• February 2017
    M T W T F S S
    « Sep    
     12345
    6789101112
    13141516171819
    20212223242526
    2728  
  • Pages

  • Marginalia

  • Accumulations

Risco Brasil | Courts Uphold Derivatives Contracts

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so  far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are  potentially lethal. –Warren Buffet 2002

“It’s an established fact: corporate governance in Brazil is divided into two periods: before the derivatives scandal and after it.” –Rodrigo Zeidan, Fundação Dom Cabral.

According to research performed for the Folha de S. Paulo — and not, for some reason, by the FSP — courts are tending to uphold the caveat emptor school of thought on the subject of

I translate. Author: Adriana Aguia, Valor Econômico Portal ClippingMP.

The exchange-rate derivative contracts that pressured the finances of such major business groups as Sadia, Aracruz e Votorantim, causing billions of dollars in damage during the panic of 2008, are now being  recognized as valid by the Brazilian judiciary.

During the 15 minutes of fame generated by the Aracruz and Votorantim “too big to fail” derivatives cases, Brazil’s SEC, the CVM created and issued a new accounting form — above — in which derivatives contracts would be reflected on an appendix to the quarterly books.

In 2010, CVM issued Instruction 486/10,

which deals with the execution and clearing of derivatives contracts negotiated or registered in organized trading venues: the stock market, the commodity and futures market, and the organized OTC.  The main objective of Instruction 486/10 is to support information-sharing on derivative transactions conducted in the market or in an OTC by the oversight bodies of the stock, commodities and futures exchanges, in keeping with certain recent and unprecedented tendencies in the Brazilian market. Continue reading

Brazilian Capital Market Machine | Writing the Meltdown Manual

The great Sambodian smoking hole, above: Collapse of excavations at the future Pinheiros Station of the São Paulo Metrõ system.

After all these years, and thank you for your concern, Brazil seems to have adequate control over its nuclear reactors — even if the location Angra dos Reis along the south-cenral coast, teeming with life, is a constant cause for nervousness and target for activism.

The government has plans to build three more in the coming years.

Nevertheless, it is natural enough for the local press here to imagine what a Brazilian Fukushima might be like at a moment like this, when Japan is constantly in the news. Experts are trotted out to offer explanations:

José Manuel Diaz Francisco, a spokesman on security for the state-owned Eletronuclear, the technology used at Brazilian plants is safer than that used at the Japanese complex damaged by the March 11 earthquake.

“Here in Brazil we use PWR (pressurized water reactors). In Japan, the boiling water reactor ( BWR) is used. And we have isolated the two circuits in a way the Japanese have not,” Francisco said.

Following the same logic, I often find myself wondering what a Brazilian market crash might be like, especially if it came as the result of massive fraud by inadequately supervised market operators.

If it can happen to the NYSE, with its PWR model of self-regulation, what might happen to a pot with the lid left off, boiling over with first-time individual investors — grist to a rumor mill that operates at full steam day and night?

As Brasil Econômico reports, the Brazilian securities regulator — the CVM — has finally established credentialing and oversight system for independent securities brokers — selecting a rickety organization that looks to have been knocked together for the occasion as the autoregulator of these “liberal professionals.”

The official ceremony too place yesterday.

With the new rule, No. 434, the National Association of Brokerage and Securities Distribution FIrms (Ancord) will become the licensing body for these professionals in Brazil.

The prior that makes registration with the  Comissão de Valores Mobiliários (CVM) obligatory will make this registration automatic as soon as a private accreditation is obtained, much like the current system for accrediting stock analysts run by the professional association Apimec.

Apimec is on the campaign trail at the moment against a recently-instituted commission based on the British Takeover Panel.

Ancord already administers the qualifying exam for investment professionals and has lobbied the CVM for the job.

ANCORD just recently merged with ADEVAL, the Association of Securities Syndicators — the later part of the FENADISTRI syndicate.

The organization produced through this union, however, seems to have little in common with SIFMA, its U.S. counterpart — formed by the merge of the Bond Association and the Securities Industry Association mid-decade.

Continue reading

“New Rules for the Novo Mercado”

//i113.photobucket.com/albums/n216/cbrayton/Stuff/novomercado.png?t=1226322654” cannot be displayed, because it contains errors.

Bolsa inicia processo de alteração no Novo Mercado: “New rules in the works for the Novo Mercado listing segment of the São Paulo Stock Exchange (Bovespa).”

A clipping left over from my working (for money and food) file this morning. And a follow-up to:

I could have sworn I blogged some press clippings on the push to loosen the rules for listing in the “world-class corporate governance” segment, which now has 100+ companies. But maybe those are in my offline notes.

The Gazeta Mercantil reports.

Related headline: “Forex derivatives losses are Brazil’s homegrown subprime crisis.” This seems slightly hysterical to me, and also guilty of a faulty historical analogy.

If it turns out there was a lot of exotic trading going on behind the backs of boards and shareholders, the proper analogy would probably be Enron. Especially if complex networks of offshore shell corporations — like the one allegedly maintained by the Opportunity group in order to allegedly defraud the fisco and business partners — were involved in the shell game.

But there are no highly visible signs of this so far. There is a breath of fear and loathing surrounding Aracruz, the pulp and paper, giant, but we shall see. We shall see.

Os recentes episódios envolvendo falhas na gestão de riscos de companhias com ações negociadas no País estimularam a BM&FBovespa a rever as regras do mais exigente grau de governança corporativa da bolsa brasileira: o Novo Mercado. Na semana passada, foi instituída uma câmara composta por 20 profissionais do mercado cujo objetivo é ampliar uma discussão sobre os temas mais polêmicos do momento.

Recent episodes involving risk-management failures at public traded Brazilian companies have stimulated the BM&F-Bovespa to review its rules for the most demanding, governance-based listing segment on the bourse: the Novo Mercado. Last week, a working group of 20 market professionals was established to broaden the debate over two of of the most controversial topics of the day.

Continue reading

Demand for D&O Is Up Down Below (the Equator)

//i113.photobucket.com/albums/n216/cbrayton/Stuff/DandO_chart_426_385.gif?t=1224522398” cannot be displayed, because it contains errors.

MEANWHILE AND ELSEWHERE. Forbes survey on D&O insurance from 2002 among U.S. corporations. Source: Forbes.com

Directors and officers liability insurance (often called D&O) is insurance payable to the directors and officers of a company, or to the corporation itself, to cover damages or defense costs in the event they are sued for wrongful acts while they were with that company.

According to a recent item in the Folha de S. Paulo, clipped to my file but not directly usable by any of my clients — blog fodder, in a word — D&O insurance is in rising demand here in Brazil.

O potencial de estrago da crise financeira no setor empresarial brasileiro não se restringe às perdas com a disparada do dólar. Enquanto as companhias expostas à variação da moeda estrangeira procuram escritórios de advocacia para reaver [sic] o pagamento de suas dívidas, os acionistas minoritários querem reparação pelo prejuízo, e se intensifica a movimentação na indústria de seguro para cobrir possíveis processos contra os executivos das companhias.

The potential for fallout from the financial crisis among the Brazilian business executive class is not confined to losses caused by the soaring dollar. As companies exposed to fluctuations in foreign currency seek out law firms in order to be review their debt payments, minority shareholders want to be compensated for their losses, and there is increased activity in the [recently deregulated Brazilian] insurance industry to cover company executives against potential legal liability.

Continue reading

UBS-Pactual Pledged to Hedge: Cruzeiro do Sul Cops a Swap

//i113.photobucket.com/albums/n216/cbrayton/Stuff/swapconfuse.png?t=1207387982” contém erros e não pode ser exibida.
“All or part of this subject matter may be confusing or unclear”

Cruzeiro do Sul usa derivativo para apostar em alta de suas ações: Cruzeiro do Sul “will use a derivative contract to bet that its stock price will rise,” reports Valor Econômico.

Common wisdom here is that derivatives transactions are a relatively new option for Brazilian companies, for historical reasons, which is what makes this news, and why Valor explains it in “for dummies” terms. See also

SÃO PAULO – O Banco Cruzeiro do Sul vai usar um contrato derivativo como forma de “demonstrar a confiança da administração da companhia no potencial de apreciação das ações preferenciais”.

Banco Cruzeiro do Sul will use a derivative instrument as a way of “demonstrating management’s confidence in the potential of its preferred shares.”

Em comunicado ao mercado, o banco informou que firmou um acordo com o UBS Pactual pelo qual as instituições poderão fazer contratos de swaps (troca de rentabilidade) de ações, que poderão ter valor nocional (teórico) de até R$ 50 milhões no prazo de um ano.

I saw that: Posted at 9:19 p.m. on Friday evening  — the public relations dead zone, often reserved for news you would rather have the newspapers ignore — by the CVM.

In a communication to the market, the bank reports signing an agreement with UBS Pactual under which the two institutions will be able to enter into equities swap contracts up to a notional value of R$50 million, with a term of one year.

I think the technical term for swap here is permuta — an “in-kind” transaction. Not sure. Where is that glossary I was working on?

Da forma como o swap será estruturado, o Cruzeiro do Sul se compromete a pagar a variação do DI mais um spread (não divulgado) ao UBS, e em contrapartida recebe a variação das suas ações preferenciais. Ao fazer o acordo, o banco está dizendo que acredita que suas ações vão se valorizar mais do que os juros que se dispõe a pagar para o UBS.

The swap will be structured as follows: Cruzeiro do Sul will promise to pay the variation in the rate for Depósitos Interfinanceiros (DI) plus an undisclosed spread to UBS, and in return will receive the variation of its share price. By entering into the deal, the bank is saying that it believes its share price will rise more than the interest rates is undertakes to pay UBS.

Continue reading