Protecting those who invest in the future of Brazil

Protecting those who invest in the future of Brazil

José Alexandre Cavalcanti VascoHead, Education and Investor Assistance

October 2007

Snapshot of the Brazilian Market

BM&FDaily Average Traded Volume

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

00 01 02 03 04 05 06 J an-Aug 07

Thousa

nd C

ontr

act

s

1,819

BOVESPADaily Average Traded Value

US$ bi

0.27 0.20 0.270.42

0.67

2.15

1.13

2001 2002 2003 2004 2005 2006 2007 (Jan-Aug)

Securities OfferingsUS$ bi

129

4

11

30

5753

0

10

20

30

40

50

60

70

2001 2002 2003 2004 2005 2006 2007(Jan-Sept)

Equity OfferingsUS$ bi

25% 15%8%

42% 29%

53%

61%

85%75%

92%

58%

71%

47%

39%

0

3

6

9

12

15

18

21

24

2001 2002 2003 2004 2005 2006 2007 (Jan-Sept)

PRIMARY SECONDARY

Number of EquityOfferings

5 615

37

1013

21

12

4

2

2004 2005 2006 2007 (September)

IPO´s Listed BDR

Equity Offerings Allocation

71% in average to foreign investors

ForeignLocal

2007 (August)

Foreign

Local

Evolutionof market capitalization

0

200

400

600

800

1000

1200

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

US$ 1,106.76 bi

August

Market capitalizationas % of GDP

2007 GDP: US$ 2,427 bi (Forecast IPEA)

August

10%

20%

30%

40%

50%

60%

70%

80%

90%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Corporate Bond Offerings US$ bi

15.2

31.9

17.1

3.31.8

4.76.6

0

5

10

15

20

25

30

35

2001 2002 2003 2004 2005 2006 2007(August)

SecuritizationUS$ bi

US$0.6 B

US$1.9 B

US$4.6 B

US$6.4 B

US$3.4 B

0

1

2

3

4

5

6

7

2003 2004 2005 2006 2007 (August)

Mortgage-Backed Securities - MBS

Asset-Backed Securities - ABS

Private Pension Funds Net Asset as percentage of Brazilian GDP

8%

9%

10%

11%

12%

13%

14%

15%

16%

17%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007(May)

Capital Markets in General

“Social” Function of the KM:• to form prices and returns of available

instruments within a risk/ return rationale, offering market participants the possibility of risk diversification

• to reduce the economy´s and the system´s aggregate risk

Risk/ Return in the USA (1926-1996)

Source:Ney Brito

Corporate Bonds - Long Term

Average Return

9,40%14,10%2,90%

Asset

Stocks - Large CapsStocks - Small Caps

Risk (SD)

20,40%33,50%

10%

Average annual real return and risk in the brazilian capital market

in US$

Average SD Average SD Average SD7,41% 40,25% 20,39% 44,93% 20,48% 57,23%

14,27% 17,90% 25,84% 25,32% 21,70% 24,25%

Source:Ney Brito

1990/1999

IndexIBACDI

Real Return5 years 8 years 10 years

1995/1999 1992/1999

ReturnsFixed Income X BOVESPA

5 Year Average

-100%

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%

92 93 94 95 96 97 98 1999 2000 2001 2002 2003 2004 2005 2006 2007 Sept/07

IBOV

CDI (Interbank lending rate)

The 1990s

The majority of the listed companies in Brazil were family-owned and highly concentrated:

Total Capital Ownership

Brazil: 52% X 10% US

(families tipically owning two thirds of voting capital and 50% of total capital)

Corporate GovernanceNº of Companies

Level 1, Level 2 & Novo Mercado

Levels 2001-Dec 2002-Dec 2003-Dec 2004-Dec 2005-Dec 2006-Dec 2007 (Sept/25)Level 1 19 24 31 33 37 36 40Level 2 - 3 3 7 10 14 18

Novo Mercado - 2 2 7 18 44 82Total 19 29 36 47 65 94 140

Market Value Level 1, Level 2 & Novo Mercado

% of BOVESPA

Levels 2001-Dec 2002-Dec 2003-Dec 2004-Dec 2005-Dec 2006-Dec 2007 (Sept/25)Level 1 19% 22% 34% 34% 38% 40% 37%Level 2 - 0% 0% 2% 3% 4% 3%

Novo Mercado - 1% 1% 3% 7% 14% 17%Total 19% 23% 35% 39% 48% 58% 57%

Dispersed Controled Structure

Nº of Companies

0 20 40 60 80 1000 20 40 60 80 100

Lojas Renner

EmbraerSubmarino

Eternit

Lupatech

TotvsDatasul

ABNote

DasaRossi Residencial

PerdigãoGafisa

Source: Bovespa

Brasilagro

Investment FundsAugust/07

* Forecast IPEA

7.3 thousand fundsnet asset value

US$ 543 bi (44% of 2007* GDP)

11.3 mm shareholders

9%

20%3%

68%41%

4%

12%43%

30%

3%

13%

60%

Fixed Income

Stocks

Multimarkets (Hedge Funds)Other

Individual investors

Investor Participation (% volume Bovespa)

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006

Investor Education in

Brazilian Market

Investor Education and Assistance

• In 1998:– creation of the Department of Investor Education and

Assistance– launch of Program on Investor Education and Assistance

(PRODIN).• Investor Assistance:

– The CVM’s Query Centers: Rio de Janeiro and São Paulo. The Query Center is in charge of providing a large variety of information to the general public.

– Toll free line.– Serviço de Atendimento ao Investidor (complaints, consultations,

suggestions and denunciations) – through CVM’s website (www.cvm.gov.br).

– Administrative proceedings to deal with investor’s complaints.

http://www.cvm.gov.br/






INVESTORS’ REQUESTS

Investors’ Requests 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

2007 (aug)

PERSONAL 21.465 10.601 9.001 6.836 5.965 4.147 3.406 4.042 1.759 2.537 1.773

PHONE 24.278 23.666 22.437 20.827 19.148 14.535 10.451 6.704 8.177 9.878 7.176 ADMINISTRATIVE PROCEEDINGS 1.066 1.118 1.233 1.084 1.327 1.505 1.239 1.595 1.319 1.210 957

LETTERS 4.200 1.794 1.440 1.913 1.877 1.131 2.009 4.164 2.839 104 71

TOLL FREE LINE - 49.589 15.607 21.811 72.272 23.447 40.417 22.892 158.579 30.200 22.919

E-MAIL 152 4.636 5.218 4.221 4.067 7.621 12.685 8.056 23.586 12.625 7.878

PUBLICATIONS - 63.735 26.717 34.595 45.153 43.629 16.633 39.942 38.987 120.526 68.477

TOTAL 51.161 155.139 81.653 91.287 149.809 96.015 86.840 87.395 235.246 177.080 109.251


51.161

155.139

81.65391.287

149.809

96.01586.840 87.395

235.246

177.080

0

50.000

100.000

150.000

200.000

250.000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


0

5.000

10.000

15.000

20.000

25.000

30.000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

E-mail Personal Phone Linear (E-mail)

Investor EducationCVM’s routine activities

• Investors Orientation and Education Program (PRODIN)– Town meetings – Lectures in universities (University circle)– Monograph Contest and Prize (8th year) with BOVESPA– Educational Publications (8 “Cadernos CVM” - with 120 mil freely

distributed last year) – Caderno #9: The Commodities and Futures Exchange.

– Toll free line

• Investors’ Website including e-learning tools (launched in May/07)

• University circle (2002-2006). Free lectures to University circle (2002-2006). Free lectures to universities and, as of 2006, also to high-school universities and, as of 2006, also to high-school colleges, all over the country. 8,600 students colleges, all over the country. 8,600 students were reached in 2006.were reached in 2006.

Noite RS Novo HamburgoFEEVALE – Centro UniversitárioRaul Zenha 400 Noite (18:30 e 20:300)RS Porto AlegreUFRGS – Universidade Federal do Rio Grande do SulRaul Zenha e Felix Garcia200 Noite RS Porto AlegrePUC-RS Raul Zenha e Felix Garcia25 Manhã e NoiteSC Tubarão UNISUL – Universidade do Sul de Santa CatarinaRaul Zenha e Fábio Galvão350 Noite

SC Araranguá UNISUL - Universidade do Sul de Santa CatarinaRaul Zenha e Fábio Galvão150 NoiteMS Campo GrandeUniversidade Católica Dom BoscoFelix Garcia e Nádia Soares250 Manhã

MS Campo GrandeUFMS – Universidade Federal de Mato Grosso do SulFelix Garcia e Nádia Soares110 Noite

LECTURES

25

1618

37

16

0

5

10

15

20

25

30

35

40

2002 2003 2004 2005 2006


• Town Meetings with investors. CVM’s Town Meetings with investors. CVM’s Chairperson or comissioners answer questions Chairperson or comissioners answer questions from investors. Last one in March 2006, city of from investors. Last one in March 2006, city of Porto Alegre (south of Brazil) reached 400 Porto Alegre (south of Brazil) reached 400 investors. Since 2006, a joint initiative of CVM investors. Since 2006, a joint initiative of CVM and other institutions of the market (exchanges, and other institutions of the market (exchanges, investment bank association etc.).investment bank association etc.).


• Educational Publications– Educational guides– 8 booklets (“Cadernos CVM”), e.g.:

• Caderno #1: The CVM.• Caderno #3: Investment funds.• Caderno #8: Rights of minority shareholders. • In 2007: Caderno #9: The Commodities and Futures

Exchange (as a response to the increase in the deals carried out by individual investors through BM&F’s home-broker: the “webtrading” plataform). BM&F also has just launched a “simulator” (with a virtual grant of R$ 150 mil or US$ 80 mil) to small firms and individual investors.

• From Jan 1997 to Aug 2007: 498,394 From Jan 1997 to Aug 2007: 498,394 educational publications freely distributed.educational publications freely distributed.


• Education Advisory Committee (Jan 2006). Joint initiative Education Advisory Committee (Jan 2006). Joint initiative of CVM and Abrasca (publicly traded companies), Anbid of CVM and Abrasca (publicly traded companies), Anbid (investment banks), Andima (market institutions), Apimec (investment banks), Andima (market institutions), Apimec (analysts), IBRI (investor’s relations), INI (individual (analysts), IBRI (investor’s relations), INI (individual investors and investment clubs), and also the exchanges investors and investment clubs), and also the exchanges Bovespa and BM&F.Bovespa and BM&F.

• Main achievements in 2006 and 2007: Main achievements in 2006 and 2007: – ““Top Program” (training the trainers philosophy) and “Press Top Program” (training the trainers philosophy) and “Press

Award” (recognize best quality news in terms of investor Award” (recognize best quality news in terms of investor education): 3education): 3 groups trained in the teacher´s program – one groups trained in the teacher´s program – one week immersion for universities’ professors of Brazil (circa week immersion for universities’ professors of Brazil (circa 150 trained since July 2006). Next edition: Jan 14-18 2008.150 trained since July 2006). Next edition: Jan 14-18 2008.

– Press Award (Prêmio Imprensa de Educação ao Investidor) – Press Award (Prêmio Imprensa de Educação ao Investidor) – (recognize best quality news in terms of investor education) (recognize best quality news in terms of investor education) grants 3 MBA scholarships /year and a travel to USA.grants 3 MBA scholarships /year and a travel to USA.

• Next steps:Next steps:– Training judges (through a 72-hour program): on the law of Training judges (through a 72-hour program): on the law of

capital markets (beginning March 2008).capital markets (beginning March 2008).– Training the legislative branch of the government (in 2007). Training the legislative branch of the government (in 2007).

Investor EducationNew projects

• Center of Study in Capital Markets. Created in 2006 to Center of Study in Capital Markets. Created in 2006 to provide administrative and technical support to provide administrative and technical support to researches and students, as well as to organize and researches and students, as well as to organize and facilitate access of researchers to non-qualified facilitate access of researchers to non-qualified information held by the CVM’s staff.information held by the CVM’s staff.

• Agreements with universities (Rio de Janeiro State Agreements with universities (Rio de Janeiro State University, Catholic University, IBMEC) to launch local University, Catholic University, IBMEC) to launch local centers of studies in capital markets.centers of studies in capital markets.

• 2 Seminars per year since (2006: Investment Funds and 2 Seminars per year since (2006: Investment Funds and consumer’s protection plus 30 years of CVM. 2007: The consumer’s protection plus 30 years of CVM. 2007: The carbon market and the capital market, The risk-based carbon market and the capital market, The risk-based supervision, both international) and workshops.supervision, both international) and workshops.

• Support to researchers, students and professors (CVM’s Support to researchers, students and professors (CVM’s library).library).


• Investors website. A new website aimed at Investors website. A new website aimed at fostering investor education (user-friendly fostering investor education (user-friendly language, challenges, e-learning tools and kids language, challenges, e-learning tools and kids educational material).educational material).

• Four areas: investors, lawyers, students and Four areas: investors, lawyers, students and foreign investors (both english/spanish foreign investors (both english/spanish languages).languages).


Special Investor site:www.portaldoinvestidor.gov.br

CVM x Investor website

CVM's website x Investor's website (since May 24th)

30.148

98.79792.726

116.404

14.102

37.51631.737

42.624

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

MAY JUN JUL AUG

CVM Investor

Investor’s websiteTool to compare investment funds

Investor Education – New projectsNational Strategy for Financial Literacy

• COREMEC: a joint committee that comprises regulation COREMEC: a joint committee that comprises regulation and supervision entities of Brazilian Financial System and supervision entities of Brazilian Financial System (SFN). Launched in 2006 (Administrative Decree # 5685): (SFN). Launched in 2006 (Administrative Decree # 5685):

• Central Bank of Brazil (BCB).Central Bank of Brazil (BCB).• Securities and Exchange Commission of Brazil (CVM).Securities and Exchange Commission of Brazil (CVM).• Private Insurance Superintendence (SUSEP) –insurance Private Insurance Superintendence (SUSEP) –insurance

companies, private open pension funds, capitalization companies, private open pension funds, capitalization companies.companies.

• Complementary Pension Secretariat (SPC) – private Complementary Pension Secretariat (SPC) – private closed pension funds.closed pension funds.

• Main objectives:Main objectives:• Coordinated action of regulation and supervision.Coordinated action of regulation and supervision.• Exchange of information among regulators.Exchange of information among regulators.


• The number and complexity of choices increased The number and complexity of choices increased dramatically over the last 17 years.dramatically over the last 17 years.

• Number of investors in capital markets is growing and also Number of investors in capital markets is growing and also the appetite for risky investments, in search of bigger returns the appetite for risky investments, in search of bigger returns (as a response to the basic interest rate decline): home-(as a response to the basic interest rate decline): home-broker (including derivatives) and transfers from broker (including derivatives) and transfers from conservative investment funds (which invested in conservative investment funds (which invested in government bonds) to hedge-funds (fundos “multimercado”).government bonds) to hedge-funds (fundos “multimercado”).

• Debt is growing, thanks to special lending schemes Debt is growing, thanks to special lending schemes (employers and civil servants). (employers and civil servants).

• The unbanked: large part of population do not maintain The unbanked: large part of population do not maintain transaction, credit, saving, or investment accounts. transaction, credit, saving, or investment accounts.

• The growing need to build retirement savings (a shift from The growing need to build retirement savings (a shift from defined benefit plans to defined contribution plans). defined benefit plans to defined contribution plans).


• Deliberação # 3, May 2007: COREMEC forms workgroup Deliberação # 3, May 2007: COREMEC forms workgroup to provide advice on a Brazilian national strategy for to provide advice on a Brazilian national strategy for financial literacy in 6 months beginning at the first financial literacy in 6 months beginning at the first meeting (October 2007).meeting (October 2007).

• Representatives from Central Bank, SUSEP, SPC and CVM Representatives from Central Bank, SUSEP, SPC and CVM were appointed during September 2007 (plus 15 auxiliary were appointed during September 2007 (plus 15 auxiliary members -> private sector representatives from members -> private sector representatives from Exchanges, associations of brokers/dealers and publicly Exchanges, associations of brokers/dealers and publicly traded companies, National Association of Investment traded companies, National Association of Investment Banks etc.).Banks etc.).

• Next steps: to launch a national survey on Brazilian's Next steps: to launch a national survey on Brazilian's financial capability, to catalog local initiatives aiming to financial capability, to catalog local initiatives aiming to improve personal financial skills, to launch a website improve personal financial skills, to launch a website (disclosure the process of getting the plan built).(disclosure the process of getting the plan built).

+55-0800-7260802

Websites:

www.cvm.gov.br

www.portaldoinvestidor.gov.br

E-mail (Sup. Prot. Orientação aos Investidores):[email protected]

Thank you!

Documents

Protecting those who invest in the future of Brazil