• Risk Control for Derivatives. A New Project to Offer New Operations to Companies
  • June 2, 2010 | Author: Cristina de Andrade Salvador
  • Law Firm: Miguel Neto Advogados - São Paulo Office
  • Even though the sensible use of derivative instruments helps allocating risk among the various market players - since they allow companies to hedge against fluctuations in a given asset and/or index -, many companies have incurred in substantial losses in this connection, particularly in the last quarter.

    In view of this, a step forward has already been taken to implement a derivatives risk center project in Brazil evolved from a credit center. A number of associations, the Central Bank (Bacen) and Brazilian Securities and Exchange Commission (CVM) have met to regulate companies’ disclosure of information about their derivative operations. The purpose of this initiative is to allow market players to assess consolidated risks.

    A risk center would be engaged in providing relevant information, such as the companies’ positions by index (interest, exchange and commodities), as well as call, put and free options over time.

    Other issues at stake are at which value derivative positions shall be recorded and bank secrecy concerns.

    Currently, banks that operate derivatives are required to report their own customers’ market values to Cetip S.A - OTC Clearing House.