Brazil: BM&FBovespa increases penalty fees on settlement fails

04.10.2013

Note: This Announcement, originally published on 29 September 2013, is updated to clarify aspects of the "request for reconsideration" and include details of a discount of penalty fees in certain cases. Changes are highlighted.

Effective

1 October 2013

in order to improve settlement timelines, BM&FBovespa will increase settlement failure penalties.

BM&FBovespa currently levies these penalties at 0.2% on T+3 and T+4 fails.

Details of the new procedure

The new procedure will distinguish between operational, non-operational (called “naked short-selling” by BMF&Bovespa) and third-party fails.

As a general rule, BM&FBovespa will apply a new minimum penalty fee rate of 0.5% on T+3 and 0.5% on T+4 for fails that are not considered to be caused by third-party errors, and a new penalty fee for naked short-selling, as follows:

From
1 October
From
1 November
From
2 December
Delivery failure due to “third-party” failureNo chargeNo chargeNo charge
Delivery failure on T+3 (naked short-selling)0.50%1.00%1.00%
Delivery failure on T+4 (naked short-selling)1.00%5.00%10.00%

A fail that occurs on T+3 and is regularised by the delivery of securities on the morning of T+4 will systematically be considered an operational fail.

Otherwise, for a fail to be considered operational, the participant must send a “request for reconsideration” to BM&FBovespa explaining the situation that caused the fail. The information included must be based on the list provided by BM&FBovespa (Annex 1 to Circular Letter 012/2013), which distinguishes operational fails and non-operational fails. Incorrect or incomplete requests will not be considered by BM&FBovespa.

The request must be sent by the local broker to BM&FBovespa no later than T+6; otherwise, the fail will be considered non-operational (naked short-selling). The customer’s locally appointed broker can act on the customer’s behalf with the request and the follow-up process.

Upon receipt of the request, BM&FBovespa will analyse it as follows:

a.If the request is approved by BM&FBovespa, the participant will only be charged the minimum penalty fee of 0.5% on T+3 and 0.5% on T+4.

b.If the request is not approved, BM&FBovespa will inform the local broker of this rejection by T+11. In this case, the fail will be considered non-operational (naked short-selling) and the penalty fee rate will apply as described above on T+12.

c.If BM&FBovespa does not receive any request for reconsideration, the penalty fee rate applicable to the naked short-selling described above will apply on T+7.

Note: In cases b. and c. above, BM&FBovespa will discount the penalty fee of 0.5% charged on T+3 and the penalty fee paid on T+4.

BM&FBovespa is still reviewing the process of how these penalty fees will be charged to the broker. The broker should pass the fees on to customers of Clearstream Banking1 through CBL’s appointed subcustodian Itaù Unibanco SA. Customers should contact their brokers to obtain further information on how the broker will proceed with this process.

Exception for non-operational fails

With regard to fails not considered as operational, and as an exception to the details of the penalty fee for naked short-selling described above, the following rules and penalty fees will apply:

  • A non-operational fail on T+3 resolved on T+4, via the purchase of the security on T+1, with the same trading participant, will be subject to 1% penalty fee on T+3.
  • A non-operational fail on T+4 where the participant has purchased the security on the day following the sale (T+1), with a different trading participant, will be subject to penalty fees of 1% on T+3 and 0.5% on T+4.

Further information

Further details of the settlement process are provided within the Creation Link Guide - Brazil.

For additional details about the penalty fees, customers are invited to review circular letters issued by BM&FBovespa on their website, as follows:

  • 044/2013-DP Oficio Circular – dated 8 July 2013 (Securities delivery failures and late payment to Clearinghouses fines);
  • 012/2013-DO Oficio Circular – dated 2 August 2013 (Securities delivery failures and late payment to Clearinghouses fines);
  • 056/2013-DP – dated 16 August 2013 (Fines for securities delivery failure and for late payment to the Clearinghouses – effective date delayed).

For further information, customers may contact Clearstream Banking Customer Service or their Relationship Officer.

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1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).

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