN Resolution 2689/00) ALL JURISDICTIONS - EXCEPT LOW-TAX JURISDICTIONS DERIVATIVES DERIVATIVES ON EQUITIES INCOME TAX ON CAPITAL GAINS

EXEMPT

SWAPS INCOME TAX ON NET INCOMES Basis for calculation

10% The monthly positive results of the sum of the daily settlement of the account.

ALL OTHER DERIVATIVES INCOME TAX ON CAPITAL GAINS (*) EXEMPT

April 2008

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TAXES NON RESIDENT PORTFOLIO INVESTORS TAX REGIME (CMN Resolution 2689/00) ALL JURISDICTIONS - EXCEPT LOW-TAX JURISDICTIONS FIXED INCOME PRODUCTS CORPORATE BONDS INCOME TAX ON NET GAINS INCOME TAX NET INCOMES Basis for calculation IOF (on the exchange transaction) Basis for calculation

15% 15% Net gains and net incomes 1,5% upon the remittance of funds to Brazil The tax calculation basis is the amount in national currency delivered or made available, corresponding to the amount in foreign currency of the foreign exchange transaction. NOT SUBJECT, However, the IOF tax will be applicable whenever the investment is held for less than 30 days, according to a regressive tax table, upon the income tax of the operation

Additional IOF

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TAXES NON RESIDENT PORTFOLIO INVESTORS TAX REGIME (CMN Resolution 2689/00) ALL JURISDICTIONS - EXCEPT LOW-TAX JURISDICTIONS FEDERAL GOVERNMENT BONDS INCOME TAX ON NET INCOMES INCOME TAX NET INCOMES Basis for calculation IOF (on the exchange transaction) Basis for calculation

EXEMPT EXEMPT Net gains and net incomes 1,5% upon the remittance of funds to Brazil The tax calculation basis is the amount in national currency delivered or made available, corresponding to the amount in foreign currency of the foreign exchange transaction. NOT SUBJECT, However, the IOF tax will be applicable whenever the investment is held for less than 30 days, according to a regressive tax table, upon the income tax of the operation

Additional IOF

Detailed information can be found in the BEST BRAZIL website: http://www.bestbrazil.org.br/pages/publications/BrazilianCapital/Taxation_Chart.pdf

SECURITIES LENDING INTERNATIONAL INVESTORS – GENERAL REMUNERATION RECEIVED BY THE LENDER DIVIDENDS (In SBL is considered reimbursement to the owner of the securities) INTERESTS ON EQUITY (In SBL is considered reimbursement to the owner of the securities) CAPITAL GAINS EARNED BY THE BORROWERS (sales price – the average acquisition cost of the stock) RETURNING TO THE LENDERS - IN STOCKS - IN CASH
April 2008

15% EXEMPT The amount reimbursed as interests on equity will have a 15% deduction of income tax EXEMPT

EXEMPT
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TAXES NON RESIDENT PORTFOLIO INVESTORS TAX REGIME (CMN Resolution 2689/00) LOW-TAX JURISDICTIONS EQUITY INCOME TAX ON CAPITAL GAINS Basis for calculation

15% Net gains

CASH DIVIDENDS INCOME TAX EXEMPT

INTEREST ON EQUITY INCOME TAX Basis for calculation 25% Gross value approved by issuer

April 2008

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TAXES NON RESIDENT PORTFOLIO INVESTORS TAX REGIME (CMN Resolution 2689/00) LOW-TAX JURISDICTIONS DERIVATIVES DERIVATIVES ON EQUITIES INCOME TAX ON CAPITAL GAINS Basis for calculation 15% Net gains

SWAP INCOME TAX ON NET INCOMES Basis for calculation 15% The monthly positive results of the sum of the daily settlement of the account

ALL OTHER DERIVATIVES INCOME TAX ON CAPITAL GAINS Basis for calculation 15% Net gains

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TAXES NON RESIDENT PORTFOLIO INVESTORS TAX REGIME (CMN Resolution 2689/00) LOW-TAX JURISDICTIONS FIXED INCOME PRODUCTS CORPORATE BONDS INCOME TAX ON NET GAINS Net gains 15% (when held for more than 720 days), 17.5%(when held for more than 360 days and less than 720 days), 20% (when held for more than 180 days and less than 360 days), 22.5% (when held for less than 180 days) Net incomes 15% (when held for more than 720 days), 17.5%(when held for more than 360 days and less than 720 days), 20% (when held for more than 180 days and less than 360 days), 22.5% (when held for less than 180 days) Net gains and net incomes 1,5% upon the remittance of funds to Brazil The tax calculation basis is the amount in national currency delivered or made available, corresponding to the amount in foreign currency of the foreign exchange transaction NOT SUBJECT, However, the IOF tax will be applicable whenever the investment is held for less than 30 days, according to a regressive tax table, upon the income tax of the operation

INCOME TAX NET INCOMES Basis for calculation IOF (on the exchange transaction) Basis for calculation

Additional IOF

April 2008

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TAXES NON RESIDENT PORTFOLIO INVESTORS TAX REGIME (CMN Resolution 2689/00) LOW-TAX JURISDICTIONS FEDERAL GOVERNMENT BONDS INCOME TAX ON NET GAINS Net gains 15% (when held for more than 720 days), 17.5%(when held for more than 360 days and less than 720 days), 20% (when held for more than 180 days and less than 360 days), 22.5% (when held for less than 180 days) Net incomes 15% (when held for more than 720 days), 17.5%(when held for more than 360 days and less than 720 days), 20% (when held for more than 180 days and less than 360 days), 22.5% (when held for less than 180 days) Net gains and net incomes 1,5% upon the remittance of funds to Brazil The tax calculation basis is the amount in national currency delivered or made available, corresponding to the amount in foreign currency of the foreign exchange transaction NOT SUBJECT, However, the IOF tax will be applicable whenever the investment is held for less than 30 days, according to a regressive tax table, upon the income tax of the operation

INCOME TAX NET INCOMES Basis for calculation IOF (on the exchange transaction) Basis for calculation

Additional IOF

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TAXES NON RESIDENT PORTFOLIO INVESTORS TAX REGIME (CMN Resolution 2689/00) LOW-TAX JURISDICTIONS SECURITIES LENDING International Investors – Low Tax Jurisdictions REMUNERATION RECEIVED BY THE LENDER DIVIDENDS (In SBL is considered reimbursement to the owner of the securities) INTERESTS ON EQUITY (In SBL is considered reimbursement to the owner of the securities) CAPITAL GAINS EARNED BY THE BORROWERS (sales price – the average acquisition cost of the stock) • RETURNING TO THE LENDERS - in stocks - in cash
Detailed information can be found in the BEST BRAZIL website: http://www.bestbrazil.org.br/pages/publications/BrazilianCapital/Taxation_Chart.pdf

5% (if held for more than 720 days) 17.5%(if held for more than 360 days and less than 720 days) 20% (if held for more than 180 days and less than 360 days) 22.5% (if held for less than 180 days) EXEMPT 25% 15%

EXEMPT 15%, if the return amount is higher than the share’s purchase value.

Notes: • Low tax jurisdiction countries are those specified by the Brazilian Tax Authority. The last update can be found in Brazilian Tax Authority Normative Instruction 188 (August 6, 2002). • Transactions with equities that have pre-determined gains are taxed as fixed income, i.e., strategic box and forward. • There is no Stamp Tax; Brazil is a fully dematerialized market. • The exemption of Income Tax for investments in government bonds granted by Law 11.312/06 only apply to transactions carried out starting on 02/16/2006. However, it is important to note that nonresident investors may choose to anticipate tax collection from transactions carried out prior to the approval of the Provisional Measure. Investment funds with Portfolios composed by 98% of government bonds are also eligible to a 0% income tax.
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G-30 REQUIREMENTS (2003)

COMPLIANCE STATUS G30 RECOMMENDATIONS 1. Eliminate paper and automate communication, data capture and enrichment. 2. Harmonize messaging standards and communication protocols. COMPLIANCE Yes COMMENTS The Brazilian market is fully dematerialized. All relevant processes are automated and paperless. However some ancillary services are still being automated.

Yes

The system developed by the BCB is based on the XML language. Message exchange technology and contents are standardized. International Investors can communicate with local custodians via ISO 15022. Foreign Depositories and other institution can also communicate with local depositories via ISO 15022 messages. There is a local National Market Practices Group (NMPG) Committee where local custodians meet to discuss the standardization of local practices. All assets are identified through ISIN Codes based on the ISO 6166. BOVESPA is the national numbering agency for Brazilian securities (ISIN codes). Counterparty identification BIC Codes based on ISO 9362 are also available to all local market participants. Moreover, most institutions are making an effort to create data standards that will cater to the requirements of market participant. Similarly, the local exchanges have developed information facilities for participants which are in line with international standards, and local depositories are developing information tools that will allow issuers, investors and other participants to consult historical data and corporate action information. The Brazilian market has a state-of-the-art RTGS (Real Time Gross Settlement) system to which all clearinghouses and market participants are directly linked. The BCB is responsible for guaranteeing appropriate synchronization of the different settlement processes. Each multilateral securities settlement system has a transfer table for both cash lag and the securities lag. The operational timetables and cutoff times are synchronized, properly scheduled and sequenced throughout the day as follows: CETIP: 12:45 pm – 1:00 pm / BM&F – Forex: 1:05 pm – 2:05 pm / BM&F – Derivatives: 2:50 pm – 3:25 pm / CBLC – Securities and Derivatives: 3:00 pm – 3:25 pm / BM&F – Securities: 2:30 pm – 3:30 pm.
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3. Develop and implement reference data standards.

Yes

4. Synchronize timing between different clearing and settlement systems and associated payment and foreign exchange systems.

Yes

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G-30 REQUIREMENTS (2003)

G30 RECOMMENDATIONS 5. Automate and standardize institutional trade matching. 6. Expand and use central counterparties.

COMPLIANCE Yes

COMMENTS Trade matching is automatic through the trading and registration systems, on a real time basis. Settlement pre-matching between local custodians and brokers can be performed on an automated basis. The Brazilian Clearing and Depository Corporation (CBLC) is the Central Counterparty (CCP) for equities, equity derivatives and corporate bonds. The Brazilian Mercantile & Futures Exchange (BM&F) is the CCP for derivatives referenced on interest rates, forex, equities and commodities, government bonds (spot and forward transactions), as well as for interbank forex spot transactions. Securities lending is permitted. CBLC operates the BTC securities lending program acting as principal for all loan transactions. This facility is automated and fully integrated in the settlement process to minimize failure rates. BM&F has already implemented, as of September 2005, a securities lending system by which government bonds can be lent and borrowed through securities driven repo transactions. Further lending mechanisms, such as outright loans and securities interchanges will be introduced. There are no restrictions on international participants. Income collection and corporate actions are fully automated. The information is obtained from the BOVESPA IPE (Periodic and Occasional Information) electronic system whereby issuers disclose their corporate actions and other important facts in a standardized format. The system is linked on a real time basis to the CBLC system, where custodians can obtain this information to distribute to the final investor. Tax relief is automatically applied at the source, as appropriate. There are very few restrictions on foreign ownership and in this case, control can be exercised at the registration level. The Brazilian Central Bank establishes operating conditions for SSSs (Securities Settlements Systems) and CCPs in the Brazilian market, thus ensuring the financial integrity of the providers of clearing and settlement services. These specific conditions are based on Brazilian law and Central Bank regulations, and encompass financial soundness, technological skills and aspects related to processes, procedures and management of clearing and settlement activities. Risk management practices are also supervised by the Brazilian Central Bank.

Yes

7. Permit securities lending and borrowing to expedite settlement.

Yes

8. Automate and standardize asset servicing processes, including corporate actions, tax relief arrangements, and restrictions on foreign ownership. 9. Ensure the financial integrity of providers of clearing and settlement services

Yes

Yes

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G-30 REQUIREMENTS (2003)

G30 RECOMMENDATIONS 10. Reinforce the risk management practices of users of clearing and settlement service providers. 11. Ensure final, simultaneous transfer and availability of assets.

COMPLIANCE Yes

COMMENTS The SSSs, CCPs and CSDs (Central Security Depositories) are self-regulated and establish criteria for market participants to access their services. CBLC and BM&F have implemented risk management systems enabling clearinghouse members and brokers to measure, monitor and control their risk exposure. All Brazilian securities settlement systems adopt DVP procedures, delivering the securities to the buyer simultaneously with the respective payment to the seller’s clearing agent, and achieving simultaneous, final and irrevocable delivery versus payment. The Brazilian payment system permits the finality and irrevocability of funds transfers through BCB, which are pre-conditions for true DVP in accordance with Law 10214. Business continuity and disaster recovery planning are BCB requirements. Market participants are also required by the clearinghouses to have business continuity and disaster recovery plans. CBLC and BM&F guarantee the settlement of all trades in the case of payment failures of the two participants with the largest net cash liability against the clearinghouse (LamfalussyPlus criteria). This exceeds the level of protection internationally recommended by the G30, and other international market and regulatory associations. CBLC and BM&F legal risks are extremely low. All participants (issuers, custodians, clearing agents and brokers) have signed contracts in which they agree to the CBLC and BM&F regulations and procedures. In addition, the regulatory environment provides a sound legal basis for fungibility, fiduciary ownership, dematerialization, segregation of accounts, final and irrevocable settlement, delivery versus payment, multilateral netting, lien on securities posted as collateral and securities lending among others.

Yes

12. Ensure effective business continuity and disaster recovery planning. 13. Address the possibility of failure of a systemically important institution. 14. Strengthen assessment of the enforceability of contracts.

Yes

Yes

Yes

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G-30 REQUIREMENTS (2003)

G30 RECOMMENDATIONS 15. Advance legal certainty over rights to securities, cash, or collateral.

COMPLIANCE Yes

COMMENTS The Brazilian depository institutions and custodians have a segregated account structure with respect to rights over securities. Account segregation protects the final investor because it permits the tracking of property rights in the event of a custodian’s insolvency or bankruptcy. Corporate Law 6404 governs the legal basis for account segregation and identification of beneficial owners in the case of equities, while CVM (Brazilian Securities and Exchange Commission) Instruction 404 does the same for standard debentures. The Brazilian payment system, as mentioned earlier, governs the finality and irrevocability of all funds transfers through BCB. Rights over cash are conferred by paragraph II, article 4, and paragraph II, article 5, of the payment system regulations in BCB Circular Letter 3057 and by paragraph III, article 3, of National Monetary Council Resolution 2882, which provide the legal basis for the finality of payments in gross and net settlement systems. The clearinghouses have lien over all securities posted as collateral by the participants. Article 6 of Law 10214 provides the legal basis for CBLC and BM&F pledge arrangements. In 2007, BM&F is going to offer a registration facility for OTC derivatives contracts that will be under the umbrella of a master agreement that allows for closeout netting arrangements, and for the use of pre-accepted valuation methodologies. In that facility, BM&F will act as calculation agent and trustee. Early termination of open positions in the equity derivatives market, in case of insolvency of a clearing member, is defined in the CBLC regulations. As CBLC acts as CCP for the derivatives market there are no closeout netting arrangements or “master agreements” between market participants. CMN Resolution 3263 provides the legal basis for master agreements on clearance and settlement of obligations within the national financial system. This rule requires that these agreements have specific clauses for valuation and termination methodologies and for one of the two parties to be considered insolvent. They must be registered in an organized over-the-counter system and in a clearing and settlement system in order to be applicable.

16. Recognize and support improved valuation methodologies and closeout netting arrangements.

Yes

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G-30 REQUIREMENTS (2003)

G30 RECOMMENDATIONS 17. Ensure appointment of appropriately experienced and senior board members.

COMPLIANCE Yes

COMMENTS The payment system regulations included in BCB Circular Letter 3057 requires that professionals in charge of clearinghouse administration must be technically and managerially competent to perform their duties. The clearinghouse bylaws reinforce this requirement. As the market participants own both clearinghouses, Board members are senior representatives from banks and brokerage houses with proven expertise in clearance, settlement and risk management activities. All the criteria for participation in settlement and depository activities are publicly disclosed and clearly defined, ensuring market participants equitable access to clearing and depository services in accordance with their functions. Access is limited only for the purpose of controlling risk. All institutions that meet pre-established requirements are able to access the CBLC and BM&F services. Bylaws, operational regulations, operational procedures, contracts, and other information, are all available at both clearinghouse websites. The clearinghouse boards are comprised of representatives from different market groups and organizations. Investors may request clarification on any point or lodge complaints with the market ombudsman, whose function is to defend investors’ interests in matters involving the exchanges and the clearinghouses. In addition, any disputes among market participants or investors may be settled through either an arbitration panel or the technical commissions, thus allowing such disputes to be settled quickly and avoiding recourse to the courts. All clearinghouse regulations and bylaws are available on the websites, and the drafts of any new market regulations are subject to public hearings before implementation. The BCB and the CVM are responsible for the regulation and supervision of the securities clearing and settlement service providers. Both the CBLC and the BM&F are SROs (SelfRegulatory Organizations).

18. Promote fair access to securities clearing and settlement networks.

Yes

19. Ensure equitable and effective attention to stakeholder interests.

Yes

20. Encourage consistent regulation and supervision of securities clearing and settlement service providers.

Yes

April 2008

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BOVESPA: +55-11-3233-2188 CBLC: +55-11-3233-2416 BM&F: +55-11-3119-2009 ANBID: +55-11-3471-4227 WWW.BESTBRAZIL.ORG.BR

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