derivatives outstanding on OTC markets registered at CETIP plus the open interest at BMF is greater than the market

capitalization of listed corporations in Brazil and it is larger than the amount of outstanding public debt. In comparison to GDP, the amount outstanding of open interest is 80% of GDP. Trading volume at the BMF, on the other hand, is already 1,392% of GDP and that does not include OTC trading reported to CETIP, options trading at BOVESPA1 and OTC trades with overseas entities that are not reported in Brazil. The BMF derivatives exchange in Sao Paolo is the 5th largest futures exchange in the world.2 Trading volume totaled 248 million contracts in 2006, and it recently hit new records for daily trading volume on June 8th, 2007 3.88 million contracts with a notional value of $167.2 billion. This was lead by record high interest rate futures trading which hit a new record of 3.16 million. During January and February of 2007, BMF was the second fastest growing futures exchange in the world.3 Trading volume in the futures on overnight interest rates is one of the fastest growing in the world 162 million in 2006 compared to 121 million in 2005 and ranks 12th overall worldwide. The BMF maintains open-outcry or pit trading arrangements for many of its contracts. BMF was demutualized in 2007 and held an IPO in November of 2007. In addition to the futures and options traded on BMF, Brazils stock exchange, the Bovespa, trades options at its location in Sao Paolo and is the 7th largest futures and options exchange in the world with a total of 288 million options contracts traded in 2006. Bovespa and BMF offer electronic trading. Bovespa, which mostly trades options on stock indices and single stocks, is authorized under current law to trade forwards, futures, call and put options on single stocks and stock indices, stock future contracts, stock forward contracts, and warrants (non-standard options) issued according to CVM Instructions n 223 and 328.4 Most of the options traded on Bovespa are call options with only a tiny fraction of trading volume conducted as put options.5 The volume of trading in options is concentrated in single stock options on just a few of the major Brazilian corporations listed on the Bovespa stock exchange. b. OVER-THE-COUNTER MARKETS Brazils OTC derivatives market is similarly large and fast growing. Like other countries with an established OTC derivatives market, it is dominated by a few large dealers. Unlike other countries, the majority of inter-dealer trading is conducted through exchange trading. Also, unlike OTC markets in other countries, it is made more transparent by reporting requirements. Data on the OTC gathered from CETIP shows that

1 2

Bolsa de Valores de Sao Paulo According to the Futures Industry Association (FIA) and following the merger of CME and CBOT. 3 According to the Futures Industry Association (FIA) 4 CVM, the Comissao de Valores Mobiliarios, is the national securities and derivatives regulatory in Brazil. Also, stocks and securities issued by publicly-held companies registered with the CVM, debentures (simple or convertible in stocks), commercial paper, and stock certificates. 5 See below for description of call and put options.