Professional Documents
Culture Documents
SHAREHOLDERS MEETING
June 14, 2017
04/28/2017
Table of Contents
CLARIFICATION AND GUIDELINES ................................................................................ 3
A. PARTICIPATION IN THE EXTRAORDINARY SHAREHOLDERS MEETING ..... 4
A.1. Guidelines on Participation in Person ............................................................... 5
A.2. Guidelines on Participation via Remote Voting Form ...................................... 6
A.2.1. Exercise by service providers remote voting system ...................................... 6
A.2.2. Sending of the remote voting form by the shareholder directly to the Company7
A.3. Guidelines on Participation by means of an attorney-in-fact .......................... 8
A.3.1. Physical Proxy ....................................................................................................... 8
A.3.2.1. Pre-Accreditation .............................................................................................. 11
B. MANAGEMENT PROPOSAL ............................................................................. 12
B.1. Matters to be resolved at the B3 Extraordinary Shareholders Meeting ....... 12
C. Supplementary Information and Documents Pertaining to the Matters to be
resolved on at the Extraordinary Shareholders Meeting of B3 .................................. 14
2
MANAGEMENT PROPOSAL AND GUIDELINES ON PARTICIPATING IN
THE B3 EXTRAORDINARY SHAREHOLDERS MEETING OF June 14,
2017
This document contains information on the matters to be resolved based on the proposal
of management, and regarding the merger, by BM&FBOVESPA S.A. Bolsa de Valores,
Mercadorias e Futuros (Company or B3), of its wholy-owned subsidiary CETIP S.A.
Mercados Organizados (CETIP), as well as the necessary clarification on shareholders
participation in the corresponding Extraordinary Shareholders Meeting to be held on June
14, 2017.
The aim of this initiative is to reconcile the practices adopted by the Company for timely
and transparent communication with its shareholders with the requirements of Law No.
6404, of December 15, 1976, as amended (Corporate Law), and CVM Instruction No.
481, of December 17, 2009 as amended (CVM Instruction 481).
The following matters on the agenda will be resolved at the Extraordinary Shareholders
Meeting:
(1) To examine, discuss and approve the provisions and conditions of the merger
agreement of the merger of CETIP S.A. Mercados Organizados (CETIP) into
B3, executed on May 12, 2017, between the managements of B3 and CETIP
(Transaction) (Protocol and Justification);
3
61.562.112/0001-20), in charge of preparation of the valuation report at book
value of the net worth of CETIP, for the merger of CETIP into B3 (Appraisal
Report);
(4) To approve the proposed Transaction in accordance with the Protocol and
Justification; and
(5) To authorize B3 managers to take all the measures necessary to complete the
Transaction.
Management proposals on the items on the agenda of the Shareholders' Meeting, and
information on each of the matters to be considered, are given in item B.1 of this
document.
The holding of the Extraordinary Shareholders Meeting will require the presence of at
least one quarter (1/4) of the Companys capital stock. In the event that this quorum is not
reached, the Company will issue a new Call Notice announcing a new date for holding the
Shareholders Meeting on a second call, which may take place in the presence of any
number of shareholders.
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photograph of the shareholders attorney-in-fact
and the respective power of attorney
For investment funds latest consolidated regulations of the fund (in the
event that the regulations do not provide for the
funds voting policy, the supplementary
information form or equivalent document must
also be submitted)
by-laws or articles of incorporation of the funds
administrator or manager, as the case may be, in
accordance with the funds voting policy and the
corporate documents that prove the respective
representation powers
legal representatives identity document with
photograph
Note: The Company will not require a sworn translation of documents that have been
originally drawn up in Portuguese, English or Spanish or that are accompanied by a
translation into these languages. The following identity documents with photograph will
be accepted: Identity card (RG), foreigners identity card (RNE), driving license (CNH),
passport or officially recognized professional membership cards.
5
A.2. Guidelines on Participation via Remote Voting Form
The Company will voluntarily adopt for this Extraordinary Shareholders Meeting the
remote voting system established by article 21-A of CVM Instruction 481, as amended by
CVM Instruction 561/2015.
In this context, shareholders may send their voting instructions on the agenda of the
Meeting as from todays date:
(i) by instructing their custody agent providing this service on the completion of the
remote voting form, in the case of shareholders with shares deposited with a
central securities depository;
(ii) by instructing the bookkeeping agent of the Company, Banco Bradesco S.A., in the
case of shareholders with shares deposited with the bookkeeping agent; and
(iii) by completing the remote voting form and sending it directly to the Company, in
accordance with Attachment I hereto.
In the case of divergence between any remote voting form directly received by the
Company and the voting instructions contained in the full list of votes sent by the
bookkeeping agent for the same CPF or CNPJ tax registration number, the voting
instructions contained in the bookkeeping agents voting list will prevail, and the remote
voting form directly received by the Company will be disregarded.
During the voting period, shareholders may change their voting instructions as many times
as they deem necessary, and the last voting instruction received will be acted on by the
Company.
Once the voting period is closed, shareholders may no longer change the voting
instructions already sent. If a shareholder considers that a change is necessary, such
shareholder must attend the Shareholders Meeting in person, bearing the documents
required in the table above, and ask for the voting instructions sent via remote voting form
to be disregarded.
Shareholders who opt to exercise their remote voting rights through service providers must
6
transmit voting instructions to their custody agent or the Companys bookkeeping agent, in
accordance with the rules established by the latter. Shareholders must therefore contact
their custody agents or the bookkeeping agent to verify the procedures established by the
latter for the issue of voting instructions via remote voting form, and the documents and
information required by the custody agents for the purpose.
Custody agents will forward the shareholders vote received to the BM&FBOVESPA
Central Securities Depository, which, in turn, will create a voting list to be sent to the
Companys bookkeeping agent.
Under the terms of CVM Instruction No. 481, as amended, shareholders must transmit
instructions for the completion of the remote voting form to their custody agents or to the
bookkeeping agent not less than 7 days before the date of the Meeting, that is, by June 7,
2017, unless a different deadline is established by the custody agents.
It is worth noting that, as determined by CVM Instruction No. 481, the BM&FBOVESPA
Central Securities Depository, when receiving shareholders voting instructions through
their custody agents, will disregard any divergent instructions on the same resolution that
have been issued by the same CPF or CNPJ tax registration number. Additionally, the
bookkeeping agent, also in line with CVM Instruction No. 481, will disregard any divergent
instructions on the same resolution that have been issued by the same CPF or CNPJ tax
registration number.
A.2.2. Sending of the remote voting form by the shareholder directly to the
Company
Shareholders who opt to exercise their remote voting right may alternatively do so directly
to the Company and, in this case, should forward the following documents to Praa
Antonio Prado, 48, 6th floor, Centro, CEP: 01010-901, So Paulo/SP Brazil, for the
attention of the Investor Relations Officer:
(i) a physical copy of Attachment I hereto, duly completed, initialed and signed; and
(ii) a certified copy of the documents described in the table of item A above, as
appropriate.
Shareholders may also, if they prefer, send scanned copies of the documents referred to
in (i) and (ii) above via email to ri@bmfbovespa.com.br, in which case they must also send
7
the original remote voting form and certified copies of the other documents required by
June 12, 2017 to Praa Antonio Prado, 48, 6th floor, Centro, CEP: 01010-901, So
Paulo/SP Brazil, c/o Investor Relations Officer. Once the documents referred to in (i) and
(ii) above are received, the Company will notify the shareholder of the receipt of such
documents and of their acceptance or refusal, under the terms of CVM Instruction No. 481,
as amended.
If any remote voting form forwarded to the Company is not fully completed or accompanied
by the supporting documents described in item (ii) above, it will be disregarded, and the
shareholder will be notified at the e-mail address indicated in item 3 of the remote voting
form.
The documents referred to in (i) and (ii) above must be filed with the Company not less
than 2 days before the date of the Shareholders Meeting, that is, by June 12, 2017. Any
remote voting forms received by the Company after this date will be disregarded.
The individual shareholder may be represented, under the terms of article 126, paragraph
1 of Brazilian Corporate Law, through a proxy appointed within the past one (1) year, who
must be (i) a shareholder, (ii) an attorney (iii) a financial institution, or (iv) an officer of the
Company.
For legal-entity shareholders, as per the CVM Boards decision at its meeting held on
November 4, 2014 (CVM Process RJ2014/3578), the Company shall not require the agent
to be (i) a shareholder, (ii) an attorney, (iii) a financial institution or (iv) an officer the
Company, and these shareholders must be duly represented in the manner required by
their corporate documents.
If a shareholder cannot be represented by the proxy of their choice, the Company will
provide the names of three attorneys able to represent them in strict accordance with the
voting guidance provided by said shareholder:
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Eduardo Lopes Farias, Brazilian citizen, married, computer scientist, domiciled in the
Capital of the State of So Paulo, at Praa Antonio Prado, No. 48, bearer of Identity
Card (RG) No. 09493120-1 IFP-RJ and enrolled with the Individual Taxpayer Register
(CPF/MF) No. 027.002.197-32.
Andr Grunspun Pitta, Brazilian, married, attorney, domiciled in the capital of the
state of So Paulo at Praa Antonio Prado, No. 48, registered with the So Paulo
chapter of the Brazilian Bar Association (OAB/SP) under No. 271.183, and enrolled
with the Individual Taxpayer Register of the Ministry of Finance (CPF/MF) under No.
316.939.698-66.
We note that the Company will not require the signature to be notarized or the proxy
instruments granted by the shareholders to their respective representatives to be
consularized or with the Hague Apostille brochure, nor will it require a certified or sworn
translation of the powers of attorney and documents drafted in or translated into
Portuguese, English or Spanish.
MODEL PROXY
PROXY
9
on the agenda, in accordance with the express guidance given below by Grantor;
Andr Grunspun Pitta, Brazilian, married, attorney, domiciled in the capital of the
state of So Paulo at Praa Antonio Prado, No. 48, registered with the So Paulo
chapter of the Brazilian Bar Association (OAB/SP) under No. 271.183, and enrolled
with the Individual Taxpayer Register of the Ministry of Finance (CPF/MF) under No.
316.939.698-66, to ABSTAIN from voting on the matters on the agenda, in
accordance with the express guidance given below by Grantor;
granting them powers to attend, examine, discuss, vote and sign the minutes and
shareholder attendance list on behalf of Grantor, at the Companys Extraordinary
Shareholders Meeting to be held on June 14, 2017, at 11:00 a.m., at the
Companys principal place of business, at Praa Antonio Prado, No. 48, Centro, City
of So Paulo, State of So Paulo, in strict accordance with the guidance determined
below concerning the matters on the agenda, whereas they are allowed to delegate
with reserve of equal powers hereby granted by the present instrument.
Agenda
(a) To examine, discuss and approve the provisions and conditions of the merger
agreement of the merger of CETIP S.A. Mercados Organizados (CETIP)
into B3, executed on May 12, 2017, between the managements of B3 and
CETIP (Transaction) (Protocol and Justification);
(d) To approve the proposed Transaction in accordance with the Protocol and
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Justification; and
For the purposes of granting this power of attorney, the proxy agent shall have
limited powers to attend the Extraordinary Shareholders Meeting on first and
second calls, if applicable, and to cast votes in accordance with the above-
mentioned voting guidance. The proxy agent shall not be required to take any
measures other than those necessary to comply with this proxy instrument. The
proxy agent is hereby authorized to refrain from any discussion or vote or matter for
which they have not received, at their discretion, sufficiently specific voting
guidance.
This proxy is valid only for the Companys meeting referred to herein, whether on
first or second call.
_____________________________
Grantor
By: [name]
[position]
A.3.2.1. Pre-Accreditation
The documents must be delivered to Praa Antonio Prado, 48, 6 andar, Centro, CEP:
01010-901, So Paulo/SP - Brazil, for the attention of Diretoria de Relaes com
Investidores, e-mail: ri@bmfbovespa.com.br.
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B. MANAGEMENT PROPOSAL
The objective of the proposed Transaction is to simplify the ownership structure further
and reduce the operating and administrative costs of the group, resulting in benefits to
Company shareholders.
The Transaction will be carried out in such a way that B3 will receive the book value of all
property, rights and obligations of CETIP, which shall be extinguished and succeeded by
B3 pursuant to the law, based on the elements provided for in the CETIP balance sheet as
of December 31, 2016.
Besides, please note that the Transaction will not result in an increase or decrease in the
net equity or capital stock of B3, since the net equity of CETIP is already fully reflected in
the shareholders equity of B3, as a result of the application of the equity pick-up method.
Also, taking into account that CETIP is a wholly-owned subsidiary of B3, all CETIP shares
shall be extinguished, in accordance with paragraph 1 of article 226 of Law No. 6404/76,
without the attribution of shares issued by B3 to replace shareholders rights. Thus there
will be no replacement or increase in capital of B3.
After the clarifications above, we inform that the Companys Management submits the
following matters for appreciation by the shareholders: (a) approval of the Protocol and
Justification of Merger of CETIP with the Company; (b) ratification of
PricewaterhouseCoopers to prepare the Appraisal Report on CETIPs net equity that will
be transferred to B3 as a result of the Transaction; (c) approval of said Appraisal Report;
(d) approval of the Transaction in accordance with the Protocol and Justification; and (e)
12
authorization to the management of B3 to take all the measures necessary to complete the
Transaction.
The principal terms of the Transaction, as required by article 20-A of CVM Instruction No.
481/09, as amended, are described in Attachments II to II.3 hereto.
Articles 224 and 225 of the Brazilian Corporate Law provide that the conditions and
justifications of merger transactions must be described in the Protocol and Justification
executed by the managers of the companies involved.
Thus, based on the clarifications provided for herein, and pursuant to the Brazilian
Corporate Law, we propose the approval of the Protocol and Justification that was
executed by the managers of B3 and CETIP on May 12, 2017.
The Protocol and Justification can be found in Attachment II.1 to this proposal.
In accordance with the legislation in effect, we propose the ratification of the specialist
company PricewaterhouseCoopers Auditores Independentes (CNPJ No. 61.562.112/0001-
20) to prepare CETIPs Appraisal Report on Net Equity at Book Value.
13
After the resolutions detailed above, which are phases for approval of the Transaction, we
propose the approval of the Transaction of Merger of CETIP with the Company, in
accordance with the terms and conditions provided for in the Protocol and Justification.
Item Five To authorize the managers of B3 to take all the measures necessary
to complete the Transaction
The following documents are available to the shareholders at the Companys head office,
on its Investor Relation site (www.bmfbovespa.com.br/ri/) and on the websites of B3
(www.b3.com.br) and the Brazilian Securities Commission (www.cvm.gov.br):
Call Notice
We wish to emphasize that any doubts should be taken up with the Investor Relations
Department, which can be reached on +55 11 2565-4418, 2565-4834 or 2565-4729 or by
sending an e-mail to ri@bmfbovespa.com.br.
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ATTACHMENTS
ATTACHMENT I
1. Name of shareholder
This form must be completed by shareholders who wish to exercise their right of remote
voting as provided for in CVM Instruction No. 481.
In this case it is essential that the above fields be completed with the full name (or
company name) of the shareholder and the registration number with the Ministry of
Finance, either for a legal entity (CNPJ) or an individual (CPF), as well as an email
address for contact if necessary.
In addition, for this voting form to be considered valid and the votes cast to be included
in the quorum of the Shareholders Meeting:
Please note that the Management Proposal referred to in this form, and to which it is
attached, is available to shareholders at the head office of BM&FBOVESPA, on our
Investor Relations website (www.bmfbovespa.com.br/ri), and on the websites of
BM&FBOVESPA (www.bmfbovespa.com.br) and of the Brazilian Securities
Commission (www.cvm.gov.br).
5. Guidance for delivering the form
Shareholders who wish to exercise their right to remote voting may: (i) complete this
form and send it direct to the Company, or (ii) transmit their instructions for completion
to the appropriate service providers, as detailed below:
Shareholders who wish to exercise their right to remote voting through a service
provider must deliver their voting instructions to their custody agent or to the
Companys bookkeeping agent, in accordance with the agents rules. For this purpose,
shareholders must contact their custody agent or the bookkeeping agent and find out
the procedures for issuing voting instructions, and the documents and information
required.
The custody agents will forward the voting instructions they receive to the
BM&FBOVESPA Central Depository, which in turn will prepare a list of votes to be
sent to the Company share bookkeeping agent.
Under CVM Instruction No. 481, shareholders must send their instructions for
completing the voting form to their custody agent or to the bookkeeping agent not later
than 7 days before the date of the meetings, i.e. by June 7, 2017, unless the agent
determines a different deadline.
Please note that in accordance with CVM Instruction No. 481, the BM&FBOVESPA
Central Depository, on receiving voting instructions from shareholders through their
custody agents, will ignore any different instructions for a specific vote issued by the
same CPF or CNPJ number. In addition, the bookkeeping agent, also in accordance
with CVM Instruction No. 481, will ignore any different instructions for a specific vote
issued by the same CPF or CNPJ number.
Shareholders who wish to exercise their right to remote voting may also do so by
sending the following documents directly to the Company at Praa Antonio Prado, 48,
6 andar, Centro, CEP: 01010-901, So Paulo/SP Brazil, for the attention of the
Investor Relations Officer:
(i) a hard copy of this form duly completed, initialed and signed; and
Shareholders may also, if they prefer, send a scanned copy of this form and the above-
mentioned documents by email to ri@bmfbovespa.com.br, in which case it will also be
necessary to deliver the original of this form and certified copies of the documents
required by June 12, 2017, to Praa Antonio Prado, 48, 6 andar, Centro, CEP: 01010-
901, So Paulo/SP Brazil, for the attention of the Investor Relations Officer.
If a form sent direct to the Company is not fully completed, or not accompanied by the
supporting documents referred to in item (ii) above, it will be ignored and the
shareholder will be notified accordingly at the email address indicated in item 3 above.
The form and supporting documents must be received by the Company at least 2 days
before the date of the Shareholders Meeting, i.e. by June 12, 2017. Any forms received
by the Company after this date will be ignored.
4. To approve the proposed Merger in the terms of the Protocol and Justification.
7. If the Extraordinary General Meeting is subject to a second call, will your voting
instructions as given in this form still be valid on that occasion?
[ ] Yes [ ] No
[City], [date]
__________________________________________
Name of shareholder
ATTACHMENT II
1. Merger and Justification Agreement of the transaction, pursuant to articles 224 and 225 of
Law No. 6404 of 1976.
The Merger and Justification Agreement of CETIP S.A. Mercados Organizados (CETIP)
into BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros (B3 and the Merger
and Justification Agreement) is presented in Exhibit II.1 to this Proposal.
2. Other agreements, contracts and precontracts regulating the exercise of the right to vote
or the transfer of shares of existing companies or companies resulting from the transaction,
filed at the head office of the company, or to which the controlling shareholder of the
company is a party
Not applicable.
The transaction shall consist of the merger into B3 of its wholly-owned subsidiary CETIP, at
the book equity value of CETIP, and consequent winding-up of CETIP and succession by B3
in all assets, rights and obligations of CETIP (Merger). The total shares representing the
capital stock of CETIP, which are held by B3, shall be extinct, as provided for by article 226,
paragraph 1 of Law No. 6404/76.
The Merger shall not result in any increase or reduction in the net equity or in the capital stock
of B3, to the extent that the net equity of CETIP is already fully reflected on the net equity of
B3 as a result of the application of the equity method.
The Merger consummation is not intended to generate any effects before July 3, 2017, without
prejudice to the performance of the following acts:
(i) Shareholders' Meeting of CETIP with (a) approval of the Merger and Justification
Agreement; (b) approval of the Merger; and (c) assurance, as provided for by paragraph one
of article 231 of Law No. 6404/76, to the debentureholders of CETIP that wish to redeem the
debentures held by them during the term of six months as from the date of publication of the
minutes of the shareholders' meetings concerning the Merger;
(ii) Shareholders' Meeting of B3 with (a) approval of the Merger and Justification
Agreement; (b) ratification of the appointment of the Specialized Company, as defined in the
Merger and Justification Agreement; (c) approval of the Valuation Report, as defined in the
Merger and Justification Agreement; (d) approval of the Merger; and (e) authorization for the
managers of BM&FBOVESPA to perform all acts required to formalize the Merger; and
1
(iii) Approval of the Merger by the CVM (Brazilian Securities Commission), as provided
for by CVM Instruction No. 461/07.
b. Obligations to indemnify: (i) the managers of any of the companies involved; (ii) if the
transaction does not take place.
Not applicable.
c. Comparative table of the rights, advantages and restrictions of the shares of the
companies involving or resulting, before and after the transaction
After the Merger, only the existing common shares issued by B3 shall continue to exist, which
shall preserve the same rights and advantages, which are as follows on the date hereof:
Right to dividends: The shareholders are ensured dividends and/or interest on equity, which
together shall correspond to at least 25% of the net profit of the fiscal year
of the Company, adjusted pursuant to the corporation law.
Right to vote: Full right, with due regard for the restricted vote described below.
Description of the In accordance with Article 7 of the Company's Bylaws, although each
restricted vote: common share of the Company entitles to one vote in resolutions of the
Annual or Special Shareholders' Meeting, no shareholder or group of
shareholders may exercise votes in any number in excess of 7% of the
number of shares into which the capital stock is divided.
Exchangeability No.
Description of the Right of Recess: the shareholders that disagree with certain resolutions
characteristics of the passed at a shareholders' meeting may withdraw from the Company,
capital reimbursement: upon reimbursement of the amount of their shares based on their equity
value, considering the terms and exceptions established by the
Corporation Law.
2
shareholders' meeting representing at least 50% of the Companys
capital stock.
Restriction to No.
circulation:
Redeemable: No.
Conditions for Under the Corporation Law, neither our Bylaws nor any resolutions
modification of the passed by the Companys shareholders at shareholders' meetings may
rights ensured by said deprive the shareholders from the following rights: (i) right to
securities: participate in profits distribution; (ii) right to participate, in proportion
to their equity interest in the capital stock, in the distribution of any
remaining assets in case of the Companys liquidation; (iii) right of first
refusal in the subscription of shares, debenture stock or subscription
warrant, except under certain circumstances provided for by the
Corporation Law; (iv) right to inspect, as provided for by the
Corporation Law, the management of the corporate business; and (v)
right to withdraw from the Company in the events set forth by the
Corporation Law.
Other relevant Under the Corporation Law, the Novo Mercado Regulations, the
characteristics: applicable regulations and the Companys Bylaws, the performance of a
public offering for share acquisition is required in the events of
cancellation of registration as a publicly-held company, withdrawal
from Novo Mercado or in case that any shareholder or group of
shareholders becomes the holder: (i) of any direct or indirect equity
interest equal to or greater than 30% of the total shares issued by the
Company; or (ii) of other shareholders rights, including usufruct, when
acquired for consideration, that provide them with the right to vote on
shares issued by the Company representing more than 30% of its capital
stock.
The shares issued by CETIP, all of which are owned by B3, shall be cancelled upon the Merger.
Therefore, considering that there is no delivery of shares of B3 to shareholders of CETIP, the
comparison of the rights and advantages of the shares of both companies becomes irrelevant.
3
d. Any need for approval by debentureholders or other creditors
In relation to CETIP, the debentureholders of CETIP are ensured to redeem the debentures
held by them, during the term of 6 months as from the date of publication of the minutes of
the shareholders' meeting relating to the Merger, as provided for by paragraph one of article
231 of the Corporation Law.
e. Assets and liabilities making up each portion of the equity, in case of spin-off
Not applicable.
Not applicable.
After the Merger, BM&FBOVESPA shall continue to dedicate itself to its activities covered by
its corporate purpose, maintaining its registration as a publicly-held company and being the
successor of CETIP's rights and obligations.
a. Description of the key benefits expected, including synergies, tax benefits and strategic
advantages:
The Merger seeks to make the equity structure simpler and to reduce operating and
management costs of the group, consequently providing benefits to the shareholders of B3.
The synergies are especially seen in the combination of companies of the group that have the
same activity.
b. Costs
The managements of the Companies estimate the main costs for performance of Merger, for
these companies, jointly, of approximately R$350,000.00, not including expenses with
publications.
c. Risk Factors
The Merger seeks to integrate the business of the companies and take even more advantage of
the synergies obtained with the transaction of business combination between B3 and CETIP.
This integration process may result in difficulties of an operating, regulatory, commercial,
financial and contractual nature, which may prevent the enjoyment of the expected synergies
or result in unexpected losses or expenses.
4
d. If this is a transaction with a related party, any alternatives that could have been used to
achieve the same objectives, indicating why they were ruled out
No alternative structure is seen to the merger that could result in simplification and integration
of the business of both companies, with winding-up of one of the legal entities, and its
succession by the other one, thus, without interruption of the activities of the wound-up
company, as expected. The analysis also loses relevance because this is the merger of a wholly-
owned subsidiary.
e. Exchange ratio
Not applicable, because CETIP is a wholly-owned subsidiary of B3 and, therefore, the Merger
shall not result in increase in the net equity of B3.
B3 holds 100% of the shares representing the capital stock of CETIP, and therefore the
transaction shall not result in capital increase of B3, or in modification in the equity interest of
its shareholders. Therefore, it is not possible to talk about exchange ratio.
6. Copy of the minutes of all meetings of the board of directors, fiscal council and special
committees at which the transaction was discussed, including any dissenting votes
The minutes of the Meeting of the Board of Directors of B3 which approved the Merger and
Justification Agreement is shown in Exhibit II.2 to this Proposal.
5
7.1. Identification of any conflicts of interest between the financial institutions, firms and
the professionals who prepared the documents mentioned in item 7 and the companies
involved in the transaction
Not applicable.
8. Statutory projects or changes in the by-laws of the companies resulting from the
transaction
No statutory changes are being proposed in B3, which shall be the successor of CETIP.
9. Financial statements used for the transaction, pursuant to the specific regulations
The audited financial statements as of December 31, 2016 of B3 and CETIP are shown in Exhibit
II.4 to this Proposal.
10. Proforma financial statements prepared for the transaction, pursuant to the specific
regulations
The proforma financial statements are shown in Exhibit II.5 to this Proposal.
11. Document containing information on the companies directly involved which are not
publicly-held companies.
Not applicable.
6
12. Description of capital and control structure after the transaction, pursuant to item 15 of the reference form
BM&FBOVESPA
Not
Capital World Investors Foreigner 198,618,595 Not applicable 9.65 Not applicable 9.65 No Apr 04, 2017
applicable
Not
Funds administered by OppenheimerFunds, Inc. Foreigner 133,741,768 Not applicable 6.50 Not applicable 6.50 No Oct 08, 2015
applicable
Not
Funds administered by BlackRock, Inc. Foreigner 92,434,646 Not applicable 4.49 Not applicable 4.49 No Aug 11, 2015
applicable
Not
Others - 1,611,887,182 Not applicable 78.27 Not applicable 78.27 No Apr 04, 2017
applicable
Not
Treasury Shares - 22,456,299 Not applicable 1.09 Not applicable 1.09 Not applicable Apr 04, 2017
applicable
Not
Total - 2,059,138,490 Not applicable 100 Not applicable 100 - -
applicable
(1) Consolidated Information from various funds and vehicles incorporated in different countries.
7
Item 15.3 of the Reference Form
BM&FBOVESPA
Outstanding shares
Outstanding shares correspond to all shares of the issuer, except the shares held by the controlling
shareholder, the persons related to the controlling shareholder, the issuers managers and shares
held in treasury.
BM&FBOVESPA S.A .
Bolsa de Valores, Mercadoria e Futuros
CNPJ/MF n. 09.346.601/0001-25
99%
99,99% 100% 86,95% 100% 100% 100% 100%
BSM - BANCO
BM&FBOVESPA BVRJ BM&FBOVESPA
BM&FBOVESPA BM&FBOVESPA (UK) BM&F (USA)
Superviso de Bolsa de Valores do BRV LLC
de Liquidao e LTD. INC.
Mercados RJ
Custdia S.A.
INSTITUTO
0,01% 20% 100%
100% BM&FBOVESPA
RTM Rede de
Telecomunicaes CETIP Lux. S. R.l. CETIP Info S.A.
para o Mercado
8
Items 15.5, 15.6, 15.7 and 15.8 of the Reference Form
13. Number, class, type and type of securities of each company involved in the transaction
held by any other companies involved in the transaction, or by persons related to these
companies, as defined by the regulations governing public offerings for the purchase of shares
B3 is the holder, on this date, of 244,138,490 registered common shares with no par value,
representing 100% of the capital stock of CETIP.
14. Exposure of any of the companies involved in the transaction, or by persons related to these
companies, as defined by the regulations governing public offerings for the purchase of shares,
to derivatives backed by securities issued by the other companies involved in the transaction.
Not applicable.
15. Report covering all the trading during the last six (6) months by the persons indicated below
in the securities issued by the companies involved in the transaction:
None
9
(2) number of shares 1,425,077
involved:
(3) security involved: 24,324,830
(4) percentage of the class 0.07%
and type of security:
(5) other material conditions: n/a
None
10
(1) We emphasize that the board member Luis Nelson Guedes de Carvalho, who is also a member of the Audit
Committee, was accounted for in the Board of Directors' column to avoid double counting.
16. Document through which the Special Independent Committee submitted its
recommendations to the Board of Directors if the transaction was negotiated pursuant to CVM
Guidance Opinion No. 35, of 2008.
Not applicable. B3 holds 100% of the shares representing the capital stock of CETIP, and therefore
the transaction shall not result in capital increase of B3, or in modification in the equity interest of
its shareholders. Therefore, there was no exchange to be negotiated.
** ** **
11
ATTACHMENT II.1
Page 1 of 3
shareholders rights. Thus, there is no point in mentioning a replacement or increase in
capital of BM&FBOVESPA.
3.2. Nevertheless, for purposes of information, and due to the fact that, on the date of the
Merger into CETIP, BM&FBOVESPA appears as the controlling shareholder of CETIP,
BM&FBOVESPA requested to KPMG Corporate Finance Ltda. (CNPJ No.
29.414.117/0001-01) to prepare the appraisal reportprovided for in article 264 of Law No.
6404/76, in order to valuate the equity of the two companies in accordance with the same
criteria and on the same date, at market prices (Report on Net Equity at Market
Prices). The Report on Net Equity at Market Prices is incorporated to this Merger
Agreement as Exhibit I.
3.3. Also, since on the date of the CETIP special shareholders meeting that shall resolve
on the Merger, BM&FBOVESPA shall be the single shareholder in CETIP, there is no
point in mentioning dissent shareholders or withdrawal rights of shareholders as a result
of the Merger.
4. BM&FBOVESPA shall continue to dedicate to its activities, maintaining its registration
as a publicly held company and, in accordance with its current business purpose, shall
start to exercise directly the activities currently performed by CETIP, succeeding the
latter in all rights and obligations, including those relating to the registration, records
and agreements required to the performance of such activities; to the collaterals offered
or to which it is a beneficiary; and also regarding the legal and administrative lawsuits
to which CETIP is a party.
5. The management of BM&FBOVESPA engaged PricewaterhouseCoopers Auditores
Independentes (CNPJ No. 61.562.112/0001-20) (Valuation Company) to valuate the
net equity of CETIP that shall be transferred to BM&FBOVESPA upon the Merger. The
auditors prepared the appraisal report incorporated to this Merger Agreement as
Exhibit II (Appraisal Report). The conclusions of the Valuation Company shall be
submitted for ratification by the BM&FBOVESPA shareholders' meeting that shall
analyze this Merger Agreement, pursuant to article 227, paragraph 1, of Law No.
6404/76.
6. The Valuation Company declares that (i) there is no current or potential conflict or
communion of interests with the shareholders in the Companies or in respect to the Merger
itself; and (ii) the shareholders or the managers of the Companies have not directed, limited,
imposed difficulties, or performed any actions that have or may have compromised the
access to, or the use or knowledge of information, property, documents or work methods
that are relevant for the quality of its conclusions. The Valuation Company was selected
for the work described herein considering their wide and well known experience in the
preparation of reports and valuations of this nature.
7. The Merger should not produce any effects until July 3, 2017, without prejudice to the
performance of the actions below, on which the Merger depends on for its regular
implementation:
(i) CETIP shareholders meeting for approval (a) of this Merger Agreement; and
(b) of the Merger;
(ii) BM&FBOVESPA shareholders meeting for approval (a) of this Merger
Agreement; (b) of the ratification of the Valuation Company; (c) of the Appraisal Report;
Page 2 of 3
(d) of the Merger; and (e) of the authorization to the management of BM&FBOVESPA to
perform all actions required to formalize the merger; and
(iii) Approval of the Merger by CVM, pursuant to CVM Instruction No. 461/07.
7.1. Should the approval referred to in item (iii) above occur after July 3, 2017, the
transaction shall be effective on the first business day of the month following the month
in which the approval took place.
7.2. The redemption of debentures shall be ensured to CETIP debentureholders,
pursuant to article 231, paragraph 1, of Law No. 6404/76, for a period of 6 months as
from the date of publication of the minutes of the shareholders meeting regarding the
Merger.
8. The Merger shall result in the extinguishment of CETIP, which, as mentioned above,
shall be succeeded by BM&FBOVESPA in all its property, rights and obligations, in
accordance with article 227 of Law No. 6404/76.
9. The management of BM&FBOVESPA shall be responsible for all actions required for
the implementation of the Merger, including the cancellation of CETIPs registrations
with the relevant federal, state and municipal bodies, and the maintenance of CETIP
accounting records during the legal period. Any costs and expenses arising from the
implementation of the Merger shall be under the responsibility of BM&FBOVESPA.
10. The documentation applicable shall be made available for the shareholders of the
Companies at their respective headquarters as from the date of the call notice of the
Special Shareholders Meetings of the Companies, and/or, as the case may be, on the
Investor Relations website of CETIP (www.cetip.com.br/ri) and of BM&FBOVESPA
(www.bmfbovespa.com.br/ri), as well as on the websites of the Brazilian Securities
Commission (CVM) and BM&FBOVESPA.
11. This Merger Agreement shall only be altered through a written instrument, being
governed by the laws of the Federative Republic of Brazil, and the parties elect the courts
of the Judicial District of the Capital City of the State of So Paulo to resolve any doubts
arising thereof, expressly waving any other court, however privileged it is or might be.
The managers of the Companies shall sign this Merger Agreement in 2 counterparts of
equal content and form for one sole purpose, together with the witnesses below.
Page 3 of 3
ATTACHMENT II.2
1. Date, Time and Place: May 12, 2017, 1:00 p.m., company branch offices at 4th floor
of no. 841 Rua Tabapu, Itaim Bibi, So Paulo, So Paulo State.
2. Attendances: Antonio Carlos Quintella, Denise Pauli Pavarina, Edgar da Silva Ramos,
Eduardo Mazzilli de Vassimon, Florian Bartunek, Guilherme Affonso Ferreira, Jos de
Menezes Berenguer Neto, Jos Lucas Ferreira de Melo, Larcio Jos Lucena Cosentino,
Luiz Antonio de Sampaio Campos, Luiz Fernando Figueiredo, and Luiz Nelson Guedes
de Carvalho. Justified absence of Chairman Pedro Pullen Parente.
(CETIP); and (ii) the appraisal report valuing at market value the net worth of CETIP
and the Company.
4.4. Approve the convening of an Extraordinary General Shareholder Meeting with the
following order of business, and authorize the Executive Board to take all necessary
measures to this end: (a) approve the Merger Agreement; (b) ratify the appointment of
PwC to prepare the appraisal report valuing CETIPs net worth at book value for the
absorption of CETIP by the Company (Appraisal Report); (c) approve the Appraisal
Report; (d) approve CETIPs absorption by the Company as per the Merger Agreement
(Absorption); and (e) authorize the Companys management to perform all acts
necessary for completion of the Absorption.
4.5. Approve the composition of the following Advisory Committees to the Board of
Directors for a term of two (2) years starting today, as follows:
4.5.1. Integration Oversight Committee: (a) Antonio Carlos Quintella as Chair; (b) Denise
Pauli Pavarina and Edgar da Silva Ramos as committee members;
4.5.2. Nomination and Governance Committee: (a) Pedro Pullen Parente as Chair; (b)
Antonio Carlos Quintella and Guilherme Affonso Ferreira as committee members;
4.5.3. Compensation Committee: (a) Pedro Pullen Parente as Chair; (b) Florian Bartunek
and Jos de Menezes Berenguer Neto as committee members;
4.5.4. Financial & Risk Committee: (a) Luiz Fernando Figueiredo as Chair; (b) Antonio
Carlos Quintella, Eduardo Mazzilli de Vassimon and Jos de Menezes Berenguer Neto
as committee members;
4.5.5. Intermediation Industry Committee: (a) Denise Pauli Pavarina as Chair; (b) Edgar
da Silva Ramos as committee member; and the external members will be appointed in
due course;
4.5.6. Issuer Regulation Committee: (a) Luiz Antonio de Sampaio Campos as Chair; (b)
Florian Bartunek and Luiz Fernando Figueiredo as committee members.
4.6.1. In compliance with article 46, 2, of the bylaws, elect the Board member Luiz
Nelson Guedes de Carvalho to serve a term ending in April 2018 and designate him as
Chair of the committee and Financial Expert for the purposes of CVM Instruction 380/99,
article 31-C, 6, as amended by CVM Instruction 509/12.
4.6.2. Elect Board member Jos Lucas Ferreira de Melo to the committee for a term
ending in April 2019.
(Continuation of Minutes of the Ordinary Meeting of BM&FBOVESPAs Board of Directors Held on May 12, 2017)
4.6.3. The current external members of the Audit Committee Luciana Pires Dias, Paulo
Roberto Simes da Cunha, Pedro Oliva Marclio de Sousa and Tereza Cristina Grossi
Togni will serve their respective terms ending in June 2017, at which time the Board of
Directors will again discuss the composition of the Audit Committee but only with regard
to its external members.
4.7.1 Elect the Board member Edgar da Silva Ramos to chair the committee and Board
member Luiz Antonio de Sampaio Campos as a committee member, both for a term of
two (2) years.
4.7.2. The current external members of the Product & Pricing Committee Carlos
Ambrsio, Cassiano Ricardo Spinelli, Christian George Egan, Leonardo Silva de Loyola
Reis, Mrio Tors, Renato Monteiro dos Santos and Roberto de Oliveira will serve their
respective terms until March 2019.
4.8.1.Elect the Board member Larcio Jos de Lucena Cosentino to chair the committee
and Board member Florian Bartunek as a committee member, both for a term of two (2)
years.
4.8.2. The current external members of the IT Committee Adam Edward Wible, Ari
Studzner, Claudio Sassaki, Guilherme Stocco Filho, Srgio Kulikovsky and Silvio
Romero de Lemos Meira will serve their respective terms until December 2018.
5. Close: With nothing further to discuss, these minutes were recorded, read and signed
by all the Board members present.So Paulo, Brazil. May 12, 2017. Signed: Antonio
Carlos Quintella, Denise Pauli Pavarina, Edgar da Silva Ramos, Eduardo Mazzilli de
Vassimon, Florian Bartunek, Guilherme Affonso Ferreira, Jos de Menezes Berenguer
Neto, Jos Lucas Ferreira de Melo, Larcio Jos de Lucena Cosentino, Luiz Antonio de
Sampaio Campos, Luiz Fernando Figueiredo, Luiz Nelson Guedes de Carvalho
This is a true copy of the minutes from this meeting, as recorded in the companys
minute book.
Appraisal Report
BM&FBOVESPA S.A.
Bolsa de Valores,
Mercadorias e Futuros
I. Executive summary
V. Methodologies
VII. Conclusion
Appendix
Appendix I Glossary
Appendix II Important notes
Appendix III Intangibles projections
Appendix IV Summary of revaluation of property, plant and equipment
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
2
I. Executive summary (1/2)
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
3
I. Executive summary (2/2)
I. Executive summary
V. Methodologies
VII. Conclusion
Appendix
Appendix I Glossary
Appendix II Important notes
Appendix III Intangibles projections
Appendix IV Summary of revaluation of property, plant and equipment
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
5
I . Information about the appraiser (1/5)
The KPMG Network Consulting related to merger and acquisitions;
KPMG is a global network of professional services firms providing Financial valuations.
Audit, Tax and Advisory services. We operate in 155 countries and
have 174,000 people working in member firms around the world. The
The Corporate Finance segment of KPMG International member firms
sum up to approximately 2,500 professionals, in 167 offices across 82
independent member firms of the KPMG network are affiliated with
countries.
KPMG International Cooperative ("KPMG International"), a Swiss entity.
Each KPMG firm is a legally distinct and separate entity and describes Internal process of approval of the Report
itself as such.
The economic and financial valuation of the Companies were
In Brazil, approximately 4,000 professionals work in 22 cities located in performed by a team of qualified consultants, monitored and reviewed
13 States and the Federal District. KPMG in Brazil has offices located by the engagement partner, a director and the manager coordinating
in So Paulo (head office), Belm, Belo Horizonte, Braslia, Campinas, the work. In addition, the team was also composed of a partner-
Cuiab, Curitiba, Florianpolis, Fortaleza, Goinia, Joinville, Londrina, reviewer.
Manaus, Osasco, Porto Alegre, Recife, Ribeiro Preto, Rio de Janeiro,
Identification and qualification of the involved professionals
Salvador, So Carlos, So Jos dos Campos and Uberlndia.
KPMG brand was created in 1987 from the merge of Peat Marwick
Fernando Afonso C. S. B. Mattar, Gabriel Carracedo and Luis Fernando
Katalifs coordinated and participated in the development of this
International (PMI) and Klynveld Main Goerdeler (KMG).
Report. Luis Augusto Motta was the partner reviewer of the work.
In Brazil, the area of Deal Advisory, deliver the following professional
You can find the curricula vitae of these professionals on pages 8 and
services:
9.
Transaction Services (due diligence services during acquisitions);
Forensic Services (services related to investigations and fraud
prevention);
Anti-money laundering;
Restructuring (services of companys restructuration and consulting
to creditors for debt recovery);
Consulting in PPPs (services related to public private partnerships);
Consulting for financing for private companies;
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
6
I . Information about the appraiser (2/5)
Appraiser declarations At the date of this Report, in addition to the relationship related to the
Report mentioned above, KPMG has the following work in progress in
KPMG Corporate Finance declares, in May 12th, 2017, that:
the context of the Operation, which does not impact on the analysis
It does not entitle any securities of the Client nor the Company, nor made in the preparation of this Report:
do its partners, directors, officers, directors, controllers or persons
a) Advice in the diagnosis of the costing model of value in the
related to them;
amount of approximately R$ 370,000.00 (three hundred and
There are no commercial and credit relations that could impact the seventy thousand reais);
Report;
b) Advice in the inventory of greenhouse gases, in the completion
There is no conflict of interest that impairs the necessary of the CDP and iCO2 climate change questionnaire in the
independence required for the performance of this work. amount of approximately R$ 55,000.00 (fifty five thousand
reais); and
For the services referring to the preparation of this Report, KPMG
will receive, from BM&FBOVESPA, a fixed remuneration of R$ c) Advice in the execution of previously agreed procedures
92,000.00 (ninety two thousand reais). involving the costing system in the amount of R$ 35,000.00
(thirty five thousand reais).
On the date of this Report, in addition to the relationship concerning
the Report mentioned above, KPMG has the following ongoing
work in the context of the operation, which do not impact on the
analysis in the preparation of this Report:
a) Advice on the allocation of purchase price (PPA) in the amount
of R$ 320,000.00 (three hundred and twenty thousand reais),
net of taxes.
In addition to the relationships related to the operation mentioned
above, KPMG Corporate Finance Ltda. and other companies
operating under the KPMG brand in Brazil declare they have
received remuneration of R$ 1,616,000.00 (one million six hundred
and sixteen thousand reais) from BM&FBOVESPA for the provision
of professional services related to general advice, in the twelve
months preceding the filing of this Report, and do not impact its
drafting.
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
7
I . Information about the appraiser (3/5)
Experience Since 1995 works in in business consulting, conducting projects in the financial restructuring of
companies, economic-financial, mergers and acquisitions and start-up companies and business units.
Started at KPMG in 2006. Before he served as manager of Arthur Andersen and worked as manager of
business development for the Cisneros Group in Latin America.
Sector of experience Financial Institutions, Pharmaceutical, Entertainment, Internet Services, Consumer Products (food,
beverage, pulp and paper etc..), Telecommunications and Retail Companies.
Experience Started at KPMG in 2003, has a strong experience in financial valuation, also acting with advice on
Mergers and Acquisitions, trough different methodologies.
Sector of experience Banking, Telecommunications and IT (software and hardware), Entertaining, Publishing, Aviation,
Education, Retail Companies, among others.
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
8
I . Information about the appraiser (4/5)
Experience Started at KPMG in September 2007, works in company valuation for purposes such as Mergers and
Acquisitions, Goodwill justification, Business Combinations, Intangible Asset Valuation, Impairment,
among others.
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
9
I . Information about the appraiser (5/5)
Presented below are some of KPMGs experiences in companys valuations in the last years:
2016 2015 2015
I. Executive summary
V. Methodologies
VII. Conclusion
Appendix
Appendix I Glossary
Appendix II Important notes
Appendix III Intangibles projections
Appendix IV Summary of revaluation of property, plant and equipment
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
11
I I. Information on the Companies (1/10)
BM&FBOVESPA
Overview of BM&FBOVESPA (source: Client) The chronology of the main events that occurred in the history of
BM&FBOVESPA are explained below:
BM&FBOVESPA is the main Brazilian institution of intermediation for
operations in the capital market by developing, implementing and 1890 Establishment of the Free Exchange Foundation, closed in 1891.
providing systems for stock trading, stock and financial derivatives, Establishment of the Public Funds of Sao Paulo Stock Exchange.
fixed income securities, government securities, currencies, and 1895 Negotiations on government bonds and shares were registered in
agricultural commodities. It was established in 2008 with the huge stone blackboards.
integration of BM&F (futures market exchange and derivatives) and Emergence of brokerage firms and trading operators. The stock
Bovespa (stock exchange), and is headquartered in Sao Paulo SP. 1967 exchange is called Sao Paulo Stock Exchange (Bolsa de Valores de
So Paulo, Bovespa).
The simplified structure of BM&FBOVESPA is shown below:
1986 Beginning sessions of the Mercantile & Futures Exchange (Bolsa
Mercantil & de Futuros, BM&F) and its Derivatives Clearinghouse.
Signing of agreement between BM&F and the Brazilian Futures
Framework 1997 Exchange (Bolsa Brasileira de Futuros, BBF), with the objective of
consolidating the entity as the main trading center in Mercosur
derivatives.
Capital World Beginning of the activities of the BM&F Foreign Exchange
Blackrock Oppenheimerfunds Others Treasury
Investors 2002 Clearinghouse and the Brazilian Commodities Exchange; and
acquisition of equity the securities of the Rio de Janeiro Stock
Exchange (Bolsa de Valores do Rio de Janeiro, BVRJ).
10,06% 5,09% 7,37% 75,96% 1,57% Demutualization of Bovespa, which is now called Bovespa Holding
2007 and of the BM&F, which is called BM&F S.A. Bovespa Holding S.A.
and BM&F S.A. obtain the listed company registration and launch a
public offering of shares on the Novo Mercado on October 26, 2007
and November 30th, respectively.
Integration of Bovespa Holding SA and BM&F S.A., and creation of
BM&FBOVESPA SA Securities, Commodities and Futures
2008 Exchange.
Beginning of the trading of the BM&FBOVESPA S.A. In the Novo
Mercado under the code BVMF3.
100% 100% 100% 99,99% 99,99% 100%
2010 Beginning of the global preference strategic partnership with the
Bolsa de
BM&F BM&F BM&FBOVESPA CME Group.
Valores Instituto Banco
BOVESPA (USA) Superviso de Implementation of the derivative phase of the new integrated
(UK) Ltd. do Rio de BM&FBOVESPA BM&FBOVESPA 2014
INC. Mercados clearinghouse ("Clearing BM&FBOVESPA").
Janeiro
0,01% 2017 Acquisition of CETIP of BM&FBOVESPA
Source: BM&FBOVESPA
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
12
I I. Information on the Companies (2/10)
BM&FBOVESPA
Income Statement Consolidated (source: audited Income Statement)
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
13
I I. Information on the Companies (3/10)
BM&FBOVESPA
Balance Sheet Assets Consolidated (source: audited Balance Sheet)
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
14
I I. Information on the Companies (4/10)
BM&FBOVESPA
Balance Sheet Liabilities Consolidated (source: audited Balance Sheet)
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
15
I I. Information on the Companies (5/10)
Historical financial indicators BM&FBOVESPA
The historical financial indicators of BM&FBOVESPA can be found below (source: audited Financial Statements)
68,43%
66,27% 66,63%
51,40%
2.216.634 2.320.781
2.126.638 2.030.433
1.455.358 1.345.496 1.476.835
1.192.906
2.203.458
1.446.064
1.080.947 977.914
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
16
I I. Information on the Companies (6/10)
CETIP
Overview of CETIP (Source: public information) The chronology of the main events that occurred in the history of Cetip
are explained below:
CETIP (Ticker: CTIP3) was established in 1984 by the National
Monetary Council, in the city of Rio de Janeiro - RJ, and currently
manages markets relating to trading and listing of securities, public and 1984 Creation of CETIP as a nonprofit entity.
private fixed income securities, and OTC derivatives. CETIP is the 1986 Beginning of activities of CETIP.
largest depositary of private fixed income securities in Latin America 1988 Agreement with Andima (the current Brazilian Association of
and the largest private asset clearinghouse of the Brazilian financial Financial Markets and Capital (Associao Brasileira das Entidades
market. Its performance provides the necessary support to the entire dos Mercados Financeiro e das Capitais, Anbima)) to operate the
cycle of transactions with fixed income securities, securities and OTC National Debentures System (Sistema Nacional de Debntures,
SND)
derivatives.
2008 Demutualization and creation of CETIP S.A.
The simplified structure of CETIP is shown below:
12,00% 5,28% 81,52% 1,20% 2011 Repositioning of the CETIP brand and implementation of new logo
and product architecture.
IntercontineltalExchange (ICE) becomes a shareholder of the
company, with a 12.4% stake.
Launch in partnership with Clearstream, of the CETIP Collateral.
20,00% 100% 100% 2013 Reform of the bylaws to improve the corporate governance
structure of CETIP.
CETIP Lux CETIP Info Launch, in partnership with the FNC, of the real estate valuation
RTM platform
S..r.l. Tecnologia S.A.
2017 Acquisition of CETIP of BM&FBOVESPA
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
18
I I. Information on the Companies (8/10)
CETIP
Balance Sheet Assets Consolidated (source: audited Balance Sheet)
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Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
19
I I. Information on the Companies (9/10)
CETIP
Balance Sheet Liabilities Consolidated (source: audited Balance Sheet)
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
20
I I. Information on the Companies (10/10)
Historical financial indicators - CETIP
The historical financial indicators of CETIP can be found below (source: audited Financial Statements)
Volume
8.193 8.105 Gross revenue per segment R$ Thousand
7.751
7.611
6.757
6.393 423.719
412.579
436.216
384.024
5.312
1.122.535
4.590 950.495
690.132 786.642
69,60% 69,79%
68,83% 68,46%
898.082
699.219 770.489
632.399 572.628
427.119 497.606
361.028
2013 (*) 2014 (*) 2015 (*) 2016 (*) 2013 2014 2015 2016
EBITDA EBITDA Margin (%)
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
21
Contents
I. Executive summary
V. Methodologies
VII. Conclusion
Appendix
Appendix I Glossary
Appendix II Important notes
Appendix III Intangibles projections
Appendix IV Summary of revaluation of property, plant and equipment
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
22
IV. Market information (1/4)
Markets and financial instruments
The Brazilian Financial System (SBF) is the set of institutions and Real Estate
Agribusiness 5%
Credit Bonds
1%
financial instruments that enables the transfer or resources from the 3%
final suppliers to the borrowers of final resources, and creates Equity
27%
conditions for the securities to have liquidity in the market. Bank Funding
14%
Among the institutions that can be highlighted within the SBF are
custodian agencies.
Custody agencies are organized and centralized market, with the Corporate Bonds Priv ate Equity
objective of providing a suitable environment for conducting business 11% 2%
and pricing of securities issued by companies, funds and other
fundraising companies.
In Brazil, two of the main custody agencies of the financial system are:
Gov . Bonds
BM&FBOVESPA, whose activities are focused on the stock market, 37%
debentures, futures market and option market;
CETIP, whose activities are focused on custody of fixed income Source: MIF, BM&FBOVESPA, CETIP and ANBIMA
investments, (such as CDB, LCI, LCA, among others), and The table below shows a comparison between the financial
derivatives; instruments market value negotiated in the Brazilian capital market in
Composition and evolution of Brazilian capital market (source: IMF 2005 and 2015, as well as the CAGR ( Compound Annual Growth Rate)
Working Paper ) of each instrument during this period.
Government bonds represent the largest asset class, with a Market Market value - Financial instrum ents (R$' Bi) 2005 2015 CAGR
value of R$ 2,64 trillions, which equals to 37.04% of the Market
portfolio. Equity 1.129 1.912 5,4%
Private Equity 2 172 53,6%
90% of the market is concentrated in four main categories, which are:
Government Bonds 823 2.637 12,4%
Government bonds, equity, bank funding and corporate bonds.
Corporate Bonds 86 753 24,2%
The Brazilian capital market is segmented into eight major categories, Bank Funding 289 991 13,1%
as shown in the graphic that follows: Agribusiness - 203 -
Real Estate 16 363 36,7%
Credit Bonds 5 89 32,9%
TOTAL 2.350 7.120 11,7%
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
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23
IV. Market information (2/4)
Markets and financial instruments
This scenario shows that Brazil has great potential for the development
of the sector, as show in the graphic below: 8,8% 9,4%
4,5% 4,2%
Credit market (% GDP)
150% 150%
140%
130%
118%
-7,2%
87%
42% 37%
-20,2%
-26,6%
Swiss South Japan China Unites Germany Latin Brazil 2014 2015 2016 2017 2018 2019 2020 2021
Korea States of America
America
Source: The Economist Inteligence Unit
The expected evolution for the Brazilian credit market might reflect on
the vehicles funding segment (used and new).
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
24
IV. Market information (3/4)
Macroeconomics
Macroeconomics indicators Brazil (Source: Brazilian Central Bank Bacen)
Brazilian GDP % variation Brazilian inflation rate IPCA
The Brazilian GDP projection estimated by institutions consulted by the The inflation rate (IPCA) estimated for the period 2017 to 2021 is shown
Brazilian Central Bank is 0.5% for 2017. From 2018 to 2021 the in the chart below. A decline can be observed between the years 2017
projection departs from 2.36%, reaching 2.47%. and 2018, according to the expectations of the institutions consulted by
the Brazilian Central Bank.
6,41% 6,29%
-3,80% -3,60% 4,85% 4,56% 4,46% 4,40% 4,40%
2014 2015 2016 2017 2018 2019 2020 2021 2014 2015 2016 2017 2018 2019 2020 2021
The inflation rate (IGP-M) estimated for the period from 2017 to 2021 is The Brazilian Basic Interest Rate (SELIC) estimated for the period from
shown in the chart below. A decline can be observed between the 2017 to 2021 is shown in the chart below. A decline can be observed
years 2017 and 2021, according to the expectations of the institutions throughout the projective period according to Brazilian Central Bank.
consulted by the Brazilian Central Bank.
14,15%
13,65%
10,54% 11,65%
11,57%
9,94% 9,60% 9,34% 9,08%
7,17%
3,69% 5,21% 4,83% 4,70% 4,61% 4,34%
2014 2015 2016 2017 2018 2019 2020 2021 2014 2015 2016 2017 2018 2019 2020 2021
Source: Bacen, Dec/16 Source: Bacen, Dec/16
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25
IV. Market information (4/4)
Macroeconomics
Macroeconomics indicators USA (Source: EIU)
American inflation
The American inflation rate estimated for the period between 2017 to
2021 is shown below. A decline can be observed in 2019, according
to the expectations of the institutions consulted by the EIU.
2,10% 2,20%
1,90%
1,62%
1,30% 1,70%
1,26%
0,12%
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
26
Contents
I. Executive summary
V. Methodologies
VII. Conclusion
Appendix
Appendix I Glossary
Appendix II Important notes
Appendix III Intangibles projections
Appendix IV Summary of revaluation of property, plant and equipment
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
27
V. Methodologies (1/11)
Net Equity adjusted to market prices We emphasize that the current understanding of the PLA methodology
seen in recent public market transactions and approved by regulators
The valuation based on the Net Equity adjusted to market prices is the
differs from the current understanding of the accounting
measurement of the net assets or net worth, at book value, plus gain
pronouncements issued by the Accounting Pronouncements
or loss arising from certain assumptions to obtain the market values of
Committee (Comit de Pronunciamentos Contbeis, CPC). Thus, the
assets and liabilities.
accounting of the Company's equity following the CPC - 15 Business
Market price (or fair value), according to the Brazilian Corporate Law: Combination parameters will be different from the PLA presented in
this Report. This issue was discussed with the Client and its legal
for raw materials and goods stored in warehouses, it is the cost for
counsels and it was agreed to follow the recent interpretation given to
which they can be replaced by purchase in the market;
other market transactions.
for assets or rights for sale, it is the net price realization by sale in
Approach used in the evaluation of intangible assets
the market, less taxes and other expenses necessary for the sale,
and the profit margin; Evaluation of the platform was done through the profitability approach
(Income Approach) by the Multi Period Excess Earnings Method
for investments, it is the net amount by which they can be sold to
(MPEEM), due to the possibility of assigning the generated cash flow
third parties.
directly to the identified asset.
For financial instruments, the value that can be obtained in an active
The evaluation of the brand was done through the Income Approach,
market, due to a non-compulsory transaction carried out between
with the avoided royalty (Relief from Royalty) method. This method
unrelated parties; and in the absence of an active market for a given
assumes that intangible assets have a fair value based on the royalty
financial instrument:
income that can be attributed to them. This income involving royalties
(i) the amount that can be obtained in an active market with represents the economies of the asset owner - the owner does not
the trading of other financial instruments with similar terms, need to pay royalties to a third party for the license to use the
risk, and nature; intangible asset. The estimation of the royalties income consists of
two steps:
(ii) the net present value of future cash flows for financial
instruments of similar terms, risk, and nature; or the determination of the revenues attributable to the asset; and
(iii) the amount obtained through mathematical and statistical the determination of the appropriate royalty fee.
models for pricing financial instruments.
Evaluation of the relationship with customers was done through the
profitability approach (Income Approach) by the Multi Period Excess
Earnings Method (MPEEM), due to the possibility of assigning the
generated cash flow directly to the identified asset.
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
28
V. Methodologies (2/11)
Discount rate
Discount rate
Ke
Establishing the discount rate is a fundamental stage of the economic Cost of Equity
valuation. This single factor reflects aspects of a subjective nature,
=
varying from one investor to another, such as cost of opportunity, and
the individual perception of investment risk. Rf / (1+Ia) * (1+ lb)
+
The Weighted Average Cost of Capital (WACC) used was an
appropriate parameter to calculate the discount rate to be applied to x (E[Rm] Rf)
the Companys cash flows. The WACC methodology considers a +
variety of financing components used by companies to finance their
cash needs, including debt and equity cost. Rb
+
Where:
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
29
V. Methodologies (3/11)
Discount rate
The components used to calculate the discount rate of the Company American inflation (Ia)
are detailed as follows:
For the projected American inflation, the long term inflation rate was
Risk free rate (Rf) considered, as of December 31st, 2016. The rate used was 1.90%.
(source: EIU).
In order to quantify the average risk free return (Rf), we considered the
average return of the American 30-year Treasury Bond (T-Bond) for 24 Beta Calculation
months before December 31st, 2016, which was 2.72%. (source:
Bloomberg).
The following procedure is used for obtaining the betas:
Identification and selection of comparable companies;
Market Risk Premium (E[Rm] - Rf)
Determining their correlations with relevant stock markets; and
For the long term stock market risk premium (E[Rm] Rf), we used
the average return above the Treasury Bond rate provided by investing Calculation of average betas, which will be used in determining the
in the American stock market from 1928 to 2016, which was 4.62% risk of companies.
(source: Aswath Damodaran website).
It is important to note that the betas observed in capital markets for
Country Risk (Rb) comparable companies include the different degrees of leverage of
these companies. Thus, it is necessary to extract the leverage factor to
To estimate the risk associated with Brazil (Rb), we used the average
calculate the specific risk factor by the market on the operational risks
difference between the yield of the Global-Bond 37 in relation to the T-
inherent in the business.
Bond performance, from the 24 months before the base date of
December 31st, 2016, which was 3.75% (source: Bloomberg). For this purpose the following formula is used:
Size Premium
d = /[1 + (1 T)*(D/E)]
For the Companys size premium it was considered the rate of 1.0%, a
rate applied to the same-sized companies. (source: Ibbotson).
Where:
Brazilian Inflation (Ib)
d = Unlevered Beta share risk of comparable companies,
The Brazilian long term projected inflation rate was considered, as of regardless of their leverage;
December 31st, 2016 according to Focus report (source: Bacen). The
= Levered Beta share risk of comparable companies, adjusted
rate used was 4.40%.
by leverage;
T = Tax rates for income tax and social contribution; and
D/E = Debt / Equity of each comparable.
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
30
V. Methodologies (4/11)
Discount rate
The following formula is used to leverage beta: The calculation of CETIPs beta is shown below:
Leverage Debt to Tax Unleverage
Comparables Ticker
Beta equity Rate Beta
r = d*[1 + (1 T)*(D/E)]
CETIP SA-MERCADOS ORGANIZADO CTIP3 BZ Equity 0,779 0,0% 30,8% 0,779
ASX LTD ASX AU Equity 1,204 0,0% 29,7% 1,204
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
32
V. Methodologies (6/11)
Tangible assets
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
34
V. Methodologies (8/11)
Tangible assets
In this approach, the normal useful life and remaining useful life Survival curves
determination considers the write-offs in the widest possible
period, aiming to determine the normal useful life for a group of
The use of an average normal useful life for a group of assets, means
that various units within such group have different normal useful life.
assets considering its survival curve.
The average normal useful life can be obtained by determining the
The sample base over which the statistical procedures are applied expected useful life for each of the units, or the construction of a
must be elected based on the fixed assets control of all the survival curve identifying the number of surviving units in successive
operating units, in order to obtain the best statistic adjustment ages. A survival curve represents the existing asset quantities for each
index. Thereafter, is necessary to allocate the assets groups to age during the useful life of a group. Figure 1 shows one typical survival
each one of the depreciation curves, and the normal useful life for curve and its derived ones.
the assets is calculated in a reverse form.
Age
Is the period between the asset acquisition, or its first installation
and the reference date of the valuation work.
Remaining useful life
Useful life an asset still has, after elapsed a certain age. Represents
the period for which the asset still can be used, before being retired
from service.
Is calculated accordingly to the assets age and also its useful life,
making use of depreciation curves that reflect the probability of
useful life extension, compared to the average normal useful life.
With the survival curve, the average normal useful life for the assets
group, as well as other concepts as the expected remaining useful life,
the probable useful life and the frequency curve, can be calculated.
Geometrically, the average normal useful life is obtained through the
calculation of the area under the survival curve, from age zero to the
maximum age, dividing this area by the order in the age zero, which is
100%.
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
35
V. Methodologies (9/11)
Tangible assets
The expected remaining useful life in any age can be calculated by the
obtention of the area under the curve, from the current age until the
maximum age, dividing this area by the percentual of survival at the
Frequncia %
current age. The survival characteristics normally observed in industrial
% De Sobreviventes
assets are described by a general system of survival curves, known as
the Iowa curves.
Idade % da Vida
The curves with the mode to the left, as shown in Figure 2, are those
which the higher mortality frequency occurs to the left, or before the
average normal useful life.
Secondly, the curves with mode coinciding with the average or
symmetric curves, as in Figure 3, are those which the higher mortality Idade % da vida
frequency occurs in the average normal useful life. Lastly, the curves Figura 3 - Curvas de Sobrevivncia Tipo "S"
with the mode to the right, as in Figure 4, are those which the higher
mortality frequency occurs to the right, or after the average normal
useful life.
The Iowa curves were developed in the Iowa Engineering Experiment
Station by an extensive observation and classification process for the
Frequncia %
ages which industrial assets were retired from service.
% De Sobreviventes
Idade % da Vida
Frequncia %
% De Sobreviventes
Idade % da Vida
Idade % da vida
Idade % da vida
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
36
V. Methodologies (10/11)
Tangible assets
In 1935, was published the Bulletin number 135 by the Experiment Can be related to the industry economic activity; availability of financing;
Station, resulting from the characteristics classification of survivals in loss of material and/or labor sources; passage of new legislation;
18 survival curves, constituting three of four families. changes in ordinances; increased cost of raw materials, labor, or utilities
(without an offsetting increase in product price); reduced demand for the
These types of curves were presented in the subsequent bulletins of
product; increased competition; inflation or high interest rates.
the Experiment Station and in the text Engineering Valuation and
Depreciation. Applied methods in the valuation
Straight line depreciation Real Properties
In addition to the Iowa curves, is common the adoption of the straight Leasehold improvements
line depreciation, which considers the relation between normal useful
life and age as a linear tendency for the loss in value for the assets.
The cost approach was used to calculate the indirect reproduction cost,
deducing physical depreciation. To trend the historical costs, was
Ross-Heidecke Depreciation chosen the INCC index for national construction cost, published by
FGV Fundao Getlio Vargas.
Mixed method considers age (Ross) and conservation status
(Heidecke). This method is widely accepted in engineering appraisals in Land and Constructions
determining the technical depreciation of real estate.
We use the direct comparison approach to compose the value of these
Functional or technological obsolescence assets.
Is a form of depreciation, caused by inefficiencies of the asset itself, For comparison with net book value, the fair value of these assets were
when compared to a more efficient or less costly one, that new prorated according to the ratio of the net book value of the accounts.
technology has developed. Can be suggested by excess operating
cost, excess construction, over-capacity, among others.
Personal Properties
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
37
V. Methodologies (11/11)
Tangible assets
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
38
Contents
I. Executive summary
V. Methodologies
VII. Conclusion
Appendix
Appendix I Glossary
Appendix II Important notes
Appendix III Intangibles projections
Appendix IV Summary of revaluation of property, plant and equipment
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
39
VI. Adjusted assets and liabilities (1/6)
BM&FBOVESPA
Current assets and non-current assets Goodwill: consists of the write-off of the goodwill from previous
acquisitions and their related tax effects.
Based on the financial statements and documentation provided by
BM&FBOVESPA, the following is a brief description of the accounts of Judicial deposits: correspond to legal, tax, civil, and labor obligations.
assets and liabilities of short and long term and eventual balances We understand that no adjustment is applicable.
adjusted to market value on the base date of the Report:
Investments in properties: consists of properties available for rent. It is
Cash and cash equivalents, financial investments, and marketable a commercial development in Rio de Janeiro, in which an update of the
securities: correspond to available funds held in financial institutions estimate of the fair value of R$ 65.1 million was carried out.
domestically or abroad. They also refer to investments in financial
investment funds with portfolios composed primarily by government
Fixed assets: consists of real estate, furniture and fixtures, appliances
and computer equipment, facilities and other fixed assets in progress.
securities and repurchase agreements. We understand that no
An estimated fair value of the building of the headquarters of the
adjustment is applicable to the items in this account because,
BM&FBOVESPA was considered in the real estate account, with an
according to the notes, the financial investments are already fair value
approximate loss of R$ 15.3 million. For equipment group, facilities and
accounted.
other fixed assets we estimated life cycles and average age and in the
Derivative financial instruments: is composed of hedge with the face of the accounting cost, we reached an amount of gain of
purpose of hedging the risk of exchange rate fluctuations. We approximately R$ 93.1 million.
understand that no adjustment is applicable.
Intangible assets (software and projects): we carried out a fair value
Accounts receivable: due to the short-term average maturity of estimate of the existing intangible assets in the company, segregated
receivables, we understand that no adjustment is applicable. between brand and platform (software and products), based on the
following assumptions:
Deferred income tax and social contribution: these are taxes payable
within the accounting period. The adjustment made in this line was Intangible (R$'000) Trademark Plataform
related to the write-off of goodwill of Bovespa (tax credit) in the
Relief from
amount of R$ 433 million. Methodology
Royalty
MPEEM
Other receivables: mainly composed of property held for sale and Useful life (years) 3 7
advances to employees. We understand that no adjustment is Working capital,
applicable. CAC's considered N.a. fixed assets, trade
mark, workforce
Tax recoverable and prepaid: recoverable taxes within the actual Discount rate 14,74% 14,74%
period. We understand that no adjustment is applicable because it is a Fair value 297.287 6.370.317
short turnover. The calculations related to intangibles are presented in the Appendix III
Prepaid expenses: these are expenses to be recognized during the to this Report.
period. We understand that no adjustment is applicable.
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
40
VI. Adjusted assets and liabilities (2/6)
BM&FBOVESPA
Current liabilities and non-current liabilities Other liabilities: refer to amounts payable to the CME, amounts payable
to related parties, custody agents, amounts to be transferred from
Collaterals for Transactions: correspond to amounts deposited by direct treasury, advance received for the sale of property, preferred
market participants, as collateral against default or insolvency. We shares to settle, demand at sight deposits, and mainly obligations with
understand that no adjustment is applicable. committed operations. We understand that no adjustment is applicable
Earnings and rights on securities in custody: represent dividends and because there is the expectation of realization within the actual period.
interest on equity received from listed companies to be transferred to Deferred income tax and social contribution, and deferred tax liability:
the custodian agents and subsequently to their clients, who hold the we considered the write-off of R$ 3.0 billion related to the amortization
shares held by these publicly-held companies. We understand that no of the goodwill arising from temporary differences between the tax
adjustment is applicable. basis of the goodwill, and its carrying value in equity, contained in the
Suppliers: due to the short turnover of this account, we understand explanatory notes of the financial statement of BM&FBOVESPA on
that no adjustment is applicable. December 31st, 2016.
Salaries and social charges: we understand that no adjustment is We also considered the creation of a deferred tax of R$ 2.0 billion net of
applicable. all adjustments made to BM&FBOVESPA.
Provision for tax and social contributions payable: refers to taxes and Provision for taxes, civil and labor risks: we understand that no
contributions withheld at source to collect, PIS and COFINS, and ISS adjustment is applicable.
payable within the period. We understand that no adjustment is Obligations with post-employment health care: corresponds to the
applicable. maintenance of a plan for post-employment medical care for a particular
Income tax and social contribution: includes taxes payable within the group of employees and former employees. We understand that no
actual period. We understand that no adjustment is applicable because adjustment is applicable.
it is a short turnover. Loans and debentures: refer to loans for the purpose of currency
Interest payable on debt issued abroad: corresponds to the issuance hedging and issuance of debentures. The adjustment in the debentures
of senior unsecured notes in July 2010. The fair value of R$ 2.0 billion line was R$ 48 thousand in the short term and R$ 8.1 million in the long
was considered, according to the explanatory notes of the income term.
statement of December 31st, 2016. Derivative financial instruments: represents derivative instruments
Dividends and interest on Capital: we understand that no adjustment designated as hedges. We understand that no adjustment is applicable.
is applicable.
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
41
VI. Adjusted assets and liabilities (3/6)
BM&FBOVESPA
Total Assets 31.155.875 (8.058.600) 23.097.275 Total liabilities 12.079.490 (949.096) 11.130.394
Current Assets 11.612.517 11.612.517 Current liabilities 3.657.832 48 3.657.880
Cash and cash equivalents 319.124 319.124 Collaterals for transactions 1.653.835 1.653.835
Financial investments and maktable securities 10.964.214 10.964.214 Earnings and rights on securities in custody 52.203 52.203
Derivative financial instruments 5.600 5.600 Suppliers 45.601 45.601
Accounts receivable 91.645 91.645 Salaries and social charges 140.535 140.535
Other receivables 10.289 10.289 Provision for tax and social contributions payable 93.008 93.008
Tax recoverable and prepaid 179.694 179.694 Income tax and social contribution 13.132 13.132
Prepaid expenses 41.951 41.951 Interest payable on debt issued abroad 58.794 58.794
Derivative financial instruments 405.971 405.971
Loans 373.919 373.919
Debentures 17.495 48 17.543
Non-current Assets 19.543.358 (8.058.600) 11.484.758 Dividends and interest on Capital 318.827 318.827
Other liabilities 484.512 484.512
Long term assets 3.749.282 433.053 4.182.335
Financial applications and maktable securities 3.564.243 3.564.243 Non-current 8.421.658 (949.144) 7.472.514
Defered income tax and social contribution 433.053 433.053
Judicial deposits 162.760 162.760 Debt issued abroad 1.987.669 18.534 2.006.203
Other receivables 2.200 2.200 Loans 33.949 33.949
Prepaid expenses 20.079 20.079 Debentures 2.991.806 8.141 2.999.947
Deferred income tax and social contribution and
def. tax liability 2.976.125 (2.976.125)
Provision for tax, civil and labor risks 371.380 371.380
Obligations with post-employment health care 21.080 21.080
Investments 29.117 65.103 94.220 Other liabilities 39.649 39.649
Investments in associated companies Deferred tax liabilities 2.000.306 2.000.306
Investments in subsidiaries
Investments in properties 29.117 65.103 94.220 Equity 19.076.385 (7.109.504) 11.966.881
Capital 2.540.239
Fixed assets 462.753 77.847 540.600 Capital reserve 14.327.523
Property in use 279.378 (15.257) 264.121 Revaluation reserve 19.603
Equipaments and plants 138.261 56.498 194.759 Profit reserve 2.497.828
Others 45.114 36.606 81.720 Treasury shares (306.022)
Impairment
Additional dividends proposed
Accumulated profit
Intangible 15.302.206 (8.634.602) 6.667.604 Other comprehensive results (12.701)
Goodwill 14.401.628 (14.401.628)
Software and projects 900.578 5.767.026 6.667.604 Minority interest 9.915
Total assets 31.155.875 (8.058.600) 23.097.275 Total liabilities and equity 31.155.875 (8.058.600) 23.097.275
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
42
VI. Adjusted assets and liabilities (4/6)
CETIP
Current assets and non-current assets ii. investments in associated companies: 20% stake in RTM Rede
de Telecomunicao para o Mercado Ltda. We considered the fair
Based on the financial statements and documentation provided by value of this investment based on the price / market profit multiple
CETIP, the following is a brief description of the accounts of assets calculated based on Cetip's peer companies.
and liabilities of short and long term and eventual balances adjusted to
market value on the base date of the Report: iii. other investments.
Cash, cash equivalents, and financial investments (non restricted and Fixed assets: are segregated into land, buildings, improvements and
restricted): they match the cash, bank deposits and bank certificates of facilities, machinery and equipment, computer equipment, systems and
deposit, investments in investment funds, bank certificates of deposit, programs, vehicles, others and fixed assets in progress. An update of
financial bills, repurchase agreements, treasury bills, treasury bills of the fair value estimate was made for these fixed assets, which
the national treasury, and notes of the national treasury - B and F presented an approximate value of R $ 28.7 million.
series. We consider the adjustment of -R$ 4 thousand in financial
investments, related to the fair value of the financial assets held to Intangible assets: we carried out a fair value estimate of the existing
maturity (National Treasury Bills). For the other items, we understand intangible assets in the company, segregated between brand and
that the adjustment to fair value is not applicable. platform (software and products), based on the following assumptions:
Real estate
Accounts receivable: due to the short term average maturity of Intangible Trade mark SNG plataform
plataform
receivables, we understand that no adjustment is applicable. Methodology
Relief from
Royalty
MPEEM MPEEM
Taxes recoverable and prepaid: we understand that no adjustment to Useful life (years) 3 7
fixed asset,
7
fixed asset,
fair value is applicable. CAC's considered N.a. trademark and trademark and
worforce worforce
Financial investments (non restricted and restricted) : refer to Discount rate
Fair value
14,65%
183.311
14,65%
759.188
14,65%
250.787
investment in foreign subsidiary. The fair value was considered
according to the explanatory notes. Intangible Market Data
Cetip 21
Cip plataform
Cetip trader +
ICE Link
plataform
Prepaid expenses, judicial deposits and other receivables: We Methodology MPEEM MPEEM MPEEM
plataform
MPEEM
understand that no adjustment is applicable. Useful life (years) 5 7 4 7
fixed asset, fixed asset, fixed asset, fixed asset,
Goodwill: Consists of the write-off of the goodwill from previous CAC's considered trademark and
worforce
trademark and
worforce
trademark and
worforce
trademark and
worforce
acquisitions and their related tax effects. Discount rate 14,65% 14,65% 14,65% 14,65%
Fair value 49.713 3.603.585 92.956 56.309
Investments: are segregated in:
i. investments in subsidiaries: 100% stake in CETIP Lux S..r.l. and The calculations related to intangibles are presented in the Appendix III
100% stake in CETIP Info Technologia S.A. to this Report.
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
43
VI. Adjusted assets and liabilities (5/6)
CETIP
Current liabilities and non-current liabilities Deferred income tax and social contribution and deferred tax liability:
refer to the following deferred taxes on assets and liabilities
Suppliers: due to the short turnover of this account, we understand (presented net): provisions for contingencies and legal liabilities,
that no adjustment is applicable. unearned revenues, foreign exchange losses, adjustment to market
Provision for tax and social contribution payable, taxes payable, value of financial instruments, other temporary differences, asset
income tax and social contribution: correspond to provisions for revaluation, review of life cycles, research and technological
holidays and charges, INSS to collect, FGTS to collect, PIS and COFINS innovation, cost of transactions, business combinations, goodwill, gain
to collect, ISS to collect, withholding income tax and others. We on swap transaction, adjustment to market value of financial
understand that no adjustment is applicable due to their realization instruments and other temporary differences.
within the same period. We considered a write-off of R$ 324,366 thousand related to deferred
Dividends and interest on capital: refer mainly to the provision for tax liabilities of goodwill arising from the temporary difference that
profit sharing. was found between the tax basis of premium and its carrying value in
shareholders' equity. The balance of R$ 291,746 thousand was written
On February 22nd, 2017, CETIP announced to the market a dividend off from deferred tax liabilities and a deferred tax asset equivalent to
payment of R$ 0.3789646451 per share, which was considered as an the difference of the total amount written off was recorded, resulting
adjustment. On March 21st, 2017, CETIP announced to the market the in an amount of R$ 32,620 thousand.
payment of gross interest on equity payable (JCP) of R$
0.11144154859 per share, which was also considered as an For the other items within this group, we understand that no
adjustment. adjustment is applicable.
Debentures issued, derivatives financial instruments and loans and Deferred tax liabilities (market adjustments): We considered the
financial lease obligations: refer to debentures - 2nd series, establishment of a deferred tax net of all adjustments made to CETIP
intercompany loans, bank loans and other loans and financial lease in the amount of R$ 1.6 billion.
obligations (financing obtained from Financiadora de Estudos e Provisions for contingencies and legal obligations: they are segregated
Projetos FINEP). We understand that no adjustment to fair value is into labor, attorneys' fees, legal obligations and civil obligations. We
applicable. understand that no adjustment is applicable.
Deferred revenues: refers to encumbrances revenues from vehicles,
deferred and must be earned according to the period of encumbrance
maintenance. We performed a fair value adjustment considering
average term of 36 months, according to the expectation of the
settlement curve provided by the Company.
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
44
VI. Adjusted assets and liabilities (6/6)
CETIP
Total asset 3.888.009 3.112.595 7.000.604 Total liabilities 2.053.468 1.458.729 3.512.197
Current asset 1.485.224 1.485.224 Current liabilities 1.377.171 126.014 1.503.185
Cash and cash equivalents 3.555 3.555
Financial investments - non restricted and restricted 1.183.361 1.183.361 Suppliers 66.334 66.334
Derivative financial instruments 64.577 64.577 Provision for tax and social contribution payable 90.272 90.272
Accounts receivable 134.153 134.153 Taxes payable 18.329 18.329
Taxes recoverable and prepaid 57.608 57.608 Income tax and social contribution 10.186 10.186
Prepaid expenses 9.787 9.787 Dividends and interest on capital 122.523 128.347 250.870
Other receivables 32.183 32.183 Debentures issued 520.755 520.755
Loan and financial lease obligations 496.298 496.298
Non-current asset 2.402.785 3.112.595 5.515.380 Derivatives financial instruments 11.941 11.941
Deferred revenues 37.786 (2.334) 35.452
Long term assets 294.769 32.616 327.385 Other obligations 2.747 2.747
Financial investments - non restricted and restricted 289.744 (4) 289.740
Derivatives
Judicial deposits 177 177 Non-current liabilities 676.297 1.332.715 2.009.012
Prepaid expenses 3.052 3.052
Contribution and tax credits 32.620 32.620 Suppliers 1.294 1.294
Other receivables 1.796 1.796 Deferred income tax and social contribution 291.746 (291.746)
Provision for contingencies and legal obligations 5.727 5.727
Investments 7.695 8.985 16.680 Debentures issued
Investments in associated companhies Loan and financial lease obligation 342.905 342.905
Investments in subsidiaries 7.225 8.985 16.210 Deferred tax liabilities 1.631.778 1.631.778
Other investments 470 470 Deferred revenues 34.625 (7.317) 27.308
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
45
Contents
I. Executive summary
V. Methodologies
VII. Conclusion
Appendix
Appendix I Glossary
Appendix II Important notes
Appendix III Intangibles projections
Appendix IV Summary of revaluation of property, plant and equipment
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
46
VII. Conclusion (1/1)
Report Summary During our work, we performed analysis procedures that we deem
appropriate in the context of the Report. However, KPMG is not
Based on the scope of this Report, and subject to the assumptions, responsible for the information provided, and shall not be liable in any
restrictions and limitations described herein, we estimate the value of event, or will not support any loss or damage arising or resulting from
the PLA of BM&FBOVESPA as below: withholding data and information by the Client. We also stress that this
Consolidated Pro Forma work should not be interpreted as an auditing work in accordance with
BM&FBovespa Adjustment
(12/31/2016)* (12/31/2016) generally accepted auditing procedures, and must not be interpreted
Balance sheet (R$'000) as such.
Total Assets 31.155.875 (8.058.600) 23.097.275
Total Liabilities 12.079.490 (949.096) 11.130.394 We cannot, as the Client is unable to do, guarantee that future results
Equity 19.076.385 (7.109.504) 11.966.881 will be effectively achieved in conformity with the projected results,
Total liabilities and equity 31.155.875 (8.058.600) 23.097.275
n of Shares (*) 1.787.430
given that often the events forecast may not take place because of
Net pro forma equity / share R$ 12,92 various external factors related to the economic and operational
(*) Source: BM&Fbovespa's Financial Statements as of 12/31/2016 situation, thus causing relevant variations.
Up to the date of the issuance of this Report, KPMG is not aware of
Based on the scope of this Report, and subject to the assumptions, any event that could substantially alter the result of this Report, except
restrictions and limitations described herein, we estimate the value of for the Operation, which if completed, may cause a change in the
the PLA of CETIP as below: conclusion of this Report.
CETIP
Consolidated
Adjustment
Pro Forma KPMG was not hired to update this Report after its date of issue.
(12/31/2016)* (12/31/2016)
Balance sheet (R$'000) As requested by BM&FBOVESPA, our Report was prepared solely to
Total Assets 3.888.009 3.112.595 7.000.604 meet the requirements of Clause 264 of the Brazilian Corporate Law,
Total Liabilities 2.053.468 1.458.729 3.512.197 in line with the operation. We emphasize that our Report cannot serve
Equity 1.834.541 1.653.866 3.488.407
Total liabilities and equity 3.888.009 3.112.595 7.000.604
other objectives such as the price allocation procedure, for business
n of Shares (*) 2.840.363 combination purposes in accordance with the CPC 15 or the IFRS 3.
Net pro forma equity / share R$ 2,46
(*) Source: CETIP's Financial Statements as of 12/31/2016
We highlight that the full understanding of the conclusion of this
Report will only occur through its full reading. Thus, one should not
Notes draw conclusions from a partial reading.
We emphasize that this Report is based substantially on discussions
with Clients Management in the financial statements of the
Companies and on assumptions provided by Clients management and
its financial advisors.
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
47
Contents
I. Executive summary
V. Methodologies
VII. Conclusion
Appendix
Appendix I Glossary
Appendix II Important notes
Appendix III Intangibles projections
Appendix IV Summary of revaluation of property, plant and equipment
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
48
Appendix I Glossary (1/3)
ABNT Brazilian Association for Technical Standards (Associao Brasileira de Normas Tcnicas)
ASA American Society of Appraisers, a multi-discipline, non-profit, international organization of professional appraisers
BS Balance Sheet
COFINS Contribution for Social Security Financing Federal Tax Over Revenues (Contribuio para o Financiamento da
Seguridade Social)
Companies BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros and CETIP S.A. Mercados Organizados
FS Financial Statements
IGPM Brazilian General Market Price Index (ndice Geral de Preos do Mercado)
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
49
Appendix I Glossary (2/3)
IPCA Brazilian Consumer Price Index (ndice de Preos ao Consumidor Amplo)
IS Income Statement
ITS Quarterly Financial Statement (Informaes Trimestrais)
IBAPE Brazilian institute for engineering valuations and inspections (Instituto Brasileiro de Avaliaes e Percias de
Engenharia)
IPA-OG Index for wholesale prices, published by FGV (ndice de Preos por Atacado Oferta Global)
Iowa curves Technical depreciation curves, developed by the Iowa University, United States of America
JCP Interest on Equity (Juros sobre o Capital Prprio)
Law 6.404/76 Law 6,404 of December 15th, 1976, which provides for the Corporation in Brazil
NBR 14.653 Brazilian norm for tangible assets valuation, published by ABNT
OS Ordinary Shares
On stand alone basis Term adopted to assume that the company operates independently
PS Preferred Share
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
50
Appendix I Glossary (3/3)
Ticker Share Code traded on BM&FBOVESPA
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2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
51
Appendix I Important notes (1/3)
This Report is a free translation into English (requested by the Client) relation to the past or future, or as a recommendation for the price of
of the Report issued in Brazilian Portuguese. If there are any the Operation.
discrepancies or differences between the versions, the version in
Portuguese will prevail.
KPMG highlights that the valuation of the Companies was performed
on a stand alone basis, and does not consider any synergies or
The Report was prepared by KPMG Corporate Finance Ltda. correlated elements.
(KPMG), requested by BM&FBOVESPA, in accordance with the
rulings applicable from Law 6,404/76 (Brazilian Corporate Law), in
Assuming that the price of the shares within the ambit of the
Operation will observe the rulings in Corporate Law, KPMG did not
order to issue the valuation of the Companies, based on the net asset
and does not make any recommendation, explicit or implicit, and does
criterion, at the base date December 31st, 2016.
not express any opinion with respect to defining the final price of the
This Report does not constitute a judgment, opinion, proposal, request, Shares within the ambit of the Operation or with respect to the terms
suggestion or recommendation to management or the Clients and conditions of any operation involving the Companies, or any of its
shareholders, or to any third party, as to the convenience and subsidiaries.
opportunity, or as to the decision to approve or participate in the
Operation. This Report, including its analyses and conclusions (i) does
As established in Brazilian Corporate Law, the information included in
the Report was based on the audited financial statements of the
not constitute a recommendation to any member of the Management
Companies and the quarterly financial information, management
Board, or any of the Clients shareholders, or any of its subsidiaries as
information related to the Companies presented by Client
to how to act or vote for any issue related to the Operation; and (ii)
Management and information available to the public in general
cannot be used to justify the right to vote of any individual on this
obtained from public sources.
matter, including the Clients shareholders.
The shareholders should perform their own analyses in relation to the
The information presented to KPMG includes public sources that
KPMG considers reliable, however, KPMG did not undertake an
convenience and opportunity to accept the Operation, and should
independent investigation of this information, and does not assume
consult their own financial, tax and legal advisors, to form their own,
responsibility for the accuracy, precision and sufficiency of this
independent opinions on the Operation. This Report should be read
information. The base date used for the Assessment Report is
and interpreted in light of the restrictions and qualifications previously
December 31st, 2016.
stated. The reader should take into consideration in his analysis the
restrictions and characteristics of the sources of information used. The Client, through appointed professionals, provided information on
data, forecasts, assumptions and estimates related to the Companies,
Neither KPMG, nor any other of its partners, employers or workers
and its operations markets, used in this Report.
declared or guaranteed, expressly or tacitly, the accuracy and
completeness of this Report, and furthermore, do not provide advice of During the course of our work, we performed analysis procedures that
any nature, such as legal or accounting. The content of this Report is we considered appropriated within the context of the work. However,
not and should not be considered to be a promise or guarantee in KPMG did not assess the completeness, sufficiency and accuracy of
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
52
Appendix I Important notes (2/3)
the information provided. Any errors, alterations or modifications to forecasts presented to be consistent with the group of accounts
this information could significantly affect KMPGs valuation. reported in the management financial information presented. Any
differences in the groups of accounts do not have an impact on the
We also highlight that the work does not constitute an audit in
results.
accordance with generally accepted auditing standards, or any other
form, and therefore, should not be interpreted as such. Except if expressly stated otherwise, in writing in notes or specific
references, all of the previous information, market information,
The scope of the work proposed does not represent any obligation by
estimates, forecasts and assumptions, included, considered, used or
KPMG to detect frauds in the Companies operations, processes,
presented in this Report refer to that presented by the Client to KPMG.
registers or documents.
The scope of this Report does not include determining the economic
Neither KPMG nor its representatives declare, guarantee or express
their opinion, explicitly or implicitly, as to the accuracy, completeness
values of any of the companies contingencies. Therefore, with
or viability of any forecasts or assumptions on which they are based.
respect to such items, we have based our work on information and
analyses made available by the Client and its legal advisors, as such, This Report was prepared according to the economic conditions of the
KPMG is not responsible for the results of these services. market, amongst others, available on the date it was prepared, such
that the conclusions presented are subject to variations as a result of a
In order to prepare this Report, KPMG presupposes the reliability,
range of factors.
expressly given by the Client, with respect to the accuracy, contents,
completeness, sufficiency and integrity of all of the data that was The sum of the individual values presented in the Report may differ
provided or discussed, such that we do not assume, nor did we from the sum presented, as a result of rounding of the amounts
undertake a physical inspection of any assets or properties, and did not involved.
prepare or obtain independent assessments of the Companies assets
or liabilities, or the solvency of such, and considered the information
The market is aware that every assessment prepared using the
discounted cash flow method represents a significant degree of
used in this Report to be consistent, and the Client is responsible,
subjectivity, given that they are based on future expectations, which
together with its agents, partners and employees, for all of the
may or may not occur. It should also be noted that all or any of the
information provided or discussed with KPMG.
assumptions for financial valuation models based on discounted cash
The information that refers to data, forecasts, assumptions and flows can alter the value obtained for the company, brand or asset
estimates, related to the Companies and its operations markets, used being assessed. These possibilities do not constitute errors in the
and included in the Report, is based on certain groups of reports and valuation and are recognized by the market as part of the nature of the
presentation lay-out, which could differ considerably in relation to the valuation process using the discounted cash flow method.
group of accounts presented by the Client for purposes of preparing
the financial statements or quarterly financial information, made
available to the public. This procedure was adopted to enable the
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
53
Appendix I Important notes (3/3)
There are no guarantees that the assumptions, estimates, forecasts, This Report should be read and interpreted considering the restrictions
partial or total results or conclusions used or presented in the Report and qualifications stated above. The reader should take into
will in fact occur or be registered, in full or in part. The Companies consideration in his analysis the restrictions and characteristics of the
future results may differ from those in the forecasts, and these sources of information used.
differences may be significant, and may result from various factors,
including, but not limited to, changes in market conditions. KPMG does
This Report can not be distributed, copied, published or used in any
other form, and can not be filed, included or referred to in part or
not assume any responsibility for these differences.
totally in any document without prior consent from KPMG, liberating
The services proposed may be informed and supported by legal norms its use by third parties interested in the Operation, within the strict
and regulations, within this context, we highlight that our legislation is terms of Brazilian Corporate Law.
complex and often the same ruling can be interpreted in more than
one way. KPMG seeks to keep up to date in relation to the different
As requested by BM&FBOVESPA, our report was prepared exclusively
to comply with the requirements of art. 264 of Corporate Law, in
interpretative currents, to ensure it is able to perform an extensive
accordance with the Operation. We highlight that the existing
assessment of the alternatives and the risks involved. Thus, inevitably
understanding of the PLA method adopted in recent public
there will be interpretations of the law that differ from ours. Within
transactions on the Market and approved by the regulatory bodies
this context, neither KPMG nor any other firm, can provide Client
differs from the existing understanding given in the accounting
management with total assurance that it will not be questioned by
pronouncements from the Accounting Pronouncements Committee -
third parties, including tax investigation agencies.
CPC. Consequently, the accounting entries for the Companys
To undertake this work, KPMG assumed that all of the government shareholders equity in accordance with the parameters stated in
and regulatory approvals or any other approvals, as well as any CPC - 15 Business Combinations will be different from the PLA
exemptions, amendments or renegotiation of contracts necessary for presented in this report. This issue was discussed with the Client and
the business considered were or will be obtained, and that no its legal advisors and it was understood to follow the recent
alterations, required as a result of these acts, will have adverse equity interpretation given to other market transactions.
effects for the Client or will reduce the benefits to the Client sought
from the Operation.
Presentation of this Report concludes the services stated in our
proposal.
The information herein, related to the accounting and financial position
of the Companies, and the market, is that available at December 31st,
2016, depending on the case. Any change in these positions could
affect the results of this report. KPMG does not assume any
obligation to up date, review or correct the report, as a result of
differences in information subsequent to May 05th, 2017, or as a result
of any subsequent event.
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
54
Appendix I I Intangibles projections (1/11)
BM&FBOVESPA
Trademark Jan-Dec Jan-Dec Jan-Dec Intangible Value
Months 12 12 12
Period of discount (half period) 0,50 1,50 2,50
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
55
Appendix I I Intangibles projections (2/11)
BM&FBOVESPA
Plataform Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Intangible Value
R$'000 2017 2018 2019 2020 2021 2022 2023 Present value 4.980.415
Total gross revenue 2.706.642 2.937.536 3.325.618 3.729.901 4.173.270 4.689.203 5.236.664 TAB 1.389.902
Plataform present value (with TAB) 6.370.317
(-) Taxes (PIS/COFINS/ISS) (288.257) (312.848) (354.178) (397.234) (444.453) (499.400) (557.705)
Total net revenue 2.418.384 2.624.688 2.971.440 3.332.666 3.728.817 4.189.803 4.678.959 Tax Amortization Benefit
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
56
Appendix I I Intangibles projections (3/11)
BM&FBOVESPA
Average time for
Total personal Average Total cost
Salary, charges and Number of Recruting cost Training cost expected Improdutivity cost
Workforce cost performance on avoided
benefits (R$'000/year) employees (R$'000/year) (R$'000/year) eficiency avoided (R$'000/year)
(R$'000/year) hiring day (R$'000/year)
(month)
336.830 336.830 1.338 544 1.281 3 80% 101.049 102.874
Workforce
Estimated avoided cost 102.874
(-) Income tax and social contribution (34.977)
Estimated fair value 67.897
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
57
Appendix I I Intangibles projections (4/11)
CETIP
Trademark Jan-Dec Jan-Dec Jan-Dec Intangible value
R$'000 2017 2018 2019 Trademark present value 132.224
Total net revenue 1.394.928 1.623.290 1.944.660 TAB 51.087
Royalty rate (RoyaltyStat) 5,0% 5,0% 5,0% Trademark present value (with TAB) 183.311
Trademark's revenue (before taxes) 69.746 81.165 97.233 Tax Amortization Benefit
cash flow present value 132.224
(-) Income tax and social contribution (23.714) (27.596) (33.059)
Period amortization (years) 3
Effective rate -34,00% -34,00% -34,00% Discount rate 14,6%
Trademark's revenue (after taxes) 46.033 53.569 64.174 Tax 34,0%
Tax Amortization Benefit 51.087
Discount rate 14,65% 14,65% 14,65%
Month 12 12 12
Discount period (Half period) 6 18 30
Discount factor 0,93 0,81 0,71
42.991 43.637 45.596
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
58
Appendix I I Intangibles projections (5/11)
CETIP
SNG Plataform Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Intangible value
R$'000 2017 2018 2019 2020 2021 2022 2023 Plataform present value 593.178
SNG 173.542 207.959 249.008 296.391 350.532 406.826 465.429 TAB 166.011
Contract system 181.072 216.982 259.813 309.252 365.741 424.478 485.624
Plataform present value (with TAB) 759.188
Gross revenue - SNG 354.614 424.940 508.821 605.643 716.273 831.303 951.054
Tax Amortization Benefit
(-) Deductions on revenue (96.170) (115.243) (137.991) (164.248) (194.251) (225.447) (257.923) Cash flow present value 593.178
Taxes on services (20.489) (24.552) (29.399) (34.993) (41.385) (48.031) (54.950) period amortization (year) 7
Comercial discount - existing products (75.681) (90.690) (108.592) (129.256) (152.866) (177.416) (202.973) Discont rate 14,6%
Tax 34,0%
Net revenue - SNG 258.444 309.698 370.830 441.394 522.022 605.856 693.131
Tax Amortization Benefit 166.011
(-) Operational expenses (144.582) (158.587) (183.059) (212.292) (244.512) (278.307) (315.106)
Personal expenses (54.048) (61.652) (69.851) (79.811) (90.292) (101.156) (113.004)
Services provided by third parties (50.306) (49.607) (57.668) (67.267) (78.185) (89.833) (102.805)
General and administrative expenses (11.391) (12.917) (14.519) (16.530) (18.632) (20.840) (23.329)
System and equipment rental expenses (1.764) (2.084) (2.468) (2.914) (3.419) (3.949) (4.508)
Counselor's fee (966) (1.043) (1.093) (1.182) (1.251) (1.327) (1.441)
Taxes and fees (262) (314) (376) (449) (531) (616) (705)
Other operational revenue/ expenses
Royalty expenses with trademark (12.922) (15.485) (18.542) (22.070) (26.101) (30.293) (34.657)
Royalty expenses with plataform (12.922) (15.485) (18.542) (22.070) (26.101) (30.293) (34.657)
EBITDA 113.862 151.111 187.772 229.102 277.510 327.550 378.025
(-) D&A (9.253) (10.552) (10.501) (12.209) (13.918) (13.469) (14.179)
EBIT 104.610 140.559 177.270 216.893 263.592 314.081 363.846
(-) Income tax and social contribution (35.567) (47.790) (60.272) (73.744) (89.621) (106.787) (123.708)
Effective rate -34,0% -34,0% -34,0% -34,0% -34,0% -34,0% -34,0%
Net profit 69.042 92.769 116.998 143.150 173.971 207.293 240.138
(-) Contributory Asset Charge (CAC) (1.606) (1.488) (1.712) (2.027) (2.365) (2.874) (3.450)
CAC expenses - Fixed assets (852) (666) (740) (939) (1.142) (1.427) (1.765)
CAC expenses - Workforce (721) (660) (611) (572) (530) (522) (529)
Free cash flow 67.437 91.281 115.287 141.123 171.605 204.419 236.689
Discount rate 14,6% 14,6% 14,6% 14,6% 14,6% 14,6% 14,6%
Discount factor 0,93 0,81 0,71 0,62 0,54 0,47 0,41
Discounted cash flow 62.981 74.357 81.912 87.457 92.759 96.378 97.333
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
59
Appendix I I Intangibles projections (6/11)
CETIP
Real Estate Plataform Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Intangible value
R$'000 2017 2018 2019 2020 2021 2022 2023 Plataform present value 195.948
Real estate Plataform 9.004 30.456 67.399 149.328 272.989 346.997 382.919 TAB 54.839
Gross revenue - Real estate Plataform 9.004 30.456 67.399 149.328 272.989 346.997 382.919 Plataform present value (with TAB) 250.787
(-) Deductions on revenue (1.421) (4.805) (10.634) (23.561) (43.072) (54.748) (60.416) Tax Amortization Benefit
Cash flow present value 195.948
Taxes on services (520) (1.760) (3.894) (8.628) (15.773) (20.049) (22.124)
period amortization (year) 7
Comercial discount - new products (900) (3.046) (6.740) (14.933) (27.299) (34.700) (38.292)
Discont rate 14,6%
Net revenue - Real estate plataform 7.583 25.651 56.765 125.767 229.917 292.249 322.503 Tax 34,0%
(-) Operational expenses (3.863) (11.853) (25.183) (54.201) (96.196) (119.635) (130.489) Tax Amortization Benefit 54.839
Personal expenses (1.586) (5.106) (10.692) (22.741) (39.768) (48.795) (52.579)
Services provided by third parties (1.476) (4.109) (8.828) (19.167) (34.436) (43.333) (47.834)
General and administrative expenses (334) (1.070) (2.223) (4.710) (8.206) (10.053) (10.855)
System and equipment rental expenses (52) (173) (378) (830) (1.506) (1.905) (2.098)
Counselor's fee (28) (86) (167) (337) (551) (640) (671)
Taxes and fees (8) (26) (58) (128) (234) (297) (328)
Other operational revenue/ expenses
Royalty expenses with trademark (379) (1.283) (2.838) (6.288) (11.496) (14.612) (16.125)
% royalty -5,0% -5,0% -5,0% -5,0% -5,0% -5,0% -5,0%
EBITDA 3.720 13.798 31.581 71.567 133.721 172.614 192.014
(-) D&A (271) (874) (1.607) (3.479) (6.130) (6.497) (6.597)
EBIT 3.449 12.924 29.974 68.088 127.591 166.117 185.417
(-) Income tax and social contribution (1.173) (4.394) (10.191) (23.150) (43.381) (56.480) (63.042)
Effective rate -34,0% -34,0% -34,0% -34,0% -34,0% -34,0% -34,0%
Net profit 2.276 8.530 19.783 44.938 84.210 109.637 122.375
(-) Contributory Asset Charge (CAC) (47) (123) (262) (578) (1.042) (1.386) (1.605)
CAC expenses - Fixed assets (25) (55) (113) (268) (503) (688) (821)
CAC expenses - Workforce (21) (55) (94) (163) (234) (252) (246)
Free cash flow 2.229 8.407 19.521 44.361 83.168 108.250 120.770
Discount rate 14,6% 14,6% 14,6% 14,6% 14,6% 14,6% 14,6%
Discount factor 0,93 0,81 0,71 0,62 0,54 0,47 0,41
Discounted cash flow 2.082 6.848 13.870 27.491 44.956 51.037 49.664
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
60
Appendix I I Intangibles projections (7/11)
CETIP
Market Data Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Intangible value
R$'000 2017 2018 2019 2020 2021
Plataform present value 37.478
Market data and solutions development 75.873 79.826 83.682 87.615 91.654
TAB 12.235
Gross revenue - Market Data 75.873 79.826 83.682 87.615 91.654
Plataform present value (with TAB) 49.713
(-) Deductions on revenue (20.577) (21.649) (22.694) (23.761) (24.856)
Tax Amortization Benefit
Taxes on services (4.384) (4.612) (4.835) (5.062) (5.296)
Comercial discount - existing products (16.193) (17.036) (17.859) (18.699) (19.561) Cash flow present value 37.478
period amortization (year) 5
Net revenue - Market Data 55.296 58.177 60.987 63.854 66.797 Discont rate 14,6%
Churn Rate 20,0% 20,0% 20,0% 20,0% 20,0% Tax 34,0%
Beginig of period 100,0% 80,0% 60,0% 40,0% 20,0% Tax Amortization Benefit 12.235
End of period 80,0% 60,0% 40,0% 20,0% 0,0%
Priod average 90,0% 70,0% 50,0% 30,0% 10,0%
Net revenue (after churn) - Market Data 49.767 40.724 30.494 19.156 6.680
(-) Operational expenses (25.353) (18.817) (13.528) (8.255) (2.795)
Personal expenses (10.408) (8.107) (5.744) (3.464) (1.155)
Services provided by third parties (9.687) (6.523) (4.742) (2.919) (1.000)
General and administrative expenses (2.193) (1.699) (1.194) (717) (238)
System and equipment rental expenses (340) (274) (203) (126) (44)
Counselor's fee (186) (137) (90) (51) (16)
Taxes and fees (51) (41) (31) (19) (7)
Other operational revenue/ expenses
Royalty expenses with trademark (2.488) (2.036) (1.525) (958) (334)
% royalty -5,0% -5,0% -5,0% -5,0% -5,0%
EBITDA 24.414 21.907 16.965 10.901 3.885
(-) D&A (1.782) (1.388) (864) (530) (178)
EBIT 22.632 20.519 16.102 10.371 3.707
(-) Income tax and social contribution (7.695) (6.977) (5.475) (3.526) (1.260)
Effective rate -34,0% -34,0% -34,0% -34,0% -34,0%
Lucro lquido 14.937 13.543 10.627 6.845 2.447
(-) Contributory Asset Charge (CAC) (309) (196) (141) (88) (30)
CAC expenses - Fixed assets (164) (88) (61) (41) (15)
CAC expenses - Workforce (139) (87) (50) (25) (7)
Free cash flow 14.628 13.347 10.486 6.757 2.416
Discount rate 14,6% 14,6% 14,6% 14,6% 14,6%
Discount factor 0,93 0,81 0,71 0,62 0,54
Discounted cash flow 13.662 10.872 7.451 4.187 1.306
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
61
Appendix I I Intangibles projections (8/11)
CETIP
CETIP 21 Plataform Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Intangible value
R$'000 2017 2018 2019 2020 2021 2022 2023
Plataform present value 2.815.594
Record 119.638 166.391 190.298 217.285 240.400 265.264 284.082
Custody 557.177 552.313 638.396 747.899 845.602 957.085 1.037.940 TAB 787.991
Monthly usage 248.054 266.197 284.636 303.974 324.347 345.192 367.377
Transactions 186.976 228.858 280.215 338.341 394.799 459.529 515.176 Plataform present value (with TAB) 3.603.585
Other UTVM Revenues 35.773 38.287 40.994 43.855 46.916 50.190 53.692
Tax Amortization Benefit
Gross revenue - CETIP 21 1.147.618 1.252.045 1.434.538 1.651.354 1.852.064 2.077.259 2.258.268
Cash flow present value 2.815.594
(-) Deductions on revenue (173.759) (189.570) (217.202) (258.213) (289.597) (324.809) (353.113) period amortization (year) 7
Taxes on services (110.590) (120.653) (138.238) (159.132) (178.473) (200.174) (217.617) Discont rate 14,6%
Comercial discount (63.170) (68.918) (78.963) (99.081) (111.124) (124.636) (135.496) Tax 34,0%
Net revenue - CETIP 21 973.859 1.062.474 1.217.337 1.393.141 1.562.467 1.752.450 1.905.155 Tax Amortization Benefit 787.991
(-) Operational expenses (275.884) (291.225) (316.728) (350.774) (378.244) (411.502) (438.379)
Personal expenses (167.411) (173.303) (186.398) (204.270) (217.603) (233.930) (246.903)
Services provided by third parties (26.705) (31.408) (34.719) (39.663) (43.905) (49.235) (53.598)
General and administrative expenses (25.131) (25.152) (25.869) (27.415) (28.141) (29.370) (30.523)
System and equipment rental expenses (3.219) (3.468) (3.916) (4.461) (4.953) (5.515) (5.971)
Counselor's fee (3.641) (3.586) (3.603) (3.752) (3.772) (3.872) (3.997)
Taxes and fees (1.085) (1.183) (1.355) (1.557) (1.746) (1.958) (2.129)
Other operational revenue/ expenses
Royalty expenses with trademark (48.693) (53.124) (60.867) (69.657) (78.123) (87.622) (95.258)
EBITDA 697.975 771.250 900.609 1.042.366 1.184.223 1.340.948 1.466.776
(-) D&A (18.769) (13.321) (18.688) (26.160) (32.023) (32.118) (35.845)
EBIT 679.205 757.929 881.921 1.016.206 1.152.200 1.308.830 1.430.931
(-) Income tax and social contribution (230.930) (257.696) (299.853) (345.510) (391.748) (445.002) (486.517)
Net profit 448.275 500.233 582.068 670.696 760.452 863.828 944.415
(-) Contributory Asset Charge (CAC) (6.378) (7.701) (8.993) (11.000) (12.846) (14.919) (17.126)
CAC expenses - Fixed assets (2.416) (2.595) (3.307) (4.320) (5.362) (6.587) (7.986)
CAC expenses - Workforce (971) (956) (948) (990) (999) (997) (995)
Free cash flow 441.897 492.532 573.075 659.696 747.606 848.909 927.289
Discount rate 14,65% 14,65% 14,65% 14,65% 14,65% 14,65% 14,65%
Discount factor 0,93 0,81 0,71 0,62 0,54 0,47 0,41
Discounted cash flow 412.701 401.214 407.176 408.830 404.110 400.236 381.328
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
62
Appendix I I Intangibles projections (9/11)
CETIP
CIP Plataform Jan-Dec Jan-Dec Jan-Dec Jan-Dec Intangible value
R$'000 2017 2018 2019 2020 Plataform present value 68.630
TEDs processing 51.300 66.199 85.116 18.217 TAB 24.326
Gross revenue - CIP 51.300 66.199 85.116 18.217 Plataform present value (with TAB) 92.956
(-) Deductions on revenue (7.767) (10.023) (12.887) (2.849) Tax Amortization Benefit
Taxes on services (4.943) (6.379) (8.202) (1.756) Cash flow present value 68.630
Comercial discount (2.824) (3.644) (4.685) (1.093) period amortization (year) 4
Net revenue - CIP 43.533 56.176 72.229 15.369 Discont rate 14,6%
Tax 34,0%
(-) Operational expenses (12.332) (15.398) (18.793) (3.870)
Tax Amortization Benefit 24.326
Personal expenses (7.483) (9.163) (11.060) (2.253)
Services provided by third parties (1.194) (1.661) (2.060) (438)
General and administrative expenses (1.123) (1.330) (1.535) (302)
System and equipment rental expenses (144) (183) (232) (49)
Counselor's fee (163) (190) (214) (41)
Taxes and fees (49) (63) (80) (17)
Other operational revenue/ expenses
Royalty expenses with trademark (2.177) (2.809) (3.611) (768)
% royalty -5,00% -5,00% -5,00% -5,00%
EBITDA 31.200 40.778 53.436 11.499
(-) D&A (839) (704) (1.109) (289)
EBIT 30.361 40.074 52.328 11.211
(-) Income tax and social contribution (10.323) (13.625) (17.791) (3.812)
Net profit 20.038 26.449 34.536 7.399
(-) Contributory Asset Charge (CAC) (270) (270) (333) (71)
CAC expenses - Fixed assets (143) (121) (144) (33)
CAC expenses - Workforce (121) (120) (119) (20)
Free cash flow 19.768 26.179 34.203 7.328
Discount rate 14,65% 14,65% 14,65% 14,65%
Discount factor 0,93 0,81 0,71 0,62
Discounted cash flow 18.462 21.325 24.301 4.542
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
63
Appendix I I Intangibles projections (10/11)
CETIP
Cetip Trader + ICE Link Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Intangible value
R$'000 2017 2018 2019 2020 2021 2022 2023
Plataform present value 43.996
Cetip Trader + ICE Link 4.340 15.934 20.445 27.098 34.159 43.755 51.108
TAB 12.313
Gross revenue - Others 4.340 15.934 20.445 27.098 34.159 43.755 51.108
Plataform present value (with TAB) 56.309
(-) Deductions on revenue (657) (2.413) (3.096) (4.237) (5.341) (6.842) (7.992)
Tax Amortization Benefit
Taxes on services (418) (1.535) (1.970) (2.611) (3.292) (4.216) (4.925)
Cash flow present value 43.996
Comercial discount (239) (877) (1.125) (1.626) (2.050) (2.625) (3.066)
period amortization (year) 7
Net revenue - Other 3.683 13.522 17.350 22.861 28.818 36.913 43.117 Discont rate 14,6%
Tax 34,0%
(-) Operational expenses (1.043) (3.706) (4.514) (5.756) (6.976) (8.668) (9.921)
Personal expenses (633) (2.206) (2.657) (3.352) (4.013) (4.927) (5.588) Tax Amortization Benefit 12.313
Services provided by third parties (101) (400) (495) (651) (810) (1.037) (1.213)
General and administrative expenses (95) (320) (369) (450) (519) (619) (691)
System and equipment rental expenses (12) (44) (56) (73) (91) (116) (135)
Counselor's fee (14) (46) (51) (62) (70) (82) (90)
Taxes and fees (4) (15) (19) (26) (32) (41) (48)
Other operational revenue/ expenses
Royalty expenses with trademark (184) (676) (867) (1.143) (1.441) (1.846) (2.156)
% royalty -5,00% -5,00% -5,00% -5,00% -5,00% -5,00% -5,00%
EBITDA 2.640 9.815 12.836 17.105 21.841 28.245 33.196
(-) D&A (71) (170) (266) (429) (591) (677) (811)
EBIT 2.569 9.646 12.569 16.675 21.251 27.569 32.384
(-) Income tax and social contribution (873) (3.280) (4.274) (5.670) (7.225) (9.373) (11.011)
Net profit 1.695 6.366 8.296 11.006 14.026 18.195 21.374
(-) Contributory Asset Charge (CAC) (23) (65) (80) (105) (131) (175) (215)
CAC expenses - Fixed assets (12) (29) (35) (49) (63) (87) (110)
CAC expenses - Workforce (10) (29) (29) (30) (29) (32) (33)
Free cash flow 1.672 6.301 8.216 10.901 13.895 18.020 21.159
Discount rate 14,65% 14,65% 14,65% 14,65% 14,65% 14,65% 14,65%
Discount factor 0,93 0,81 0,71 0,62 0,54 0,47 0,41
Discounted cash flow 1.562 5.133 5.837 6.755 7.511 8.496 8.701
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
64
Appendix I I Intangibles projections (11/11)
CETIP
Average time
Charges and Total Recruting Average Improdutivity Total cost
Salary Number of Training cost for expected
Workforce benefit personal cost cost performance on cost avoided avoided
(R$'000/year) employees (R$'000/year) eficiency
(R$'000/year) (R$'000/year) (R$'000/year) hiring day (R$'000/year) (R$'000/year)
(month)
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
65
Appendix IV Summary of revaluation of property, plant and equipment (1/2)
BM&FBOVESPA
Weighted Weighted
Accounting code Accounting description Book Value Market Value Gains/ losses
useful life residual life
123 01001 Land - - 3 4.508.229,3 7 3 1.3 91.6 06 ,48 -3 .116 .6 22,89
123 01002 Properties in use 60 50 244.86 9.16 4,81 23 2.728.975,88 -12.140.188,93
123 01003 Installations 60 50 26 .76 6 .6 10,6 0 24.3 49.174,73 -2.417.43 5,87
123 01004 Benefits on third party properties 10 7 984.280,6 4 2.885.821,00 1.901.540,3 6
123 01005 Air conditioning systems 20 7 2.219.876 ,48 24.493 .994,00 22.274.117,52
123 02001 Furniture and utensils 10 7 14.6 25.452,16 26 .6 04.13 3 ,02 11.978.6 80,86
123 03 001 Machines and equipment 18 12 28.277.870,79 71.054.821,54 42.776 .950,75
123 03 002 Data processing 4 2 83 .112.6 78,96 99.3 54.906 ,49 16 .242.227,53
123 03 003 Telephony 6 4 808.750,29 1.03 8.13 7,84 229.3 87,55
123 03 005 Electronic panels 10 6 24.93 9,15 3 0.53 0,72 5.591,57
123 04001 Vehicles 5 3 6 42.983 ,6 8 755.53 5,91 112.552,23
123 14001 Works of art* - - 15.6 57.852,6 2 15.6 57.852,6 2 0,00
123 07001 Property in progress * - - 7.511.244,6 9 7.511.244,6 9 0,00
Others* - - 2.742.83 6 ,88 2.742.83 6 ,88 0,00
Total 462.752.771,12 540.599.571,8 0 77.8 46.8 00,68
*Not evaluated
Weighted Weighted
Accounting code Accounting description Book Value Market Value Gains/ losses
useful life residual life
BVRJ - Properties 60 50 29.116 .816 ,02 94.219.945,3 0 6 5.103 .129,28
Total 29.116.8 16,02 94.219.945,30 65.103.129,28
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
66
Appendix IV Summary of revaluation of property, plant and equipment (2/2)
CETIP
Weighted Weighted
Accounting code Accounting description Book Value Market Value Gains/ losses
useful life residual life
1.3 .02.01.01.001 Lands 0 0 4.215.03 8,06 10.515.454,42 6 .3 00.416 ,3 6
1.3 .02.01.02.001 Constructions 60 50 3 .400.96 4,06 8.484.545,58 5.083 .581,52
1.3 .02.01.04.001 Installations 10 4 3 6 5.227,83 4.997.774,00 4.6 3 2.546 ,17
1.3 .02.01.05.001 Machines and equipment 10 8 4.6 16 .6 81,47 6 .26 0.83 3 ,00 1.6 44.151,53
1.3 .02.01.05.050 Machines and equipment 10 9 582.544,00 6 97.470,00 114.926 ,00
1.3 .02.01.06 .001 Furniture and utensils 10 6 754.545,51 1.3 85.822,00 6 3 1.276 ,49
1.3 .02.01.06 .050 Furniture and utensils 10 9 1.501.927,6 5 1.590.270,00 88.3 42,3 5
1.3 .02.01.07.001 Communication 4 2 29.943 ,90 80.93 8,90 50.995,00
1.3 .02.01.07.050 Communication 4 3 576 .950,83 6 97.6 98,00 120.747,17
1.3 .02.01.11.001 Computing 4 2 8.23 7.793 ,22 13 .103 .051,25 4.86 5.258,03
1.3 .02.01.11.050 Computing 4 2 9.56 2.76 2,12 13 .06 2.223 ,57 3 .499.46 1,45
1.3 .02.01.12.002.001 Third party property benefits 10 6 503 .208,3 0 1.883 .6 57,00 1.3 80.448,70
1.3 .02.01.12.002.050 Third party property benefits 10 9 8.149.548,79 8.489.716 ,00 3 40.16 7,21
1.3 .02.01.13 .001 Vehicles 5 3 75.3 84,29 110.818,00 3 5.43 3 ,71
1.3 .02.01.90 Property in progress * 5.886 .108,80 5.885.000,00 -
Others* 4.6 73 .983 ,79 4.6 73 .983 ,79 -
Total 53.132.612,61 8 1.919.255,51 28 .78 7.751,70
* Not evaluated
This Report is a free translation into English (requested by the Client) of the report issued in Brazilian Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese will prevail.
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Brazil.
67
2017 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in Brazil.
The KPMG name and logo are registered trademarks or trade marks of KPMG International.
(A free translation of the original in Portuguese)
2 The objective of the appraisal of the net book equity value as of December 31, 2016 of CETIP is its
merger by BM&FBOVESPA.
3 Management is responsible for the bookkeeping and preparation of the accounting information in
accordance with accounting practices adopted in Brazil, and for such internal control as
management determines is necessary to enable the preparation of accounting information that is
free from material misstatement, whether due to fraud or error. The main accounting practices
adopted by the CETIP are summarized in Attachment II of the appraisal report.
4 Our responsibility is to express a conclusion on the net book equity value of CETIP as of December
31, 2016, based on the work performed in accordance with Technical Communication 03/2014
(R1), issued by the Institute of Independent Auditors of Brazil (IBRACON) and approved by the
2
(A free translation of the original in Portuguese)
Brazilian Federal Accounting Council through CTA 20/2014 (R1), which establishes that audit
review procedures be applied to the balance sheet. Therefore, our audit of the related balance sheet
of CETIP was conducted in accordance with the Brazilian and International Auditing Standards,
which require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the net book equity value used for the preparation of our
report is free from material misstatement.
5 An audit involves performing procedures to obtain audit evidence about the amounts recorded.
The procedures selected depend on the auditor's judgment, including the assessment of the risks
of material misstatement of the equity information, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entitys preparation of the
balance sheet in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entitys internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by Management. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our conclusion.
Conclusion
6 Based on the work performed, we conclude that the amount of R$ 1,834,541,360.74, according to
the balance sheet at December 31, 2016, as stated in the accounting records and summarized in
Attachment I, represents, in all material respects, the net book equity value of Cetip S.A. - Mercados
Organizados, according to accounting practices adopted in Brazil.
3
Appendix I to the report on the net book equity value
based on the accounting records at December 31, 2016
This appendix is an integral and inseparable part of the report on the net book equity value based on the
accounting records of Cetip S.A. Mercados Organizados, issued by PricewaterhouseCoopers Auditores
Independentes on May 12, 2017.
4
Appendix II to the report on the net book equity value
based on the accounting record at December 31, 2016
1 Basis for preparation of the balance sheet and summary of the main accounting
policies
The balance sheet as at December 31, 2016 has been prepared with the objective of evaluating the
net book equity value of Cetip S.A. - Mercados Organizados (Company or CETIP) for the
purpose of merging CETIP into BM&FBOVESPA Bolsa de Valores, Mercadorias e Futuros.
The balance sheet as at December 31, 2016 has been prepared and is being presented in accordance
with the accounting practices adopted in Brazil, issued by the Accounting Pronouncement
Committee ("CPC"), as well as in accordance with the rules issued by the Brazilian Securities
Commission ("CVM").
The preparation of these financial information involves management's judgment on the use of
critical accounting estimates in the process of applying accounting practices. Information about
critical judgments regarding accounting policies adopted and estimates and critical accounting
assumptions that may have material effects on the amounts recognized in the balance sheet mainly
include the fair value of financial instruments and the determination of provisions for
contingencies.
The main accounting policies applied in the preparation of the financial information are as follows:
The balance sheet is presented in Brazilian Reais, which is CETIPs functional currency.
Subsidiaries are all entities in which CETIP is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the
entity, usually caracterized by a participation of more than half of the voting rights (voting capital).
The subsidiaries are fully consolidated from the date on which the control is transferred to CETIP.
Consolidation is interrupted from the date on which control ends.
Associates are those entities in which CETIP, directly or indirectly, has significant influence over
the financial and operating policies, but not control. The significant influence supposedly occurs
when CETIP, directly or indirectly, holds between 20 and 50 per cent of the voting rights in another
entity.
5
Appendix II to the report on the net book equity value
based on the accounting records at December 31, 2016
Investments in associates are accounted for using the equity method and are initially recognized
at cost. CETIPs share of its associates profits or losses is recognized in the income statement, and
its share of movements in reserves is recognized in reserves. The cumulative movements are
adjusted against the carrying amount of the investment.
The accounting policies of associates have been applied in a consistent manner with the policies
adopted by CETIP.
Transactions in foreign currency are translated using the exchange rates prevailing at the
transaction date. Foreign exchange gains and losses arising from the translation based on the
exchange rate at the end of the period, relating to assets and liabilities in foreign currencies, are
recognized in the income statement as financial income or expenses.
For the purpose of the statement of cash flows, the balance of cash and cash equivalents includes
cash, bank deposits and short-term investments (term of up to 3 months), with high liquidity and
a negligible risk of change in value.
CETIP classifies its financial assets according to the following categories: measured at fair value
through profit or loss, loans and receivables, held to maturity and available for sale. The
classification depends on the purpose for which the financial assets were acquired and is
determined when the asset is first recorded.
The financial assets measured at fair value through profit or loss are (i) financial assets held for
active and frequent trading or (ii) assets designated by CETIP, when first recorded, as measurable
at fair value through profit or loss. The assets held for trading are classified as current assets
irrespective of their contractual maturities. Gains or losses arising from the fair value variations of
financial assets measured at fair value through profit or loss are recorded in the statement of
income in "financial result" for the period in which they occur.
These comprise loans granted and receivables which are non-derivative financial assets with fixed
or determinable payments, not quoted in an active market. CETIP's loans and receivables comprise
trade accounts receivable, advances and other receivables. Loans and receivables are recorded at
amortized cost, based on the effective interest rate method.
6
Appendix II to the report on the net book equity value
based on the accounting records at December 31, 2016
These are financial assets quoted in an active market which are acquired with the intention and
financial ability to be held in the portfolio up to their maturity. They are recorded at the acquisition
cost, plus related earnings which are recognized in the statement of income under "financial
result", using the effective interest rate method.
Available-for-sale financial assets are non-derivatives instruments which are classified in this
category or not classified in any other. Available-for-sale financial assets are recorded at fair value.
Interest on available-for-sale securities, calculated based on the effective interest rate method, is
recognized in the statement of income under "financial result". Gains or losses resulting from a
change in fair value are recorded net of deferred taxes in shareholders' equity, in the Carrying
value adjustments account and are transferred to the statement of income when the asset is sold
or becomes impaired.
CETIP recognizes debt securities issued on the date on which they are originated. All other
financial liabilities are initially recognized at the date of negotiation in which CETIP becomes a
part of the contractual provisions of the instrument. CETIP derecognizes a financial liability when
its contractual obligations are withdrawn, cancelled or expired.
CETIP has the following main non-derivative financial liabilities: borrowings, debentures,
suppliers and other accounts payable.
Such financial liabilities are initially recognized at fair value plus any attributable transaction costs.
After initial recognition, these financial liabilities are measured at amortized cost using the
effective interest method.
Fair values of investments with public quotations are based on current market prices. For financial
assets without an active market or public quotation, CETIP determines fair value through valuation
techniques, such as discounted cash flows analysis and option pricing models.
CETIP evaluates, at the balance sheet date, if there is objective evidence that a financial asset or a
group of financial assets is overstated (impaired) in relation to its recoverable value. If there is such
evidence for available-for-sale financial assets, the cumulative loss is transferred from equity to the
statement of income.
7
Appendix II to the report on the net book equity value
based on the accounting records at December 31, 2016
Accounts receivable from customers correspond to the receivables from customers for the
provision of services in the ordinary course of CETIPs business. If the term of the receivable is
equivalent to one year or less, the accounts receivable are classified as current assets. Otherwise,
are presented as non-current assets.
Accounts receivable from customers and other receivables are initially recognized at fair value and
subsequently measured at amortized cost using the effective interest rate method minus the
provision for impairment, when applicable. In practice, considering the average short-term of
these receivables (less than one month), they are usually recognized at the invoiced amount,
adjusted by a provision for impairment, if necessary.
The impairment provision is recorded when there is objective evidence of loss in the assets
recoverable amount as a result of one or more events that occurred after the initial recognition of
the asset.
Represented by contracts between suppliers and CETIP, deriving from the provision of various
prepaid services. The amounts are expensed in the income statement over the term of each contract
and the extent to which services are received.
Judicial deposits are stated as a deduction from the corresponding liability recorded when they
cannot be redeemed, unless there is a favorable outcome for CETIP in the dispute.
Property and equipment items are measured at historical cost of acquisition or construction (in the
case of land and buildings), less accumulated depreciation and any accumulated impairment
losses.
Depreciation is calculated using the straight-line method at the rates disclosed, which take into
account the estimated useful lives of the assets.
The estimated economic useful lives and the estimated residual value of property and equipment
items are reviewed at the end of each year and adjusted, if necessary.
Repairs and maintenance costs are allocated to the statement of income during the period in which
they are incurred.
8
Appendix II to the report on the net book equity value
based on the accounting records at December 31, 2016
i. Goodwill
The goodwill is represented by the positive difference between the consideration paid and/or
payable for the acquisition of a business and the net amount of the fair value of assets and liabilities
of the subsidiary acquired. The goodwill arising from acquisitions of subsidiaries is recorded as
"Intangible assets".
The goodwill is not amortized but tested annually to assess any impairment losses. The goodwill is
accounted at cost less any accumulated impairment losses. Goodwill impairment losses eventually
recognized cannot be reversed.
The goodwill is allocated to cash-generating units (UGCs) for impairment testing purposes. The
allocation is made for the cash-generating units or groups of cash-generating units which will
benefit from the business combination in which the goodwill was originated, and are identified
according to the operating segment.
Contractual relations acquired in a business combination are recognized at fair value on the date
of acquisition. Contractual relations have finite useful life and are stated at their cost less
accumulated amortization. Amortization is computed using the straight-line method over the
expected life of the contractual relationship.
Software licenses acquired are recorded at total acquisition cost, adjusted when applicable to their
recoverable value and amortized over their estimated useful life.
Software development expenses recognized as assets are amortized over their estimated useful
lives, using the straight-line method.
The estimated economic useful lives and the estimated residual value of intangible assets are
reviewed at the end of each year and adjusted, if necessary.
9
Appendix II to the report on the net book equity value
based on the accounting records at December 31, 2016
Assets that have an indefinite useful live, such as the goodwill, are not subject to amortization or
depreciation and are annually tested for impairment. Assets that are subject to amortization or
depreciation are tested for impairment whenever events or changes in the circumstances indicate
that the carrying value may not be recoverable. An impairment loss is recognized at the amount by
which the carrying value of the asset exceeds its recoverable value, which is the greater between its
fair value less costs to sell and its value in use. For the purpose of impairment testing, assets are
grouped at the lowest level for which there are separately identifiable cash flows (Cash Generating
Units (CGU)). For the purpose of the goodwill impairment testing, the goodwill originated in a
business combination is allocated to the CGU to which it is related or to which the synergy benefits
from the business combination are expected. This allocation reflects the lowest level in which the
goodwill is monitored internally and it is not greater than an operating segment determined in
accordance with IFRS 8 and CPC 22.
The debentures issued and the external loans are recognized initially at fair value, net of
transaction costs incurred and subsequently measured at amortized cost. Any difference between
the value obtained (net of transaction costs) and the settlement value is recognized in the income
statement during the period in which the debentures are outstanding, using the effective interest
rate method.
CETIP has certain items of property and equipment that have been financed through lease. The
leases in which CETIP has substantially retained all the risks and benefits of ownership are
classified as finance leases. These are immobilized at the beginning of the lease by the smallest
value between the fair value of the leased asset and the present value of minimum lease payments.
The minimum lease payments are segregated between financial expense and reduction of the
outstanding liability. The financial expense is appropriate to each period during the term of the
lease to produce a constant periodic rate of interest on the remaining balance of the liability. The
property and equipment items acquired through finance leases are depreciated over the useful life
of the asset.
Dividends and interest on own capital are recognized as a liability in the financial statements at the
year end, based on the bylaws of CETIP. The dividends above the minimum mandatory are
maintained in shareholders equity and recorded as liabilities on the date in which they are
approved by the shareholders at the General Meeting.
The tax benefit of interest on own capital is recognized in the statement of income.
10
Appendix II to the report on the net book equity value
based on the accounting records at December 31, 2016
Recognition, measurement and disclosure of contingent assets and liabilities and of legal
obligations are carried out in accordance with the criteria set forth in corporate law:
i. Contingent assets - These are not recorded, except when Management has full control over the
outcome or when there are favorable decisions to which no further appeals are applicable, such
that the gain is almost certain. Contingent assets with a probable chance of success, when
applicable, are only disclosed in the notes to the financial statements;
ii. Contingent liabilities - These are recognized taking into account the opinion of the legal
advisors, the nature of these lawsuits, similarity with previous proceedings, complexity and
rulings of the courts, whenever the (i) chance of loss has been classified as probable, where an
outflow of proceeds will probably be required to settle the obligation and (ii) when the amounts
involved can be determined with sufficient reliability. The contingent liabilities classified as
possible losses are not recorded and are only disclosed in the notes to the financial statements,
and those classified as remote are neither recognized nor disclosed; and
iii. Legal obligations - Arise from legal proceedings related to tax obligations, whose aim is to
challenge their legality or constitutionality. Regardless of the assessment about the probability
of success, these have their full amounts recognized in the financial statements.
The segregation between current and non-current is based on a term of 12 months subsequent to
the reporting date.
11
Appendix II to the report on the net book equity value
based on the accounting records at December 31, 2016
As at March 22, 2017, all the approvals from the competent governmental agencies ("Precedent
Conditions") set forth in the merger and justification agreement of the Transaction ("Merger
Agreement") were obtained, allowing the completion of the corporate acts approved by the general
meetings of BM&FBOVESPA and CETIP held on May 20, 2016, with respect to the merger of
CETIP shares into Companhia So Jos Holding ("Holding"), followed by the redemption of shares
issued by the Holding and the merger of the Holding into BM&FBOVESPA.
Given the implementation of the last of the Precedent Conditions on March 22, 2017, the business
combination involving CETIP and BM&FBOVESPA was completed on March 29, 2017. As of that
date, the shares issued by the Company ceased to be traded and CETIP became a wholly-owned
subsidiary of BM&FBOVESPA.
CETIPs shareholders at the close of trading on March 29, 2017 received, for each common share
of CETIP held by them, one common share and three redeemable preferred shares issued by the
Holding. As a result of the redemption of the preferred shares issued by the Holding and the merger
of the Holding into BM&FBOVESPA, CETIP's shareholders received (i) 0.93849080 common
share issued by BM&FBOVESPA for each common share of the Holding held by them (which
corresponds to 0.93849080 common share issued by BM&FBOVESPA for each CETIP share then
held) and (ii) the amount of R$31.89315588 for the redemption of 3 preferred shares issued by the
Holding also held by CETIPs shareholders, plus R$ 0.29543888 corresponding to the adjustment
of the redemption amount by the CDI rate verified between the business day prior to the
completion of the transaction and the financial settlement date.
This appendix is an integral and inseparable part of the report on the net book equity value based
on the accounting records of Cetip S.A. - Mercados Organizados, issued by
PricewaterhouseCoopers Auditores Independentes on May 12, 2017.
12
ATTACHMENT II.4
Financial Statements
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
MANAGEMENTSThe
DISCUSSION & ANALYSIS
Brazilian Securities, 2016
Commodities and Futures Exchange
FINANCIAL
STATEMENTS 2016
1
MANAGEMENTS DISCUSSION & ANALYSIS 2016
Dear Shareholders,
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros (BM&FBOVESPA, Exchange or Company) hereby
submits for your consideration its Management Report for 2016.
HIGHLIGHTS OF THE YEAR
The year 2016 stands out as one of the most important in BM&FBOVESPA history since, in May, the company
shareholders voted for the proposed business combination with Cetip. This transaction, which has also been approved
by Cetip shareholders and is pending regulatory analysis1, represents a major strategic advance. The expansion and
diversification of the Companys product and services portfolio will create a world-class market infrastructure
company, even more complete, capable of serving customers even more efficiently. While waiting for the regulators
to close the analysis of the business combination, the Company has been working on preliminary planning of the
integration, always complying with the limits established by the regulators. The funding required to conclude this
transaction has already been obtained.
In the political and economic scenario that surrounds us, 2016 was marked significant changes in the political scenario
and economic expectations, both abroad and in Brazil. Events such as the popular vote in favor of the United Kingdoms
exit from the European Union, the recovery in prices for some commodities and, lastly, the elections in the United
States of America prompted great volatility and increased uncertainty in global markets. In Brazil, the year began with
very negative expectations regarding the countrys level of economic activity and its fiscal imbalance. The severity of
the crisis and the negative expectations for its deepening and duration were directly related to the political scenario
in Brazil, which culminated in the impeachment of the president. Some of these negative expectations were confirmed
and the economy has now its third year of recession. However, with the political transition and a new direction in the
management of the economy, there was an improvement in the medium and long term scenario. A series of structural
adjustment and reforms were announced to address the countrys imbalances and restore confidence among
businessmen, consumers and financial agents. As a result, there was a significant improvement in expectations about
governments ability to tackle the fiscal deficit and approve the announced reforms, resume growth, and stabilize
inflation at lower levels.
These improved expectations, despite the recession, directly impacted the performance of the equities market in the
Bovespa segment, which presented higher turnover velocity and market capitalization. In the case of the derivatives
market in the BM&F segment, higher volumes were neutralized by lower average prices charged by the Company,
mainly due to a significant change in the mix of contracts traded, with a higher share of Mini contracts, which prices
are below the average.
BM&FBOVESPA continued to focus on its main projects and significant progress was made towards the
BM&FBOVESPAs new clearinghouse, which will integrate post-trading infrastructure, and the implementation of the
CORE risk model for the equities market, which will have a transformational impact for the Company and the market.
The second phase of this initiative covers the equities market and is due to be concluded in 2017. In addition, the
Company continued investing to enhance its products and markets, in particular by developing inflation-indexed
derivatives.
There was also progress on implementation of the Companys strategy for Latin America, with minority investments
in Mexican Stock Exchange, Colombian Stock Exchange and the Lima Stock Exchange (this one in 2017), in addition to
the increase in the equity investment in a higher share in the Santiago Stock Exchange. The purpose of these
investments is to build long-term relationships with these exchanges in order to tap cooperation and development
opportunities in the regions markets.
Whether in the context of the business combination with Cetip or of investments in projects, or further, in product,
commercial and risk management initiatives, BM&FBOVESPAs strategy is to capture opportunities for growth,
strengthen relationships with customers, regulators and market participants and contribute for developing the
Brazilian market, aiming to generate increasingly more value for its shareholders in the long term.
1 Pending regulatory analysis from the Brazilian Securities Commission (CVM), the Central Bank of Brazil (BACEN) and the Brazilian Antitrust Authority (CADE).
2
MANAGEMENTS DISCUSSION & ANALYSIS 2016
OPERATIONAL PERFORMANCE
Financial and Commodities Derivatives (BM&F Segment)
The average daily volume (ADV) on the financial and commodity derivatives market reached 3.2 million contracts in
2016, up by 12.4% over 2015, reflecting an 87.7% growth in the ADV for Mini contracts.
Mini contracts are composed substantially of Mini contracts of Stock Index (62.0%) and FX rate contracts (37.9%),
which posted a 66.2% and 138.0% growth, respectively, over the previous year, reflecting an increased activity in this
type of contract by individual and non-resident investors, especially those characterized as high frequency traders.
Average Daily Volume (thousands of contracts)
CAGR Var.
2012 2013 2014 2015 2016
(2012-16) 2016/2015
Interest rates in BRL 1,925.7 1,856.7 1,417.4 1,458.4 1,447.7 -6.9% -0.7%
FX rates 493.9 494.1 493.9 463.9 411.9 -4.4% -11.2%
Stock indices 143.1 113.6 118.6 100.9 96.1 -9.5% -4.7%
Interest rates in USD 149.8 155.9 219.6 289.2 253.1 14.0% -12.5%
Commodities 11.2 9.2 10.2 7.6 7.4 -10.0% -3.4%
SUBTOTAL 2,723.8 2,629.4 2,259.7 2,320.1 2,216.1 -5.0% -4.5%
Mini contracts 165.7 208.2 310.6 520.3 976.5 55.8% 87.7%
TOTAL 2,889.5 2,837.7 2,570.4 2,840.4 3,192.5 2.5% 12.4%
Excluding the effect of Mini contracts on total ADV, the ADV would have reached 2.2 million contracts in 2016, a 4.5%
drop over the previous year, reflecting lower ADV for all groups of contracts, but particularly, in FX rates and Interest
rates in USD contracts.
Average Revenue per Contract (RPC) was down by 13.3% over 2015, mainly as a result of Mini contracts higher share
on the total ADV (from 18.3% in 2015 to 30.6% in 2016), since the average RPC of this contracts is substantially lower
than the average of other contracts in the segment. In addition, there was an increase in the share of day trades and
high frequency investors, for whom the prices charged are also lower, thus negatively impacting average RPC.
Average RPC (R$)
Var.
2012 2013 2014 2015 2016
2016/2015
Interest rates in BRL 1.004 1.046 1.120 1.150 1.161 1.0%
FX rates 2.205 2.535 2.669 3.671 3.846 4.8%
Stock indices 1.524 1.761 1.774 2.128 1.827 -14.1%
Interest rates in USD 1.015 1.231 1.294 1.840 1.794 -2.5%
Commodities 2.239 2.534 2.390 2.530 2.257 -10.8%
AVERAGE (Ex Minis) 1.253 1.373 1.515 1.787 1.765 -1.2%
Mini contracts 0.116 0.119 0.117 0.218 0.246 13.0%
OVERALL AVERAGE 1.189 1.281 1.346 1.500 1.300 -13.3%
Excluding the impact of Mini contracts, average RPC would have been 1.2% lower than in 2015, mainly as a result of:
(i) lower RPC from stock index contracts due to more day trade transactions in this group; and (ii) lower RPC on Interest
rate in USD contracts, due to the reduction in the average term of this contract.
With regard to the participation of different groups of investors in the financial and commodity derivatives markets,
ADV by individual investors was up by 88.2% and their share of total ADV rose from 7.7% in 2015 to 12.7% in 2016.
Most of this growth is related to Mini contracts, as mentioned above. Foreign and institutional investors, the most
representative in this segment, increased the average volumes of contracts traded by 13.9% and 14.6%, respectively,
in 2016, but their share of total volume traded remained practically unchanged in the period. On the other hand, the
ADV of financial institutions fell by 9.8% and their share of the total was down from 21.7% to 17.1% in the period,
reflecting the process of reducing risk exposure shown by some of these institutions over the last few years.
3
MANAGEMENTS DISCUSSION & ANALYSIS 2016
The increased ADTV in the cash market was mainly due to higher turnover velocity2 which was up from 72.9% in 2015
to 79.0% in 2016, while average market capitalization3 totaled R$2.24 trillion, up by 1.4% over the previous year.
Although average market capitalization remained practically unchanged, there was a strong recovery in stock prices
in the second half of the year, which is clearly seen in the comparison between figures for the end of both periods,
when market capitalization reached R$2.47 trillion in 2016 versus R$1.91 trillion in 2015, up by 29.0%.
Average Market Capitalization (R$ trillions) and Turnover Velocity (%)
Regarding the average market capitalization by sector, the financial sector once again accounted for the biggest share
of the equities market, with 34.2% of the total. The main highlights were utilities and oil, gas and biofuels, which
posted gains of 17.9% and 14.4%, respectively, over 2015.
2 Turnover velocity is the result of dividing the volume traded in the cash market during the period by the average market capitalization for the same period.
3 Market capitalization is the product of multiplying the number of shares issued by listed companies by their respective market prices.
4
MANAGEMENTS DISCUSSION & ANALYSIS 2016
Trading and post-trading margins in this segment fell from 5.275 basis points in 2015 to 5.194 in 2016, down by 1.5%
mainly as a result of a higher portion of ADTV related to expiration of options on indices, which are not charged trading
and post-trading fees, and to a higher share of day trades, which are eligible for volume discounts.
With regard to the participation by groups of investors in the Bovespa segment, non-resident investors continued to
lead with 52.1% of the total ADTV, followed by local institutional investors with 24.8%. Compared with 2015, the
fastest growing groups were individual investors, whose ADTV was up by 34.9%, and non-resident investors, whose
ADTV was up by 7.6%.
Distribution of Average Daily Traded Value by Group of Investors (R$ billion)
5
MANAGEMENTS DISCUSSION & ANALYSIS 2016
Revenues from trading and post-trading in the BM&F and Bovespa segments together represented 77.2% of total
revenues for the year, reaching R$1,989.2 million, an increase of 2.8% year-over-year.
Revenues from trading, clearing and settlement - BM&F segment reached R$1,050.4 million (40.8% of the total),
down by 2.2% over 2015, reflecting a 13.3% decline in average RPC, which was not fully offset by the 12.4% growth
in the ADV in the period.
Revenues from trading, clearing and settlement - Bovespa segment reached R$977.8 million (38.0% of the total),
an increase of 8.3% over the previous year. Trading and post-trading revenues totaled R$959.2 million, an increase
of 8.8% over 2015, reflecting a 9.2% increase in ADTV.
Other revenues: revenues not tied to volume traded reached R$548.2 million (21.3% of the total) in 2016, a 13.9%
increase year-over-year. The main highlights were:
Depositary, custody and back-office: totaled R$177.7 million (6.9% of the total), up by 35.8% over 2015, as a
result of an 89.3% increase in revenues from Tesouro Direto, which reached R$65.6 million in the year, and
inflation pass through of certain depositary services prices as of January 2016.
Banco BM&FBOVESPA: revenues reached R$39.8 million (1.5% of total), up by 13.2% over the previous year,
mainly due to an increase in FX transactions by customers and income from the banks financial investments.
Others: totaled R$36.0 million (1.4% of total), up by 49.3% over 2015, as a result of a R$16.9 million extraordinary
reversal of provision4, with no cash impact, connected to changes in the Companys health care plan implemented
in 2016, which impacted liabilities tied to rights granted to Companys employees who contributed to the health
care plan of the Company between 2002 and 20095.
Expenses
Expenses totaled R$1,226.2 million in 2016, a 44.1% increase over the previous year, mainly due to: (i) extraordinary
expenses, with no cash impact, related to R$231.3 million in provisions for legal contingencies; (ii) expenses related to
the proposed business combination with Cetip amounting to R$65.6 million; and (iii) R$51.5 million in non-recurring
4 According to CPC 00, in case of reversal of provision this must be booked as revenue in future periods.
5 According to Law n 9.656/98 and understandings brought by the Resolution No. 279 of the ANS (National Health Agency) of November 2011, it is provided to
the employee which contributes with any amount of money to the health plan of the Company, the right to maintain their status as beneficiary in the event of
being fired or retired, as long as the employee assumes the entire cost of his plan. Potential liabilities that referred to the provision are related to the difference,
over time, of the average cost of the health plan negotiated by the Company and the estimated regular cost, which the beneficiaries would bear if they dont stand
the condition of beneficiaries (indirect subsidy). In 4Q12, BM&FBOVESPA accrued R$27.5 million connected to this potential liability.
6
MANAGEMENTS DISCUSSION & ANALYSIS 2016
expenses related to stock grants. Excluding these non-recurring items, total expenses would have reached R$877.8
million, an increase of 3.2% over 2015.
Expenses (R$ million)
Personnel and payroll-related charges: totaled R$505.1 million in 2016, an increase of 14.0% over 2015. This
increase is a result of the 8.6% adjustment under the annual collective bargaining agreements of Aug16, and higher
stock grants expenses. Excluding the impact related to stock grant expenses, personnel and payroll-related charges
would have totaled R$359.9 million, which would represent a rise of 4.6%.
Expenses related to the stock grant plan6 reached R$145.2 million in 2016, 46.7% higher over the previous year.
Of this total, recurring expenses amounted R$93.7 million and include R$48.9 million in principal and R$43.0 million
in provisions for payroll charges to be paid upon the delivery of the shares to the beneficiaries, which was impacted
by a higher price of the BM&FBOVESPA shares. Extraordinary expenses - principal and charges - totaled R$51.5
million and consisted of: (i) R$25.0 million related to severance expenses; and (ii) provision of R$26.5 million due
to the adequacy of the accrual methodology applied to expenses related to stock grant programs, which were
granted but not transferred yet, in accordance with Companys stock grant plan.
Data processing: totaled R$144.6 million, an increase of 18.5% over the previous year, mainly due to: (i) IT
maintenance contracts adjustments; and (ii) the impact of the appreciation of the US Dollar against the Brazilian
Real between Jan15 and Dec15, given that a cash flow hedge7 was set up for a portion of the contracts
denominated in foreign currency with competence in 2015 and 2016, respectively.
Depreciation and amortization: totaled R$98.3 million in 2016, down by 11.3% over 2015 due to (i) conclusion of
depreciation and amortization for equipment and systems; and (ii) longer useful life periods used when calculating
depreciation and amortization for certain equipment items and systems.
Transaction with Cetip: totaled R$65.6 million in 2016 composed by extraordinary expenses connected to the
proposed business combination with Cetip, R$50.3 million in transaction costs8 and R$15.3 million in expenses
related to planning of the business integration9 that will take place after regulatory analysis.
Others: totaled R$316.5 million, a 274.8% increase over the previous year, including: (i) an extraordinary provision
in the amount of R$183.9 million related to a lawsuit for which the chances of loss were changed from possible to
probable; (ii) R$47.4 million in provisions for success fees to legal advisors, that, as from 3Q16, was made for cases
in which the chances of loss are rated possible or remote, as from 3Q16, was made for legal proceedings classified
as possible or remote loss chances, since in the case of success of these cases the Company must pay the success
fee contracted; and (iii) R$18.0 million to transferred to our self-regulatory entity in 4Q16, with the purpose of
financing the activities of this institution.
6 In 2015, the Company introduced the stock grant plan as its long-term incentives.
7 The Company designated part of its cash in foreign currency to cover the impact of exchange rate variations affecting firm commitments in foreign currency with
suppliers or service providers. Commitments due to be paid in 2015 were hedged, particularly in January 2015, while payments due to be settled in 2016 were
mostly hedged in December 2015. Therefore, expenses related to these commitments and recognized in 2015 were based on the exchange rate as of January
2015, while those recognized in 2016 were based on the exchange rate as of December 2015, being impacted by the depreciation of the Brazilian Real against the
US Dollar from January 2015 to December 2015. See the financial statements, note 4.d - Cash Flow Hedge.
8 Includes expenses incurred for publications, auditors, appraisers, attorneys and other professionals engaged as advisors for the business combination with Cetip.
9 Includes expenses incurred for consultants engaged to assist the planning for integration of operations with CETIP, which is currently pending regulatory analysis.
7
MANAGEMENTS DISCUSSION & ANALYSIS 2016
Indebtedness
The Companys gross debt at the end of 2016 was R$5,463.6 million (including principal and accrued interest), of which
91.8% was long-term and 8.2% short-term.
In Dec16, BM&FBOVESPA increased its level of indebtedness by issuing debentures and obtaining a foreign currency
loan to meet the financial obligations arising from the business combination with Cetip. Details of the Companys
indebtedness are shown below:
Debenture issue
First issue of simple, non-convertible debentures in the amount of R$3.0 billion settled on December 15, 2016. This
issue is for a term of three years10 with payment of 50% at the end of year 2 and 50% at the end of year 3 at an interest
rate corresponding to 104.25% of the DI rate. Interest will be paid on semi-annually basis, on June 1 and December 1
each year.
Loan
A loan in the amount of US$125.0 million was agreed on December 15, 2016 at an interest rate of 2.57% p.a. to be
paid on a monthly basis due on January 2, 2018. A cash flow hedge was set up between the loan and revenues
denominated in US Dollar, while tying monthly amortizations with most of the receivables linked to derivatives
contracts denominated in US Dollar (FX rates and Interest rates in USD contracts). Thus, for the dollar amount
protected by the hedge instrument, any gains or losses related to exchange rate variations will be recognized in
shareholders' equity, and therefore no longer have a direct impact on the Company's quarterly results in both
operating income and financial expenses. The impact will affect the income statements only when the loan matures.
This hedge is expected to reduce change in revenues from derivatives reported as a result of exchange rate variations.
2020 Notes
Senior Unsecured Notes issued abroad in Jul10 for the amount of US$612.0 million, maturing in Jul20 with semi-
annually 5.5% coupons in July and January each year. In Mar16, the Company entered into swap transactions for the
principal amount of the 2020 Notes and has since then held a short position at the local interest rate, at an effective
cost of 79.1% of the CDI rate applied to the balance in Brazilian Real on the hedge date (R$2,210 million). Additionally,
in Sep16, the Company entered into non-deliverable forwards (NDFs) to hedge certain coupons from FX variations.
Financial result
Financial result totaled R$152.0 million in 2016 and was mainly impacted by the recognition of the divestment in CME
Group shares, its debenture issued and the loan, as shown below:
Financial income: totaled R$1,167.3 million in the year, an increase of 56.5% over 2015, mainly due to high average
cash in the period, which included: (i) R$5,487.7 million in proceeds from the sale of CME Group shares in Sep15 and
Apr16; and (ii) the proceeds from its R$3.0 billion debenture issuance and US$125 million loan contracted in Dec16.
Financial expenses: totaled R$442.5 million in 2016, up by 86.8% over the previous year, mainly due to: (i) R$189.8
million related to the hedge against FX variation on the 2020 Notes11; (ii) R$17.6 million connected to interest on the
debentures issued in Dec16; (iii) R$16.4 million related to IOF tax on repatriation of proceeds from the sale of CME
Group shares; and (iv) R$20.6 million expenses regarding the stand-by facilities amounting to R$2.7 billion, which were
not drawn, in connection with the transaction with Cetip .
Divestment from CME Group shares: totaled a non-recurring loss of R$572.8 million in 2016, of which: i) R$460.5
million, with no cash impact, reflecting changes in the CME Group share price and the Brazilian Real vs US Dollar
exchange rate from Sep15 to the date of total divestment from CME Group shares; and (ii) R$112.3 million, with cash
impact, related to PIS and COFINS levied on the capital gain generated on the sale of 4% of the CME Group shares.
10 If the business combination with Cetip is not approved by regulators, there will be early redemption of all debentures.
11
In Mar16, the Company entered into a swap transaction for its foreign currency debt principal and took a short position in local interest rates. In Sep16, non-
deliverable forwards (NDFs) were contracted to hedge exchange rate variation affecting interest charges due on foreign currency debt at half-year intervals. See
financial statements, note 4.d - Fair Value Hedge and Cash Flow Hedge.
8
MANAGEMENTS DISCUSSION & ANALYSIS 2016
12 Considering the divestment in the CME Group during 2016, BM&FBOVESPA reviewed the tax treatment of the capital gain from the sale of such shares. The
portion of the exchange variations accumulated in the period in which this investment was calculated by the equity method at acquisition cost was incorporated
on the calculation of the capital gain. This revision led to the reversal of part of the tax provision previously made. See financial statements, note 4.c.
13 Net income for 2016 excludes extraordinary impacts related to the sale of shares in the CME Group (R$136.4 million, after tax), the transaction with Cetip
(R$43.3 million after tax), extraordinary stock grant expenses (R$35.2 million after tax) and extraordinary expenses relating to provisions for contingencies and
success fees (R$155.0 million after tax). Net income for 2015 excludes extraordinary impacts related to impairment expenses (R$1,097.4 million after tax),
discontinuing of the equity method (R$1,130.4 million after tax) and sale of the CME Group (R$474.2 million after tax).
9
MANAGEMENTS DISCUSSION & ANALYSIS 2016
was affected by the appreciation of the Brazilian Real against the US Dollar (the counterpart of this variation is in the
financial instruments line); (iii) reduction in the deferred income tax and social contribution line, consisting mainly of
deferred tax arising from goodwill amortization, to R$2,976.1 million (R$3,272.3 million in Dec15), due to a write-off
of R$920.9 million in deferred tax related to the sale of CME Group shares recognized in Sep15; and (iv) an increase
in the provision for risks arising from changes in the chances of loss in legal proceedings to probable and provisioning
for success fees for cases in which the chances of loss were classified as possible or remote.
Shareholders equity at the end of Dec16 stood at R$19,076.4 million, which represented 61.2% of total liabilities and
shareholders equity, and consisted mainly of R$14,327.5 million capital reserve and R$2,540.2 million share capital.
OTHER FINANCIAL INFORMATION
Investments
In 2016, investments amounted to R$223.7 million, of which R$210.3 million was in technology and infrastructure, in
particular for BM&FBOVESPAs new clearinghouse. Total investments were within the R$200 R$230 million budget
planned for 2016, as announced in Dec15.
Budget for adjusted expenses and investments in 2017
In Dec16, the Company announced its budget for adjusted operating expenses and investments planned for 2017 as
follows: (i) adjusted operating expenses budget guidance within R$675- R$705 million14; and (ii) investments budget
guidance within R$165 R$195 million.
The budget for expenses and investments in 2017 will be reviewed in the event of completion of the business
combination with Cetip S.A. Mercados Organizados.
Distribution of earnings
The Board of Directors declared a payment of R$900.0 million in interest on capital in 2016.
OTHER HIGHLIGHTS
Market and Technological Developments
Business combination between BM&FBOVESPA and Cetip: negotiations around the business combination started at
the end of 2015 and was completed in 2016. On April 8, 2016, the Board of Directors of both companies submitted a
proposal for the business combination to their shareholders, who approved the deal on May 20, 2016. The transaction
is currently awaiting regulatory analysis from the Brazilian Securities Commission (CVM), the Central Bank of Brazil
(BACEN) and the Brazilian Antitrust Authority (CADE). Both companies have made efforts to plan for integration while
complying with the restrictions stipulated by antitrust regulations. Task forces have been set up to ensure that the
integrated operations continue to deliver operational and technological excellence in services provided for the market
and regulators, while enhancing services for infrastructure users, in addition to capture potential synergies. In
addition, to meet the transactions financial requirements, BM&FBOVESPA raised approximately R$3.4 billion in
Dec16, and this amount, together with the proceeds from the divestment in the CME Group, will finance the cash
portion to be paid to Cetip shareholders on the business combination process.
BM&FBOVESPA Clearinghouse (post-trading integration): 2016 saw major progress made on the second phase of
BM&FBOVESPAs new Integrated Clearinghouse, which will migrate equity and corporate fixed-income markets to a
new infrastructure integrating these markets with financial, commodities, and OTC derivatives markets. Integrate
tests, which started in 4Q15, were concluded during the year, followed by a parallel production process which
replicates in the BM&FBOVESPA Clearinghouses environment all the post-trading activities occurring in the
production environment. Since Jul16, 12 parallel production cycles have been conducted and will continue in 2017.
14Expenses adjusted for: (i) depreciation and amortization; (ii) stock grant plan - principal and charges - and stock options plan; (iii) cost of operating and
planning the business combination with Cetip, which is still pending regulatory analysis; and (iv) provisions, transfer of fines and incentive programs for market
participants.
10
MANAGEMENTS DISCUSSION & ANALYSIS 2016
BM&FBOVESPA expects that its systems and processes, along with those of its market participants, will reach the
required readiness and stability by mid-2017, when this phase of the integration process will be closed.
Development of products and services: during 2016, BM&FBOVESPA continued to improve the products offered to
the market. The Company engaged market makers for Inflation Spread Future contract, in addition to focusing on
enhancing and publicizing this product. For Exchange Traded Funds (ETFs), the Company changed the incentive policy
to exempt market makers from fees on hedge transactions; a new ETF referenced in the Bovespa Index (BOVV11) was
listed, thus increasing to 15 the number of ETFs available for trade. The average daily trading volume for this product
was up by 33% over 2015, totaling R$188.6 million. The Company increased the number of market makers from 27 at
the end of 2015 to 55 at the end of 2016 for options on stocks, ETFs, indices and financial, commodity and derivatives.
Lastly, the Companys liens and encumbrances service was launched at the beginning of 2016 and by the end of the
year reached R$6.7 billion assets used as collateral. This service, which enables registration of liens and encumbrances
on assets underlying bilateral collateral, was previously provided exclusively by notary offices, but is now offered by
central depositaries, thus ensuring more speed at lower costs for the market.
Creation of the IT Committee and Election of its Members: BM&FBOVESPAs board of directors set up an IT
Committee to advise it on IT related issues such as analyzing and monitoring new technologies that may pose
opportunities or impacts for the Companys business, while monitoring indicators that reflect clients perception of
the IT services offered by it. The IT Committee consists of 6 external members and 2 members of the Board of Directors
and will operate for two years as of Dec16. The board of directors may extend this term for successive periods of 2
years.
Evolution of the special listing segments: in Mar16, BM&FBOVESPA initiated discussions on improving the Special
Listing Segments regulations by means of a detailed analysis of corporate governance best practices adopted in more
than 20 jurisdictions. It also held a public consultation that had a wide engagement of investors, listed companies and
market entities. After consolidating the results, BM&FBOVESPA proposed new regulations for the Novo Mercado and
Level 2 and held a public hearing with all market participants, which was concluded in Sep16. Based on the answers
received and on interactions at the public hearing, BM&FBOVESPA prepared new versions of the Novo Mercado and
Level 2 regulations, holding another public hearing in Nov16 to discuss the new proposal. This stage was concluded
in Jan17 and the Company is now consolidating the comments received to prepare a new version of Novo Mercado
and Level 2 regulations and then hold a restricted hearing in Mar17. At this stage, only Novo Mercado and Level 2
listed companies will take part, with a specific period to resolve on the proposed changes.
Investments in Latin American Exchanges: in 2016 BM&FBOVESPA acquired 4.1% and 9.9% of the Mexican and
Colombian stock exchanges, respectively, while increasing its stake in the Santiago stock exchange to approximately
10.4% for a total investment of R$232 million. This initiative is part of the Companys strategic project of investing in
minority interests in Latin American stock exchanges in order to tap opportunities for cooperation and development
of products and services. Additionally, in Jan17, BM&FBOVESPA acquired 8.59% of the Lima stock exchanges common
shares (equivalent to 8.19% of its total share capital) for the equivalent of R$49 million, in addition to appointing a
member for its board of directors.
CORPORATE GOVERNANCE AND RISK MANAGEMENT
BM&FBOVESPA aims to maintain the excellence of its corporate governance practices, ensuring alignment of interests
between the Company and its management, shareholders, market participants and other stakeholders.
The importance of good governance practices for the long-term success of BM&FBOVESPA is underlined by its
widespread capital structure, with no controlling shareholder or controlling shareholder group, as well as its
institutional responsibility to develop the markets it manages.
Among the key highlights of the Companys governance structure are its listing on Novo Mercado, having a Board of
Directors consisting mostly of independent members, in accordance with CVM Instruction 461/07, and the existence
of 7 committees advising the board, in particular the Audit Committee and the Risk and Finance committees.
11
MANAGEMENTS DISCUSSION & ANALYSIS 2016
In 2016, for the seventh time, BM&FBOVESPA was awarded the Transparency Award by Anefac (the National
Association of Finance, Management and Accounting Executives).
Internal Audit
The mission of BM&FBOVESPAs Internal Audit is to give the Board of Directors, the Audit Committee and the Executive
Board an independent, impartial and timely assessments of the efficacy of risk management and governance
processes, as well as of the adequacy of internal controls and compliance with rules and regulations relating to the
operations of the Company and its subsidiaries.
Aligned with the best international practices and BM&FBOVESPAs strong risk management culture, in 2015 the
Company was granted the Internal Audit Quality certification, which recognizes corporations that adopt the best
practices and international standards for internal audit advocated by the Institute of Internal Auditors (IIA).
Internal Controls, Compliance and Corporate Risk
To manage its risks and controls, BM&FBOVESPA uses the four lines of defense model. Under this model, the first line,
which is primarily responsible for risk mitigation and internal controls procedures, is the business area itself. The
second line of defense includes risk management, internal controls and compliance functions and is operated by the
department of Internal Controls, Compliance and Corporate Risk, which provide support for business units and assist
Managements decision making. The third line refers to the internal audit, and acts independently of the internal
controls environment. Finally, the fourth line of defense comprises revision of the financial statements by an
independent external audit and the regulatory oversight of the Central Bank of Brazil (BACEN) and the Brazilian
Securities Commission (CVM).
The department of Internal Controls, Compliance and Corporate Risk reports directly to the CEO and provides
information to assist the work of the Board of Directors Audit Committee and Risk and Finance Committee. Its key
responsibilities are:
Corporate Processes and Risks: to set up a comprehensive structure to implement and support the continuous
development of the organizations processes on a standardized basis; to provide mechanisms to manage the
portfolio of processes, to carry out constant maintenance and enhancement; and to identify, assess, address,
monitor and report corporate risks and propose measures to reduce them;
Internal controls: to assess and monitor the Companys control environment on a regular basis;
Compliance: to assist in fulfilling, complying with and applying internal and external regulations governing the
Companys activities;
Business Continuity: to identify and assess the legal and regulatory requirements for business continuity, and the
internal and external threats that may jeopardize the Companys operations. To set up a crisis management and
response structure, with training programs, testing and analyses to ensure that continuity plans are in place and
operating properly;
Financial risk and modeling: to validate the parameters and methods designed by the operating areas for handling
central counterparty and financial risks, as well as assessing the impact of possible political, social and economic
scenarios on the Companys operating income;
Information security: to plan and structure strategies and actions to be taken in order to prevent the loss of and
protect the Companys assets (people, processes and technology).
Central Counterparty Risk - Risk Management
Collateral for transactions in markets managed by BM&FBOVESPA consists of margin deposits in cash, government
bonds, corporate debt securities, bank letters of guarantee, and stocks. As of December 31, 2016, the volume of
collateral deposited by participants totaled R$266.6 billion and was 12.7% lower than the total deposited at the end
of 2015.
The volume of collateral deposited increased in the equities and corporate debt securities clearinghouses as a result
of greater average market capitalization in the Bovespa segment. However, there was a reduction in the amount of
collateral deposited in the derivatives clearinghouse, reflecting lower volumes of outstanding contracts for Interest
rates in USD, FX rates and Stock indices.
12
MANAGEMENTS DISCUSSION & ANALYSIS 2016
Collateral Deposited
Clearinghouses December 31, 2015 December 31, 2016 Variation
In R$ millions In R$ millions
Equities, corporate debt securities 69,484.6 90,393.0 30.1%
Derivatives 226,577.6 169,705.2 -25.1%
Forex 8,819.8 6,354.5 -28.0%
Bonds 280.2 100.2 -64.2%
Total 305,162.3 266,552.9 -12.7%
HUMAN RESOURCES
BM&FBOVESPA has increased its efforts and initiatives to manage organizational climate and provide qualification for
its staff and leaders.
The Value Opinion survey conducted in partnership with Great Place to Work in 2015 identified 97 priorities for the
company to work on, which led to an action plan for each business unit. Preparation of the action plans involved more
than 400 people and as of Dec16 more than 160 initiatives were under implementation.
The Leaders Journey program, which is a tool to train managers in the key Companys process to develop its
employees involved several initiatives, including motivational lectures and workshops on qualification and
development. A total of approximately 200 managers attended the program in the course of the year.
The Company had 1,338 employees at the end of 2016.
SUSTAINABILITY AND SOCIAL INVESTMENT
One of the highlights of the year was the United Nations recognition of BM&FBOVESPA as one of the worlds ten
2016 Local SDG Pioneers. On the climate change agenda, the CDP - Driving Sustainable Economies elected
BM&FBOVESPA as one of the 16 Brazilian companies using best practices in terms of responsible management for
climate change.
The second edition of the Guia de Sustentabilidade Novo Valor Como comear, quem envolver e o que priorizar (the
New Value Sustainability Guide how to begin, who to involve and what to prioritize) was published with the inclusion
of Environmental, Social and Governance (ESG) indicators aligned with international guidelines. The guide was also
adapted for privately-held companies to advise them on how to adopt this agenda.
Also in 2016, the Social and Environmental Stock Exchange (BVSA) was chosen as a Bloomberg Tradebook partner for
Charity Day Brazil 2016, which raised funds for company-supported social causes around the world. Since it was started
in 2003, BVSA has raised over R$17.2 million for 158 projects in every region of Brazil.
SELF-REGULATION
As part of a cooperation agreement signed with the CVM to monitor information disclosed by companies listed on
BM&FBOVESPA, more than 22 thousand were examined and almost 2 thousand notifications of failure to comply with
current regulations were sent.
To control and monitor its processes and the information required from issuers, the Company started using new
technology to enable information received from issuers to be automatically forwarded to the market, thus leading to
productivity gains and greater agility for the disclosure of this information.
In August 2015, current regulations for listing of issuers and admission of securities for trading, became fully effective.
This regulation changed BM&FBOVESPAs scope of enforcement regarding information disclosure obligations
applicable to listed issuers. More than 650 notices were sent and over 600 sanctions applied in 2016.
Additionally, BM&FBOVESPA Superviso de Mercado (BSM) supervises and inspects participants in the markets
managed by BM&FBOVESPA.
EXTERNAL AUDIT
The Company and its subsidiaries engaged the services of Ernst&Young Auditores Independentes for their financial
statements.
13
MANAGEMENTS DISCUSSION & ANALYSIS 2016
The Companys policy for engaging external audit services is based on internationally accepted principles, which
preserve the independence of work of this nature and include the following practices: (i) the auditor may not perform
executive or management functions in the Company or its subsidiaries; (ii) the auditor may not perform operational
activities in the Company or its subsidiaries that might compromise the efficacy of the audit work; and (iii) the auditor
must remain impartial, avoiding any conflicts of interest or loss of independence, and must be objective in his opinions
and pronouncements on the financial statements.
In 2016, in the context of the BM&FBOVESPA and Cetip business combination, which is being analyzed by regulatory
agencies, the independent auditors provided services unrelated to their external audit engagement that exceeded 5%
of total fees paid for external audit services.
Reasonable assurance services were provided, including the issuance of a report on the pro forma financial information
of BM&FBOVESPA for the year ended December 31, 2015 (CVM Rule N 565) and audit of the financial statements at
December 31, 2015 of Companhia So Jos Holding (formerly Netanya Empreendimentos e Participaes S.A.). Both
services were engaged on April 11, 2016, amounting to R$85 thousand (7.1% in relation to the external audit contract).
The Companys policy for engaging services unrelated to external audit that are provided by its independent auditors
is based on applicable regulations and internationally accepted principles that ensure the auditors independence.
Independent Auditors Justification Ernst&Young Auditores Independentes
The services provided that are not related to external audit does not affect the independence or objectivity in the
conduction of the examinations and revisions made by the external audit. The policy for acting with the Company on
providing professional services not related to external audit is based on principles that preserve the independence of
Independent Auditors, which were observed in the provision of services mentioned above.
MANAGEMENTS REPRESENTATION
In compliance with CVM Instruction 480, the Management declares that they have discussed, reviewed and agreed to
the financial statements for the fiscal year ended December 31, 2016 and the opinions expressed in the independent
auditors report.
ADDITIONAL INFORMATION
The focus of this Management Report has been BM&FBOVESPAs performance and key developments in the year
2016. For further details about the Company and its market, please see the Reference Form available on
BM&FBOVESPAs Investor Relations website (http://ri.bmfbovespa.com.br) or the CVMs website (www.cvm.gov.br).
ACKNOWLEDGMENTS
Finally, we would like to thank our employees for their efforts during the year, as well as our suppliers, shareholders,
financial institutions, customers and other stakeholders for their support in 2016.
14
Financial Statements
BM&FBOVESPA S.A. - Bolsa de Valores,
Mercadorias e Futuros
December 31, 2016 and 2015
with Independent Auditors Report
A free translation from Portuguese into English of Independent Auditors Report on individual and consolidated financial statements prepared in
Brazilian currency in accordance with accounting practices adopted in Brazil and in accordance with the International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards Board (IASB)
Opinion
We have audited the individual and consolidated financial statements of
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros (Company),
identified as BM&FBOVESPA and Consolidated, respectively, which comprise the
balance sheet as at December 31, 2016, and the related statements of income,
of comprehensive income, of changes in equity and of cash flows for the year
then ended, and a summary of significant accounting practices and other
explanatory information.
In our opinion, the financial statements referred to above present fairly, in all
material respects, the individual and consolidated financial position of
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros as at December
31, 2016, its individual and consolidated financial performance and its cash
flows for the year then ended, in accordance with accounting practices adopted
in Brazil and the International Financial Reporting Standards (IFRS) issued by
the International Accounting Standards Board (IASB).
So Paulo Corporate Towers - 1909 Presidente Juscelino Kubitschek Ave. - Vila Nova Conceio
04543-011 So Paulo SP Brazil, Tel +55 11 2573-3000
1
ey.com.br
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period.
These matters were addressed in the context of the audit of the financial
statements taken as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
Key audit For each matter below, our description of how our audit addressed the matter,
matters including any commentary on the findings or outcome of our procedures, is
provided in that context.
We have fulfilled the responsibilities described in the Auditors responsibilities
for the audit of the individual and consolidated financial statements section
of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the financial statements.
The results of our audit procedures, including the procedures performed to
address the matters below, provide the basis for our audit opinion on the
accompanying financial statements.
1. Technology environment
Due to the volume of transactions and How our audit addressed this matter
the fact that the operations of
BM&FBOVESPA are highly dependent on
the proper operation of the technology Our audit procedures included, among others, evaluating the design and operating
structure and its systems, in addition to effectiveness of the IT General Controls (ITGC) implemented by the Company relating
the complexity involved with its trading, to the IT applications considered relevant to the audit process. The ITGC evaluation
compensation and settlement platforms included audit procedures on the logical access, manage change and other ITGC. In
due to the nature of its business, we relation to the logical access, for a sample of transactions, we evaluated the adequacy
consider the technology environment of new user authorization and concession processes, the timely revocation rights to
one of the key audit matters. improper users such as former employees or transferred ones, and periodic review of
user privileges.
In addition, we evaluated the password and general system security settings, and
limitations of physical access to computer hardware. We have evaluated the manage
change process, including authorization and approval by Management of
BM&FBOVESPA for the changes to the systems. We have also evaluated the IT
operations, focusing on the data backup policy and timely resolution of IT problems or
incidents.
We have identified the key application or IT dependent controls in the processes
considered significant to the financial statements, and for a sample of transactions, we
carried out tests focusing on their design and operational effectiveness. In addition, we
have evaluated whether guidelines of the business continuity plan were adherent to
market standards and if incidents reported throughout the year were addressed to the
Business Continuity Committee.
We involved of our IT professionals in the performance of these procedures.
Our testing of the design and operation of the IT General Controls and on the application
controls considered relevant to the audit process provided a basis for us to plan the
nature, timing and extend of our detailed audit procedures.
2
2. Role of central counterparty clearinghouse
BM&FBOVESPA is a multi-asset and multi-market
exchange vertically integrated, in which model it How our audit addressed this matter
acts as the sole responsible for all the phases of the
trading and post-trading activities. Accordingly, the
Company acts as central depositary, clearinghouse Our audit procedures included, among others, understanding the
and settlement system, and central counterparty clearinghouses activities, focusing on the Risk Modelling, Risk of Central
(CCP). In the role of central counterparty, Counterparty, Collateral Management and Pricing. In these processes, we
BM&FBOVESPA acts as the buyer to every seller and evaluated the organizational and governance structure, strategy
the seller to every buyer for settlement purposes. definitions, limits, policies and measurement methodologies. We also
This requires the Company to establish mechanisms identified and evaluated the design and operating effectiveness of the key
to estimate and call margin from participants to controls related to pricing, calculation and margin call.
cover any defaults.
Considering the methodology used and disclosed by BM&FBOVESPA, we
At December 31, 2016, BM&FBOVESPA has R$ 267 reperformed an independent calculation of the margin call required in a
billion in guarantees deposited by the market given scenario and period, and recalculated the collateral allocation. We
participants, as described in Note 17. We consider have evaluated the reconciliation of the information in the notes to the
this a key audit matter given the amounts involved financial statements with the reports from the operating systems at
and its role as a financial market infrastructure December 31, 2016, in addition to checking the custodian reports for a
(FMI). sample of assets.
We involved our risk professionals in the performance of these procedures.
The results of our evaluation of the guarantees deposited by the market
participants were consistent with Managements assessment and
disclosures in the Note 17 to the financial statements. The results of our
procedures were considered in reaching the opinion on the financial
statements taken as a whole.
3
4. Provision for tax, civil and labor claims
As described in Note 14, BM&FBOVESPA and its How our audit addressed this matter
subsidiaries are parties to various legal and
administrative proceedings involving labor, tax and
civil matters arising from the ordinary course of its
business. Our audit procedures included, among others, obtaining legal letters
directly from the Companys legal advisors and crosschecking their
Attributing a loss probability to processes involves a classification of the likelihood of loss and attributed amounts, with the
high degree of judgement by the legal advisor Companys controls and accounting records.
sponsoring the defense of matter and by
Management of BM&FBOVESPA, including in the For the most relevant lawsuits, we tested the calculation of the amounts
measurement of an eventual cash disbursement. In recorded and its disclosure and evaluated the expectation of the prognoses
this process, aspects such as the existence of in relation to the jurisprudence and well-known legal theses. We involved
jurisprudence for the dispute and/or the recurrence our tax professionals in the performance of these procedures.
of the claims are taken into consideration.
We also analyzed communications received from supervisory bodies related
In this context and considering the amounts to lawsuits, notices and disputes to which the Company is party of, and the
involved, we consider the provision for tax, civil, and sufficiency of the disclosures made in relation to issues arising from
labor claims as a key audit matter. contingencies and provisions recorded.
The results of our evaluation of the Companys provision for tax, civil and
labor claims were consistent with managements assessment. The results of
our procedures were considered in reaching the opinion on the financial
statements taken as a whole.
We have also assessed the adequacy of the disclosures made by
Management of BM&FBOVESPA on the provision for tax, civil and legal
claims in Note 14 to the financial statements.
4
Other matters
Statements of value added
The individual and consolidated Statements of Value Added (SVA) for the year ended December 31, 2016, prepared
under the responsibility of Company management and presented as supplementary information for IFRS purpose, were
submitted to the same audit procedures performed in accordance with the audit of the Companys financial statements.
For the purposes of forming our opinion, we evaluated whether these statements are reconciled with the financial
statements and accounting records, as applicable, and whether their layout and content are in accordance with the
criteria set forth in Accounting Pronouncement CPC 09 - Statement of Value Added. In our opinion, these statements
of value added were prepared fairly, in all material respects, in accordance with the criteria set forth in Accounting
Pronouncement CPC 09 and are consistent with the individual and consolidated financial statements taken as a whole.
Our opinion on the individual and consolidated financial statements does not cover the Management Report and we do
not express any form of audit conclusion thereon.
In connection with the audit of the individual and consolidated financial statements, our responsibility is to read the
Management Report and, in doing so, to consider whether this report is materially inconsistent with the financial
statements or with our knowledge obtained in the audit, or otherwise whether this report appears to be materially
misstated. If based on our work we conclude that there is material misstatement in the Management Report, we are
required to report this fact. We have nothing to report on this matter.
In preparing the individual and consolidated financial statements, Management is responsible for assessing the
Companys ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless Management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Companys financial reporting process and include
Management, the Audit Committee and the Board of Directors of the Company and its subsidiaries.
5
Auditors responsibilities for the audit of the individual and
consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with the Brazilian and international standards on auditing will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they can be reasonably expected to influence the economic decisions of users taken on the basis of these
financial statements.
As part of the audit conducted in accordance with the Brazilian and international standards on auditing, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement in the individual and consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal controls.
Obtain an understanding of the internal controls relevant to the audit in order to design audit procedures
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys and its subsidiaries internal controls.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by Management.
Conclude on the appropriateness of Managements use of the going concern basis of and, based on the audit
evidence obtained, whether material uncertainty exists related to events or conditions that may cast significant
doubt on the Companys and its subsidiaries ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the
individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events
or conditions may cause the Company and its subsidiaries to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of financial statements, including disclosures and whether
the individual and consolidated financial statements represent the corresponding transactions and events
consistently with the appropriate disclosure objective.
Obtain sufficient appropriate audit evidence regarding the financial information of entities or business activities of
the group to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the groups audit and, consequently, for the audit opinion.
6
We communicate with those in charge of governance regarding, among others, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide those in charge of governance with a statement that we have complied with the relevant ethical
requirements, including the applicable independence requirements, and communicate any relationships or matters that
could significantly affect our independence, including, when applicable, respective safeguards.
Based on the matters that were communicated to those in charge of governance, we determine those that were
considered most significant in the audit of the financial statements for the current year and, therefore, that represent
the significant audit issues. We describe these matters in our audit report, unless the law or regulation has forbidden
public disclosure of the matter or when in extremely rare circumstances we determine that the matter should not be
reported in our report because the adverse consequences from such disclosure may, within a reasonable perspective,
overcome the benefits from communication to the public interest.
Eduardo Wellichen
Contador CRC-1SP184050/O-6
7
A free translation from Portuguese into English of Individual and Consolidated Financial Statements prepared in
Brazilian currency in accordance with accounting practices adopted in Brazil and in accordance with the
International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB)
BM&FBOVESPA Consolidated
Note 2016 2015 2016 2015
Assets
Current assets 13,090,306 8,614,990 11,612,517 8,673,786
Cash and cash equivalents 4(a) 331,978 451,081 319,124 440,845
Financial investments and marketable securities 4(b) 12,426,337 7,728,007 10,964,214 7,798,529
Derivative financial instruments 4(d) 5,600 - 5,600 -
Accounts receivable 5 90,896 74,273 91,645 75,129
Other receivables 6 14,030 160,378 10,289 157,974
Taxes to be offset and recoverable 19(d) 179,553 175,007 179,694 175,011
Prepaid expenses 41,912 26,244 41,951 26,298
8
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Balance sheets
December 31, 2016 and 2015
(In thousands of reais)
BM&FBOVESPA Consolidated
Note 2016 2015 2016 2015
Liabilities and equity
Current liabilities 3,229,631 1,715,602 3,657,832 2,096,785
Collaterals for transactions 17 1,653,835 1,338,010 1,653,835 1,338,010
Earnings and rights on securities in custody 10 52,203 49,224 52,203 49,224
Suppliers 45,388 42,635 45,601 42,708
Salaries and social charges 139,905 116,441 140,535 117,041
Provision for taxes and contributions
payable 11 90,041 32,512 93,008 34,551
Income tax and social contribution 8,179 1,064 13,132 4,944
Interest payable on debt issued abroad 12(a) 58,794 70,181 58,794 70,181
Derivative financial instruments 4(d) 405,971 - 405,971 -
Loans 12(b) 373,919 - 373,919 -
Debentures 12(c) 17,495 - 17,495 -
Dividends and interest on equity payable 318,827 2,902 318,827 2,902
Other liabilities 13 65,074 62,633 484,512 437,224
9
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Statements of income
Years ended December 31, 2016 and 2015
(In thousands of reais, unless otherwise stated)
BM&FBOVESPA Consolidated
Note 2016 2015 2016 2015
Income tax and social contribution 19 (c) 206,796 (597,983) 199,494 (603,764)
Current taxes (137,089) (39,777) (144,391) (45,558)
Deferred taxes 343,885 (558,206) 343,885 (558,206)
Attributable to:
Shareholders of BM&FBOVESPA 1,446,263 2,202,238 1,446,263 2,202,238
Non-controlling interests (199) 1,220
10
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Statements of comprehensive income
Years ended December 31, 2016 and 2015
(In thousands of reais)
BM&FBOVESPA Consolidated
Note 2016 2015 2016 2015
Translation adjustments
Exchange rate variation on investment in foreign associate 7(a) (956) 1,718,604 (956) 1,718,604
Exchange rate variation on available-for-sale financial assets, net of taxes (333,988) 35,969 (333,988) 35,969
Transfer of exchange rate variation to income due to disposal of investments 7(a) - (600,793) - (600,793)
Transfer of exchange rate variation to income due to disposal of available-
for-sale securities, net of taxes 4(c) 272,938 - 272,938 -
Transfer of exchange rate variation to income due to equity method
discontinued 7(a) - (2,403,173) - (2,403,173)
(62,006) (1,249,393) (62,006) (1,249,393)
Hedge of net foreign investment
Hedge instrument value, net of taxes - (488,380) - (488,380)
Transfer to income due to equity method discontinued, net of taxes - 848,959 - 848,959
- 360,579 - 360,579
Cash flow hedge
Cash flow hedge instrument value, net of taxes 4(d) 14,755 - 14,755
Cash flow hedge instrument value - discontinued, net of taxes 4(c) 45,139 - 45,139 -
Cash flow hedge instrument value - firm commitment, net of taxes (3,747) (14,489) (3,747) (14,489)
Exchange rate variation of cash flow hedge instrument - discontinued, net of
taxes 95,366 - 95,366 -
Transfer from exchange rate variation to income for the period due to
disposal of the hedged item, net of taxes 4(c) (79,411) - (79,411) -
Transfer to income and non-financial asset, net of taxes 4(d) 2,282 - 2,282 -
Transfer of marked-to-market to income due to disposal of the hedged item,
net of taxes 4(c) (45,139) - (45,139) -
29,245 (14,489) 29,245 (14,489)
Available-for-sale financial instruments
Marked-to-market of available-for-sale financial assets, net of taxes (24,215) (133,687) (24,215) (133,687)
Transfer of exchange rate variation to income due to disposal of available-
for-sale securities, net of taxes 4(c) 155,303 - 155,303 -
131,088 (133,687) 131,088 (133,687)
Comprehensive income of subsidiary and associate
Comprehensive income of subsidiary 7(a) (22) 9 (22) 9
Comprehensive income of foreign associate 7(a) - 7,774 - 7,774
Transfer of comprehensive income of foreign associate to income - equity
method discontinued 7(a) - (66,384) - (66,384)
Transfer of comprehensive income of foreign associate to income - disposal
of investment 7(a) - (16,596) - (16,596)
(22) (75,197) (22) (75,197)
Other comprehensive income not reclassified to income for the year in subsequent
periods
Actuarial gains (losses) on post-retirement health care benefits, net of taxes 18(d) (6,623) 3,099 (6,623) 3,099
(6,623) 3,099 (6,623) 3,099
Total comprehensive income for the year 1,537,945 1,093,150 1,537,746 1,094,370
11
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Statements of changes in equity
Years ended December 31, 2016 and 2015
(In thousands of reais)
Balances at December 31, 2014 2,540,239 15,220,354 20,774 3,453 987,317 (983,274) 1,004,705 185,941 - 18,979,509 8,894 18,988,403
Allocations of profit:
Dividends 15(g) - - - - - - - - (223,581) (223,581) - (223,581)
Interest on equity 15(g) - - - - - - - - (1,019,033) (1,019,033) - (1,019,033)
Set up of statutory reserves - - - - 960,210 - - - (960,210) - - -
Balances at December 31, 2015 2,540,239 14,300,310 20,188 3,453 1,947,527 (365,235) (104,383) - - 18,342,099 10,114 18,352,213
12
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Statements of changes in equity (Continued)
Years ended December 31, 2016 and 2015
(In thousands of reais)
Balances at December 31, 2015 2,540,239 14,300,310 20,188 3,453 1,947,527 (365,235) (104,383) - - 18,342,099 10,114 18,352,213
Allocations of profit:
Interest on equity 15(g) - - - - - - - - (900,000) (900,000) - (900,000)
Set up of statutory reserves - - - - 546,848 - - - (546,848) - - -
Balances as at December 31, 2016 2,540,239 14,327,523 19,603 3,453 2,494,375 (306,022) (12,701) - - 19,066,470 9,915 19,076,385
13
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Statements of cash flows
Years ended December 31, 2016 and 2015
(In thousands of reais)
BM&FBOVESPA Consolidated
Note 2016 2015 2016 2015
Net cash from (used in) operating activities (7,090,137) 978,593 (7,087,411) 969,329
Amount received for the disposal of property and equipment 2,149 727 2,355 1,140
Payment for purchase of property and equipment (45,119) (73,093) (45,169) (73,867)
Dividends and interest on equity received 140,780 86,633 135,280 82,633
Settlement of derivative financial instrument - NDF 68,392 - 68,392 -
Disposal of investment - CME 4,309,172 1,208,662 4,309,172 1,208,662
Purchase of software and projects 9 (176,246) (154,052) (176,246) (154,052)
Net cash from (used in) financing activities 2,684,667 (1,884,102) 2,684,667 (1,884,102)
Net increase (decrease) in cash and cash equivalents (106,342) 163,368 (108,960) 149,743
Balance of cash and cash equivalents at beginning of year 4(a) 275,365 111,997 265,129 115,386
Balance of cash and cash equivalents at end of year 4(a) 169,023 275,365 156,169 265,129
14
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Statements of value added
Years ended December 31, 2016 and 2015
(In thousands of reais)
BM&FBOVESPA Consolidated
Note 2016 2015 2016 2015
1 - Revenues 20 2,528,986 2,412,603 2,576,426 2,458,847
2 - Goods and services acquired from third parties 592,289 1,939,182 605,103 1,942,113
5 - Net value added produced by the Company (3-4) 1,839,969 364,157 1,873,003 405,877
(a) Expenses (excludes personnel, board and committee members compensation, depreciation, taxes and charges).
(b) Includes: taxes and charges, Contribution Taxes on Gross Revenue for Social Integration Program (PIS) and for Social Security
Financing (COFINS), Service Tax (ISS), current and deferred income tax and social contribution (IRPJ and CSLL).
15
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
1. Operations
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros (BM&FBOVESPA) is a publicly-
traded corporation headquartered in the city of So Paulo and whose objective is to carry out or
invest in companies engaged in the following activities:
BM&FBOVESPA organizes, develops and provides for the operation of free and open securities
markets, for spot and future settlement. Its activities are carried out through its trading systems
and clearinghouses, and include transactions with securities, interbank foreign exchange and
securities under custody in the Special System for Settlement and Custody (SELIC).
16
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
1. Operations (Continued)
BM&FBOVESPA develops technology solutions and maintains high performance systems,
providing its customers with security, agility, innovation and cost effectiveness. The success of its
activities depends on the ongoing improvement, enhancement and integration of its trading and
settlement platforms and its ability to develop and license leading-edge technologies required for
the good performance of its operations.
With the objective of responding to the needs of customers and the specific requirements of the
market, through its wholly-owned subsidiary, Banco BM&FBOVESPA de Servios de Liquidao
e Custdia S.A. provides its members and its clearinghouses with a centralized custody service
for the assets pledged as margin for transactions.
Subsidiaries BM&FBOVESPA (UK) Ltd. located in London and BM&F (USA) Inc., located in the
city of New York, USA, and a representative office in Shanghai, China, represent
BM&FBOVESPA abroad through relationships with other exchanges and regulators, as well as
assisting in the procurement of new clients for the market.
As part of the strategic partnership between BM&FBOVESPA and CME Group, in the third quarter
of 2015, BM&FBOVESPA organized the wholly-owned subsidiary BM&FBOVESPA BRV LLC
registered in Delaware (USA), in order to ensure to the parties the full exercise of the rights
contractually agreed upon. BM&FBOVESPA BRV LLC, jointly with BM&FBOVESPA, is co-owner
of all intellectual property rights related to the stock module of PUMA Trading System platform
and any other modules jointly developed by the parties, the ownership of which is assigned to
BM&FBOVESPA. Since this Company is a subsidiary engaged in protecting rights, this special
purpose entity is not expected to have operating activities.
Business combination
As disclosed in the material facts release of April 15, 2016, the Board of Directors of
BM&FBOVESPA, of Companhia So Jos Holding (Holding Company) and of CETIP S.A. -
Mercados Organizados (CETIP) entered into a merger agreement for the purposes of the
corporate reorganization process described below: (a) the merger into the Holding Company of
the shares issued by CETIP, whose total shares are owned by BM&FBOVESPA; and (b) the
subsequent merger of the Holding Company into BM&FBOVESPA. At the Special General
Meetings held on May 20, 2016, the corporate reorganization process was approved by the
shareholders.
17
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
1. Operations (Continued)
Business combination (Continued)
Under article 125 of the Civil Code, this transaction is subject to (Conditions Precedent): (a)
approval of the Transaction by the Administrative Council for Economic Defense (CADE); (b)
approval of the Transaction by the Brazilian Securities Commission (CVM), under the applicable
regulations; and (c) submission and analysis of the Transaction by the Central Bank of Brazil,
under the terms and limits of the applicable regulation.
The financial statements have been prepared and are being presented in accordance with
accounting practices adopted in Brazil.
The consolidated financial statements include the balances of BM&FBOVESPA and its
subsidiaries, as well as special purpose entities comprising investment funds, as follows:
18
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
19
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The individual and consolidated financial statements were prepared and are presented in
Brazilian reais, which is the functional currency of BM&FBOVESPA.
a) Consolidation
The following accounting practices are applied in preparing the consolidated financial
statements.
Subsidiaries
Subsidiaries are fully consolidated from the date on which control is transferred to
BM&FBOVESPA. Consolidation is discontinued from the date on which control ends.
Associates
Investments in associates are recorded using the equity method and are initially recognized
at cost. BM&FBOVESPAs investment in associates includes goodwill identified on
acquisition, net of any accumulated impairment.
20
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Associates (Continued)
In September 2015, BM&FBOVESPA disposed of part of its shares held in CME Group,
which is therefore no longer considered an associate.
When there is loss of significant influence over an associate, the equity method is
discontinued and any remaining interest in the investee is remeasured at its fair value, and
effects therefrom are recognized in P&L for the period. The amounts recognized in equity,
under other comprehensive income, related to the investee are reclassified by
BM&FBOVESPA from equity - other comprehensive income to P&L for the period, according
to the criteria defined in CPC 18 (R2)/IAS 28.
b) Revenue recognition
Revenues from the rendering of services and from trading and settlement systems are
recognized upon the completion of the transactions, under the accrual method of accounting.
The amounts received as annual fees, as in the cases of listing of securities and certain
contracts for sale of market information, are recognized pro rata monthly in P&L over the
contractual term.
21
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
BM&FBOVESPA initially classifies its financial assets and liabilities depending on their
characteristic and purpose of acquisition.
The balances of cash and cash equivalents for cash flow statement purposes comprise
cash and bank deposits.
Receivables
Financial assets measured at fair value through profit or loss are financial assets held for
active and frequent trading or assets designated by the entity on initial recognition. Gains
or losses arising from the changes in fair value of financial instruments are recorded in
the income statement under Financial result for the period in which they occur.
22
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Loans and debentures are initially recognized at fair value, net of transaction costs
incurred, and subsequently stated at amortized cost. Any difference between the funds
raised (net of transaction costs) and the amount repayable is recognized in the income
statement over the period of the loans, using the effective interest rate method.
These comprises amounts received from market participants as collateral for default or
insolvency. Amounts received in cash are recorded as liabilities and other collaterals are
managed off-balance sheet. Both types of collateral received are not subject to interest or
any other charges.
BM&FBOVESPA uses derivative financial instruments to hedge its assets and liabilities
against market risks, especially those related to foreign currencies.
Any gains or losses from changes in fair value of derivatives during the fiscal year are
recorded directly in P&L, except for the effective portion of the cash flow hedge, which is
recognized directly under equity in other comprehensive income, and subsequently
reclassified to P&L when the hedge item affects P&L.
23
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Hedge accounting is applied in accordance with the criteria defined in CPC 38/IAS 39.
Any gain or loss from changes in the fair value of derivative instruments designated as
hedging instruments, as well as hedged assets or liabilities (hedged item) are recognized
in Financial result.
Any gain or loss in the hedging instrument related to the effective hedge portion is
recognized under equity, in Other comprehensive income, net of tax effects.
Consequently, the exchange rate variation in hedging instruments, previously recognized
in financial result prior to its recognition as a hedging instrument, accumulates in equity
and is transferred to P&L for the same period and the same account group under which
the hedged transaction is recognized. When the hedged transaction implies recognition
of a non-financial asset, gains and losses recognized in equity are transferred and
included in the initial measurement of the asset cost. The non-effective portion of the
hedge is immediately recognized in the P&L.
BM&FBOVESPA adopts the dollar offset method as the methodology for retrospective
effectiveness test, which takes into consideration the ratio at fair value or present value of
accumulated gains or losses in the hedging instrument with gains or losses on hedged
item for hedged risk. The approaches used for analyses consist of the hypothetical
derivative approach and benchmark rate approach for retrospective tests and sensitivity
analysis approach for prospective tests. BM&FBOVESPA assesses whether the results
from tests carried out are within the range from 80% to 125% of effectiveness.
24
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Noncurrent assets are classified as held for sale when their carrying value is recoverable,
particularly in the case of a sale and when the completion of such sale is practically certain.
These assets are measured at the lower of the carrying amount and the fair value less costs
to sell.
e) Intangible assets
Goodwill
Software licenses acquired are capitalized based on incurred costs and amortized over their
estimated useful life, at the rates mentioned in Note 9.
Expenditures for development of software recognized as assets are amortized using the
straight-line method over the assets useful lives, at the rates described in Note 9.
These are recorded at the cost of acquisition or construction less accumulated depreciation.
Depreciation is calculated under the straight-line method and takes into consideration the
estimated useful lives of the assets and their residual value. At the end of each year, the
residual values and useful lives of assets are reviewed and adjusted if necessary.
25
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Subsequent costs are included in the carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits will be obtained and the
cost of the item can be measured reliably. All other repair and maintenance costs are
recorded in P&L, as incurred.
g) Contingent assets and liabilities, provisions for tax, civil and labor contingencies, and legal
obligations
The recognition, measurement, and disclosure of provisions for tax, civil and labor
contingencies, contingent assets and liabilities and legal obligations comply with the criteria
defined in CPC 25/IAS 37.
h) Judicial deposits
Judicial deposits are related to tax, civil and labor contingencies and are adjusted for inflation
and presented in noncurrent assets.
These are stated at their known and realizable/settlement amounts plus, where applicable,
related earnings and charges and monetary and/or exchange rate variations up to the
balance sheet date.
j) Impairment of assets
Assets that have an indefinite life, such as goodwill, are not subject to amortization and are
tested annually for impairment, and in case of indications of possible impairment, they are
reassessed in shorter periods. The assets subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is recognized at the amount by which the assets
carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an
assets fair value less costs to sell and its value in use.
26
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
For purposes of impairment test, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (Cash-Generating Units (CGU)). Non-financial assets other
than goodwill that suffered impairment are reviewed subsequently for possible reversal of the
impairment at each reporting date.
k) Employee benefits
i) Pension obligations
27
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
BM&FBOVESPA offers post-retirement health care benefit to the employees who have
acquired this right until May 2009. The right to this benefit is conditional on the employee
remaining with the Company until the retirement age and completing a minimum service
period. The expected costs of these benefits are accumulated over the period of
employment or the period in which the benefit is expected to be earned, using the
actuarial methodology which considers life expectancy of the group in question, increase
in costs due to the age and medical inflation, inflation and discount rate. The
contributions that participants make according to the specific rule of the Health Care Plan
are deducted from these costs. The actuarial gains and losses on the health care plan for
retirees are recognized in the income statement in accordance with the rules of IAS 19
and CPC 33 (R1) - Employee Benefits, based on actuarial calculation prepared by an
independent actuary, according to Note 18(d).
The items included in the financial statements for each of the consolidated companies of
BM&FBOVESPA are measured using the currency of the primary economic environment in
which the entity operates (functional currency). The financial statements are presented in
Brazilian reais, which is the functional currency of BM&FBOVESPA.
28
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Transactions in foreign currencies are translated into Brazilian reais using the exchange rates
prevailing on the dates of the transactions or the date of evaluation when items are
remeasured. The foreign exchange gains and losses arising from the settlement of these
transactions and from the translation, at the exchange rates at the end of the year/period, of
monetary assets and liabilities in foreign currencies, are recognized in the income statement,
except when deferred in comprehensive income relating to hedging transactions of a foreign
investment.
Exchange rate variation of foreign investment, whose functional currency is different from that
of BM&FBOVESPA, is recorded under Equity adjustments in comprehensive income, and
are only taken to the P&L for the period when the investment is sold or written off.
m) Taxes
BM&FBOVESPA is a for-profit business corporation and accordingly its results are subject to
certain taxes and contributions.
Current and deferred income tax and social contribution for the year of BM&FBOVESPA
and Banco BM&FBOVESPA are calculated at 15%, plus a 10% surtax on taxable profit
exceeding R$240 for income tax, and 9% (20% for Banco BM&FBOVESPA) on taxable
profit for social contribution tax on net profit, and take into account the offset of income
tax and social contribution losses, if any, limited to 30% of taxable profit.
Deferred income tax and social contribution are calculated on respective tax losses, and
temporary differences between the tax base on assets and liabilities and their carrying
amounts contained in the financial statements.
Deferred tax assets are recognized to the extent that it is probable that there will be
future taxable profit available to offset temporary differences and/or tax losses.
The Bolsa de Valores do Rio de Janeiro (BVRJ) is a not-for-profit entity and, therefore,
exempt from income tax and social contribution.
29
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The other taxes charged over trading, clearing and settlement fees and other services
were calculated at the rates of 1.65% for PIS and 7.60% for COFINS, and are recorded
in P&L under Revenues.
Banco BM&FBOVESPA calculates PIS and COFINS at the rates of 0.65% and 4%,
respectively.
Bolsa de Valores do Rio de Janeiro (BVRJ) pays PIS at the rate of 1% on payroll.
BM&FBOVESPA and its subsidiaries pay Service Tax (ISS) on the services rendered at
rates ranging from 2% to 5% depending on the nature of the service.
For purposes of disclosure of earnings per share, basic earnings per share are calculated by
dividing the profit attributable to shareholders of BM&FBOVESPA by the average number of
shares outstanding during the period. Diluted earnings per share are calculated similarly,
except that the quantity of outstanding shares is adjusted to reflect the additional shares that
would have been outstanding if potentially dilutive shares had been issued for granted stock
options.
p) Segment information
Operating segments are presented in a manner consistent with the internal reports provided
to the Executive Board, which is responsible for making the main operational and strategic
decisions of BM&FBOVESPA and for implementing the strategies defined by the Board of
Directors.
30
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The pronouncements below have already been published by IASB and are mandatory for the
subsequent fiscal years, without early adoption by BM&FBOVESPA. Such pronouncements
will be adopted after a technical pronouncement is issued by the Brazilian Financial
Accounting Standards Board (CPC), and after their approval by the Brazilian Securities and
Exchange Commission (CVM).
IFRS 15 Revenue from Contracts with Customers Issued in May 2014, and effective on
or after January 1, 2018. IFRS 15 replaces the current rules IAS 11 Construction
Contracts and IAS 18 Revenue, and establishes the principles for measurement,
recognition and disclosure of revenue.
IFRS 9 Financial Instruments The final version was issued in July 2014, and will be
effective on and after January 1, 2018. It replaces IAS 39 Financial Instruments:
Recognition and Measurement and the previous versions of IFRS 9. IFRS 9 establishes
new requirements for classification and measurement, impairment and hedge accounting of
financial instruments.
31
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
IFRS 16 - Leases Issued in January 2016, effective as from January 2019, replaces IAS
17 - Leases. IFRS 16 establishes principles for lessors and lessees to identify, recognize,
measure, present and disclose leases.
No significant impacts from these new standards were detected for BM&FBOVESPA financial
statements.
Assets and liabilities are classified as current whenever their realization or settlement term is
one year or less (or another term that follows the normal cycle of BM&FBOVESPA). They are
otherwise stated as noncurrent.
BM&FBOVESPA Consolidated
Description 2016 2015 2016 2015
Cash and bank deposits in local currency 14,528 12,435 256 208
Bank deposits in foreign currency 154,495 262,930 155,913 264,921
Cash and cash equivalents 169,023 275,365 156,169 265,129
Bank deposits in foreign currency
Third-party funds (1) 162,955 175,716 162,955 175,716
Total cash and cash equivalents 331,978 451,081 319,124 440,845
(1) Third-party funds restricted to full settlement of the exchange transaction (Exchange clearing).
Cash and cash equivalents are held with first-tier financial institutions in Brazil or abroad.
Deposits in foreign currency are primarily in US dollars and euros.
32
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The breakdown of financial investments and marketable securities by category, nature and
maturity is as follows:
BM&FBOVESPA
Between 3 Between 12
Without Within 3 and 12 months and 5 More than
Description maturity months months years 5 years 2016 2015
Financial assets measured at fair value
through profit or loss
Shares
CME Group (Note 4 (c)) - - - - - - 4,805,033
Other (5) 191,586 - - - - 191,586 48,568
191,586 - - - 191,586 4,853,601
Total financial investments and marketable
securities 12,258,569 2,018 165,750 1,360,512 156,966 13,943,815 9,096,984
33
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
(1) Refers to investments in financial investment funds, whose portfolios mainly comprise investments in federal government securities and government-bond-backed
repurchase agreements that have the CDI (Interbank Deposit Certificate rate) as their profitability benchmark. The consolidated balances of investment funds are
presented according to the nature and maturity of the portfolio.
The net assets of the main investment funds included in the consolidation process of the financial statements are: (i) Bradesco FI Renda Fixa Letters R$4,580,778
(R$1,776,830 at December 31, 2015); (ii) BB Pau Brasil FI Renda Fixa - R$2,307,655 (R$502,002 at December 31, 2015); (iii) Bradesco FI Renda Fixa Longo Prazo
Eucalipto R$1,661,262 (R$217,586 at December 31, 2015); and (iv) Imbuia FI Renda Referenciado DI R$211,708.
(4) The primary non-exclusive investment funds are: (i) Bradesco Empresas FICFI Referenciado DI Federal, amounting to R$24,225 (R$30,071 at December 31, 2015);
(ii) Araucria Renda Fixa FI R$1,509,559 (R$207,818 at December 31, 2015); and (iii) Santander Fundo de Investimento Cedro Renda Fixa - R$1,759,749
(R$93,469 at December 31, 2015).
(5) These basically refer to shares of Santiago Stock Exchange amounting to R$44,231(R$48,565 at December 31, 2015), Mexico Stock Exchange - R$103,785 and
Colombia Stock Exchange - R$43,565, acquired by BM&FBOVESPA within its strategy to explore opportunities of partnerships with other stock exchanges, classified
as available for sale.
34
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The government securities are held in the custody of the Special System for Settlement and
Custody (SELIC); the investment fund shares are held in the custody of their respective
administrators; the shares are in the custody of BM&FBOVESPAs Equity and Corporate Debt
Clearinghouse; the Santiago Stock Exchange, Mexico Stock Exchange and Colombia Stock
Exchange shares are in the custody of BTG Pactual Chile, Mexico and Colombia,
respectively.
Management periodically monitors its outstanding positions and possible risks of impairment
of its financial assets. Therefore, based on the nature of these assets, BM&FBOVESPA has
no significant impairment history.
The carrying amount of financial assets is reduced directly for impairment impacting P&L for
the period. Subsequent recoveries of amounts previously written off are recognized in P&L for
the period.
To raise funds to meet the needs of BM&FBOVESPA as regards the business combination
proposal with CETIP S.A. - Mercados Organizados (CETIP) in April 2016, BM&FBOVESPA
disposed of all shares that it held in CME Group (equivalent to 13,582,176 Class A Common
Stocks, or 4% of total shares issued by CME Group) for R$4,309,172, as informed on April 7,
2016 through a material facts release.
35
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The loss recorded for the period on the disposal of shares of CME Group reflects the
variations in share price and in the US dollar quotation after the reclassification of shares from
Investment in associate, measured under the equity method, to Financial investments and
marketable securities - available for sale, measured at fair value, in September 2015, in
addition to other impacts as follows:
Accumulated 2016
(1) This refers to income on early settlement of Non-Deliverable Forwards hedging (cash flow hedge) the shares of CME Group
against currency risk, as mentioned in Note 4 (d).
(2) The income tax paid by CME Group abroad could be offset against IRPJ and CSLL due in Brazil by BM&FBOVESPA solely
on profits generated by this ownership interest. Due to this limitation, the balance of the income tax paid by CME Group not
used in prior periods and accumulated for offset in future periods was written off as a result of the disposal of all its shares by
BM&FBOVESPA.
(3) BM&FBOVESPA reviewed the tax treatment of the book value portion of this investment corresponding to the accumulated
exchange variation for the period in which this investment was measured under the equity method (through September
2015), and began considering the portion of this exchange variation as part of the acquisition cost for purposes of
determining capital gain, thus reducing the tax base for the 2015 and 2016 periods. Accordingly, IRPJ and CSLL tax bases
were reviewed, with reversal of a portion of the provision amounting to R$381,727 and recording of a deferred tax credit
amounting to R$49,951.
36
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Financial assets and liabilities measured at fair value of BM&FBOVESPA are recognized at
quoted prices (unadjusted) in active market (Level 1), except for derivative financial
instruments together with the principal of the debt issued abroad due to hedge accounting
and for Santiago Stock Exchange shares, classified as Level 3. Trade accounts receivable
and payable approximate their book value given their short-term maturities, and the fair
values of related parties equal their book values.
BM&FBOVESPA reclassified Santiago Stock Exchange from Level 2 to Level 3, adopting the
profitability method, the shares of the future dividend flow discounted to present value.
BM&FBOVESPA investment held in Santiago Stock Exchange, which is classified as Level 3,
is periodically tested so its book value will not exceed its fair value.
Future dividend flow was projected considering a five-year explicit flow (2017 to 2021), and its
main assumptions were: (i) history of dividend payment by Santiago Stock Exchange, (ii)
interest held by BM&FBOVESPA in December 2016 and (iii) perpetuity, which was
determined by extrapolating the 2021 cash flow at a growth rate equivalent to that expected
for the Chilean nominal GDP in the long term.
Santiago Stock
Exchange Shares
Balance at 12/31/2015 48,565
Purchase 8,459
Mark to market (7,001)
Exchange rate variation (5,792)
Balance at 12/31/2016 44,231
37
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
BM&FBOVESPA Consolidated
Financial assets 2016 2015 2016 2015
Measured at fair value through profit or loss
Financial investments and marketable securities 13,752,229 4,243,383 14,242,441 4,676,878
Designated as hedge
Derivative financial instruments 5,600 - 5,600 -
Receivables
Accounts receivable 90,896 74,273 91,645 75,129
Related parties 1,363 1,248 305 213
Financial liabilities
Liabilities measured at amortized cost
Interest payable on debt issued abroad 58,794 70,181 58,794 70,181
Loans 407,868 - 407,868 -
Debentures 3,009,301 - 3,009,301 -
Designated as hedge
Debt issued abroad 1,987,669 2,384,084 1,987,669 2,384,084
Derivative financial instruments 405,971 - 405,971 -
38
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Derivative financial instruments comprise future interest rate contracts (DI1) stated at their
market values. These contracts are included in the investment fund portfolios BB Pau Brasil
Fundo de Investimento Renda Fixa and used to cover fixed interest rate exposures, swapping
fixed interest rate for floating interest rate (CDI). The net result between the derivative
transactions and the related financial instrument refers to the short position in future interest
rate contracts, with negative market value of R$302 (R$173 at December 31, 2015). DI1
contracts have the same maturity dates as the fixed interest rate contracts to which they
relate.
BM&FBOVESPA entered into derivative financial instruments to hedge against the risk of
exchange rate fluctuations. In 2016, there are hedging contracts for the total principal of
foreign debt, part of half-yearly interest and for approximately 90% of the position in Mexican
pesos regarding the Mexican Stock Exchange shares.
In March 2016, BM&FBOVESPA entered into swap transactions with a first-tier financial
institution to hedge against impacts from the exchange rate variation related to the principal
of debt securities issued abroad in 2010 (Note 12), due to the discontinuance of the cash flow
hedge previously adopted.
BM&FBOVESPA adopted the fair value hedge accounting for accounting records.
Accordingly, both the hedged loan principal and the hedging instrument (swap) are measured
at fair value against P&L, thus hedging P&L from the impacts of exchange rate variation.
39
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
At December 31, 2016, swap transaction amounts measured at fair value are as follows:
BM&FBOVESPA and Consolidated
Financial Assets Reference Maturity of Fair value
instrument /Liabilities value transaction Average interest Curve value adjustment Book balance
CME Group shares (1) NDF USD 1,262,000 4,653,974 07/01/2016 - - 68,392 -
Loan in
Future income pegged foreign
to foreign currency (3) currency USD 125,000 - 01/03/2018 - (407,868) - 14,013
- (407,868) - 14,013
(1) In March 2016, BM&FBOVESPA entered into a first-tier financial institution a Non-Deliverable Forward (NDF), in order to
hedge the investment in shares of CME Group from currency risk. In April 2016, due to full disposal of the shares of CME
Group, the NDF transaction was settled.
40
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
(2) In September 2016, BM&FBOVESPA took out with a first-tier financial institution a Non-Deliverable Forward (NDF), in
order to hedge the investment in the shares of Mexico Stock Exchange and four installments of half-yearly interest of
Senior Unsecured Notes (Note 12) from currency risk.
(3) In December 2016, BM&FBOVESPA set up a new cash flow hedge, designating the loan taken out in foreign currency to
hedge against currency risk of a portion of future income to be incurred from February 2017 to January 2018. In December
2016, the foreign loan designated as hedge amounted to R$ 407,388 the the amount recorded in equity was R$ 9,248, net
of tax effects.
(4) The method to determine the fair value, used by BM&FBOVESPA, is based on the conditions of transactions taken out,
and then the present value based on current market curves, as disclosed by BM&FBOVESPA.
In December 2015, BM&FBOVESPA has allocated part of its cash in foreign currency to
cover foreign exchange impacts of certain firm commitments in foreign currency (cash flow
hedge), in accordance with IAS 39/CPC 38.The hedged cash flows refer to payments to be
made until December 31, 2016, even if the agreement terms exceed that date. In 2016,
negative amount of R$521 was transferred from Other comprehensive income to profit or
loss, and negative amount of R$1,761 to financial assets, in connection with payment flows
that were hedged items beginning January 2016, net of tax effects. Also in 2016, R$1,379
was disregarded for cash flow hedge purposes, given the review of firm agreements. The
amount was transferred from Other comprehensive income to financial expenses, net of tax
effects.
41
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Acquisition or disposal of strategic investments, such as CME Group shares, the shares of
Santiago, Mexican and Colombian Stock Exchanges, is assessed individually and performed
only in accordance with the strategic planning approved by the Board of Directors.
The Risk and Financial Committees assess market, liquidity, credit and systemic risks of the
markets managed by BM&FBOVESPA, with a strategic and structural focus.
Sensitivity analysis
The table below presents the net exposure of all financial instruments (assets and liabilities)
by market risk factors. At December 31, 2016, BM&FBOVESPA's main market risk was
represented by the fall in the floating interest rate (CDI/SELIC).
The ownership structure at Santiago, Mexican and Colombian Stock Exchanges is subject to
two risk factors simultaneously: currency and share price.
42
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
This risk arises from the possibility of fluctuations in the prices of the Santiago, Mexican and
Colombian Stock Exchange shares, which BM&FBOVESPA holds in its portfolio and that may
impact the amounts involved.
The table below shows a sensitivity analysis on possible impacts from a variation of 25% and
50% on the probable scenario for share price, for the next three months, obtained from
Bloomberg.
Impact
Probable
Risk factor -50% -25% scenario +25% +50%
Santiago Stock Exchange shares in BRL (20,233) (9,958) 317 10,591 20,866
Share price in CLP 846,520 1,269,781 1,693,041 2,116,301 2,539,561
Mexican Stock Exchange shares in BRL (51,094) (24,748) 1,597 27,943 54,288
Share price in MXN 13.86 20.78 27.71 34.64 41.57
Colombian Stock Exchange shares in BRL (21,782) (10,394) 663 11,719 22,776
Share price in COP 11.02 16.52 22.03 27.54 33.05
The possible impacts shown by the sensitivity analysis would affect equity, net of taxes.
This risk arises from the possibility of BM&FBOVESPA incur losses due to fluctuations in
interest rates, affecting its assets and liabilities, resulting in effects on its Financial result.
Floating-rate position
As a financial investment policy and considering the need for immediate liquidity with the least
possible impact from interest rate fluctuations, BM&FBOVESPA maintains its financial assets
and liabilities substantially indexed to floating interest rates.
43
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The table below shows a sensitivity analysis on possible impacts of a variation of 25% and
50% on the probable scenario for the CDI and SELIC rate for the next three months, obtained
from Bloomberg.
Impact
Probable
Risk factor -50% -25% scenario +25% +50%
CDI 100,807 149,522 197,187 243,853 289,567
CDI rate 6.36% 9.55% 12.73% 15.91% 19.09%
SELIC 66,919 99,241 130,856 161,799 192,102
SELIC rate 6.47% 9.70% 12.93% 16.17% 19.40%
Fixed-rate position
Part of BM&FBOVESPAs financial investments and marketable securities bears fixed interest
rates, resulting in a net exposure to such rates. However, in terms of percentage, their effects
on the portfolio are not considered material.
Currency risk
Currency risk refers to variations in foreign exchange rates that may cause unexpected
losses to BM&FBOVESPA.
In addition to the amounts payable and receivable in foreign currencies, including interest
payments on the senior unsecured notes in the next six-month period, BM&FBOVESPA has
third-party deposits in foreign currency to guarantee the settlement of transactions by foreign
investors, own funds abroad, and also shareholding interest in stock exchanges abroad (the
Santiago, Mexican and Colombian Stock Exchanges).
44
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The table below shows a sensitivity analysis on possible impacts of a variation of 25% and
50% on the probable scenario for currency risk for the next three months, obtained from
Bloomberg.
Impact
Probable
Risk factor -50% -25% scenario +25% +50%
USD (3,956) (1,850) 256 2,362 4,468
Exchange rate USD/BRL 1.6807 2.5210 3.3613 4.2016 5.0420
EUR (8,152) (3,825) 502 4,830 9,157
Exchange rate EUR/BRL 1.7706 2.6559 3.5412 4.4265 5.3118
GBP (579) (273) 33 338 644
Exchange rate GBP/BRL 2.0736 3.1103 4.1471 5.1839 6.2207
CLP 18,726 48,481 78,235 108 137,743
Exchange rate CLP/BRL 0.0072 0.0107 0.0143 0.0179 0.0215
MXN (4,436) (2,161) 114 2,388 4,663
Exchange rate MXN/BRL 0.0800 0.1200 0.1600 0.2000 0.2400
COP (7,921) 9,901 27,723 45,545 63,367
Exchange rate COP/BRL 0.0009 0.0014 0.0018 0.0023 0.0027
The possible impacts shown by the sensitivity analysis would substantially affect equity, net of
taxes.
In view of the net amounts of other currencies, their impacts are not deemed material.
45
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Liquidity risk
Liquidity risk arises from the cash need related to the obligations assumed and as a form of
management, and BM&FBOVESPA constantly evaluates its cash flows, thus ensuring
liquidity to fulfill all its obligations. The following table shows the main liability financial
instruments of BM&FBOVESPA Group by maturity (undiscounted cash flows basis):
From 1 to 2 From 2 to 5
No maturity Within 1 year years years
(1) The swap considers the amount to be settled on April 03, 2017 under the transaction taken out. For the adjustment
calculation, CDI curve was used from December 31, 2016 up to the swap settlement date, the dollar at the closing of month
(PTAX) was also used.
(2) NDFs take into consideration the amount to be settled in 2017 on contracted transactions. For the adjustment calculation,
the dollar at the closing of month (PTAX) and MXN/BRL sale rate disclosed by the Central Bank of Brazil (BACEN) were
used.
Credit risk
The main credit risk of BM&FBOVESPA arises from its financial investments. As a way of
managing this risk, BM&FBOVESPA has a financial investment policy that focuses mainly on
investments in Brazilian federal government securities. Currently approximately 98% of
financial investments is in connection with federal government securities with ratings set by
Standard & Poor's and Moody's of BB and Ba2, respectively, for long-term issues in local
currency. The counterparties of Swaps, NDFs and loans taken out as hedging transactions
are substantially first-tier banks.
46
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Capital management
BM&FBOVESPAs objectives in managing its capital are to safeguard its ability to continue as
a going concern in order to provide return for its shareholders and for other stakeholders, as
well as to maintain an optimal target capital structure to reduce the cost of capital. In order to
maintain or adjust its capital structure, BM&FBOVESPA may revise its practices for payment
of dividends, return capital to shareholders, raise loans and issue marketable securities in the
financial and capital markets.
For the year ended December 31, 2016, the consolidated position of free cash and cash
equivalents exceeds the financial indebtedness by R$7,277,540.
5. Accounts receivable
Breakdown of accounts receivable is as follows:
BM&FBOVESPA Consolidated
Description 2016 2015 2016 2015
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The methodology for determining estimated losses, approved by management, is based on the
analysis of historical losses incurred. Therefore, for defined ranges of days past due, and based
on historical behavior, a percentage is attributed to past-due amounts so as to reflect expected
future losses.
BM&FBOVESPA
and Consolidated
Additions 2,350
Reversals (704)
Write-offs (2,694)
Additions 2,979
Reversals (2,266)
Write-offs (1,961)
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
6. Other receivables
Other receivables comprise the following:
BM&FBOVESPA Consolidated
2016 2015 2016 2015
Current
Dividends receivable - CME Group - 148,022 - 148,022
Receivables - related parties (Note 16) 6,038 4,647 294 212
Properties held for sale 3,812 3,812 3,812 3,812
Advances to employees 3,547 3,763 3,547 3,763
Other 633 134 2,636 2,165
Noncurrent
Brokers in court-ordered liquidation (1) - - 2,200 2,200
(1) Balance of accounts receivable from brokers in court-ordered liquidation, which considers the guarantee represented by the equity certificates pledged by the debtor.
7. Investments
a) Investments in subsidiaries and associates
BM&F (USA) Inc. 1,539 1,000 (4) 100 1,539 1,829 (4) 218
BM&FBOVESPA (UK) Ltd. 1,185 1,000 (490) 100 1,185 2,345 (490) 106
150,574 144,462 12,590 20,901
Associate
CME Group, Inc. 5.0 - - - 136,245
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
7. Investments (Continued)
a) Investments in subsidiaries and associates (Continued)
At December 31, 2016, So Jos Holdings net equity of R$120 (in reais) comprised 1,200
common shares.
Summary of key financial information of subsidiaries and associates at December 31, 2016:
Bolsa de Valores do
Banco Rio de Janeiro - BM&FBOVESPA
Description BM&FBOVESPA BVRJ BM&F (USA) Inc. (UK) Ltd.
Changes in investments:
Subsidiaries
Bolsa de Valores do
Banco Rio de Janeiro - BM&FBOVESPA
Investments BM&FBOVESPA BVRJ BM&F (USA) Inc. (UK) Ltd. Total
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
7. Investments (Continued)
a) Investments in subsidiaries and associates (Continued)
Associate
Investments CME Group, Inc.
Associate
(1) In order to rebalance the composition of the Companys assets, BM&FBOVESPA disposed of 20% of CME Groups shares
(equivalent to 3,395,544 Class A common shares, or 1% of total shares issued by CME Group), thus decreasing its interest
held in that group to 13,582,176 shares (4% of total shares issued by CME Group), as disclosed by BM&FBOVESPA on
September 9, 2015, through a notice to the market.
With the consolidation of the strategic partnership made in 2010, and the natural development of the knowledge and
technology transfer process between the two companies, in addition to the disposal of part of the investment held by the
Company, management reviewed its assessment on the Companys significant influence on CME Group, considering current
quantitative and qualitative factors, and concluded that it should no longer be characterized as a "significant influence", as
defined by CPC 18, on CME Group.
Such assessment made the Company reclassify its shareholding interest in CME Group, as from September 14, 2015 (date
of the disposal financial settlement), from Investments in associate, measured by the equity method, to Financial
investments available for sale, measured at fair value. The previous net investment hedging structure was discontinued,
and other comprehensive income of the hedged item and instrument was recorded in income or loss for the period.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
7. Investments (Continued)
a) Investments in subsidiaries and associates (Continued)
Associate (Continued)
Below are the gross effects on income or loss due to partial disposal of ownership interest in CME Group, and
discontinuance of the equity method and net investment hedge:
BM&FBOVESPA
and Consolidated
Description 09/30/2015
Divestiture
Gains on divestiture 107,065
Exchange gains (losses) reclassified from other comprehensive income 600,793
Comprehensive income (loss) of foreign associate reclassified into other comprehensive income 16,596
Other (459)
Gross proceeds from divestiture in associate 723,995
(2) In July 2010, BM&FBOVESPA issued securities in US dollars to hedge part of the currency risk of investments in CME
Group (hedge of net investment) through the allocation of a non-derivative financial instrument (debt issued abroad) as
hedge, as described in Note 12. Due to discontinuance of the equity method, the net investment hedge was replaced by a
cash flow hedge, as detailed in Note 4.
b) Investment properties
This category comprises properties owned by subsidiary Bolsa de Valores do Rio de Janeiro
(BVRJ) for rent, which are carried at cost and depreciated at the rate of 4% per annum. There
were no additions or write-offs during the period, and depreciation totaled R$1,518 (R$1,518
at December 31, 2015). Rental income for the period ended December 31, 2016 amounted to
R$7,603 (R$9,751 at December 31, 2015).
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
7. Investments (Continued)
b) Investment properties (Continued)
At December 31, 2016, cost less accumulated depreciation of this property amounted to
R$29,117 and fair value estimated by management amounted to R$128,563, calculated
considering the average square-meter price for sale of commercial buildings in the city of Rio
de Janeiro, as disclosed in FIPEZAP table.
BM&FBOVESPA has no restriction on the ability to realize and sell its investment property.
Balances at December 31, 2014 244,650 15,764 44,688 47,238 27,415 38,747 418,502
Additions 458 2,602 65,170 12,093 1,969 1,097 83,389
Write-offs (1,107) (2,188) (4,524) (1) (2,853) - (10,673)
Reclassification (Note 9) (35) - - - - (6) (41)
Transfers (1) 41,492 1,940 25,384 (28,615) (1,692) (38,509) -
Depreciation (5,298) (2,677) (26,607) (4,278) (2,193) - (41,053)
Balances at December 31, 2015 280,160 15,441 104,111 26,437 22,646 1,329 450,124
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Balances at December 31, 2014 244,650 15,764 44,688 47,453 29,884 38,747 421,186
Balances at December 31, 2015 280,160 15,441 104,111 26,582 25,471 1,329 453,094
(1) Refers to transfer as a result of completion of the new data center building.
In the period, BM&FBOVESPA absorbed as part of the project development cost the amount of
R$7,591 (R$4,330 at December 31, 2015) related to the depreciation of equipment used in
developing these projects.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
2016 2015
9. Intangible assets
Goodwill
According to the guidelines of CPC 01/IAS 36, the goodwill attributed to expected future
profitability must be tested annually for impairment, or more frequently when there are indicators
that impairment may have occurred. Goodwill is recorded at cost value less accumulated
impairment losses. Impairment losses recognized on goodwill are not reversed.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The assumptions adopted for future cash flow projections of BM&FBOVESPA, in the BOVESPA
segment (Cash Generating Unit (CGU)), were based on analysis of performance over the past
years, and expected growth in the market (based on estimated average yield of capital markets in
the long term) and managements expectations and strategies.
Based on the growth expectations of the Bovespa segment, the projected cash flow considers
revenues and expenses related to the segments activities. The projection period of these cash
flows covers the period from December 2016 to December 2026. The perpetuity was determined
by extrapolating the 2026 cash flow at a growth rate corresponding to that expected for the
nominal GDP in the long term, of 6.60% p.a.
Management understands that a ten-year projection period (and not five) is based on the
perception that the Brazilian capital market, in the variable income segment, should undergo a
long period of growth, reflecting the time required for indicators such as share of stocks in
investors' portfolios, and Brazil's Market Cap / GDP ratio, among others, to reach levels recorded
in other countries, indicating that the long-term maturity has been reached.
To determine the present value of the projected cash flow, an average after-tax discount rate of
14.81% p.a. was used, which is equivalent to a 16.88% rate before taxes (2015 - equivalent to
15.6% and 17.4% respectively).
The three major variables impacting the value in use computed for the investment are the
discount rates, net revenue growth rates and perpetuity growth rates. BM&FBOVESPA
management carried out sensitivity analyses to determine the impacts of changes in such
variables on the calculated value in use: increase of 90bps in the pre-tax discount rate (a
standard deviation in discount rates over the last five years), decrease of 180bps in the average
annual revenue growth from 2017 to 2026 (15% decrease), and decrease by 60bps in the
perpetuity growth rate (a standard deviation of the 10-year series averages of changes in the
Brazilian GDP). The sensitivity analyses revealed value in use of the CGU between 4% and 14%
lower than the value in use estimated in the external experts report.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
(1) Refers substantially to transfer as a result of completion of the second phase of the Projeto Mercado de Balco (OTC Market
Project).
The balance comprises costs for the acquisition of licenses and completed development of
software and systems, with amortization rates from 6.67% to 33% per year in 2015 and 2016, and
expenditures for the implementation and development in progress of new systems and software.
In the year, BM&FBOVESPA absorbed as part of the project development cost the amount of
R$6,236 (R$5,674 at December 31, 2015) related to the amortization of software used in
developing these projects.
The ongoing projects refer mainly to the development of a new electronic trading platform for
different kinds and classes of assets and the construction of a new business and IT architecture to
support integration of the post-trade infrastructure.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
With the adoption of the fair value hedge accounting in March 2016 (Note 4 (d)), the principal
amount of debt securities issued abroad in 2010 are now measured at fair value.
The restated loan balance at December 31, 2016 amounts to R$2,046,463 (R$2,454,265 at
December 31, 2015), which includes the amount of R$58,794 (R$70,181 at December 31,
2015) referring to interest incurred until the reporting date.
In December 2016, BM&FBOVESPA has entered into a Non-Deliverable Forward (NDF) and
designated it as a hedging instrument to hedge the currency risk of four installments of half-
yearly interest of Senior Unsecured Notes (Note 4 (d)).
58
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The market value of securities, considering principal and interest, amounts to R$2,064,997 at
December 31, 2016 (R$2,380,489 at December 31, 2015), which is obtained from
Bloomberg.
b) Unsecured Loans
In December 2016, BM&FBOVESPA entered into a loan agreement with a first-tier bank in
the amount of US$125,000, at a rate of 2.57% per annum (p.a.), maturing within thirteen
months. This loan was designated as a hedging instrument to hedge the foreign exchange
risk of part of future revenues (Note 4 (d)).
The loan is repayable in 12 equal installments of US$ 10,417, on the first business day of
each month, the first installment falling due in February 2017.
The funds obtained from the dollar-denominated loan were used to increase
BM&FBOVESPAs cash.
As at December 31, 2016, the balance of the loan principal amount plus interest is R$
407,868.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
On December 15, 2016, BM&FBOVESPA completed its first issuance of simple unsecured
non-convertible debentures in a single series, with BM&FBOVESPA being rated by Moody's
as Aaa.br. The debentures totaled R$3,000,000 and will mature after three years from the
date of issuance but no later than December 30, 2019.
The debentures will yield interest equivalent to 104.25% of the DI Rate with amortization of
principal in equal installments in the 24th and 36th months, and semiannual payment of
interest on the 1st of June and December each year, with the first payment on June 1, 2017
and the last on January 1, 2019.
The net proceeds from the issuance will be fully used in the business combination between
BM&FBOVESPA and CETIP, or in the settlement of loans obtained by BM&FBOVESPA for
use in its operations or in the normal course of its business.
As at December 31, 2016, the balance of the principal amount plus interest less costs
incurred in the issuance of debentures is R$3,009,301.
According to the fiduciary agent, the market value of the securities, considering the principal
amount plus interest, is R$ 3,017,490 as at December 31, 2016.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Noncurrent
Payables CME 39,649 58,361 39,649 58,361
(1) These refer to demand deposits held by corporations at Banco BM&FBOVESPA with the sole purpose of settlement of clearing
operations held within BM&FBOVESPA and the Special System for Settlement and Custody (SELIC) pursuant to BACEN Circular
Letter No. 3196 of July 21, 2005.
(2) These refer to open market funding made by Banco BM&FBOVESPA, comprising repurchase agreements maturing on January 2,
2017 (January 4, 2016 for 2015) and backed by Financial Treasury Bills (LFT) and National Treasury Bills (LTN).
14. Provisions for tax, civil and labor contingencies, contingent assets and
liabilities, judicial deposits and other provisions
a) Contingent assets
BM&FBOVESPA has no contingent assets recognized in its balance sheet and, at present,
no lawsuits which are expected to give rise to significant future gains.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
14. Provisions for tax, civil and labor contingencies, contingent assets and
liabilities, judicial deposits and other (Continued)
b) Provisions for tax, civil and labor contingencies
BM&FBOVESPA and its subsidiaries are defendants in a number of legal and administrative
proceedings involving labor, tax and civil matters arising in the ordinary course of business.
The legal and administrative proceedings are classified by their likelihood of loss (probable,
possible or remote), based on the assessment by BM&FBOVESPAs legal department and
external legal advisors, using parameters such as previous legal decisions and the history of
loss in similar cases.
Labor claims mostly relate to claims filed by former employees of BM&FBOVESPA and
employees of outsourced service providers, on account of alleged noncompliance with labor
legislation;
Civil proceedings mainly relate to aspects of civil liability of BM&FBOVESPA and its
subsidiaries;
Tax proceedings for which provisions were set up mostly relate to PIS and COFINS levied
on (i) BM&FBOVESPA revenues and (ii) receipt of interest on equity.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
14. Provisions for tax, civil and labor contingencies, contingent assets and
liabilities, judicial deposits and other provisions (Continued)
c) Legal obligations
These are almost entirely proceedings in which BM&FBOVESPA seeks exemption from
additional social security contribution on payroll and payments to self-employed
professionals.
d) Other provisions
BM&FBOVESPA and its subsidiary BVRJ have contracts that provide for the payment of
attorneys success fees arising from tax and civil proceedings, in which they figure as
defendants. Within its best estimates, BM&FBOVESPA determined and provisioned the
amounts for which it understands that there is likelihood of future disbursement, related to
attorneys success fees from proceedings whose likelihood of loss is assessed as possible
and remote.
e) Changes in balances
Changes in provisions for contingencies and legal obligations are detailed as follows:
BM&FBOVESPA
Civil Labor Legal Tax Other
proceedings claims obligations proceedings provisions Total
63
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
14. Provisions for tax, civil and labor contingencies, contingent assets and
liabilities, judicial deposits and other provisions (Continued)
e) Changes in balances (Continued)
Consolidated
Civil Labor Legal Tax Other
proceedings claims obligations proceedings provisions Total
Considering the characteristics of the provisions, the timing of the cash disbursements, if any,
cannot be predicted.
f) Possible losses
64
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
14. Provisions for tax, civil and labor contingencies, contingent assets and
liabilities, judicial deposits and other provisions (Continued)
f) Possible losses (Continued)
BM&FBOVESPA and its subsidiaries are parties to tax, civil and labor lawsuits involving risks
of loss classified by management as possible, based on the assessment of their legal
department and external legal advisors, for which no provision has been recorded. These
proceedings comprise mainly the following:
Labor claims mostly relate to claims filed by former employees of BM&FBOVESPA and
employees of outsourced service providers, on account of alleged noncompliance with labor
legislation. At December 31, 2016, lawsuits assessed as possible loss amount to R$18,173
in Company and Consolidated (R$47,558 in Company and R$54,812 in the Consolidated at
December 31, 2015);
Civil proceedings mainly relate to aspects of civil liability for losses and damages. The
amount involved in civil proceedings classified as possible losses at December 31, 2016
totals R$102,718 in BM&FBOVESPA (R$165,917 at December 31, 2015) and R$324,388
on a consolidated basis (R$355,700 at December 31, 2015);
The amount at December 31, 2016 is almost entirely related to two legal proceedings. The
first one refers to the possibility of BVRJ being required to indemnify an investor for alleged
omission in an audit report, brought before the Special Guarantee Fund Commission of
BVRJ, of shares that allegedly resulted from transactions carried out by the investor through a
broker, which were not included in the custody account. The second proceeding involves the
possibility of BM&FBOVESPA being sentenced, jointly with BVRJ, to indemnify the broker,
which, for not meeting the requirements, was not authorized to exchange the membership
certificates of BVRJ which it alleged to own, with membership certificates of the then So
Paulo Stock Exchange, which, in turn, would entitle to shares issued by BM&FBOVESPA. In
addition to these proceedings mentioned above, at December 31, 2015, the proceeding filed
by a commodity broker in bankruptcy, which operated in the former BM&FBOVESPA, was
assessed as risk of remote loss by BM&FBOVESPA, as described in Note 14 (b).
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
14. Provisions for tax, civil and labor contingencies, contingent assets and
liabilities, judicial deposits and other provisions (Continued)
f) Possible losses (Continued)
The total amount involved in the tax proceedings classified as possible loss R$566,780 at
BM&FBOVESPA and R$566,987 on a consolidated basis (R$671,320 at December 31,
2015 - Company and consolidated). The main tax proceedings of BM&FBOVESPA and its
subsidiaries refer to the following matters:
(i) Classification of the former BM&F and Bovespa, in the period prior to the
demutualization, as taxpayers of the Contribution Tax on Gross Revenue for Social
Security Financing (COFINS), which is the subject matter of two declaratory judgment
actions pleading the declaration that the plaintiffs have no tax obligations owed to the
federal tax authorities and seeking non-levy of COFINS on revenue arising from the
exercise of the activities for which they were established, the revenue of which does not
fall under the concept of billing. The amount involved in the aforementioned
proceedings as of December 31, 2016 is R$63,892 (R$59,693 at December 31, 2015).
(ii) Collection of Withholding Income Tax (IRRF) relating to the calendar year 2008, since
the Brazilian IRS understands that BM&FBOVESPA would be responsible for
withholding and paying IRRF on the alleged capital gains earned by non-resident
investors in Bovespa Holding S.A., due to the merger of shares of Bovespa Holding
S.A. into BM&FBOVESPA. The amount involved in this administrative proceeding at
December 31, 2016 is R$204,695 (R$197,935 at December 31, 2015).
(iii) Alleged levy of social security taxes on options granted under the Stock Option Plan of
BM&F S.A., assumed by BM&FBOVESPA S.A., and of BM&FBOVESPA S.A. itself,
exercised by the beneficiaries of the Plan in 2011 and 2012, as well as one-time fine
due to the non-withholding at source of income tax allegedly due on those options. The
inquiries of the Brazilian IRS are based on the understanding that the stock options
were granted to employees in the nature of salary as they represent compensation for
services rendered. The amounts involved in these administrative proceedings at
December 31, 2016 are: (i) R$88,075 (R$79,094 at December 31, 2015), relating to
social security contributions allegedly due, assessed as possible loss, and (ii) R$36,010
(R$31,750 at December 31, 2015), relating to one-time fine for the non-withholding of
income tax, assessed as remote loss.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
14. Provisions for tax, civil and labor contingencies, contingent assets and
liabilities, judicial deposits and other provisions (Continued)
f) Possible losses (Continued)
(iv) Alleged differences in payment of IRPJ and CSLL stemming from questioning of the
limits of deductibility of interest on equity paid by BM&FBOVESPA to its shareholders in
calendar year 2008. The total amount involved in this administrative proceeding is
R$151,623 (R$144,088 at December 31, 2015), including late-payment interest and
automatic fine.
g) Remote losses
On November 29, 2010, BM&FBOVESPA was served a assessment notice from the Brazilian
IRS challenging the amortization, for tax purposes in 2008 and 2009, of goodwill generated
upon the merger of Bovespa Holding S.A.s shares into BM&FBOVESPA in May 2008. In
October 2011, the Brazilian IRS Judgment Office in So Paulo handed down a decision on
the challenge presented by BM&FBOVESPA, upholding, in substance, the assessment
notice. In December 2013, the Administrative Board of Tax Appeals (CARF) handed down a
decision denying the voluntary appeal filed by BM&FBOVESPA, thus upholding the
assessment notice. On March 25, 2015, CARF denied the motions for clarification filed by
BM&FBOVESPA. On May 29, 2015, BM&FBOVESPA filed a Special Appeal with the
Superior Chamber of the CARF. On February 6, 2017, BMF&BOVESPA filed a writ of
mandamus challenging the effects of Executive Order 765/2016 on the judgment of this
administrative proceeding. On February 7, 2017, an injunction was granted to remove the
Special Appeal from the trial calendar of the Superior Chamber of the CARF.
BM&FBOVESPA understands that the risk of loss associated with this tax matter is remote
and will continue to amortize the goodwill for tax purposes as provided for by prevailing
legislation. The amount involved in this administrative proceeding at December 31, 2016 is
R$1,184,514 (R$1,083,566 at December 31, 2015).
On April 2, 2015, BM&FBOVESPA was served a assessment notice from the Brazilian IRS
challenging the amortization, for tax purposes in 2010 and 2011, of goodwill generated upon
the merger of Bovespa Holding S.A.s shares into BM&FBOVESPA in May 2008. On April 27,
2016, BM&FBOVESPA was notified by Brazilian IRS Judgment Offices (DRJ) decision
denying the Companys appeal and BM&FBOVESPA will file an appeal with the
Administrative Board of Tax Appeals (CARF) within the term prescribed by applicable
regulations. BM&FBOVESPA understands that the risk of loss associated with this tax matter
is remote and will continue to amortize the goodwill for tax purposes as provided for by
prevailing legislation. The amount involved in this administrative proceeding at December 31,
2016 is R$2,347,853 (R$2,111,622 at December 31, 2015).
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
14. Provisions for tax, civil and labor contingencies, contingent assets and
liabilities, judicial deposits and other provisions (Continued)
g) Remote losses (Continued)
68
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
14. Provisions for tax, civil and labor contingencies, contingent assets and
liabilities, judicial deposits and other provisions (Continued)
g) Remote losses (Continued)
h) Judicial deposits
BM&FBOVESPA Consolidated
Description 2016 2015 2016 2015
69
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
14. Provisions for tax, civil and labor contingencies, contingent assets and
liabilities, judicial deposits and other provisions (Continued)
h) Judicial deposits (Continued)
Out of the total judicial deposits, the following are highlighted: (i) R$58,576 (R$54,149 at
December 31, 2015) relates to the disputes over the classification of the exchanges as
subject to the payment of COFINS, which are assessed as possible loss by BM&FBOVESPA,
as described in item f above; and (ii) R$14,207 (R$13,127 at December 31, 2015) refers to
cases regarding PIS and COFINS on interest on equity received. Of the total deposits relating
to legal obligations, R$65,788 (R$52,541 at December 31, 2015) relates to the proceedings
in which BM&FBOVESPA claims non-levy of additional social security contribution on payroll
and payments to self-employed professionals, and challenges the legality of FAP (an index
applied to calculate the occupational accident insurance owed by employers).
Due to the existence of judicial deposits related to tax proceedings classified as possible
losses, the total tax contingencies and legal obligations are less than the total deposits
related to tax claims.
15. Equity
a) Capital
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
At the meeting held on December 10, 2015, the Board of Directors approved the new Share
Buyback Program, starting on January 1, 2016 and ending on December 31, 2016. No shares
were repurchased in 2016.
Number Amount
c) Revaluation reserves
d) Capital reserve
This refers substantially to amounts originated in the merger of Bovespa Holding shares in
2008, and other corporate events allowed by the Brazilian Corporation Law, such as (i) capital
increase through merger, (ii) redemption, repayment or purchase of shares, and (iii) events
associated with the stock option and stock grant plan.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
i) Legal reserve
Legal reserve is annually set up with allocation of 5% of net income for the year, capped
at 20% of capital. The legal reserve aims at ensuring integrity of capital and may only be
used to absorb losses and increase capital. The legal reserve is not required to be set up
considering that its amount plus the capital reserves exceed 30% of the Company
capital.
Pursuant to the Articles of Incorporation, the Board of Directors may, when the amount of
the statutory reserve is sufficient to meet the purposes for which it was originally
established, propose that part of the reserve be distributed to the shareholders of the
Company.
The purpose is to record the effects of (i) exchange variation of the investments abroad, (ii)
hedge accounting on net foreign investment (Note 12), (iii) cash flow hedge (Note 4), (iv)
comprehensive income of subsidiaries,(v) actuarial gains/losses on post-retirement health
care benefits, (vi) mark-to-market of financial assets available for sale.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
As provided for in the Articles of Incorporation, shareholders are entitled mandatory minimum
dividends of 25% of net income for the year, adjusted under Brazilian Corporation Law.
2016 2015
Dividends - 223,581
Interest on equity 900,000 1,019,033
Dividends and interest on equity approved in relation to P&L for the year are as follows:
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Basic Consolidated
2016 2015
Numerator
Net income available to shareholders of BM&FBOVESPA 1,446,263 2,202,238
Denominator
Weighted average number of outstanding shares 1,786,929,084 1,791,892,507
Diluted Consolidated
2016 2015
Numerator
Net income available to shareholders of BM&FBOVESPA 1,446,263 2,202,238
Denominator
Weighted average number of outstanding shares adjusted by
effects of stock grant and stock option plans 1,799,833,802 1,805,320,403
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
CME Group
Financial expenses - - - (781)
Expenses with fees - - - (1,895)
Income from fees - - - 66
BM&FBOVESPA Superviso de Mercados
Accounts receivable 270 196 - -
Accounts payable (115) (8,695) - -
Donation / Contribution - - (21,957) (12,690)
Recovery of expenses - - 2,602 2,721
Associao BM&F
Accounts receivable 4 6 - -
Accounts payable (10) (1) - -
Recovery of expenses - - 76 105
Expenses with courses - - (1,755) (1,270)
Donation - - - (1,757)
Sponsorship - - (1,732) (3,200)
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
BM&FBOVESPA follows a policy on transactions with related parties, approved by the Board
of Directors, which aims to establish rules to ensure that all decisions involving related-party
transactions and other situations of potential conflict of interest are taken to the interests of
BM&FBOVESPA and its shareholders.
The main recurring transactions with related parties are described below and were carried out
under the following conditions:
BM&FBOVESPA makes transfers in order to supplement financing for the activities of BSM
and regular transfers of fines for failure to settle debts and deliver assets by BSM, as set out
in Circular Letter 044/2013 of BM&FBOVESPA.
BM&FBOVESPA monthly pays BM&F (USA) Inc. and BM&FBOVESPA (UK) Ltd. for
representing it abroad by liaising with other exchanges and regulators and assisting in
bringing new clients to the Brazilian capital market.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
In addition to the transactions with related parties, within the context of the operation with
Cetip and under the terms of its policy for related parties and other situations involving
potential conflict of interest, BM&FBOVESPA contracted services provided by companies
whose managers are also members of the BM&FBOVESPAs Board of Directors. The
services were contracted under normal market conditions. The companies contracted are
Banco J.P.Morgan S/A; Banco Bradesco BBI S/A; and Ita Unibanco S/A, with expenses
totaling R$27,612.
Key management personnel include Members of the Board of Directors, Executive Officers,
Internal Audit Officer, Corporate Risk Officer, Officer of Banco BM&FBOVESPA and Human
Resources Officer.
2016 2015
Management fees
Short-term benefits (salaries, profit sharing, etc.) 37,063 30,695
Share-based payment (1) 52,135 31,127
Consideration - cancellation of Stock Options and labor and social
security charges (Note 18) - 35,093
Severance pay benefits (2) 31,483 -
(1) Refers to expenses computed in the year relating to share-based payment, increased by labor and social security charges,
and stock options of key management personnel. These expenses were recognized according to the criteria described in
Note 18.
(2) Refers to severance pay benefits to key management personnel (Stock Grant plan).
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
In its Circular Letter 046/2014, dated August 07, 2014, the Central Bank of Brazil granted
BM&FBOVESPA authorization to operate its new clearinghouse, the BM&FBOVESPA
Clearinghouse. The new clearinghouse is part of the post-trade integration (IPN) project, an
initiative adopted by BM&FBOVESPA to start an integrated clearinghouse that will consolidate the
activities performed by the four clearinghouses.
The activities of BM&FBOVESPA Clearinghouse will be limited, in this first phase of the project, to
the financial derivative and commodity market and gold market, including exchange-traded and
OTC contracts.
The activities carried out by the clearinghouses are governed by Law No. 10214/01, which
authorizes the multilateral clearing of obligations, establishes the central counterparty role of the
systemically important clearinghouses and permits the utilization of the collateral obtained from
defaulting participants to settle their obligations in the clearinghouse environment, including in
cases of civil insolvency, agreements with creditors, intervention, bankruptcy and out-of-court
liquidation.
The performance of BM&FBOVESPA as a central counterparty exposes it to the credit risk of the
participants that utilize its settlement systems. If a participant fails to make the payments due, or
to deliver the assets or commodities due, it will be incumbent upon BM&FBOVESPA to resort to
its safeguard mechanisms, in order to ensure the proper settlement of the transactions in the
established time frame and manner. In the event of a failure or insufficiency of the safeguard
mechanisms of its Clearinghouses, BM&FBOVESPA might have to use its own equity, as a last
resort, to ensure the proper settlement of trades.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Each clearinghouse has its own risk management system and safeguard structure. The safeguard
structure of a clearinghouse represents the set of resources and mechanisms that it can utilize to
cover losses relating to the settlement failure of one or more participants. These systems and
structures are described in detail in the regulations and manuals of each clearinghouse, and have
been tested and ratified by the Central Bank of Brazil (BACEN), in accordance with National
Monetary Council (CMN) Resolution No. 2882/01 and BACEN Circular No. 3057/01.
The safeguard structures of the clearinghouses are based largely on a loss-sharing model called
defaulter pays, in which the amount of collateral deposited by each participant should be able to
absorb, with a high degree of confidence, the potential losses associated with its default.
Consequently, the amount required as collateral for participants is the most important element in
our management structure of the potential market risks arising from our role as a central
counterparty.
For most contracts and operations involving assets, the required value as collateral is sized to
cover the market risk of the business, i.e. its price volatility during the expected time frame for
settlement of the positions of a defaulting participant. This timeframe can vary depending on the
nature of contracts and assets traded.
The models used for calculating the margin requirements are based, in general, on the concept of
stress testing, in other words, a methodology that attempts to measure market risk into account
not only recent historical volatility of prices, but also the possibility of the occurrence of
unexpected events that modify the historical patterns of behavior of prices and the market in
general.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
On March 05, 2014, according to BM&FBOVESPA Circular Letter No. 003/2014, new versions of
BM&FBOVESPA Clearinghouses rules became effective, aiming towards convergence with
international capital requirement rules under Basel III Accord by financial institutions subject to
credit risk of clearinghouses. These changes were approved by BACEN in January 2014.
The operations in the BM&FBOVESPA markets are secured by margin deposits in cash,
government and corporate securities, letters of guarantee and shares among others. The
guarantees received in cash, in the amount of R$1,653,835 (R$1,338,010 at December 31, 2015),
are recorded as a liability under Collateral for transactions and other non-cash collaterals, in the
amount of R$264,899,075 (R$303,824,243 at December 31, 2015), are recorded in memorandum
accounts. At December 31, 2016, collaterals amounted to R$266,552,910 (R$305,162,253 at
December 31, 2015), as follows:
2016
Equity and Corporate Foreign Assets
BM&FBOVESPA Debt Clearinghouse Exchange Clearingho
Clearinghouse (CBLC) Clearinghouse use
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
2015
Foreign
Equity and Corporate Exchange Assets
BM&FBOVESPA Debt Clearinghouse Clearingho Clearingho
Clearinghouse (CBLC) use use
(1) American and German government securities as well as ADRs (American Depositary Receipts).
i) BM&FBOVESPA Clearinghouse
Joint liability for paying the broker and clearing member that acted as intermediaries, as
well as collaterals deposited by such participants.
Minimum Non-operating Collateral, composed of collaterals transferred by
BM&FBOVESPA clearing members and by full trading participants, intended to
guarantee the transactions. Minimum Non-operating Collateral is broken down as
follows:
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Joint liability for paying the broker and clearing member that acted as intermediaries, as
well as collaterals deposited by such participants.
Fundo de Liquidao (Settlement Fund), composed of collaterals transferred by
clearing members and BM&FBOVESPA funds, intended to guarantee the proper
settlement of transactions.
Breakdown 2016 2015
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Pursuant to the Notice to the Market published on February 04, 2015, BM&FBOVESPA
decided to offer to the beneficiaries of the Companys Stock Options Plan (respectively
Beneficiaries and Options) the following choices: (i) remaining as holders of their Options,
or (ii) cancelling their outstanding Options and receiving an amount in cash with respect to
those Options which had already vested (Vested Options), or receiving shares of the
Company, to be transferred on future dates, with respect to those Options which had not yet
vested (Non-vested Options).
Nearly all of the beneficiaries opted for their share cancellation and the shares received with
respect to the cancellation of Non-vested Options were subject to the Stock Grant Plan
approved by the Company in an Extraordinary General Meeting on May 13, 2014.
BM&FBOVESPA believes that the resulting long-term incentive model will more effectively
align the interests of beneficiaries to those of BM&FBOVESPA and its shareholders in the
long term, as well as retain key personnel.
The amounts paid in cash and granted in shares for cancellation of the Options, as defined in
CPC 10 (R1) approved by CVM Rule No. 650/10, were calculated based on the fair value of
the Options on January 5, 2015, and the results of these calculations were reviewed and
validated by specialized external consultants.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The cancelled vested Options resulted in cash payments equivalent to the Fair Value of those
Options. The cancelled Non-vested Options, meanwhile, resulted in the granting of a number
of Company shares which was calculated based on the Fair Value of the Non-vested Options
on January 05, 2015 and on the closing price of the shares on the same date (R$9.22).
(1) This does not include 1,259,389 options granted in the past to employees who have been recently terminated by
BM&FBOVESPA, which had term conditions and, therefore, fair values different from those described above. Out of these,
837,389 options were cancelled, resulting in a cash payment of R$665 while 422,000 options were not converted, since
there was no program enrollment by the terminated employees. Total cash payment was R$56,198.
(2) 12.5 thousand options were not converted, since there was no enrollment by the beneficiaries.
The shares granted in exchange for the cancelled Non-vested Options will be subject to the
same rules in cases of dismissal, disablement, death or retirement. Furthermore, these
shares will have dates for transfer that are the same as the vesting periods established for
each Option program and will be transferred to the Beneficiaries in January each year:
3,139,275 in 2016; 3,192,082 in 2017; 1,523,046 in 2018; and 784,882 in 2019.
The guidelines and conditions for the cancellation of options, as well as the cash and equity
settlement, were approved by the Board of Directors of BM&FBOVESPA at a meeting held on
December 24, 2014, and all of the actions required for its implementation were approved by
the Compensation Committee of the Board of Directors at a meeting held on February 04,
2015.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
BM&FBOVESPA recognized expenses related to grants of the Option Plan in the amount of
R$267 for the year ended December 31, 2016 (R$276 at December 31, 2015), matched
against capital reserves in equity.
BM&FBOVESPA entered into commitments with beneficiaries to hold them harmless from
any potential liabilities related to assessment notices. At December 31, 2016, the potential
liabilities are recognized for R$27,017 (R$24,300 at December 31, 2015).
2016 2015
Pricing model
(a) Options were evaluated considering the market parameters in force on every grant date
of different Stock Option Programs;
(b) To estimate the risk-free interest rate, the future interest contracts negotiated for the
maximum exercise period of each option were considered; and
(c) The maximum exercise period of options granted in each Stock Option Program was
considered to be the maturity term.
Other usual assumptions related to option pricing models, such as inexistence of arbitrage
opportunities and constant volatility over time were also considered in the calculation.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The Special Shareholders Meeting held on May 13, 2014 approved the Stock Grant Plan,
which replaced the grant mechanism for the Stock Grant Plan shares as a long-term benefit.
The conditions under the Stock Grant Plan include achievement of goals by the beneficiaries
and an individual evaluation of performance and potential. The granting of shares relating to a
specific fiscal year will always occur at the beginning of the next fiscal year. The shares will
be transferred to the beneficiaries observing the grace periods established in the Stock
Programs and the previously established contractual conditions.
The Stock Grant Plan vests the Board of Directors with full powers to approve stock grants
and manage them, through Stock Grant Plans, which should define, among other specific
conditions: (i) the beneficiaries; (ii) the total number of BM&FFBOVESPA shares under the
grant program; (iii) criteria for election of the beneficiaries and determining the number of
shares to be assigned; (iv) splitting shares into lots; (v) vesting periods for the transfer of
shares; (vi) any restrictions on the transfer of shares received by the beneficiaries; and (vii)
any provisions on penalties.
For each Stock Grant Program, there should be a minimum total period of three (3) years
from the grant date of the shares in a given program and the last date of transfer of shares
granted under the same program. Moreover, a minimum vesting period of twelve (12) months
should be observed from: (i) the grant date of a program and the first date of transfer of any
shares under that Program, and (ii) between each of the transfer dates of shares of that
program after the first transfer.
The Stock Grant Plan also defines a specific mechanism for granting shares to the members
of the Board of Directors, whereby: (i) the members of the Board of Directors are eligible to be
beneficiaries of the grant from the date the General Meeting elects them to office, or another
period as defined by the General Meeting; (ii) the beneficiaries members of the Board of
Directors as a whole may annually receive a total 172,700 shares of BM&FBOVESPA, which
will be distributed on a straight-line basis among the members of the Board of Directors, as
approved at the General Meeting; (iii) stock will be granted to members of the Board of
Directors in one single lot on the same dates the Programs approve stock grants to other
beneficiaries; (iv) the stock considered in the contracts with beneficiaries that are members of
the Board of Directors will be transferred 2 years after the end of term of each Board member
in which the contract was executed.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
BM&FBOVESPA records the expenses relating to the Stock Grant Program which were
granted for replacement of unvested options of the Stock Option Plan, for the same fair value
of options previously granted, in accordance with CPC 10 (R1)/IFRS 2.
88
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
172,692 - - - 172,692
- 172,697 - - 172,697
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
At December 31, 2016, cost of shares transferred related to Stock Grant Plan amounted to
R$59,213.
Pricing model
Stock Grant
For options granted under the Stock Option Plan, the fair value corresponds to the option
closing price on the grant date.
BM&FBOVESPA maintains a post-retirement health care plan for a group of employees and
former employees. At December 31, 2016, the actuarial liabilities related to this plan
amounted to R$21,080 (R$26,122 at December 31, 2015), calculated using the following
assumptions:
2016 2015
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
2016 2015
2016 2015
(1) Effect arising from changes made to BM&FBOVESPAs plan design and redefinition of premiums paid by employees.
2016 2015
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
The sensitivity of the actuarial liability at December 31, 2016 to the changes in key
assumptions is as follows:
BM&FBOVESPA is responsible for selecting the plans accounting policies, methods and
assumptions and is solely responsible for any necessary changes to such rules.
The balances and changes of deferred tax assets and liabilities are as follows:
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
(2) Deferred income tax and social contribution liabilities arising from temporary differences between the tax base of goodwill and its carrying
amount on the balance sheet, considering that goodwill is still amortized for tax purposes, but is no longer amortized for accounting purposes
as from January 1, 2009, resulting in a tax base smaller than the carrying amount of goodwill. This temporary difference may result in amounts
becoming taxable in future periods, when the carrying amount of the asset will be reduced or settled , this requiring the recognition of a
deferred tax liability.
Deferred tax assets arising from temporary differences are recorded in the books taking into
consideration their probable realization, based on projections of future results prepared based
on internal assumptions and future economic scenarios that may, accordingly, not materialize
as expected.
Deferred tax assets (including tax loss carryforwards of R$68,992) are expected to be
realized in the amount of R$53,058 within one year and R$363,832 after one year and
realization of deferred tax liabilities is expected to occur after one year. At December 31,
2016, the present value of the deferred tax assets, considering their expected realization, is
R$223,311.
Since the income tax and social contribution base arises not only from the profit that may be
generated, but also from the existence of nontaxable income, nondeductible expenses, tax
incentives and other variables, there is no immediate correlation between BM&FBOVESPA
net income and the income subject to income tax and social contribution. Therefore, the
expected use of tax assets should not be considered as the only indicator of future income of
BM&FBOVESPA.
The balance of goodwill that is deductible for income tax and social contribution purposes
amounts to R$1,565,336 at December 31, 2016 (R$3,156,980 at December 31, 2015).
The realization of the deferred tax liabilities will occur as the difference between the tax base
of goodwill and its carrying amount is reversed, that is, when the carrying amount of the asset
is either reduced or settled.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Reconciliation of the income tax and social contribution amounts recorded in P&L (Company
and consolidated) and their respective amounts at statutory rates is as under:
BM&FBOVESPA Consolidated
2016 2015 2016 2015
Income before income tax and social contribution 1,239,467 2,800,221 1,246,570 2,807,222
Income tax and social contribution before additions and
exclusions computed at the statutory rate of 34% (421,419) (952,075) (423,834) (954,455)
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
BM&FBOVESPA Consolidated
Description 2016 2015 2016 2015
20. Revenue
BM&FBOVESPA Consolidated
2016 2015 2016 2015
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
(1) Basically refers to the provision for tax, civil and labor contingencies, provision for attorneys success fees (Note 14) and allowance
for doubtful accounts.
(1) Given the disqualification of the significant influence and consequent discontinued use of the equity method for CME Group (Note 7), dividends
received have been recorded in the income statement.
(2) From July 2015, pursuant to Decree No. 8426, of April 1, 2015, which reinstated PIS and COFINS rates levied on financial income earned by legal
entities subject to the related noncumulative tax computation.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
BM&F Segment
The BM&F segment covers the main steps of the cycles of trading and settlement of securities
and contracts: (i) trading systems in an environment of electronic trading and trading via internet
(WebTrading), (ii) recording, clearing and settlement systems, integrated with a risk management
system to ensure the proper settlement of the transactions recorded, and (iii) custodian systems
for agribusiness securities, gold and other assets.
In addition, this segment includes the trading of commodities, foreign exchange, and public debt,
and services provided by Banco BM&FBOVESPA.
Bovespa Segment
Bovespa Segment covers the various stages of the trading cycle of fixed and variable income
securities and equity securities on stock and over-the-counter (OTC) markets. BM&FBOVESPA
manages the national stock exchange and OTC markets for trading of variable income securities,
including stocks, stock receipts, Brazilian Depository Receipts, stock derivatives, subscription
warrants, various types of closed-end investment fund shares, shares representing audiovisual
investment certificates, non-standard options (warrants) to purchase and sell securities and other
securities authorized by the CVM.
Mainly refers to services provided as depository of securities, as well as lending and listing of
securities (registration in BM&FBOVESPA systems of issuers of securities for trading), data
services and classification of commodities, and technological products.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
2016
Consolidated
Institutional and
Corporate
BM&F Bovespa Products
Segment Segment Segment Total
98
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Maximum
Insurance line indemnity
99
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
100
Audit Committee Report
Initial information
The Audit Committee of BM&FBOVESPA S.A. is the statutory advisory body directly linked to
the Board of Directors. It consists of two directors and four other members, one of whom is a
financial specialist and all of them independent, appointed every two years by the directors,
who take into account the criteria provided for in the applicable legislation and regulations, as
well as best international practices.
Management is also responsible for the internal control processes, policies and procedures
that ensure the integrity of the assets, timely recognition of liabilities and the elimination or
reduction of the companys risk factors to acceptable levels.
The Internal Controls, Compliance and Corporate Risk Office is responsible for overseeing the
respective environments of these three areas of the company. Furthermore, it is in charge of
providing information to support the work of the Audit Committee and the Financial and Risk
Committee of BM&FBOVESPA.
The duties of the internal audit department are to verify the quality of the internal control
systems of BM&FBOVESPA and compliance with the policies and procedures defined by the
Management, including those employed when preparing the financial reports.
The independent auditors are responsible for examining the financial statements so as to issue
an opinion regarding compliance with the applicable rules. As a result of their work, the
independent auditors issue reports with recommendations about accounting procedures and
internal controls, as well as other reports, such as the special quarterly reviews.
The Audit Committees functions are described in its Internal Rules and Regulations (available
on bmfbovespa.com.br/ri, tab "Relaes com Investidores", "Governana Corporativa" in
"Estatutos, Cdigos e Polticas"), which provides for the duties defined in CVM Instruction
509/11.
The Audit Committee bases its judgments and forms its opinions taking into account the
information received from the Management, the representations made by the Management
about information systems, financial statements and internal controls, and the outcome of the
work of the Internal Controls, Compliance and Corporate Risk Office, the Internal Auditors and
the Independent Auditors.
Activities of the Audit Committee
The Audit Committee convened at nine ordinary and three special sessions, at which there
were 95 meetings with members of the executive board, internal and independent auditors
and other stakeholders. The Committee Coordinator forwards a summary of the agenda and
the main conclusions to the Board of Directors.
During the BCBs inspection of the Company in 2016, the Audit Committee met with the
leadership of the inspection team, and discussions involved primarily: corporate governance
issues; information technology controls and procedures; internal controls on corporate risks;
operation of the Audit Committee.
The Committee met with the Ombudsman and with the executive officers and their respective
teams to discuss the structures, the workings of the respective areas, their work processes,
occasional shortcomings in the control systems and the enhancement plans.
Among the subject matters requiring special attention from the Committee, the highlights
were:
IT and Information Security During 2016, the Audit Committee continued to give
priority attention to the advances in information technology processes and controls
and the medium- and long-term action plans.
A meeting with the Executive Officer for Information Technology and Security and his
team discussed matters involving information security processes, particularly
improvements related to cyber security. With the Audit Department, the Committee
discussed issues involving Overarching Controls on Information Technology, including
Information security aspects. Such discussions also involved the Internal Controls,
Compliance and Corporate Risk Office.
The Committee was informed of the results of the business continuity tests carried out
during 2016 and monitored by the internal audit department.
The Committee also followed up on the Post-Trading Integration Project (IPN), which
will migrate equities and corporate fixed income markets to a new infrastructure to be
subsequently integrated with financial derivatives, commodities, and OTC.
Financial Management and Reports Discussions with the Financial, Corporate and
Investor Relations Office, the internal auditors and, when applicable, specialized
outside consultants were also dedicated to aspects concerning the evaluation of the
premium in Bovespa Holding and the investment in CME Group, particularly the
accounting treatment upon the sale of BM&FBOVESPAs investment in this company.
Contingencies Joint discussions with Legal Office, Financial Office, the Independent
Auditors and the lawyers responsible involved the principal administrative and legal
proceedings and the respective judgments exercises with regard to the probability of
success.
Anticorruption Law Discussions with the Legal Office and the Internal Controls,
Compliance and Corporate Risk Office involved aspects relating to the Anticorruption
Law, primarily the procedures deployed.
The Committee assessed compliance with local laws, rules and regulations and will go on
monitoring progress of international compliance activities over 2017 through to completion of
the data survey and implementation stages.
The Committee reviewed the Corporate Risks Report that meets the requirements of CVM
Instruction 461/07 and the Internal Controls Report drawn up in accordance with section 3 of
CMN Resolution 2554/97.
The Committee regularly receives a summary of the notifications forwarded by the Regulatory
Agencies and the Judiciary concerning matters within the Committees scope, and assesses
how they are handled. At the Board of Directors meetings, the Committee coordinator and
the Legal Office summarize the main notifications received.
The Audit Committee, with the support of Internal Audit, became aware of the policies and
procedures on money laundering, related party transactions, use of the companys assets by
its management and expenses incurred by management on behalf of the company, and no
cases of non-compliance were observed.
The Audit Committee is of the opinion that the procedures intended to raise the efficacy of the
internal control and risk management processes are appropriate.
Independent Auditors
The Audit Committee met with the independent auditors (Ernst & Young EY) to gather
information about the policy for maintaining independence when executing their work and
decided that there were no conflicts of interest in the work, over and above auditing the
financial statements, which the Executive Board may occasionally request. Also discussed
were: risk analysis of the audit they carried out by EY, work planning in order to establish the
nature, time and extent of the principal audit procedures chosen, possible attention points
identified and how these were to be audited. In addition, discussions covered the results of the
audit carried out by EY on Central Counterparty Risk and IT. Particularly with regard to the
Financial Statements as of December 31, 2016, and as a result of changes in the applicable
rules, Key Audit Issues were addressed and this topic has since been included in the
Independent Auditors Report
Upon conclusion of the special review work on the Quarterly Information (ITR) during 2016,
the main conclusions were discussed with the auditors. At the start of the preliminary and final
audit work on December 31, 2016, specific meetings were held to revisit the audit risk areas,
the respective procedures and the main findings.
All points deemed relevant were covered so as to assess the potential risks involving the
financial statements and how to mitigate those risks using audit and control procedures.
In January 2017, the Committee carried out a formal evaluation of the independent auditors,
having considered the quality and the volume of information provided sufficient. The
Committee presented suggestions to improve certain aspects identified by and discussed with
the auditors.
No situations were detected that might compromise the independence of the external
auditors.
Internal Audit
The Audit Committee has technical oversight of the Internal Audit. In 2016 it approved the
Annual Internal Audit Plan and its modifications, and periodically accompanied its progress.
The audit reports were submitted and discussed with the Committee, which considers the
scope, methodology and results of the work carried out satisfactory.
The Audit Committee continues to monitor the Action Plans arising from the audit points
raised in all areas that were audited.
In January 2017, the Committee formally evaluated the internal audit, and all items assessed
were deemed compliant.
During 2016 the Action Plans resulting from previous years recommendations were properly
implemented, duly monitored by the Audit Committee.
Conclusion
The Audit Committee asserts that all relevant facts which it was given in order to understand
the work carried out and described in this report are properly disclosed in the Management
Report and in the audited financial statements as at December 31, 2016, recommending their
approval by the Board of Directors.
Tereza Grossi
rat/lag/147520.doc
02/10/17
(A free translation of the original in Portuguese)
Contents
Independent auditors report on the individual and consolidated financial statements 26-31
2
CETIP S.A. Mercados Organizados
Financial statements at
December 31, 2016
Managements report
Dear Shareholders,
We submit to your appreciation the Financial Statements of CETIP S.A. Mercados Organizados
(Cetip or Company) relating to the fiscal year ended December 31, 2016, together with the
independent auditors' report of the financial statements.
All the Companys operating and financial information below, except when otherwise indicated,
is presented in million reais based on the individual financial statements prepared according to
the generally accepted accounting principles in Brazil, including the accounting pronouncement
established by the Accounting Pronouncement Committee (CPC) and according to the
International Financial Reporting Standards (IFRS) established by the International Accounting
Standards Board (IASB).
Additional information regarding the Companys operating and financial performance are
available on the internet at (www.cetip.com/ir).
3
on own capital, without jeopardizing the strength of our balance sheet, which ended the year
presenting a negative net leverage.
Our Securities Unit had once more a strong year, with revenues growing by 18,1%. This result
was driven by stock maintenance revenues, a reflection of the high interest rates and also by
greater depository activity with the implementation of Brazil Central Banks Circular n 3,709,
which although is in force since 2015, impacted our operations also in 2016 through the gradual
renewal of funding instruments stocks to the new regulation. Its worth remember that such
regulation determined the registration and identification of bank funding instruments issued by
the same financial institutions, on the same date, in favor of the same holder, whose sum is
greater than R$5 thousand, compared to R$50 thousand previously established, and the
identification of their holders.
This year revenues with derivative instruments presented a growth of 1,3%, a more modest
level than last year due to the decrease of exchange rate volatility, which in turn reduced the
demand of economic agents for hedging, as well as to a strong comparison base achieved in
2015.
We also actively worked to better serve our clients in the securities market and, in this context,
we conducted a rebalancing of prices, in specific operations and segments, aiming to make the
costs of our services less volatile, facilitating their predictability.
In September 2016, our electronic trading platform for secondary market of government and
corporate bonds, the Cetip | Trader, was elected for the third time in a row the platform for the
Central Bank dealers, gaining highlighted importance and promoting continuous efficiency and
agility gains in the fixed income market. In the last quarter of 2016, our platform operated more
than 10 assets and reached average daily traded volume of R$ 4.2 billion, 2.6 times higher than
in the last quarter of 2015, being accessed by more than 1,600 traders from approximately 550
institutions.
Even though the capital Market was impacted by high interest rates, we highlight the strong
performance of the incentive funding instruments, in particular the CRA, which totaled R$ 12.6
billion in emissions and by doing so reached significant growth of its stock, which closed the
year at R$ 17.5 billion, an increase of 2.7 times when compared to the end of 2015. The
Secondary market also presented relevant growth in 2016, with a volume of operations 2,3
times greater than the previous years records.
Throughout the year, we have also made important strides in the implementation of the
Depository Project, being this years focus the improvement of the operational model already in
place, result of an intense effort from multidisciplinary teams from Cetip, including the
Information Technology, Operations, Products and Legal areas, based on CVM Instructions 541,
542 and 543. These instructions contain CVMs new rules for centralized deposit, custody and
book keeping, aligning the procedures of such activities to international standards, and aim to
strengthen and make it even safer the Brazilian financial market business environment. It is
important to highlight that, since January 2016, is in force the registration of liens and
encumbrances on deposited securities and positions in derivatives, which combined with our
Depository allows our clients to capture gains on safety, simplification of processes and
4
efficiency on the registration of these liens, which in 2016 reached more than R$ 14 billion in
registration volumes.
We also progressed on our strategic positioning and transparency with our end customers.
Thereby, we expanded the scope of our online platform for investment verification, Cetip | My
Investments, which now, in addition to securities and derivatives, counts on other financial
instruments registered by more than 70 institutions accredited in Cetip | Certifica, such as
CDBs, LCAs and LCIs.
In order to connect with new trends that may influence our markets, we are discussing and
following the possible applications and eventual outcomes of the blockchain. For this, we
created a working group that has been actively participating in national and international
forums on this subject, mapping the initiatives that are under way and evaluating their
applicability in our businesses.
In the Financing Unit, we continue to suffer from the impacts of the deterioration of Brazils
macroeconomic scenario. The combination of GDP retraction, high interest rates, rising
unemployment and inflation rates has shaken consumer confidence and has severely impacted
the vehicle financing market. New and used vehicle sales fell 20,9% and 0,1% during the year,
respectively, and the ratio of financed vehicles over total vehicles sold went from 30,6% in 2015
to 28,2% in 2016, a 2.4 p.p. contraction, what, no doubt, constituted a very adverse backdrop
for our performance in this segment.
It is important to note that in the last quarter of the year the vehicle financing market showed
signs of stabilization, as the total number of vehicles sold was in line with the same quarter of
2015, ending a sequence of retractions on quarterly year-over-year comparisons, offering a
positive outlook for the segment, especially when we consider that the volume of vehicles
financed in 2016 represents only 59% of the level achieved in 2010.
We also focused efforts in the Contracts System and increased its market share, which grew
from 70,8% in the end of 2015 to 73,6% in the end of 2016. Such progress was fundamental to
sustain the revenues of the Financing Unit.
We continued to stride in the Financing Units projects, especially in the Vehicle Electronic
Formalization Platform, which benefits the entire market, from creditors due to efficiency and
safety gains, to consumers and vehicle dealers, due to greater transparency and agility in the
electronic process.
Although the Central Bank's 4,088 resolution was postponed to March 2017, normative that
regulates the providing of information on real estate financing contracts, we maintained the
pace of negotiations with our clients and worked to become the market reference in the
segment. This way, we highlight the agreement sealed with Abecip (Brazilian Association of Real
Estate Loans and Savings Companies), which standardize and facilitates adoption of our
products by the clients in this market, besides the advances in the electronic registration pilots
that we are conducting within 9 financial institutions, which have been expanding and reached
more than 300 real registries, electronically connecting banks and about 40 notary offices in the
state of So Paulo.
5
In August 2016 Cetip launched Foresee, our innovation and startup accelerator program, in
which we offer benefits to entrepreneurs ranging from cost allowance to networking with
specialists, mentoring, and providing of tools and methodologies. With this initiative we aim to
approach the new technological trends related to fintechs, big data and IT / Telecom. It is
important to note that under the context of this program we created a multidisciplinary group
at Cetip, in which its members, called "Seers", work as mentors and supporters of these
companies and, by doing so, benefit from the exchange of experiences and knowledge.
This year Cetip further amplified its efforts in human development. Under the Ambassadors of
Culture, a group formed by our employees and which objective is to identify and disseminate
practices that represent our values, we further strengthen our culture and its integration to the
day-to-day business. We improved the quality of training and qualifications, as well as
encouraged in a structured way the practice of knowledge dissemination within the
organization, and reached through these actions 70% of our staff. We also reformulated and
expanded our long-term incentive program for our high-performance employees, now in the
form of stock matching and covering management positions at all levels of the company.
We also completed the move of the teams to the new office in Barueri in September 2016,
counting on the involvement of all employees to ensure a positive and beneficial change for the
group. As a result, we now have more than 70% of our staff in this site, promoting integration
and engagement gains.
It is also worth noting our commitment to continuously enhance the Companys corporate
governance, seeking to comply with the strictest international benchmarks. Our Auditing
Committee, which has been operating for three years, has been contributing to enhance our
administration, and, aiming to further improve the management standards, we established a
Statutory Risk Committee, which targets to better assess and monitor the risks to which the
Company is exposed, including regulatory, technological and operational risks, as well as the
business of CCP.
The quality of the relationship with our customers has always been and will always be a
fundamental pillar of our business. Our Client Centricity Project, which aims to strengthen the
existing initiatives and to maintain an even more robust service structure, specialized and close
to the customer, remains a top priority and the results we have achieved so far have been very
encouraging. According to a specialized survey, we have increased, once more, the overall
satisfaction index and the satisfaction with our service and relationship index, the outcome of a
tireless work effort that involves the commercial, product, operations and IT teams to make
Cetip an increasingly customer-centric company.
Relevant milestone for our history and for the market, in May 2016 were approved by the
shareholders of Cetip and BM&FBovespa the financial terms for the merger of both companies.
We believe that this operation should provide gains for the whole market: clients will count on
a more efficient operational and capital management processes, regulators will rely on a more
robust infrastructure for the national financial system, facilitating the supervision of operations,
and shareholders of both companies will benefit from the long-term strategic strengthening
that the combined company provides. We are awaiting for the regulatory approvals,
necessaries to complete this operation, and in the meantime we are carrying a mapping and
6
planning on how companies would be merged. For this, we have support of independent
external consultants, who ensure non-sharing of information between companies, and also the
commitment of our employees, which are fundamental for the success of this operation.
Regarding this topic, it is important to acknowledge and appreciate the support and efficient
work carried out by our board of directors during negotiations with BM&FBovespa, which were
essential to preserve the required confidentiality of this deal as well to ensure that the
Companys performance in this period was not affected.
We go in 2017 with a lot of energy and focused in delivering on very important projects,
whether they are already in progress or are new opportunities to arise over the next year.
I would like to thank all employees, clients and shareholders for the partnership in 2016 and for
the support to conquer even more in 2017.
Gilson Finkelsztain
Diretor-Presidente
MACROECONOMIC ENVIRONMENT
The year of 2016 was marked by a worsening of the economic crisis that has been affecting the
country since 2014 and was reflected by the drop in GDP, increase of unemployment and
inflation levels above the Central Bank inflation target band ceiling. However, signs of
improvement in economic outlook were observed, especially in the second half of the year,
motivated by a greater political stability and the advances in discussions of matters related to
fiscal responsibility and social security, all of which are necessary measures for a sustainable
recovery of economic growth.
According to the Brazilian Institute of Geography and Statistics (IBGE), GDP fell 3.4% in 2016.
This negative result, for the second consecutive year, was influenced by the decrease of the
main economic activities that make up the GDP, with negative highlights for Construction (-
5.1%) and Transportation (-7.3%), both components of the industry and service segments,
respectively.
The household consumption index also reported a weak performance, ending the year with a
drop of 1.2% when compared to the end of 2015. This result was mostly influenced by the
contraction of 9.2% in the consumption of semi-durable goods (clothing, toys, books and
utensils) and by the increase of 2.3% in durable goods (vehicles and appliances, domestic and
imported), components more related to the business of Cetip, breaking a sequence of
deceleration and downturns since 2013, as per economic studies published by the Brazilian
Institute of Economics (IBRE) from Fundao Getlio Vargas (FGV).
Unemployment also advanced in 2016, ending the year with 2.9 million less job posts versus
December 2015. According to data released by IBGE in its National Continuous Household
Sample Survey (PNAD), the unemployment rate reached 11.9% in December 2016, representing
an annual variation of 32.9%, totaling more than 12.1 million unemployed individuals.
7
Despite the economic downturn, the IPCA consumer price index closed 2016 at 6.3%, close to
the ceiling of the Central Banks inflation target band, which was 6.5%. Still, it is important to
highlight that the index experienced a strong deceleration throughout 2016, after reaching
10.7% in January 2016, the highest rate since 2002. Additionally, key market players ended the
year with the expectation that the IPCA index would reach levels close to 4.9% in 2017,
according to the Focus Bulletin released by the Central Bank.
The Consumer Confidence Index (CCI) from IBRE-FGV reflects the economic deterioration
scenario, with prospects of future improvement. In April 2016, influenced by political instability
and unemployment acceleration, this index reached a record low of 64.4 points. During the
second half of 2016, with the improvement in the overall political situation and the lower levels
of unemployment and inflation growth, the index showed an upward trajectory, breaking the
trend observed since 2011. The exchange rate also presented a more favorable scenario this
year when compared to the turbulent year of 2015, in which the Brazilian Real depreciated 45%
against the U.S. Dollar. In addition to the reduction in exchange rate volatility, the Brazilian Real
recovered part of its devaluation in 2016 and closed the year at R$3.25, 22% lower than the
closing price the end of 2015.
Although the Brazilian Real appreciated throughout 2016, the national currency was still
depreciated when compared to 2014. This depreciation, combined with the drop in domestic
consumption, led to a decrease in imports and allowed a growth in trade balance, which
registered a surplus of US$47.7 billion, a significant result when compared to the 2015 surplus
(US$19.7 billion) and the deficit in 2014 (US$4.0 billion), according to the Ministry of Industry,
Foreign Trade and Services.
On the other hand, public accounts reported a primary deficit of R$156.8 billion, equivalent to
2.5% of the GDP, an increase of 0.65 bps when compared to the end of 2015.
Accompanying the inflation deceleration and aiming to stimulate the economy, in October
2016, the Monetary Policy Committee (Copom) began its first cuts to the Selic rate in 4 years,
initiating a new cycle of interest rate reduction that resulted in an annual Selic rate of 13.75% at
the end of the last quarter of 2016. On November 01, 2017, this rate underwent a further and
more aggressive cut, falling to 13.00% p.a., and thus increasing the expectation that nominal
interest rates will be a single-digit number by the end of 2017.
In December 2016, the government announced a series of measures to stimulate economic
growth in Brazil, among which we highlight: (i) the incentive for real estate credit and for the
construction activity as a whole, by altering the rules for the use of the FGTS, a personal
employee reserve savings which has restricted rights of use, and also advancing in the
regulation of the guaranteed real estate bill issued by financial institutions; (ii) the improvement
of credit supply to small and medium-sized companies, by creating a centralized environment
for registration of trade notes; (iii) the reduction of financial expenses to end consumers, either
by allowing price differentiation according to payment method or by the introduction of
changes in credit card interest rates; (iv) lower levels of bureaucracy for tax payments, with the
simplification of the tax collection process; and (v) a series of other measures for credit
stimulation with capacity to increase the availability financial resources in the economy.
8
In 2017, we expect that the unfolding of the announced measures, the continuity of discussions
on matters related to fiscal responsibility, and the social security, labor and fiscal reforms, all
necessary measures to increase the countrys potential for economic growth, help resume
growth in a sustainable manner.
Long-term Interest Rate end of the year 5.00% 5.00% 5.00% 7.00% 7.50%
Accumulated Interbank deposit rate (CDI) 8.40% 8.06% 10.81% 13.24% 14.00%
Exchange rate (R$/ US$ final) 2.0435 2.3426 2.6562 3.9048 3.2540
National Wide Consumer Price Index 5.84% 5.91% 6.41% 10.67% 6.29%
General Index of the Market Prices 7.82% 5.53% 3.69% 10.54% 7.19%
Sources: CETIP, Brazilian Central Bank, National Bank for Economic and Social Development BNDES, Ministry of Development,
Industry and Export - MDIC and Bloomberg and National Household Sample Survey - PNAD
3,9%
3,0%
1,9%
0,1%
-0,1%
-3,8% -3,5%
9
SELIC - Brazil's prime rate (%)
30. 00%
24
20. 00%
0.25% -0.50%
-3.75%
19
-5.00% 0.0 0%
14.3 13.75
-10.00%
14
11.8
-20.00%
10.8 11
10 -30.00%
8.8
9
7.3 -40.00%
-50.00%
4 -60.00%
SECTOR ENVIRONMENT
The economic downturn scenario, combined with high interest rates, limited the appetite for
risk and capital raising efforts in the capital markets. According to data from the Brazilian
Association of Financial and Capital Markets (Anbima), inflows of resources through issuance of
securities by Brazilian companies totaled R$98.9 billion in 2016, the lowest volume in the last 7
years, with a decrease of 23.4% when compared to 2015.
Fixed income issuances accounted for 91.1% of this total, being favored in detriment to variable
income issuances, due to greater risk aversion on behalf of investors. The total issuance volume
for Debentures reached R$44.6 billion, a reduction of 23% when compared to 2015.
The greater stability of the political framework and the consequent stabilization in exchange
rate also reduced the interest for derivative contracts, which in Brazil have most of their
volumes related to exchange rate protection. The registered issuance volume for such
instruments reached R$9.0 trillion in 2016, a drop of 8.6% when compared to the amounts
observed in 2015.
CREDIT MARKET
The year of 2016 proved to be quite challenging for credit activities. The combination of high
interest rates with the more restrictive environment for credit access led to a decrease in the
portfolio of operations. As a consequence, household indebtedness declined in 2016 and
default rates remained at the same levels of 2015, contributing to a relief, albeit relative, in the
credit environment for 2017.
Credit transaction reported a drop of 3.5% and reached a total volume of R$3,107 billion in
2016, equivalent to 49.3% of GDP. This credit retraction, when compared to 2015, was in line
with the economic activity downturn that affected, mainly, demand for free resource
transactions, which also fell by 4.9% in the same period.
10
Real estate financing transactions totaled R$534.4 billion, 7.0% above the R$499.6 billion
registered at the end of 2015, and represented 8.5% of GDP, maintaining the same baseline as
the previous year.
Household indebtedness (the ratio between household debt balance at the referenced month
versus the accumulated income for the last 12 months) contracted 2.2 bps, varying from 44.6%
at the end of 2015 to 42.4% at the end of 2016, and the income portion destined to debt
payments moved in the same direction, reducing 0.8 bps from 21.2% to 22.0% during the same
period. The default index level for personal credit, which is measured by the ration between
the volume of operations defaulted by over 90 days and the total volume of credit approved,
improved by 0.3 bps when compared to the end of 2015 and reached the end of 2016 at 3.9%.
Total number of vehicles sold in 2016 reached 14.8 million units, 5.6% lower than in the
previous year, when 15.7 million vehicles, new and used, were sold. The reduction in the of
vehicles sold was due to a 21.1% and 1.0% decrease in the number of new and used vehicles
sold in 2016, respectively, versus the accumulated results for 2015.
The total number of vehicles financed in 2016 fell by 13.2% when compared to the previous
year, resulting from the combined effect of the decline in the total amounts of vehicles sold and
the decline of financing penetration of such operations, which dropped 2.5 bps, from 30.6% in
2015 to 28.3% in 2016.
52,6%
5.00 0
49,1% 49,3%
45,4% 50, 0%
40,5%
4.00 0
3.219 3.107
3.018
40, 0%
3.00 0
2.715
2.368 30, 0%
2.034
2.00 0
1.713
1.421 20, 0%
1.00 0
10, 0%
- 0,0 %
11
Credit Growth - Brazil
25, 0%
20,6%
20, 0%
18,8%
16,4%
15,1% 14,6%
15, 0%
11,1%
10, 0%
6,7%
5,0 %
0,0 %
-3,5%
-5,0%
REGULATORY ENVIRONMENT
Resolutions were issued by the Brazilian Central Bank and the Brazilian Securities and Exchange
Commission (CVM) related to the markets on which Cetip focuses. Although some of these
regulations had their publication or commencement prior to 2016, their effects influenced our
operations also in this exercise, which were:
Depository
In the Securities Unit, the main new regulation (reform of CVM Resolution 89) involves new
CVM rules for centralized deposit, custody and book-keeping. For Cetip, Resolution 541 applies,
providing, in Article 35, the manner by which the constitution of collaterals for securities, which
will be done via registration in the deposit account, facilitating the identification of liens on
these securities and giving more security to the creditors and the market. The CVM jointly
published two other instructions (542 and 543) related to custody and book-keeping. The new
rules clarified the depositary, custodian and bookkeeping roles and obligations, in order to put
all procedures in international standards. In order to comply with the new rules, Cetip is
introducing a series of adjustments in its systems, with a coordinated work with the market,
because the change impacts the entire industry.
We highlight that since January 2016 is in force the system for registration of liens on securities
deposited and / or positions in derivative. This way, the financial instruments that have as
collateral such assets are now registered in Cetip, providing efficiency gains for our customers
and for the market as a whole.
12
of their holders. This change became effective in March 2015 and influenced operations in
2016, mainly due to the shift of CDB stocks to the new pricing model.
Financing Registration
Resolution 4088 of the National Monetary Council has effect on Financing Unit, because it
provides for the collateral registration related to the vehicles financing or mortgages. In
addition, it standardizes information about vehicles ownership object of leasing operations in a
registration and settlement system authorized by the Central Bank.
Resolution 4088 became effective in 2013, with respect to the vehicle market, and in 2015, with
regard to the real estate market. CETIP already offers for vehicle segment a solution for the
electronic registration of financing operations collateral and sending out this information to the
Brazilian Central Bank, with the Cetip | Sistema de Registro de Garantia on motor vehicles, and
will work to develop and offer to the market a solution to meet the Resolution 4088 for the real
estate market. Central Banks Circular n. 3,793, postponed the deadline for real estate financing
compliance from February 1st, 2016 to March 1st, 2017.
Also relating to the regulatory framework of the Financing Unit, CETIP has now direct access to
the database of the National Registry of Motor Vehicles (Renavam), the National Traffic
Department (Denatran), and a process that brings greater stability and security for businesses
that drive.
13
In 2016, gross revenue from services totaled R$ 1,545.9 million, reporting an increase of 13.4%
when compared to 2015, as result of an 18.1% increase of gross revenue of the Securities Unit
and a 2.7% growth in gross revenue of the Financing Unit during the period.
Revenue deductions (taxes on services rendered and other deductions) increased by 9.0% year-
over-year (YoY), due to (i) gross revenue growth itself, which implies higher volume discounts;
(ii) changes in product and revenue per business unit mix; and (iii) the conclusion, during the
month of May, of the moving of the IT and operations areas of the Securities Unit to its new
headquarter in Barueri.
Therefore, net operating revenue reached R$ 1,286.8 million in 2016, 14.3% above 2015,
reflection of the gross revenue growth during the period and the benefits achieved by the
moving to Barueri
The following charts show the breakdown of the key revenue lines that compose Cetips gross
operating revenue:
2016 2015
Securities Unit: 72.6% / Financing Unit: 27.4% Securities Unit: 69.7% / Financing Unit: 30.3%
Market data and Other revenues Market data and Other revenues
Development of (Financing Unit) Development of (Financing Unit)
Solutions 0.1% Solutions 0.3%
Registration Registration
5.1% 5.5% 8.9%
7.3%
Contracts Contracts
System System
11.5% 11.9%
Other revenues
(Securities Unit)
6.3% Other revenues
(Securities Unit)
7.1%
Transactions Monthly
11.1% Utilization
Monthly Transactions
Utilization 11.0% 13.9%
14.7%
SECURITIES UNIT
Gross operating revenue from the Securities Unit totaled R$ 1,122.4 million in 2016, 18.1%
higher than in 2015. CSD and trade repository maintenance fee revenue (previous denominated
as custody) was responsible for 45.8% of the Securities Units total gross revenue in the quarter,
while monthly utilization accounted for 20.2%, transactions for 15.2%, registration for 10.1%,
EFTs processed revenue (CIP) for 3.8%, repos, final transactions and electronic trading platform
for 3.1%, and other services provided amounted to 1.8%.
14
I. Registration Revenues
In 2016, registration revenue totaled R$ 113.5 million, 6.9% lower than in 2015, mainly due to:
(i) the 16.0% decrease in revenue from OTC derivatives and structured notes; and (ii) a 1.3%
decrease in fixed income instruments registration revenue.
The key highlights from fixed income securities and OTC derivatives in 2016 are briefly
described as follows:
Fixed Income Instruments
In 2016, registration revenue of fixed income securities fell 1.3% when compared to 2015, as a
net result of: (i) the decrease in revenue from registration of banking funding instruments (-
4.1%), influenced mainly by lower registration volumes of Letras Financeiras (Financial Bills);
(ii) the drop in registration revenue from real estate market instruments (-11.0%), impacted by
a 10.1% reduction in registered volumes; partially offset by (iii) the growth in revenue from
other fixed income instruments (+22.6%), which presented volumes 11.7% greater.
OTC Derivatives
In 2016, revenue from derivatives and structured notes registration reached R$ 38.8 million,
16.0% lower than in 2015 due to volumes 8.6% lower in current period. It is important to note
that, during 2015, exchange rate volatility was strongly observed, driving demand for hedging
instruments. Throughout 2016, exchange rates and volatility have returned to normalized
levels, especially during the second half of the year, which leaded to lower volumes of
derivatives registered.
II. CSD and Trade Repository Maintenance Fee Revenues (previously denominated as
Custody)
Revenues from CSD and Trade Repository maintenance fee totaled R$ 514.0 million in 2016, up
31.1% over 2015, result of the growths of: (i) 39.0% in revenue of fixed income instruments,
especially banking funding instruments (+34.4%), which still captures the effects of the shift of
CDB stock to the new pricing model implemented in March 2015, and other fixed income
instruments (+125.8%), being the latter a result of the revision of Cetips price table that
occurred in the beginning of 2016 and was offset by a reduction in the amount of transactions
charged; (ii) 34.2% in revenue of maintenance fee from end users, influenced by the growth in
end users (+19.4%) and also by the increase in average price (+12.3%); and (iii) 9.4% in revenue
from OTC contracts and structure notes
Monthly utilization revenue totaled R$ 226.8 million in 2016, 19.5% higher than in 2015,
influence by an increase of 20.8% in average price, which in turn is mostly explained by the
annual price table readjustment implemented in the beginning of 2016.
15
IV. Transactions Revenue
In 2016, transaction revenues totaled R$ 171.0 million, 13.9% higher than in 2015, a net result
of the increase in the number of transactions processed during the period (+18.7%) and a
decrease of the average price per transaction (-4.1%).
Other revenues from services related to the Securities Unit reached R$ 96.9 million in 2016,
0.5% higher than in 2015, as a result of: (i) the increase in revenues from electronic cash
transfers (EFTs) (+3.9%); (ii) the growth in revenues from other services from the Securities Unit
(+16.6%); although (iii) the decrease in revenues from repos, final transactions and electronic
trading platform (-10.4%).
The 3.9% increase in the revenue from electronic EFTs, which represents 44.0% of other
services revenue from the Securities Unit, was a consequence of: (i) the 39.3% growth in
number of EFTs processed; and (ii) the 25.4% drop in average price, reflecting the higher
volume processed during the year as a result, among other factors, of the lower minimum
ticket, which was reduced from R$ 500 to R$ 250 in the beginning of July 2015, and from R$ 250
to zero in January 2016, which in turn raises the effect of contractual pricing policy that defines
lower prices according to bands of volume.
FINANCING UNIT
Gross operating revenue from the Financing Unit totaled R$ 423.5 million in 2016, 2.7% higher
than in 2015. SNG revenue accounted for 38.9% of the Financing Units total gross revenue in
the year, Contracts System represented 41.9%, market data and development of solutions,
18.6% and other revenues from services, 0.5%.
16
I. SNG
In 2016, SNG revenue totaled R$ 164.8 million, 3.3% lower than 2015, mainly due to (i) the
sharp reduction of the vehicle financing market (-12.4%), partially offset by (ii) the annual price
adjustment based on the IGP-M; and (iii) the contribution of deferred revenue from previous
quarters.
The drop in the number of vehicles financed was a consequence of the combined effects of a
4.9% reduction in the amount of vehicles sold and a 2.4 p.p decline in the ratio between
vehicles financed and vehicles sold, which went from 30.6% in 2015 to 28.2% in 2016. It is
worth noticing that on 4T16 the number of vehicles sold presented a result in line when
compared to the same quarter of 2015, ending a sequence of retractions on quarterly year-
over-year comparisons.
It is worth remembering that, in 2014, to ensure the proper application of accounting principles
to revenue recognition, the Company revisited the treatment given to the SNG revenue, and
began recognizing part of the revenue at the time of the financial constraint insertion and the
remaining portion over the period in which such restriction remained registered, up until its
retirement, no longer recognizing revenue fully at the time of insertion, as previously adopted
criteria. This review resulted in a liability recognition, composed by revenues already received
but that were deferred to future periods, as well as it attributable tax impacts, offset by an
increase in the goodwill value related to the acquisition of GRV in 2010.
Revenue from the registration of vehicles financing contracts system reached R$ 177.6 million
in 2016, a 9.3% increase in relation to 2015 explained by: (i) the increase of 2.8 p.p. in the ratio
between the number of contract registrations and total number of vehicles financed (market
share), which went from 70.8% in 2015 to 73.6% in 2016; (ii) the annual price adjustment based
on the IGP-M, of 10.5%; (iii) the Contracts System price equalization, implemented gradually
from September 2015 onwards; although (iv) the decrease of 12.4% in the number of vehicle
financed in 2016.
Revenue from market data and development of solutions totaled R$ 78.8 million in 2016,
growing 4.7% over 2015, mainly influenced by the increase in revenue from Cetip | InfoService
and also by the revenues earned with Cetip | Formalizao Eletrnica.
Regarding our real state platform, it is worth noticing that, although the Central Bank's 4,088
resolution was postponed to March 2017, normative that regulates the providing of
information on real estate financing contracts, we maintained the pace of negotiations with our
clients and worked to become the market reference in the segment. This way, we highlight (i)
the agreement sealed with Abecip (Brazilian Association of Real Estate Loans and Savings
Companies), which standardize and facilitates adoption of our products by the clients in this
market; and (ii) the advances in the electronic registration pilots that we are conducting within
17
9 financial institutions, which have been expanding and reached more than 300 real registries,
electronically connecting banks and about 40 notary offices in the state of So Paulo.
Personnel 1
(224.1) (185.8) 20.6%
Outsourced services (99.1) (100.1) -1.0%
General and administrative expenses (43.1) (40.2) 7.1%
Expenses incurred on equipment and system rental (5.7) (3.1) 81.6%
Taxes and fees (1.9) (1.2) 49.8%
Other expenses/revenues (0.8) (4.7) -82.7%
TOTAL Adjusted Operating Expenses (374.6) (335.2) 11.8%
Share based incentive (14.2) (19.8) -28.4%
Depreciation and amortization (105.7) (92.8) 14.0%
TOTAL Operating Expenses (494.5) (447.7) 10.4%
1
Personnel include expenses with Board members and advisory committees
The adjusted operating expenses amounted to R$ 374.6 million in 2016, increasing by 11.8%
when compared to 2015, mainly explained by (i) the increase in personnel expenses (+20.6%);
(ii) the expansion in expenses incurred on equipment and system rental (+81.6%); and (iii) the
reduction in other expenses (-82.7%). It is worth remembering that in 2015, other expenses was
affected by non-recurring expenses of R$ 2.9 million from a fixed asset write-off relating to the
process of relocating operations to the new office in Barueri and provisions for civil
proceedings.
Personnel expenses, in turn, grew from 2015 to 2016 due to: (i) an increase in headcount
(+7.5%); (ii) the annual salary readjustments; and, mainly, (iii) the inclusion of the Matching
Program expenses in this line. It is worth noting that, as of March 28, 2016, Cetip began to
adopt the Matching Program as the instrument for long-term employee incentive, thus not
offering new grans of its Stock Option Plans. Differently from the Stock Option Plans, the
expense related to the Matching Program is cash based and included in the personnel expense
line as it is considered remuneration for labor, tax and social security purposes. For comparison
purposes, the exclusion of the Matching Program would imply would imply a growth of 9.0% in
adjusted operational expenses when comparing 2016 to 2015.
18
The following charts show the breakdown of Cetips adjusted operational expense lines in the
indicated periods:
2016 2015
Others Others
General and General and
2.2% 2.7%
administrative administrative
expenses expenses
11.5% 12.0%
Outsourced
services Personnel,
Personnel Outsourced 55.4%
26.4%
59.8% services
29.9%
Below, the Companys expenses are allocated among those which are variable, i.e. directly
linked to revenue, and other operating expenses.
FINANCIAL RESULT
Net financial result was R$ 91.1 million positive in 2016, R$ 202.5 million higher than the R$
111.4 million negative result achieved in 2015. This delta is the net effect, mostly, of: (i) a R$
10.8 million increase in financial income, which reported in this year, gains related to exchange
rate variations on loans (R$ 103.9 million) above the 2015 result; partially offset by no gain in
swap transactions in 2016; and (ii) a R$ 191.7 million decrease in financial expenses in 2016,
mainly due to loans exchange variation (R$ 279.4 million) partially offset by R$ 76.6 million in
swap transactions losses.
It is worth to highlight that, currently, the Company has, in its consolidated balance sheet, two
types of debt instruments in foreign currency: (i) a bilateral domestic loan in accordance to the
4,131 Law, totaling US$ 100.0 million, whose FX risk is hedged by a swap contract; and (ii) two
loans, comprising a total of US$ 150.0 million, acquired by an offshore subsidiary.
As for the latter, despite not having a hedging contract in place, the Company does not incur
bottom line exchange rate risk. The table below isolates the impact of exchange rate
fluctuations related to the offshore loan and the offshore investment, both in Cetips financial
19
result as well as in its income tax and social contribution expense, as to allow a better
comparison basis for the analysis of the Companys financial result evolution:
1 Considers the methodology for calculating EBITDA and adjusted EBITDA as per CVM Instruction 527 from 10/04/2012.
Cetips adjusted net income (cash earnings) reached R$ 638.7 million in 2016, 2.3% higher than
in 2015, performance mostly explained by the EBITDA evolution in the comparison periods and
20
the ending, since the beginning of 2016, of the tax benefits of the goodwill arising from the GRV
acquisition in 2010. Adjusted net margin reached 49.6% in 2016, 5.9 p.p. lower than in 2015.
1 Amortization of intangible assets (contractual relationships) related to the acquisition of GRV in the amount of R$ 13.0 million per quarter, from 1Q11
until 2Q28, accounted as depreciation and amortization expenses;
2 Tax benefit due to: i) the goodwill related to the acquisition of GRV in the amount of R$ 13.9 million per quarter, from 1Q11 until 4Q15; ii) the
goodwill related to the incorporation of Advent Depository in the amount of R$ 3.3 million per quarter until 4Q12 and R$ 3.8 million per quarter from
1Q13, beginning in October 2009 until October 2014; and
3 Calculation of adjusted earnings per share based on the weighted average number of shares in the period.
21
The following table shows the reconciliation of the Companys net debt and the related debt
metrics as of 2016 and 2015:
Net Debt and Capitalization (R$ million) 2016 2015 Var %
* Net o f R$ 67.4 millio n in 4Q16, R$ 65.5 millio n in 3Q16, and R$ 60.3 millio n in 4Q15, referring to investments that co nstitute CETIP 's special pro perty and are reco rded in a blo cked
acco unt in the Special Settlement and Custo dy System - SELIC.
INVESTMENTS
Cetips total investments (CAPEX) totaled R$ 97.9 million in 2016, which is equivalent to 7.6%
of net revenues in the period, a increase of 9.5% when compared to 2015. CAPEX in 2016 was
broken down as follows: (i) 49.6% for maintenance and expansion of capacity; (ii) 45.1% for
product development; and (iii) 5.4% for offices settlement. It is worth remember, that the
increase in maintenance and expansion of capacity CAPEX, observed from 2015 until 2Q16, was
mainly due to investments in Cetips new data centers in Barueri, in connection with the
relocation of the Securities Units technology and operations areas to the new office. With the
return, as of 3Q16, of maintenance and expansion of capacity CAPEX to more usual levels, total
investments over revenues will converge, over the next quarters, to its recurrent baseline.
The development CAPEX was allocated mainly among the following products: (i) Big Data; (ii)
CCP; (iii) Cetip Trader; (iv) Contracts System; (v) Depository; (vi) Electronic Appraisal; (vii) Liens
on Financial Instruments; (viii) Real Estate Platform
The table below shows the breakdown of the Company's CAPEX in the outlined periods:
22
HARE PERFORMANCE (CTIP3)
At the end of 2016, Cetips shares were traded at R$ 44,60, an appreciation of 24,1% versus the
share price at the end of 2015, performance compared to a 38,9% appreciation in Bovespa
Index (Ibovespa) during the same period. Cetips shares average daily trading volume reached
R$ 73.1 million in 2016, up 17,7% over 2015. On December 29th, 2016, Cetips market value
was R$ 11.6 billion.
140 350
300
130
250
120
124.1 200
110
150
100
100
90 50
80 0
Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
23
CORPORATE GOVERNANCE
Cetip is committed to the highest standards of corporate governance. In addition to adhering to
the Novo Mercado rules, CETIP maintains solid auto-regulation practices according to the
provisions of CVM Instruction no. 461, which regulates the functioning of organized securities
markets.
Companies listed on the Novo Mercado voluntarily agree to comply with stricter rules than
those of Brazilian corporate law, such as: (i) maintain only common shares in their capital stock;
(ii) maintain a minimum of 25% free float; (iii) detail and include additional quarterly
information; (iv) the Board of Directors must be composed of at least five members, with at
least 20% of independent members and a maximum two years term; and (v) in the case of sale
of control all shareholders are entitled to sell their shares at the same price (100% tag along).
Note that some provisions of the Bylaws of CETIP goes beyond the established requirements in
the Novo Mercado.
Companies join the Novo Mercado through signature of contracts between the company, its
management and controlling shareholders and the BM&FBOVESPA, in addition to adaptation of
the companys bylaws to the rules contained in the Novo Mercado Listing Rules.
24
Amounts in
Contract Date Scope of Service thousands of
reais
Accounting process in the context of potential business
22/03/2016 419
combination
30/04/2016 Review of tax declarations filling 22
Assistance in the preparation of the recovery plan and
09/08/2016 729
orderly exit of the Company
Assurance services on fair value calculations for payment
24/08/2016 33
plans based on stock options
Maintenance of accounting and tax records related to
19/09/2016 52
foreign subsidiary
Total 1,255
MANAGEMENT STATEMENTS
As per the provisions of the item 38 of OCPC 7, the Management declares that all the relevant
information specific to the financial statements have been evidenced and correspond to those
used by it in its management.
Also, as per the provisions in CVM Instruction no. 480/09, the Management declares that it has
discussed, reviewed and agreed with the financial statements relative to the fiscal year ended
December 31, 2016 and agreed with the opinions expressed in the independent auditors report
regarding the examination of the financial statements.
25
(A free translation of the original in Portuguese)
Opinion
We have audited the accompanying parent company financial statements of CETIP S.A. -
Mercados Organizados ("Company" or "Parent company"), which comprise the balance sheet as
at December 31, 2016 and the statements of income, comprehensive income, changes in equity
and cash flows for the year then ended, as well as the accompanying consolidated financial
statements of CETIP S.A. - Mercados Organizados and its subsidiaries ("Consolidated"), which
comprise the consolidated balance sheet as at December 31, 2016 and the consolidated
statements of income, comprehensive income, changes in equity and cash flows for the year
then ended, and notes to the financial statements, including a summary of significant
accounting policies.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of CETIP S.A. - Mercados Organizados and of CETIP S.A. - Mercados
Organizados and its subsidiaries as at December 31, 2016, and the financial performance and
cash flows for the year then ended, as well as the consolidated financial performance and cash
flows for the year then ended, in accordance with accounting practices adopted in Brazil and
with the International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB).
We conducted our audit in accordance with Brazilian and International Standards on Auditing.
Our responsibilities under those standards are further described in the Auditor's
Responsibilities for the Audit of the Parent Company and Consolidated Financial Statements
section of our report. We are independent of the Company and its subsidiaries in accordance
with the ethical requirements established in the Code of Professional Ethics and Professional
Standards issued by the Brazilian Federal Accounting Council, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
26
Key audit matters
Key audit matters are those matters that, in our professional judgment,
Matters
were of most significance in our audit of the parent company and
consolidated financial statements of the current period. These matters
Why it is a
were addressed in the context of our audit of the parent company and key audit
matter
consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. How the
matter was
addressed
Why it is a Key Audit Matter How the matter was addressed in the audit
Determination of impairment
(goodwill) explanatory note 7
The Company has R$ 1.2 billion of goodwill Through discussions with the Companys
accounted for that resulted from the management, we obtained an understanding
acquisition, in 2010, of all the shares of GRV of the main processes and internal controls,
Solutions S.A. the methodology used, and the results of
In accordance with the accounting standards, managements evaluation of impairment of
management annually tests this balance for goodwill. Our approach also considered the
impairment. In 2016, management assessed review of the reasonableness of the
this balance and identified no need to record significant assumptions and the methodology
any impairment. used. In performing our tests, we sought
support from our financial valuation experts.
This assessment involves the estimation of
future cash flows from the operation as well as We compared the major financial data used in
the determination of the discount rate in order the assessment with market sources and
to establish the present value of these flows. budget projections approved by the Board of
These Directors and concluded that the data used
two variables consider use of significant was appropriate. We also performed back-
judgment by management's and assumptions testing of the main assumptions adopted in
and could be affected by future economic and the previous year and their effective results.
market conditions. Due to the scope of this In addition, we tested the general
judgment and to the significance of the consistency, logic, and arithmetic accuracy of
goodwill balance, this matter was an area of the calculations made by management.
focus in our audit.
Finally, we discussed the sensitivity analysis
prepared by management as to the
reasonableness of the main assumptions used
for the alternative scenarios and reviewed the
disclosures in the related explanatory note.
The results of these tests were discussed with
the Audit Committee.
27
Why it is a Key Audit Matter How the matter was addressed in the audit
Why it is a Key Audit Matter How the matter was addressed in the audit
In the Company's business model, the major With the support of our information-technology
revenue-generating operations, both from the experts, we applied procedures to understand
Marketable Security Unit (UTVM) and the the design and to test the operating effectiveness
Financing Unit (UFIN), are highly dependent on of the technology and information security
the technology environment for the daily controls. We also tested the logical access,
processing of the high number of operations segregation of duties, systemic changes and
transacted. physical security of the data processing center.
28
Other matters
The parent company and consolidated Statements of Value Added for the year ended
December 31, 2016, prepared under the responsibility of the Company's management and
presented as supplementary information for IFRS purposes, were submitted to audit
procedures performed in conjunction with the audit of the Company's financial statements. For
the purposes of forming our opinion, we evaluated whether these statements are reconciled
with the financial statements and accounting records, as applicable, and if their form and
content are in accordance with the criteria defined in Technical Pronouncement CPC 09 -
"Statement of Value Added". In our opinion, these Statements of Value Added have been
properly prepared in all material respects, in accordance with the criteria established in the
Technical Pronouncement and are consistent with the parent company and consolidated
financial statements taken as a whole.
The Company's management is responsible for the other information that comprises the
Management Report.
Our opinion on the parent company and consolidated financial statements does not cover the
Management Report, and we do not express any form of audit conclusion thereon.
In connection with the audit of the parent company and consolidated financial statements, our
responsibility is to read the Management Report and, in doing so, consider whether this report
is materially inconsistent with the financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement in the Management Report, we are required to
report that fact. We have nothing to report in this regard.
Management is responsible for the preparation and fair presentation of the parent company
and consolidated financial statements in accordance with accounting practices adopted in Brazil
and with the IFRS as issued by the IASB, and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
29
Those charged with governance are responsible for overseeing the financial reporting process
of the Company and its subsidiaries.
Our objectives are to obtain reasonable assurance about whether the parent company and
consolidated financial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Brazilian and International Standards on Auditing will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
Identify and assess the risks of material misstatement of the parent company and
consolidated financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the internal control of the Company and its subsidiaries.
Evaluate the overall presentation, structure and content of the parent company and
consolidated financial statements, including the disclosures, and whether the financial
30
statements represent the underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance of
the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance (Management and Audit Committee)
regarding, among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those
matters that were of most significance in the audit of the financial statements of the current
period and are therefore the key audit matters. We describe these matters in our auditor's
report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our
report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5 "F"
31
CETIP S.A. - Mercados Organizados
Balance sheets
In thousands of reais (A free translation of the original in Portuguese)
Current 1,415,716 952,420 1,485,224 1,007,642 Current 1,223,944 332,084 1,377,171 340,198
Cash and cash equivalents 4 2,245 879 3,555 2,438 Suppliers 65,977 54,042 66,334 54,416
Financial investments - non restricted and restricted 5 1,120,219 756,462 1,183,361 801,956 Labor obligations and social charges 11 89,991 68,050 90,272 68,411
Derivatives 24b,d 64,577 - 64,577 - Taxes payable 12 18,161 18,036 18,329 18,183
Accounts receivable 6 131,432 115,537 134,153 117,658 Income tax and social contribution - - 10,186 8,435
Recoverable taxes and contributions 55,295 57,959 57,608 63,917 Dividends and interest on own capital payable 122,523 110,261 122,523 110,261
Prepaid expenses 9,787 7,084 9,787 7,084 Debentures issued 14 520,755 21,431 520,755 21,431
Other receivables 32,161 14,499 32,183 14,589 Loans and finance lease obligations 14 354,063 8,317 496,298 7,113
Derivatives 24b,d 11,941 11,572 11,941 11,572
Deferred revenues 37,786 40,223 37,786 40,223
Other liabilities 2,747 152 2,747 153
Non-current 3,498,175 3,363,356 2,402,785 2,489,422
Non- current 1,855,406 2,287,877 676,297 1,461,051
Long-term receivables 294,769 373,958 294,769 373,958 Suppliers 1,294 8,046 1,294 8,046
Financial investments - non restricted and restricted 5 289,744 248,553 289,744 248,553 Deferred income tax and social contribution 21a 291,730 136,372 291,746 136,465
Derivatives 24b,d - 120,663 - 120,663 Provision for contingencies and legal obligations 13d 5,727 5,933 5,727 5,933
Judicial deposits 177 181 177 181 Debentures issued 14 - 498,849 - 498,849
Prepaid expenses 3,052 2,659 3,052 2,659 Loans and finance lease obligations 14 1,522,030 1,601,938 342,905 775,019
Other receivables 1,796 1,902 1,796 1,902 Deferred revenues 34,625 36,739 34,625 36,739
Investments 1,137,513 918,181 7,695 6,873 Shareholders equity 1,834,541 1,695,815 1,834,541 1,695,815
Investment in subsidiaries 8a 1,129,818 911,308 - - Capital 15a 658,416 658,416 658,416 658,416
Investment in associate 8b 7,225 6,143 7,225 6,143 Capital reserves 15c 538,341 527,834 538,341 527,834
Other investments 470 730 470 730 Carrying value adjustments 7,521 (8,313) 7,521 (8,313)
Income reserves 15d,e 625,527 539,388 625,527 539,388
Property and equipment 9 53,112 47,661 53,133 47,685 Treasury shares 15b (93,848) (104,502) (93,848) (104,502)
Retained earnings - - - -
Intangible assets 10 2,012,781 2,023,556 2,047,188 2,060,906 Additional dividends proposed 15f 98,584 82,992 98,584 82,992
Total assets 4,913,891 4,315,776 3,888,009 3,497,064 Total liabilities and shareholders' equity 4,913,891 4,315,776 3,888,009 3,497,064
32
CETIP S.A. - Mercados Organizados
Statements of income
Years ended December 31
In thousands of reais, unless otherwise stated (A free translation of the original in Portuguese)
CETIP Consolidated
33
CETIP S.A. - Mercados Organizados
Statements of comprehensive income
Years ended December 31
In thousands of reais (A free translation of the original in Portuguese)
CETIP Consolidated
Total comprehensive income for the period a1ributable to CETIP's shareholders 588,462 489,706 588,462 489,706
(1)
Items will be subsequently reclassified to income
34
CETIP S.A. - Mercados Organizados
Statements of changes in shareholders equity
Years ended December 31
In thousands of reais (A free translation of the original in Portuguese)
At December 31, 2015 658,416 527,834 (8,313) 2,048 537,340 (104,502) - 82,992 1,695,815
Comprehensive income
Net income for the period - - - - - - 572,628 - 572,628
Fair value adjustment of available for sale financial assets,
net of deferred taxes - - 15,834 - - - - - 15,834
Total comprehensive income for the period - - 15,834 - - - 572,628 - 588,462
At December 31, 2016 658,416 538,341 7,521 2,048 623,479 (93,848) - 98,584 1,834,541
At December 31, 2014 635,937 533,821 (413) 2,048 462,667 - - 111,893 1,745,953
Comprehensive income
Net income for the period - - - - - - 497,606 - 497,606
Fair value adjustment of available for sale financial assets,
net of deferred taxes - - (7,900) - - - - - (7,900)
Total comprehensive income for the period - - (7,900) - - - 497,606 - 489,706
At December 31, 2015 658,416 527,834 (8,313) 2,048 537,340 (104,502) - 82,992 1,695,815
35
CETIP S.A. - Mercados Organizados
Statements of cash flows
Years ended December 31
In thousands of reais (A free translation of the original in Portuguese)
CETIP Consolidated
Income tax and social contribution paid (190,742) (160,511) (198,451) (165,062)
Net cash provided by (used in) financing activities (72,992) (363,715) (392,800) (358,858)
Cash and cash equivalents at the beginning of the period 879 405 2,438 551
Cash and cash equivalents at the end of the period 4 2,245 879 3,555 2,438
36
CETIP S.A. - Mercados Organizados
Statements of value added
Years ended December 31
In thousands of reais (A free translation of the original in Portuguese)
CETIP Consolidated
Goods and services acquired from third parties (266,368) (757,353) (264,045) (465,060)
General and administrative expenses (42,892) (40,115) (43,080) (40,231)
Third party services (96,460) (95,660) (99,054) (100,052)
Other operating expenses (127,016) (621,578) (121,911) (324,777)
Net value added generated by the company 1,033,311 393,807 1,059,915 712,583
37
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
1 Operations
CETIP S.A. Mercados Organizados ("CETIP" and "Company") is a publicly held share company
with headquarters in Rio de Janeiro. CETIP was formed following the demutualization of CETIP -
Cmara de Custdia e Liquidao (CETIP Associao) in 2008.
CETIP administers organized over-the-counter ("OTC") markets, i.e. environments for trading
and registration of securities, government and corporate fixed income bonds, and OTC
derivatives. CETIP is a systemically important settlement and clearing house, as defined by the
SPB Brazilian Payment System (Law 10,214), which performs the scriptural custody of assets
and contracts, registers transactions carried out in the OTC market, processes financial
settlements, and offers to the market an electronic platform for conducting various types of
online transactions, such as auctions and trading of government bonds, corporate bonds, and
fixed income securities.
The Company is Latin Americas the lead depository of corporate fixed income securities and
the lead chamber for private assets of the Brazilian financial market. Through its activities it
provides the necessary support to the entire cycle of transactions involving fixed income
securities, securities and OTC derivatives.
The Company is also the leading private provider of information on insertions and removals of
financial restrictions related to vehicle financing transactions, with an integrated electronic
system and nationwide coverage which provides critical infrastructure to the vehicle financing
market.
These financial statements were approved by the Company's Board of Directors on February 14,
2017.
The Statements of value added, individual and consolidated, is required by Brazilian Corporate
Law and the accounting practices adopted in Brazil to publicly traded companies. IFRS does not
require presentation of this statement. This statement is presented as supplementary
information in IFRS, subject to the set of financial statements.
38
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
The consolidated financial statements have been prepared and are being presented in
accordance with the accounting practices adopted in Brazil, including the pronouncements
issued by the Accounting Pronouncement Committee (CPCs).
The consolidated financial statements have also been prepared and are being presented in
accordance with International Financial Reporting Standards IFRS issued by the International
Accounting Standards Board (IASB).
The consolidated financial statements include the balances of CETIP and of its wholly-owned
subsidiary, Cetip Info Tecnologia S.A. and Cetip Lux S..r.l. (Cetip Lux).
The individual financial statements of the parent company were prepared in accordance with
the accounting practices adopted in Brazil issued by the Accounting Pronouncement Committee
(CPCs) and are published together with the consolidated financial statements.
The individual financial statements of the parent company were prepared in accordance with
the accounting practices adopted in Brazil issued by the Accounting Pronouncement Committee
(CPCs) and International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (IASB), and it shows all relevant information of own financial
statements, and only it, which are consistent with those used by administration in its
management. From 2014, the IFRS now allow the application of the equity method in
subsidiaries in separate financial statements, as it was required by the accounting practices
adopted in Brazil. Therefore, there is no difference in accounting criteria in this respect and the
individual financial statements also comply with IFRSs issued by IASB.
The consolidated and individual financial statements are presented in Brazilian Reais, which is
the Companys functional currency.
d. Segment information
Operating segments are reported in a manner consistent with the internal reporting provided to
the chief operating decision-maker. The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating segments, has been identified
as the Executive Board that makes strategic decisions.
39
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
e. Accounting estimates
The preparation of individual and consolidated quarterly information in conformity with IFRS
and CPCs requires management to exercise its judgment, to make estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets, liabilities,
income and expenses. Actual results may differ from these estimates.
Estimates and assumption are constantly revised. Reviews in estimates are recognized in the
period in which they are made and in any future periods affected.
Information about critical judgments relating to the accounting policies applied and critical
estimates and assumptions that could have a significant impact in the amounts reported in the
individual and consolidated financial statements are included in the following notes:
(i) Note 5 classification and determination of the fair value of financial instruments;
(ii) Note 7 assumptions used in determining the recoverable amount for the purpose of the
goodwill impairment testing;
(iii) Note 13 determination of provisions for contingent liabilities;
(iv) Note 23c(i) determination of the fair value of stock options granted to employees and
estimate of the amount of options that will achieve vesting.
The main accounting policies described below have been consistently applied to all the periods
presented in these individual and consolidated financial statements.
a. Basis of consolidation
i. Business combination
The Company measures the goodwill as the fair value of the consideration transferred,
deducting the net fair value of identifiable assets and liabilities assumed, all measured at the
date of acquisition.
Transaction costs other than those associated with the issuance of debt or equity, which the
company incurs in relation to a business combination are recognized as expenses as they are
incurred.
40
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Subsidiaries are all entities in which the Company is exposed, or has rights, to variable returns
from its involvement with the entity and has the ability to affect those returns through its
power over the entity, usually caracterized by a participation of more than half of the voting
rights (voting capital). The subsidiaries are fully consolidated from the date on which the control
is transferred to the Company. Consolidation is interrupted from the date on which control
ends.
Associates are those entities in which the Company, directly or indirectly, has significant
influence over the financial and operating policies, but not control. The significant influence
supposedly occurs when the company, directly or indirectly, holds between 20 and 50 per cent
of the voting rights in another entity.
Investments in associates are accounted for using the equity method of accounting and are
initially recognized at cost. The Companys share of its associates profits or losses is recognized
in the income statement, and its share of movements in reserves is recognized in reserves. The
cumulative movements are adjusted against the carrying amount of the investment.
The accounting policies of associates have been applied in a consistent manner with the policies
adopted by the Company.
Balances and inter-company transactions, and any income or expenses arising from inter-
company transactions are eliminated in the consolidated financial statements. Unrealized gains
arising from transactions with companies accounted for using the equity method of accounting
are eliminated against the investment in proportion to the Companys interest in the investee.
Transactions in foreign currency are translated using the exchange rates prevailing at the
transaction date. Foreign exchange gains and losses arising from the translation based on the
exchange rate at the end of the period, relating to assets and liabilities in foreign currencies, are
recognized in the income statement as financial income or expenses.
41
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
For the purpose of the statement of cash flows, the balance of cash and cash equivalents
includes cash, bank deposits and short-term investments (term of up to 3 months), with high
liquidity and a negligible risk of change in value.
d. Financial instruments
The Company classifies its financial assets according to the following categories: measured at
fair value through profit or loss, loans and receivables, held to maturity and available for sale.
The classification depends on the purpose for which the financial assets were acquired and is
determined when the asset is first recorded.
The financial assets measured at fair value through profit or loss are (i) financial assets held for
active and frequent trading or (ii) assets designated by the Company, when first recorded, as
measurable at fair value through profit or loss. The assets held for trading are classified as
current assets irrespective of their contractual maturities. Gains or losses arising from the fair
value variations of financial assets measured at fair value through profit or loss are recorded in
the statement of income in "financial result" for the period in which they occur.
These comprise loans granted and receivables which are non-derivative financial assets with
fixed or determinable payments, not quoted in an active market. The Company's loans and
receivables comprise trade accounts receivable, advances and other receivables. Loans and
receivables are recorded at amortized cost, based on the effective interest rate method.
These are financial assets quoted in an active market which are acquired with the intention and
financial ability to be held in the portfolio up to their maturity. They are recorded at the
acquisition cost, plus related earnings which are recognized in the statement of income under
"financial result", using the effective interest rate method.
42
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Available-for-sale financial assets are non-derivatives instruments which are classified in this
category or not classified in any other. Available-for-sale financial assets are recorded at fair
value. Interest on available-for-sale securities, calculated based on the effective interest rate
method, is recognized in the statement of income under "financial result". Gains or losses
resulting from a change in fair value are recorded net of deferred taxes in shareholders' equity,
in the Carrying value adjustments account and are transferred to the statement of income
when the asset is sold or becomes impaired.
The Company recognizes debt securities issued on the date on which they are originated. All
other financial liabilities are initially recognized at the date of negotiation in which the company
becomes a part of the contractual provisions of the instrument. The Company derecognizes a
financial liability when its contractual obligations are withdrawn, cancelled or expired.
The company has the following main non-derivative financial liabilities: borrowings, debentures,
suppliers and other accounts payable.
Such financial liabilities are initially recognized at fair value plus any attributable transaction
costs. After initial recognition, these financial liabilities are measured at amortized cost using
the effective interest method.
Fair values of investments with public quotations are based on current market prices. For
financial assets without an active market or public quotation, the Company determines fair
value through valuation techniques, such as discounted cash flows analysis and option pricing
models.
The Company evaluates, at the balance sheet date, if there is objective evidence that a financial
asset or a group of financial assets is overstated (impaired) in relation to its recoverable value. If
there is such evidence for available-for-sale financial assets, the cumulative loss is transferred
from equity to the statement of income.
43
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Accounts receivable from customers correspond to the receivables from customers for the
provision of services in the ordinary course of the Companys business. If the term of the
receivable is equivalent to one year or less, the accounts receivable are classified as current
assets. Otherwise, are presented as non-current assets.
Accounts receivable from customers and other receivables are initially recognized at fair value
and subsequently measured at amortized cost using the effective interest rate method minus
the provision for impairment, when applicable. In practice, considering the average short-term
of these receivables (less than one month), they are usually recognized at the invoiced amount,
adjusted by a provision for impairment, if necessary.
The impairment provision is recorded when there is objective evidence of loss in the assets
recoverable amount as a result of one or more events that occurred after the initial recognition
of the asset.
f. Prepaid expenses
Represented by contracts between suppliers and the Company, deriving from the provision of
various prepaid services. The amounts are expensed in the income statement over the term of
each contract and the extent to which services are received.
g. Judicial deposits
Judicial deposits are stated as a deduction from the corresponding liability recorded when they
cannot be redeemed, unless there is a favorable outcome for the Company in the dispute
(Note 13).
Property and equipment items are measured at historical cost of acquisition or construction (in
the case of land and buildings), less accumulated depreciation and any accumulated impairment
losses.
Depreciation is calculated using the straight-line method at the rates disclosed in Note 9, which
take into account the estimated useful lives of the assets.
The estimated economic useful lives and the estimated residual value of property and
equipment items are reviewed at the end of each year and adjusted, if necessary.
Repairs and maintenance costs are allocated to the statement of income during the period in
which they are incurred.
44
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
i. Intangible assets
i. Goodwill
The goodwill is represented by the positive difference between the consideration paid and/or
payable for the acquisition of a business and the net amount of the fair value of assets and
liabilities of the subsidiary acquired. The goodwill arising from acquisitions of subsidiaries is
recorded as "Intangible assets".
The goodwill is not amortized but tested annually to assess any impairment losses. The goodwill
is accounted at cost less any accumulated impairment losses. Goodwill impairment losses
eventually recognized cannot be reversed.
The goodwill is allocated to cash-generating units (UGCs) for impairment testing purposes. The
allocation is made for the cash-generating units or groups of cash-generating units which will
benefit from the business combination in which the goodwill was originated, and are identified
according to the operating segment.
Contractual relations acquired in a business combination are recognized at fair value on the
date of acquisition. Contractual relations have finite useful life and are stated at their cost less
accumulated amortization. Amortization is computed using the straight-line method over the
expected life of the contractual relationship at the rates described in Note 10.
Software licenses acquired are recorded at total acquisition cost, adjusted when applicable to
their recoverable value and amortized over their estimated useful life, at the rates described in
Note 10.
Software development expenses recognized as assets are amortized over their estimated useful
lives, using the straight-line method, at the rates described in Note 10.
The estimated economic useful lives and the estimated residual value of intangible assets are
reviewed at the end of each year and adjusted, if necessary.
45
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Assets that have an indefinite useful live, such as the goodwill, are not subject to amortization
or depreciation and are annually tested for impairment. Assets that are subject to amortization
or depreciation are tested for impairment whenever events or changes in the circumstances
indicate that the carrying value may not be recoverable. An impairment loss is recognized at the
amount by which the carrying value of the asset exceeds its recoverable value, which is the
greater between its fair value less costs to sell and its value in use. For the purpose of
impairment testing, assets are grouped at the lowest level for which there are separately
identifiable cash flows (Cash Generating Units (CGU)). For the purpose of the goodwill
impairment testing, the goodwill originated in a business combination is allocated to the CGU to
which it is related or to which the synergy benefits from the business combination are
expected. This allocation reflects the lowest level in which the goodwill is monitored internally
and it is not greater than an operating segment determined in accordance with IFRS 8 and
CPC 22.
The debentures issued and the external loans are recognized initially at fair value, net of
transaction costs incurred and subsequently measured at amortized cost. Any difference
between the value obtained (net of transaction costs) and the settlement value is recognized in
the income statement during the period in which the debentures are outstanding, using the
effective interest rate method.
The Company has certain items of property and equipment that have been financed through
lease. The leases in which the company has substantially retained all the risks and benefits of
ownership are classified as finance leases. These are immobilized at the beginning of the lease
by the smallest value between the fair value of the leased asset and the present value of
minimum lease payments.
46
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
The minimum lease payments are segregated between financial expense and reduction of the
outstanding liability. The financial expense is appropriate to each period during the term of the
lease to produce a constant periodic rate of interest on the remaining balance of the liability.
The property and equipment items acquired through finance leases are depreciated over the
useful life of the asset.
m. Revenue recognition
Revenues include the consideration received or receivable for the provision of services in the
ordinary course of the Companys activities
Revenues are recognized when transactions are completed (such as revenues from registration,
transactions and lien registration) or when services are rendered (such as revenues from
insertion of financial constraints, CSD and trade repository maintenance fee (previously
denominated as custody) and monthly utilization), on an accrual basis.
Financial income includes income from interest on funds invested (including available-for-sale
financial assets), gains on disposal of available-for-sale financial assets and changes in fair value
of financial instruments measured at fair value through profit or loss and foreign exchange on
loans. Interest income is recognized in the statement of income using the effective interest
method.
Financial expenses mainly include interest expenses on financial instruments and finance leases.
Borrowing costs that are not directly attributable to the acquisition, construction or production
of a qualifying asset are recognized in the statement of income using the effective interest
method.
The dividends and interest on own capital are recognized as a liability in the financial
statements at the year end, based on the bylaws of the Company. The dividends above the
minimum mandatory are maintained shareholders equity and provisioned on the date in which
they are approved by the shareholders at the General Meeting.
The tax benefit of interest on own capital is recognized in the statement of income.
47
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Recognition, measurement and disclosure of contingent assets and liabilities and of legal
obligations are carried out in accordance with the criteria set forth in corporate law:
i. Contingent assets - These are not recorded, except when Management has full control over
the outcome or when there are favorable decisions to which no further appeals are
applicable, such that the gain is almost certain. Contingent assets with a probable chance of
success, when applicable, are only disclosed in the notes to the financial statements;
ii. Contingent liabilities - These are recognized taking into account the opinion of the legal
advisors, the nature of these lawsuits, similarity with previous proceedings, complexity and
rulings of the courts, whenever the (i) chance of loss has been classified as probable, where
an outflow of proceeds will probably be required to settle the obligation and (ii) when the
amounts involved can be determined with sufficient reliability. The contingent liabilities
classified as possible losses are not recorded and are only disclosed in the notes to the
financial statements, and those classified as remote are neither recognized nor disclosed
(except for the item described in Note 13f, which is being disclosed due to the materiality of
the amounts involved); and
iii. Legal obligations - Arise from legal proceedings related to tax obligations, whose aim is to
challenge their legality or constitutionality. Regardless of the assessment about the
probability of success, these have their full amounts recognized in the financial statements.
q. Employee benefits
i. Pension obligations
48
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Profit sharing is recognized during the year, as long as the amount can be accurately calculated
by the Company. Should this not be the case, profit sharing and bonuses are recognized at the
end of the year, when the amount can be measured reliably with certainty by the Company.
The Company offers to its employees and executives share-based remuneration plans, to be
settled in Companys shares, according to which the Company receives services in consideration
for stock options. The fair value of options granted is recognized as an expense, during the
period in which the right is obtained (vesting period). At the reporting date, the Company
revises the estimated number of options which will vest and recognizes the impact of the
change in initial estimates, if any, in the statement of income with a contra-entry to
shareholders' equity on a prospective basis.
In the case of share-based compensation programs settled in cash, the fair value to be paid to
executives is recognized as an expense with a corresponding increase in liabilities, over the
period in which the right is obtained. The liability is remeasured at each balance sheet date and
at settlement date. Any changes in the fair value of the liability are recognized as personnel
expenses in the income statement.
The income tax and social contribution are calculated based on the rates of (i) 15% plus a
surcharge of 10% on taxable income in excess of R$240 per year for income tax and (ii) 9% on
taxable income for social contribution on net income, and consider the offsetting of carry
forward tax losses, limited to 30% of the taxable net income.
Expenses with income tax and social contribution comprise current and deferred taxes. The
current tax and deferred tax are recognized in the result unless they are related to a business
combination, or related to items directly recognized in shareholders equity or in other
comprehensive income.
Current tax is the tax payable or receivable expected on the taxable profit or loss for the period,
at the tax rates enacted or substantively enacted by the date of the quarterly information
presentation plus any adjustment to tax payable in respect of prior years.
The deferred tax is recognized for temporary differences between the carrying value of assets
and liabilities for accounting purposes and the corresponding values used for taxation purposes.
However, the deferred income tax and social contribution are not accounted for if they result
from the initial recognition of assets and liabilities in a transaction that is not a business
combination and that does not affect neither the accounting nor the taxable profit or loss. In
addition, no deferred tax is recognized for taxable temporary differences arising on the initial
49
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
recognition of goodwill. The deferred tax is measured at the rates expected to be applied to
temporary differences when they revert, based on the laws that were enacted or substantively
enacted by the date of quarterly information presentation.
A deferred income tax and social contribution asset arising from tax losses, tax credits and
temporary differences deductible not used is recognized when it is probable that future taxable
income will be available to be used to offset such credits. Deferred income tax and social
contribution assets are reviewed at each reporting date and are reduced to the extent that their
realization is no longer likely.
The deferred tax assets and liabilities are offset in the balance sheet if there is a legally
enforceable right to offset current tax liabilities and assets and if they relate to income taxes
levied by the same taxation authority and over the same taxable entity.
The segregation between current and non-current is based on a term of 12 months subsequent
to the reporting date.
Basic earnings per share are calculated using the net income for the period attributable to the
controlling shareholders of the Company and the weighted average number of shares in
circulation in the respective period. Diluted earnings per share is calculated using the
aforementioned weighted average number of shares in circulation, adjusted by number of
instruments potentially convertible into shares with dilutive impact, for the periods presented,
in accordance with CPC 41 and IAS 33.
The Company has prepared individual and consolidated statements of value added (DVA) in
accordance with the technical pronouncement CPC 09 Statement of Value Added, which are
presented as part of the quarterly information according to corporate law applicable to publicly
traded companies, while for IFRS these represent additional financial information.
50
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Several standards, amendments and interpretations to existing standards came into effect as
from January 1, 2016, however none of them had a significant impact on the Companys
financial statements.
Several standards, amendments and interpretations of standards issued by the IASB are
effective for financial years beginning on or after January 1st, 2017. Among these, in the context
of the Company, the main ones are:
IFRS 9 Financial Instrument The new standard changed the classifying and measuring of
financial assets, introduced additional changes in relation to financial liabilities and
incorporated the hedge accounting requirements. Among the many changes introduced by
the new standard, the change in the classification of financial instruments is the main one
applicable for the Company.
IFRS 15 - Customer Contract Revenue. This standard will virtually replace all the rules for
revenue recognition under IFRS and USGAAP, except those that are in the scope of specific
standards. The new standard requires that revenue recognition be made in order to portray
the transfer of assets or services to the customer for an amount that reflects the
expectation of the company to have in exchange the rights of such assets or services.
The standards are effective for annual periods beginning January 1, 2018 and the Company
does not expect significant impacts from the adoption of these standards in the financial
statements.
51
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
CETIP Consolidated
December December December December
31, 2016 31, 2015 31, 2016 31, 2015
Cash 52 62 53 63
Cash at bank 43 17 1,350 1,574
Bank deposit certificates 2,150 800 2,152 801
5 Financial investments
CETIP
December 31, December 31,
2016 2015
Measured at fair value through profit or loss
Investment funds (a) 418,388 204,481
Bank deposit certificates 89,091 77,840
Financial Bills 109,804 137,776
Repurchase agreements 38,175 81,886
Financial Treasury Bills 261,204 190,790
Financial Treasury Bills restricted (b) 67,420 -
Available for sale
National Treasury Notes - Series B 24,068 6,297
National Treasury Notes - Series F 127,950 81,224
National Treasury Bills 206,504 164,466
Held to maturity
National Treasury Bills 67,359 -
National Treasury Bills restricted (b) - 60,255
1,409,963 1,005,015
52
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Consolidated
December 31, December 31,
2016 2015
Measured at fair value through profit or loss
Investment funds (a) 481,530 249,975
Bank deposit certificates 89,091 77,840
Financial Bills 109,804 137,776
Repurchase agreements 38,175 81,886
Financial Treasury Bills 261,204 190,790
Financial Treasury Bills restricted (b) 67,420 -
Available for sale
National Treasury Notes - Series B 24,068 6,297
National Treasury Notes - Series F 127,950 81,224
National Treasury Bills 206,504 164,466
Held to maturity
National Treasury Bills 67,359 -
National Treasury Bills restricted (b) - 60,255
1,473,105 1,050,509
(a) Represent investments in quotas from the following funds: (i) Bradesco Fundo de
Investimento Referenciado DI Premium, investment fund managed by Banco Bradesco S.A.;
(ii) Fundo Bradesco Renda Fixa CP TOP Bancos, investment fund managed by Banco Bradesco
S.A.; (iii) Santander FICFI Renda Fixa Referenciado DI, investment fund managed by Banco
Santander (Brasil) S.A.; (iv) Ita Investment Grade FICFI, investment fund managed by Banco
Itaucard S.A. and (v) Safra Capital Market, managed by Banco Safra S.A., the portfolios of
which mainly comprise investments in federal government bonds, repurchase agreements,
Financial Bills, bank deposit certificates (CDBs) and debentures (December 31, 2015 -
investments in quotas from the following funds: (i) Bradesco Fundo de Investimento
Referenciado DI Premium, investment fund managed by Banco Bradesco S.A.; (ii) Ita Corp
Plus Referenciado DI FIC, investment fund managed by Banco Itaucard S.A.; (iii) FIC Janus
Renda Fixa, investment fund managed by Votorantim Asset Management DTVM Ltda.; and
(iv) Santander FICFI Referenciado DI, investment fund managed by Banco Santander (Brasil)
S.A.; (v) Portunes FICFI Fixed-income, managed by Banco JP Morgan S.A. and (vi) Ita
Investment Grade FICFI, investment fund managed by Banco Itaucard S.A., the portfolios of
which mainly comprise investments in federal government bonds, repurchase agreements,
Financial Bills, bank deposit certificates (CDBs) and debentures.)
(b) Financial investments held in compliance with Law 10,214 dated March 27, 2001 and
Brazilian Central Bank Circular 3,057 dated August 31, 2001, which stipulate that clearing
houses and settlement and custody service providers should maintain a reserve of federal
government bonds of at least R$10,000. These investments represent CETIPs special equity
53
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
and are registered in a segregated account in the Special System for Settlement and Custody
(SELIC).
b. Fair value
The fair value of the investment fund quotas is based on the quota value disclosed by the
respective administrator.
For repurchase agreements with fixed interest rates, fair value is obtained through a discounted
cash flow model based on the market rates observed in similar transactions at the reporting
date. For repurchase agreements with floating interest rates and investment in bank deposit
certificates, the carrying value is considered to be equivalent to its fair value.
The fair value of federal government bonds is based on secondary market prices disclosed by
ANBIMA or, in the absence thereof, prices obtained through valuation techniques that best
reflect their sale value.
As at December 31, 2016 the fair value of the financial assets held to maturity was R$67,355
(December 31, 2015 - R$58,210).
6 Accounts receivable
CETIP Consolidated
December 31, December 31, December 31, December 31,
2016 2015 2016 2015
As of December 31, 2016 the average accounts receivable maturity term was 10 working days
(December 31, 2015 10 working days).
For receivables of less than R$15, the impairment provision is recorded for the full amount
when the receivable is past due for more than 120 days. Receivables of more than R$15 are
54
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
7 Business combination
On December 29, 2010, the Company acquired 100% of GRVs capital, which currently
represents Cetip's financing unit. The acquisition allowed the exploitation of synergies between
CETIP and GRV, in addition to creating a company with a diversified business platform.
The goodwill in the amount R$1,121,045 that arose from the acquisition is attributable to the
expectation of future profitability and commercial synergies expected from the combination of
CETIP and GRV. The goodwill deductible for tax purposes, determined in accordance with the
accounting rules and tax rules in force until December 31, 2007 amounts to approximately
R$816,000.
For the purpose of impairment testing, the goodwill from the acquisition was allocated to the
financing segment (Cash Generating Unit - CGU) which reflects the lowest level at which the
goodwill is monitored internally.
The recoverable value of this CGU was based on its value in use determined using a discounted
cash flow model. These calculations used nominal cash flow projections before taxation, based
on the budget approved for 2017 and managements projections for the four following years.
The cash flows after the five year period were extrapolated based on an estimated growth rate
presented below.
The main assumptions used in the value in use determination as of December 31, 2016 were
the following:
The macroeconomic assumptions used in the projections (GDP growth, inflation, etc.) were
based on the Focus report from the Central Bank.
55
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Discount rate
The discount rate for the financing segment is a pretax rate and was estimated based on the
Companys weighted average cost of capital adjusted (i) to reflect a capital structure with no
financial leverage, based on the profile of entities within this sector and on the business model
and (ii) to reflect specific risks in relation to this operating segment.
The recoverable value of the segment based on its value in use surpassed its carrying value by
R$1,059,303 (2014 R$247,687). The following individual changes in the main assumptions
used in the value in use determination would have been required in order for the value in use
to be equal to the carrying value:
The Management does not expect that the above changes materialize in a 12-months horizon.
a. Investment in subsidiaries
CETIP
December 31, December
2016 31, 2015
Cetip Lux S..r.l. (Cetip Lux)
Companys interest on the voting and paid-in capital 100% 100%
56
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Cetip Lux is a private limited liability company incorporated on July 7, 2014 and based in
Luxembourg. Cetip Lux's business purpose is the acquisition of equity in any companies or
businesses established in any form and fundraising activities.
CETIP
December 31, December
2016 31, 2015
Cetip Info Tecnologia S.A. (Cetip Info)
Companys interest on the voting and paid-in capital 100% 100%
Cetip Info is a corporation incorporated on March 13, 2008 and headquartered in Santana de
Parnaba, in the Estate of So Paulo. Cetip Info's business involves: the provision of data
processing services and management of computer systems; advice and commercial
representation on its own behalf or for third parties, and business intermediation in general,
except in the area of real estate; and participation in the capital of other companies, whether in
the same area of activity or not.
57
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
b. Investment in associate
CETIP
December 31, December 31,
2016 2015
Rede de Telecomunicaes para o Mercado Ltda.
("RTM")
Total assets (a) 45,021 42,189
Current assets (a) 26,824 22,709
Non-current assets (a) 18,197 19,480
Total liabilities (a) 8,896 11,479
Current liabilities (a) 8,896 10,656
Non-current liabilities (a) - 823
Net revenues (b) 58,462 57,208
Net income for the period (b) 4,106 6,127
Companys interest in the voting and paid-in capital 20% 20%
Adjusted quotaholders equity (a) 36,125 30,710
(a) Assets, Liabilities and Adjusted Quotaholders Equity as at November 30, 2016 and
November 30, 2015, respectively. The difference in the reporting dates of the associates
financial statements used in the application of the equity method results from lack of
compatibility between the reporting schedules of the Company and its associate.
(b) Net revenues and net income for the period from December 1, 2015 to November 30, 2016
and December 1, 2014 to November 30, 2015, respectively.
RTM is a private communications network that was specially created for the financial services
sector, connecting about 500 institutions and 25 information/service providers in a single
operational system. RTM manages data, voice and image services, and develops specific
solutions for the financial services sector.
58
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
At December 31, 2016 4,215 13,781 6,209 20,608 - 86 2,328 5,885 53,112
Total cost 4,215 27,902 10,662 78,061 13,696 209 4,088 5,885 144,718
Accumulated depreciation - (14,121) (4,453) (57,453) (13,696) (123) (1,760) - (91,606)
Average annual depreciation rates - 9.4% 15.2% 25.0% 5.7% 20.0% 10.0% -
Consolidated
At December 31, 2015 4,215 13,101 1,576 24,332 182 113 1,934 2,232 47,685
At December 31, 2016 4,215 13,795 6,212 20,608 - 86 2,332 5,885 53,133
Total cost 4,215 27,922 10,674 78,061 13,696 209 4,103 5,885 144,765
Accumulated depreciation - (14,127) (4,462) (57,453) (13,696) (123) (1,771) - (91,632)
Average annual depreciation rates - 9.4% 15.2% 25.0% 5.7% 20.0% 10.0% -
59
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
10 Intangible assets
Systems and Systems and software developed Systems and software
Goodwill Contractual relations software acquired internally under development Others Total
CETIP
At December 31, 2015 1,221,045 631,453 38,680 85,254 46,974 150 2,023,556
At December 31, 2016 1,221,045 582,467 39,459 107,818 61,842 150 2,012,781
Consolidated
At December 31, 2015 1,221,045 668,801 38,680 85,254 46,974 152 2,060,906
At December 31, 2016 1,221,045 616,872 39,459 107,818 61,842 152 2,047,188
The annual impairment tests in the CGU (financing segment) did not reveal that it needs of adjustments to the value of goodwill or the amount of contractual relations.
60
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
CETIP Consolidated
December December December December
31, 2016 31, 2015 31, 2016 31, 2015
12 Taxes payable
CETIP Consolidated
December December December December
31, 2016 31, 2015 31, 2016 31, 2015
61
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
The Company is party to judicial and administrative proceedings arising from the ordinary
course of its business, involving tax, labor, civil and other matters.
a. Contingent liabilities
Based on information from its legal advisors, analysis of the pending legal proceedings and, in
the case of labor claims, also analysis of past losses and amounts claimed, Management
recorded provisions for amounts considered sufficient to cover possible losses from the current
claims
The provisions for cases in which the chances of loss are considered probable mainly consist of
the following:
i. Labor contingencies consist mainly of employees' claims linked to disputes about the
amount of indemnities paid on dismissal.
ii. Lawyers fees provision to cover costs incurred in respect of lawyers fees, mainly related
to the ISS proceeding described in item f. below.
iii. Civil lawsuit consists only in a bankruptcy lawsuit, in which request is made to reimburse
shares previously canceled by the trustee in the bankruptcy procedures, pending conclusion
in Brazil Supreme Court and whose execution is in progress.
b. Legal obligations
Relate to legal cases started by CETIP Association and its successor, CETIP, in which the
applicability of certain specific taxes is being challenged. The table below summarizes the
amount of these legal obligations (presented net of the correspondent judicial deposits).
62
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
- -
- -
595 1,576
i. Lawsuit filed in August 2004 against the Federal Government applying for the classification
of CETIP Association operating income in clause X of article 14, of Provisional Measure 2,158-
35/2001, thus acknowledging the Association's exemption from COFINS. COFINS on
revenues started to be paid normally from July 2008, following the demutualization of CETIP
Association (succeeded by CETIP).
ii. Lawsuit filed in November 2005 against the Federal Government applying for exemption
from COFINS on other income (mainly financial income). In its judgment of Extraordinary
Appeals 346084, 357950, 358273 and 390840, the Federal Supreme Court declared
paragraph 1, of article 3, of Law 9,718/98 unconstitutional. The deposits ceased to be made
in August 2008, following the demutualization of CETIP Association (succeeded by CETIP).
iii. Lawsuits filed applying for the non-incidence of ISS on revenues from CSD and trade
repository maintenance fee (previously denominated as custody), registration and other
services, as these were not included in the list of services attached to Decree-Law 406/68.
Judicial deposits have been made for the ISS which is the subject of these lawsuits, based on
preliminary injunctions granted.
63
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
c. Changes in balances
The Company is party to tax, civil and labor claims, involving risks of loss assessed by
management as possible based on the position of its legal advisers, for which no provision has
been made.
The main proceedings assessed as having a possible chance of loss consist of:
ii. Assessments issued against CETIP Association by the Brazilian Federal Revenue on July 13,
2009 and on August 18, 2010 related to payment of the difference in respect of COFINS,
including fines and interest, between the cumulative (3%) and noncumulative bases (7.6%
minus credits) for the period from August 1, 2004 to September 30, 2008, with an updated
value amounting to R$36,717 as at December 31, 2016 (December 31, 2015 R$34,580).
These assessments are directly related to the proceedings described in item c. i. above, in
which full exemption from the respective tax is being claimed. The assessment notices
resulting from the tax inspection have been contested before the administrative courts. A
first degree ruling recognized CETIP Association as exempt from COFINS over its operating
income. In November 2010 the company was informed that the appeal brought by the
Federal Union was dismissed and denied the 1st degree ruling being maintained. During the
period ended December 31, 2016 there were no new events.
64
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
e. Remote losses
As at December 12, 2003 the Municipal Finance Office of the city of So Paulo issued a number
of assessments against CETIP Association, demanding payment of ISS to that municipality
amounting to R$9,702. As at December 31, 2016, the updated value of these assessments was
R$88,766 (2015 R$79,574). Given that the Companys headquarters is in Rio de Janeiro, where
all the services from the securities unit were rendered to the participants and where the ISS is
calculated and paid, and that only support areas were maintained in the city of So Paulo, as
well as taking into account in the opinion of its legal advisors, Management considers that the
chance of loss in this cause is remote and as such, no provision for loss has been recorded in
this quarterly information. At December 15, 2011, a 1st degree sentence was given in favor of
CETIP Association, determining the cancellation of all the assessments issued.
CETIP
December 31, December 31,
2016 2015
Current
Debentures 2nd series (a) 520,755 21,431
Banking loans (b.i) 328,285 3,105
Loans with subsidiary (b.ii) 24,191 3,508
Other loans and finance lease obligations (b.iii) 1,587 1,704
874,818 29,748
Non-current
Debentures 2nd series (a) - 498,849
Banking loans (b.i) - 381,680
Loans with subsidiary (b.ii) 1,503,780 1,214,392
Other loans and finance lease obligations (b.iii) 18,250 5,866
1,522,030 2,100,787
65
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Consolidated
December 31, December 31,
2016 2015
Current
Debentures 2nd series (a) 520,755 21,431
Banking loans (b.i) 494,711 5,409
Other loans and finance lease obligations (b.iii) 1,587 1,704
1,017,053 28,544
Non-current
Debentures 2nd series (a) - 498,849
Banking loans (b.i) 324,655 769,153
Other loans and finance lease obligations (b.iii) 18,250 5,866
342,905 1,273,868
At the Board meeting held on August 6, 2014, the 2nd issue of ordinary Companys debentures
was approved. These debentures are not convertible into shares, unsecured, in a single series
and in the amount of R$500,000, and were subject to a public offering with restricted
placement efforts, pursuant to CVM Instruction 476/09. The net proceeds from the issuance
were used to early redeem the debentures of the first issue of the Company, as well as to
strengthen the Company's cash position.
The Debentures have a term of three years from the issuance date, maturing on September 12,
2017, and accrue remuneration equivalent to the accumulated variation of 106.65% of the
interbank rate (DI).
The deed of issue establishes certain conditions. Non-compliance with these conditions may
result in the early maturity of the debentures. Among these conditions are the following:
(a) maintenance of a maximum financial leverage index (ratio of net debt divided by EBITDA),
measured quarterly, equal to or below 2.50 times;
(b) maintenance of an interest coverage index (ratio of EBITDA divided by interest financial
expenses), measured quarterly, equal to or above 3.0 times.
66
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
As at December 31, 2016 and 2015, the Company did not have any cases of non-compliance
with the conditions established in the deed of issue.
b. Loans
i. Bank loans
During the year ended December 31, 2015, the Company entered into a new bank loan
amounting US$100 million, under the terms of Law 4,131.
The loan has a term of two years, with principal amortization in January 2017.The interest rate
on the loan is 1.57% per annum and interest payments will occur every six months.
In order to cover the foreign exchange risk of this transaction, the Company entered into a new
swap transaction with the creditor bank basically exchanging its liability in dollars at a fixed rate
by a liability denominated in reais and indexed to a percentage of the CDI variation.
As a guarantee of the obligations related to the loan, the Company has given as collateral
investments in Bank Deposit Certificates (CDBs) whose value amounted to R$83,494 at
December 31, 2016, and the fiduciary assignment of receivables arising from the swap
agreement entered into between the parties.
The fair value of the loan transactions and derivatives was determined using a discounted cash
flow based on discount rates obtained through future interest curves in reais and dollars on the
last market day.
The loan agreement establishes certain conditions. Non-compliance with these conditions may
result in the early maturity of the loan. Among these conditions are the following:
(a) maintenance of a maximum financial leverage index (ratio of net debt divided by EBITDA),
measured quarterly, equal to or below 2.50 times;
(b) maintenance of an interest coverage index (ratio of EBITDA divided by interest financial
expenses), measured quarterly, equal to or above 3.0 times.
As at December 31, 2016 and 2015, the Company did not have any cases of non-compliance
with the conditions established in the loan agreement.
On December 31, 2016, the amortized cost of the loan amounted to R$328,451 and its fair
value R$328,285. The fair value of the derivative transaction amounted to R$52,636.
During 2014, Cetip Lux obtained a bank loan amounting to US$100 million, which is guaranteed
by the Company.
67
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
The loan has a term of four years, with principal amortization in the amount of US$50 million in
August 2017 and the remaining balance in August 2018. The interest rate on the loan is
approximately 2.5% per annum and interest payments occur on a quarterly basis.
The loan agreement establishes certain conditions. Non-compliance with these conditions from
the Company may result in the early maturity of the loan. Among these conditions are the
following:
(a) maintenance of a maximum financial leverage index (ratio of net debt divided by EBITDA),
measured quarterly, will not be above 2.50 times;
(b) maintenance of an interest coverage index (ratio of EBITDA divided by interest financial
expenses), measured quarterly, will not be below 3.0 times.
As at December 31, 2016 and 2015, the Company did not have any cases of non-compliance
with the conditions established in the loan agreement.
On December 31, 2016, the carrying value of the loan amounted to R$324,385 (December 31,
2015 R$389,777).
During 2016 Cetip Lux obtained a bank loan amounting to US$50 million, which is guaranteed
by the Company.
The loan has a term of three years, with amortization of the total principal amount in
September 2019. The interest rate on the loan is approximately 4.0% per annum and interest
payments will occur every six months.
The loan agreement establishes certain conditions. Non-compliance with these conditions from
the Company may result in the early maturity of the loan.
As at December 31, 2016, the Company did not have any cases of non-compliance with the
conditions established in the loan agreement.
On December 31, 2016, the carrying value of the loan amounted to R$166,696.
68
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
The loans with the subsidiary Cetip Lux amounted US$461,410 million on December 31, 2016.
The loans have a weighted average term of approximately three years, with principal
amortization in September 2019 and December 2020, amounting to US$404,800 and
US$56,610, respectively. The interest weighted average rate on the loan is approximately 4.50%
per annum and interest payments will occur every six months or on the maturity of the
principal, depending on the loan.
On December 31, 2016, the carrying value of the loan amounted to R$1,527,971 (December 31,
2015 R$1,217,900). The balances and results of these loans are detailed in Note 20.
During 2012, CETIP obtained from Financiadora de Estudos e Projetos ("FINEP") the approval for
a loan to partially finance the costs incurred in the preparation of a project for the development
of systems for processing and managing data related to liens in vehicles and real estate.
The financing contract establishes R$11,782 will be fully paid by 2020. The loan had a grace
period of amortization for the first 20 months and bears interest of 4% per annum on the
outstanding balance, amortized on a monthly basis.
During 2016 Cetip signed obtained a new loan from Financiadora de Estudos e Projetos FINEP
to partially finance the costs incurred in the preparation of new projects for the development of
systems for processing and managing data.
The amount of loan released to December 31, 2016 amounted to R$15,001 will be fully paid by
2026. The loan had a grace period of amortization for the first 17 months and bears interest of
9% per annum on the outstanding balance, amortized on a monthly basis.
On December 31, 2016, the carrying value of these loans amounted to R$19,837 (December 31,
2015 R$5,929).
15 Shareholders equity
a. Capital
As at December 31, 2016 and 2015, capital consisted of 262,978,823 common registered
shares, with no par value.
As at December 31, 2016 there were 2,840,363 common shares held in treasury (December 31,
2015 - 3,162,763 common shares held in treasury).
69
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
CETIP is authorized to increase its share capital up to the limit of 300 million common shares,
regardless of any statutory amendment, by means of a decision by the Board of Directors.
The Second Share Buyback Program ended in March 2016. The Company repurchased
4,349,100 shares during the program of the limit of 5,400,000 shares approved.
At the meeting held on March 2, 2016, with the objective of maximizing value generation to the
shareholders through an efficient management of capital structure, the Board of Directors
approved a new Share Buyback Program, with deadline for executing transactions of up to 365
days, ending on March 1, 2017.
The number of shares that may be acquired by the Company is up to 3.2 million shares,
representing 1.23% of the total outstanding shares in the market on the date the program was
approved.
The shares acquired under the Share Buyback Program may be canceled or used in connection
with the exercise of stock options by the beneficiaries of CETIPs Stock Option Plans.
The table below shows the amount of shares acquired and the changes in treasury shares in
2016:
Number Amount
As of the date of approval of these financial statements, the Company didnt acquired more
shares.
70
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
c. Capital reserves
These reserves mainly consist of: (i) reserve resulting from the appropriation of expenses
incurred under the Companys stock option plans (Note 23c) and (ii) capital reserve resulting
from the shares issued in favor of the former shareholders of GRV.
d. Legal reserve
The legal reserve is adjusted annually based on 5% of net income for the year and cannot
exceed 20% of capital, in accordance with the Corporation Law. At the Companys discretion,
the legal reserve may be waived in financial years where the balance of the said reserve plus
the capital reserves exceeds 30% of the share capital. The purpose of the legal reserve is to
ensure the integrity of share capital. The legal reserve can only be used to offset losses and
increase capital.
e. Statutory reserve
According to a statutory provision, the entire net income remaining after (i) the allocation to
the legal reserve and (ii) the appropriation for the payment of the minimum mandatory
dividend, will be allocated for the establishment of a statutory reserve that could be used for
investments and to compose funds and mechanisms necessary for the proper development of
the Company's activities. The total value of the statutory reserve may not exceed the
Companys capital.
If the Board considers the level of the statutory reserve sufficient for its purposes, it may
propose to the General Meeting that: (i) in a given fiscal year, a percentage of the net income
lower than that established in the bylaws is allocated for the formation of such reserve; and/or
(ii) propose that part of the amounts of that reserve is reversed and distributed to the
shareholders of the Company.
Pursuant to the Companys bylaws, the shareholders are entitled to dividends and/or interest
on own capital at a minimum percentage of 25% of the net income for the year, adjusted in
accordance with the Corporation Law.
In accordance with Law 9249/95, the Company's management approved during the periods of
2016 and 2015, the distribution to its shareholders of interest on own capital, calculated based
on the Long-term Interest Rate (TJLP), ascribing them to the minimum mandatory dividend. In
compliance with the applicable tax legislation, the amount of interest on own capital of
R$108,323 (2015 R$94,891) was recorded as a financial expense. However, for the purposes
of this quarterly information, interest on own capital is presented as a distribution of net
income for the period, and is therefore deducted from shareholders' equity, at the gross
71
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
amount, since the tax benefits it has generated are recorded in the statement of income for the
period.
In addition, in May 2016, August 2016 and November 2016 the Board approved the distribution
of interim dividends for the quarter ended March 31, 2016, June 30, 2016 and September 30,
2016 in the amount of R$93,053, R$91,015 and R$95,757, respectively.
2016
Interest on own capital
JCP Board Meeting 03/15/16 R$0.0842 gross per share paid on 06/08/16 21,899
JCP Board Meeting 06/15/16 R$0.1086 gross per share paid on 08/08/16 28,244
JCP Board Meeting 09/21/16 R$0.1107 gross per share paid on 11/09/16 28,815
JCP Board Meeting 12/21/16 R$0.1128 gross per share paid on 02/08/17 29,365
Interim Dividends
Dividends Board Meeting 05/04/16 R$0.3579 gross per share paid on 07/08/16 93,053
Dividends Board Meeting 08/03/16 R$0.3499 gross per share paid on 10/10/16 91,015
Dividends Board Meeting 11/09/16 R$0.3681 gross per share paid on 01/09/17 95,757
Dividends proposed
Dividends Board Meeting 02/14/17 R$ 0.3789 per share* to be paid on
03/08/17 98,584
Gross
amount
2015
Interest on own capital
JCP Board Meeting 03/05/15 R$0.0839 gross per share paid on 06/09/15 22,054
JCP Board Meeting 06/24/15 R$0.0871 gross per share paid on 08/10/15 22,791
JCP Board Meeting 09/30/15 R$0.0932 gross per share paid on 11/10/15 24,211
JCP Board Meeting 12/18/15 R$0.0994 gross per share paid on 02/11/16 25,835
Interim Dividends
Dividends Board Meeting 05/06/15 R$0.3073 gross per share paid on 07/08/15 80,599
Dividends Board Meeting 08/05/15 R$0.2992 gross per share paid on 10/08/15 78,065
Dividends Board Meeting 11/05/15 R$0.3326 gross per share paid on 01/11/16 86,417
Dividends proposed
Dividends Board Meeting 03/02/16 R$ 0.3194 per share* to be paid on
05/09/16 82,992
72
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
(*)The value per share of dividends is subject to changes due to possible capital increases that
may occur until the Annual General Meeting.
Dividends that exceed the minimum mandatory are only recognized as liabilities at the date of
approval at the General Meeting by the shareholders, according to CPC 24 - Subsequent Events
and ICPC 08 - Accounting for the proposal for payment of dividends. Until the date of approval
at the General Meeting, dividends exceeding the minimum mandatory are only segregated
within shareholders' equity.
The proposal of dividends relating to 2016 recorded in the Company's financial statements,
subject to approval of the shareholders at the General Meeting, calculated under the terms of
the Brazilian Corporation Law, is as follows:
Balance to be allocated -
Proposal of dividends
(*) Allocation to legal reserve not required as the balance thereof plus the capital reserves is
greater than 30% of the share capital.
73
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
a. Basic
Basic earnings per share is calculated by dividing the net income attributable to the Companys
shareholders by the weighted average number of common shares issued during the period,
excluding the common shares held in treasury.
2016 2015
Numerator
Net income 572,628 497,606
Denominator
Weighted average number of shares in circulation (in thousands) 259,992 261,162
b. Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of common
shares in circulation, to assume the conversion of all potential common shares dilutive. The
Company has only one category of potential common shares dilutive which are the stock
options. For the stock options, a calculation is carried out to determine the amount of shares
that could have been acquired at fair value (determined as the average market price of the
Companys shares), based on the value of the subscription rights linked to the options to
purchase shares in circulation. The amount of shares calculated in this way is compared to the
amount of shares issued, assuming the stock options are exercised.
2016 2015
Numerator
Net income 572,628 497,606
Denominator
Weighted average number of shares in circulation adjusted by
the effects of the stock options plans (in thousands) 259,992 262,169
74
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Cetip Consolidated
(a) Other revenues from services in the securities segment mainly comprise: (i) interbank
financial transfers processing services in the amount of R$45,866 in 2016 (2015 - R$38,257)
and (ii) fees on repurchase agreements, definitive transactions and electronic platform in
the amount of R$34,285 in 2016 (2015 R$46,272).
75
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
CETIP Consolidated
20 Financial results
CETIP Consolidated
(1)
Changes in the fair value of financial liabilities measured at fair value through profit or loss are mainly
attributable to changes in market conditions, with no significant effect attributable to changes in the
Companys credit risk during the period.
77
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Consolidated
December, 31 December, 31
2016 2015
b. Changes in balances
Deferred
Deferred assets liabilities Net
78
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
The conciliation between the income tax and social contribution at the nominal and effective
rates is shown below:
CETIP
2016 2015
Income tax and social contributions at the nominal rate (294,730) (189,176)
79
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Consolidated
2016 2015
Income tax and social contributions at the nominal rate (300,726) (192,866)
80
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Transactions between related parties are carried at amounts, terms and usual market rates
prevailing on the respective dates and at arm's length conditions.
The terms and conditions of the transactions with the subsidiary, Cetip Lux, are detailed in Note
14.b.ii.
The remuneration paid or accrued to the members of the Board of Directors, Committees and
Executive Board during the period is as follows:
CETIP and Consolidated
2016 2015
Short-term benefits (salary, profit sharing,
bonuses, etc.) 33,848 29,558
Board and committee members 4,961 2,268
Post-employment benefits 587 558
Share-based incentives with no
cash disbursement (a) 8,297 7,590
Share-based incentives matching (b) 2,930 -
81
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
(a) Represents the expense incurred on stock options granted to key management personnel
and recognized during the period in accordance with the criteria described in Note 23c(i).
(b) Represents the expense incurred to the amounts provided by the Matching Program granted
to key management personnel and recognized during the period in accordance with the
criteria described in Note 23c(ii).
23 Employee benefits
a. Supplementary pension
CETIP is the sponsor of a supplementary pension plan for its employees, which is a defined
contribution plan administrated by Ita and previously administrated by PREVIMA. The
Company contributed a total of R$3,311 in 2016 (2015 R$2,985).
CETIP has a Profit Sharing Program based on annual targets. The 2016 Profit Sharing Program
provision recorded under personnel expenses in the consolidated statement of income was
R$46,521 in 2016 (2015 R$40,600).
i. Stock options
The table below provides details of all options granted under the Companys stock option plans:
82
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
83
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
84
During the period ended December 31, 2016, the Company recorded expenses related to the (i)
2010 Plan, in the amount of R$21; and (ii) 2012 Plan, in the amount of R$14,154, charged
against capital reserves in shareholders equity (2015 (i) 2009 Plan, in the amount of R$977;
(ii) 2010 Plan, in the amount of R$1,390; and (iii) 2012 Plan, in the amount of R$17,419).
The expenses were appropriated according to the vesting periods, on the basis that an
estimated 2.5% of the options will not achieve vesting.
As at December 31, 2016 there were (i) 25,000 options under the 2009 Plan/1st Program, (ii)
2,500 options under the 2009 Plan/4th Program, (iii) 100,000 options under the 2009 Plan/5th
Program, (iv) 271,350 options under the 2010 Plan/2nd Program, (v) 105,000 options under the
2012 Plan/1st Program, (vi) 595,000 options under the 2012 Plan/2nd Program and (vii) 114,500
options under the 2012 Plan/6th Program, that could be exercised.
Assuming that all options are already granted and not yet exercised will be exercised at the end
of the vesting period, the dilution percentage of the current shareholders is 1.75% in 2017.
Total 322,450
(1)
Average weighted price and average weighted share market price on the exercise dates.
85
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
In addition to stock purchase options plans, in 2013 a performance bonus program indexed to
the Companys share price was established, with a total global annual amount of R$2,000.
During the period ended December 31, 2016, the Company recorded expenses related to the
aforementioned share-based compensation program settled in cash of R$5,552 (2015
R$4,387).
ii. Matching
At the Board of Directors meeting held on November 4, 2015 the Matching Program was
approved, whose main objectives are: (i) increase, in the medium and long-term, the alignment
between the participants interests and shareholders interests, increasing the sense of
ownership and commitment of the participants through the concept of investment and risk;
and (ii) strengthen the incentives for the participants retention and long-term stability in the
context of a public company.
The program provides the possibility for the participants to invest a certain percentage of their
net profit sharing in Company's shares and in return, receive from the Company the equivalent
value in cash, provided that vesting conditions are met, If one of these conditions is not met
(investment or end of the vesting period), the right to receive the consideration (matching) will
be cancelled.
The First Matching Program was implemented by the Company on March 28, 2016 and gave
participants the right to receive the equivalent of 1.38 ordinary share issued by Company for
each share acquired, totaling the equivalent of 366,021 Company shares, In addition to the
amount equivalent to the matching shares, participants will also be entitled, at the end of each
vesting period, to receive an amount equivalent to any dividends distributed by the Company
during each vesting period.
The granting of matching shares was divided into 4 equal tranches, each equivalent to 25% of
the shares, with a vesting period of 12, 24, 36 and 48 months respectively from the date of the
first program implementation.
The expenses net of social charges related to the First Matching Program that were recorded in
the consolidated income statement as personnel expenses amounted to R$9,386 in 2016.
The expenses were appropriated according to the vesting period of each tranche and
remeasured at the balance sheet date based on Company's shares price, also considering an
estimate that 2.5% of the shares will not achieve vesting.
86
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
24 Financial instruments
Classification
The balances of bank deposits, accounts receivable and other receivables are classified "loans
and receivables". The classification of the financial investments is disclosed in Note 5. The
company has no financial liabilities classified as measured at fair value through profit or loss,
except for the bank loans which are tied to derivatives operations economic hedge (Note
14.b.i.).
CETIP operates with various financial instruments, including cash, financial investments,
accounts receivable from clients, derivatives, accounts payable to suppliers, debentures, loans
and finance leases.
The fair value of the most significant financial instruments, financial investments, debentures
and loans related to derivative transactions, are disclosed in Notes 5, 14.a and 14.b.i.,
respectively.
It is assumed that the carrying value of accounts receivable from clients and accounts payable
to suppliers, less impairment losses, is close to their fair values.
The Company applies CPC 40/IFRS 7 for financial instruments measured at fair value in the
balance sheet, which requires disclosure of fair value measurements in accordance with the
following hierarchy of fair value measurement:
(i) Level 1 - quoted prices (not adjusted) in active markets for identical assets and liabilities;
(ii) Level 2 - different inputs when compared to traded prices on active markets (included in
Level 1) that are observable for the asset or liability, either directly (as prices) or indirectly
(derived from prices); and
(iii) Level 3 - inputs for the asset or liability that are not based on observable market
variables (inputs are unobservable).
The only financial instruments measured at fair value in the balance sheet are financial
investments classified as "measured at fair value through profit or loss" or "available for sale",
by derivative financial instruments and the loans measured at fair value through profit or loss
which are tied to derivative transactions. Considering that market prices disclosed for
government bonds might involve a particular pricing methodology and not just prices arising
from trades between participants, and the pricing methodology adopted for derivative
instruments and loans measured at fair value, all financial assets are classified as Level 2.
87
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
The management of these financial instruments is carried out by operating certain strategies
and internal controls, aimed to ensure liquidity, profitability and security. The control policy
consists of permanent monitoring of the contracted conditions versus the existing conditions on
the market.
The Company does not make speculative investments or any other risky assets and use
derivatives only for hedging foreign exchange exposure. It is the Companys policy to invest any
cash surpluses in relatively low-risk investments, which leads to a substantial investment in
federal government bonds yielding the SELIC base interest rate or fixed rates.
a. Credit risk
The credit risk related to collecting participants fees is considered to be low, as all participants
are obliged to appoint a liquidator bank when opening their account. Through its bank reserve,
the liquidator bank is liable for the payment of all costs incurred by its client, and is responsible
for passing these costs through to the participant. Withdrawal of the liquidator bank results in
the immediate freezing of the participant's account if it does not appoint a new liquidator bank
by the established deadline. The credit risk of receivables related to services provided by the
financing unit is also considered to be low and historically these receivables have resulted in
minimal default events.
In respect of financial investments and other investments, it is the Companys policy to deal
with highly-rated institutions and to invest a substantial part of its cash surplus in federal
government bonds.
The carrying value of the financial assets, which includes the balances of cash and cash
equivalents, financial investments (including the investments in federal government bonds),
accounts receivable and other receivables, represents the maximum exposure to the credit risk
as at December 31, 2016 and amounted to R$1,644,792 in the consolidated financial
statements (December 31, 2015 - R$1,187,097).
88
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
The Company's exposure to foreign exchange risk arises substantially from its investment in its
offshore subsidiary and loans denominated in US dollars.
Management has a policy for managing the exchange rate risk associated with these positions,
whose main purpose is avoid impacts on income arising from fluctuations in exchange rates.
The table below demonstrates the Companys net foreign currency position as at December 31,
2016:
Cetip Consolidated
Assets
Investment in offshore subsidiary 1,031,290 -
Liabilities
1. Inter-company loans and loan contracted by
subsidiary, Cetip Lux (notional) (1,527,971) (491,081)
Given that, under the tax laws, gains or losses arising from foreign exchange variations on
offshore investments should not be considered in the calculation basis of income tax and social
contribution, a mismatch is held between the assets and liabilities in foreign currency, so that
the result after taxes is not exposed to currency fluctuations (post tax hedge).
The bank loan in the amount of US$100 million was contracted under the terms of Law 4,131
and has an associated cross-currency interest rate swap basically exchanging a liability
denominated in dollars at a fixed rate by a liability in reais indexed to a percentage of the CDI
variation.
Due to the profile of its financial instruments, the Company does not have any significant
exposure to risk of risk of changes in the price of shares and/or commodities.
89
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
The interest rate risk is derived substantially from the Companys financial investments in fixed
rate instruments measured at fair value, and from financial liabilities indexed to floating rates.
Liabilities indexed at floating rates expose the Company to cash flow risk from interest rates.
Financial investments indexed at fixed rates and measured at fair value expose the Company to
the fair value risk associated with interest rates. The Company continuously monitors market
interest rates in order to monitor its exposure and the need to modify the profile of its financial
instruments.
As at the reporting date, the consolidated profile of the main financial instruments bearing
interest was:
Consolidated
December 31, December 31,
2016 2015
Fixed interest rate instruments
Financial assets
Financial investments 425,880 312,242
Financial liabilities
Loans and finance lease obligations 510,928 400,454
The only fixed interest rate instruments accounted for at fair value are the financial investments
classified as available for sale. These investments are classified as available for sale the table
below shows the gross impact on shareholders' equity resulting from a change in interest rates
applied over the exposure at the reporting date.
As required by CVM Instruction 475/08, the Company has prepared three sensitivity analysis
scenarios. Scenario I uses future market interest rates observed at the reporting date. Scenarios
II and III consider a deterioration of 25% and 50%, respectively, in the risk variable considered.
90
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Consolidated
Scenarios impact on equity
Balance at
Risk 12/31/16 I II III
The only financial liabilities with fixed interest rate measured at fair value are bank loans in
dollars swapped to reais. Considering that these loans are associated to derivative transactions,
the table below shows the gross impact on income and shareholders' equity resulting from a
change in interest rates applied to the position of both transactions at the reporting date.
As required by CVM Instruction 475/08, the Company has prepared three sensitivity analysis
scenarios. Scenario I uses future market interest rates observed at the reporting date. Scenarios
II and III consider a deterioration of 25% and 50%, respectively, in the risk variable considered.
Consolidated
Scenarios impact on income and on
equity
Balance at
Risk 12/31/16 I II III
Hedged (swap)
loan Increase in (328,285) 166 341 516
interest rates
Derivatives
52,636 (203) (399) (595)
The floating rate financial instruments are the financial investments, the debentures and the
bank loans in dollars swapped to reais. The table below shows the gross impact in the income
and shareholders' equity for the following quarter, using three scenarios of interest rates
applied over the net exposure as at the reporting date.
Scenario I below uses interest rates projected for the following quarter based on quotes from
the futures market at the reporting date plus a spread. Scenarios II and III consider a
deterioration of 25% and 50%, respectively, in the risk variable considered.
91
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Consolidated
Scenarios impact on income and on
equity
Balance at
Risk 12/31/16 I II III
e. Liquidity risk
Liquidity risk is the risk that a company does not have sufficient liquid resources to honor its
financial commitments, due to the mismatch of terms or volumes between its expected cash
receipts and payments.
To manage liquidity, projections of disbursements and future receipts are established and are
monitored daily by the treasury department.
The table below summarizes the consolidated financial liabilities, by maturity bands
corresponding to the period from the reporting date to contractual maturity. The figures
disclosed in the table are the undiscounted cash flows.
Consolidated
Between Between
Less than one and two two and five Over five
one year years years years
At December 31, 2016
Suppliers and other accounts payable 65,977 1,294 - -
Dividends and interest on own capital payable 122,523 - - -
Loans and finance lease obligations 3,280 4,636 10,836 10,240
Bank loans (1) 506,339 173,466 170,679 -
Debentures issued (2) 564,863 - - -
(1) Payments of bank loans in foreign currency were estimated and converted into reais using the exchange rate
prevailing at the balance sheet date.
(2) Floating interest rate payments were estimated using the projected rates based on quotes from the futures market
or market expectations.
92
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Capital management
The Company's objectives when managing capital are to safeguard the continuity of the
Company's ability to offer a return to shareholders and benefits to other interested parties, in
addition to maintaining an optimal capital structure to reduce this cost.
To maintain or adjust its capital structure, the Company may revise its policy regarding payment
of dividends, return capital to shareholders or issue new shares.
The financial leverage index, measured by the ratio between net debt and the sum of
shareholders equity and net debt at the reporting date, is presented as follows:
Consolidated
December 31, December 31,
2016 2015
As described in Note 5, the Company is subject to a regulatory capital requirement and has to
maintain a reserve in federal government bonds which forms CETIPs special equity.
The special equity was formed by an initial investment of R$10,000 and all interest from this
investment reserve is incorporated into the special equity. As at December 31, 2016 CETIP's
special equity amounted to R$67,420 (December 31, 2015 - R$60,255).
93
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
25 Segment information
Management has defined the Company's operating segments, based on the reports used for
making strategic decisions, reviewed by the Executive Board.
Since the acquisition of GRV, the Companys information started to be presented in two
operating segments: (i) securities segment (activities performed by CETIP prior to the
acquisition of GRV), and (ii) financing segment (activities previously performed by GRV).
The information by business segment for the period ended December 31, 2016 is as follows:
Consolidated
Securities Financing
segment segment Total
The Executive Board assesses the performance of the operating segments based on the
measurement of adjusted EBITDA. This measurement excludes the effects of share-based
incentives and equity in the results of subsidiaries. Financial income and expenses are not
allocated to segments, since this type of activity is conducted centrally.
The Company does not make an allocation of assets and liabilities to operating segments. These
are evaluated by the Executive Directors on a consolidated basis.
The reconciliation of the adjusted EBITDA and net income before taxation for the period ended
December 31, 2016 is presented below:
Consolidated
Adjusted EBITDA for the segments reported 912,257
Depreciation and amortization (105,726)
Share-based incentives with no cash disbursement (14,175)
Equity in the results of subsidiary 1,082
Financial result 91,051
During the period ended December 31, 2016, the Company had three clients whose revenues
represented 10% or more of the Companys total gross revenues. The revenues from these
three clients represented approximately 35% of the Companys total gross revenues and are
attributable to the securities and financing segments.
94
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Auditing Committee
Alkimar Ribeiro Moura Coordinator and Independent Member
Elio Boccia External and Independent Member IT Specialist
Guy Almeida Andrade External and Independent Member - Financial Specialist
95
CETIP S.A. Mercados Organizados
Notes to the financial statements at
December 31, 2016
In thousands of reais, unless otherwise stated
Management Committee
Edgar da Silva Ramos President and Independent Member
David Scott Goone Member
Gilson Finkelsztain Member
Roberto Dagnoni Member
Willy Otto Jordan Neto Member
Pricing Committee
Robert Taitt Slaymaker President and Independent Member
Jos Lucas Ferreira de Melo Independent Member
Pedro Paulo Mollo Neto Independent Member
Roberto de Jesus Paris Member
Remuneration Committee
Edgar da Silva Ramos President and Independent Member
Alkimar Ribeiro Moura Independent Member
David Scott Goone Member
Accountant
96
Report of the Audit Committee
The Audit Committee of Cetip S.A. - Mercados Organizados (Cetip), a permanent statutory
advisory body to the Board of Directors, had its constitution approved at the Board of Directors
meeting of November 6, 2013, according to Corporate Governance best practices and with the
provisions of its Internal Regulations (available on the website http://www.cetip.com.br/ri site).
The Committee meets ordinarily on a monthly basis and extraordinarily whenever necessary.
Committee Responsibilities
The Committee is responsible, mainly:: (i) to ensure the quality and integrity of the Company's
financial statements; (ii) to supervise the activities of the area responsible for the preparation of
the financial statements of the Company and its subsidiaries; (iii) to evaluate the procedures
adopted by the company for compliance with legal and regulatory requirements; (iv) to assess
the performance and quality of the audit work, as well as any independence matters of the
Independent Auditors and the Internal Audit; and (v) to analyse the quality and effectiveness of
internal controls and risk management activities and issue recommendations in this respect.
The Committee met thirteen times in the period from January to December 2016 to monitor: (i)
the activities of the Internal and External Audits; (ii) the monthly, quarterly and annual financial
statements; (iii) the relevant incidents of Operations, Information Technology, Compliance and
Information Security; (iv) the Companys business and the internal control environment; (v) the
main projects that contain relevant operational risks, mainly those that can impact Cetips
business continuity; and (vi) the complaints received possible fraud communications through
the reporting channel. The Committee took notice of the results of inspections and
observations from regulators and monitored the corresponding Management's actions.
The Committee held regular meetings with the Cetips CEO, occasions where it had the
opportunity to make recommendations on various aspects arising from the exercise of its
functions and to hear possible concerns. As a Board member, the Coordinator of the Committee
reports relevant facts to the Board of Directors, whenever applicable.
97
Internal Audit
Internal Audit is directly subordinated to the Audit Committee and indirectly to the CEO. The
Internal Audit acts objectively and independently, and adopts its own methodology, based on
the best practices of the profession, using an approach based on assessment by processes with
the frequency of work determined according to the risks of the assessed processes and the
impact that any control failure could have to the Company
In 2016, the Internal Audit continued its reorganization improving its performance substantially.
Expanded the audit team and adopted new skills, a fact that positively impacted the completion
of the Audit Plan for the year.
The Audit Committee noted a significant improvement in the area and concluded that the
Internal Audit operates independently and has the capacity to identify material weaknesses in
internal controls and risk management.
Internal Controls
The Audit Committee concludes that failures that might jeopardize the results and the
continuity of the organization were not identified and that the internal controls of the Company
are developed to meet the following aspects:
Aiming at the Companys sustainability and its strategic growth plans, the Audit Committee
emphasize the importance of implementing the its recommendations to strengthen the internal
control structure and the corporate governance.
External Audit
PricewaterhouseCoopers Auditores Independentes (PwC) is the firm responsible for the audit of
the financial statements for the 2016 fiscal year, for the planning and execution of their work,
according to standards of the profession, as well as responsible for the limited reviews of
interim financial statements (ITRs) sent to the Brazilian Securities Commission - CVM.
The Committee held regular meetings with the external auditors to discuss the audit results and
relevant accounting aspects, which enabled its members to assess the quality and objectivity of
the work performed. No special concern was raised by the External Audit regarding Cetips
situation.
98
During 2016 a regulation was established that regulates the engage of the independent auditor
to provide others services. The PwC was engaged to provide other services to Cetip, in addition
to the independent audit of the financial statements with the approved of the Committee, to
considered that the same does not put in risk the independence of the auditors.
The Committee concludes that the external auditors acted with objectivity and independently
and recommended its maintenance.
Financial Statements
The Audit Committee meets monthly with the Finance area, when the financial results of Cetip
and its variations are presented and discussed. Every quarter, the Committee meets with the
external auditors, when the Financial Statements and the auditors conclusions are discussed.
The Audit Committee analysed the financial statements for the fiscal year ended December 31,
2016 together with the report of independent auditors, that was discussed with the Committee.
Based on the information and discussions aforementioned, the Audit Committee recommends
to the Board of Directors, the approval of the audited financial statements for the year ended
December 31, 2016.
Elio Boccia
Information Technology Expert
99
ATTACHMENT II.5
Pro formaconsolidated
financial statements
Pro forma consolidated
financial statements
A free translation from Portuguese into English of Independent Auditors Assurance Report on the
Compilation of Pro Forma Consolidated Financial Information required by CVM Instruction 565
We have completed our assurance engagement to report on the compilation of pro forma
consolidated financial information of BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e
Futuros (the Company) prepared by its management, required by CVM Instruction 565,
issued by the Brazilian Securities and Exchange Commission (CVM). The pro forma
consolidated financial information comprises the pro forma condensed consolidated balance
sheet as at December 31, 2016, the pro forma condensed consolidated income statement for
the year ended December 31, 2016, and related explanatory notes. The applicable criteria on
the basis of which management has compiled the pro forma consolidated financial information
are specified in Instruction CTG 06 Presentation of Pro Forma Financial Information and
described in the explanatory notes which are part of the pro forma consolidated financial
information.
The pro forma consolidated financial information has been compiled by management of the
Company to illustrate the impact of the acquisition of CETIP S.A. Mercados Organizados set
out in Note 1 on the Companys financial position as at December 31, 2016, and its financial
performance for the year then ended as if the transaction had taken place at January 1st, 2016.
As part of this process, information about the Companys financial position and financial
performance has been extracted by management from the Companys consolidated financial
statements for the year ended December 31, 2016, on which we issued an unqualified audit
report on February 17, 2017. In addition, information about the financial position and financial
performance of CETIP S.A. Mercados Organizados has been extracted by management from
the consolidated financial statements of CETIP S.A. Mercados Organizados for the year
ended December 31, 2016, which were audited by other independent auditors who expressed
an unqualified opinion on those financial statements on February 14, 2017.
1
Management Responsibility for the Pro Forma Consolidated Financial Information
Management is responsible for compiling the pro forma consolidated financial information on
the basis of Instruction CTG 06.
For purposes of this engagement, we are not responsible for updating or reissuing any reports
or opinions on any historical financial information used in compiling the pro forma consolidated
financial information.
The purpose of pro forma consolidated financial information is solely to illustrate the impact of
a significant event or transaction on the historical financial information of the Company as if the
event had occurred or the transaction had been undertaken at an earlier date selected for
purposes of the illustration. Accordingly, we do not provide any assurance that the actual
outcome of the transaction at December 31, 2016 and January 1st, 2016 would have been as
presented.
2
A reasonable assurance engagement to report on whether the pro forma consolidated financial
information has been compiled, in all material respects, on the basis of the applicable criteria
involves performing procedures to assess whether the applicable criteria used by management
of the Company in the compilation of the pro forma consolidated financial information provide
a reasonable basis for presenting the significant effects directly attributable to the event or
transaction, and to obtain sufficient appropriate evidence about whether:
The related pro forma adjustments give appropriate effect to those criteria; and
The pro forma financial information reflects the proper application of those adjustments to
the historical financial information.
The procedures selected depend on the auditors judgment, having regard to the auditors
understanding of the Company, the nature of the event or transaction in respect of which the
pro forma consolidated financial information has been compiled, and other relevant
engagement circumstances. The engagement also involves evaluating the overall presentation
of the pro forma consolidated financial information.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion on the compilation of the pro forma consolidated financial information.
Opinion
In our opinion, the pro forma consolidated financial information has been compiled, in all
material respects, on the basis of Instruction CTG 06 Presentation of Pro Forma Financial
Information.
Eduardo Wellichen
Accountant CRC-1SP184050/O-6
3
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Pro forma condensed consolidated balance sheet (unaudited)
December 31, 2016
(In thousands of Reais, unless otherwise stated)
Pro Forma
Assets BM&FBOVESPA CETIP Adjustments Note 2.1 Total Pro Forma
4
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Pro forma condensed consolidated balance sheet (unaudited)
December 31, 2016
(In thousands of Reais, unless otherwise stated)
Pro Forma
Liabilities and equity BM&FBOVESPA CETIP Adjustments Note 2.1 Total Pro Forma
5
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Pro forma condensed consolidated income statement (unaudited)
December 31, 2016
(In thousands of reais, unless otherwise stated)
Pro Forma
BM&FBOVESPA CETIP Adjustments Note 2.2 Total Pro Forma
Income before income tax and social contribution 1,246,570 884,489 (1,124,854) 1,006,205
Income tax and social contribution 199,494 (311,861) 181,029 (m) 68,662
Attributable to:
Shareholders of BM&FBOVESPA 1,446,263 572,628 (943,825) 1,075,066
Non-controlling interests (199) - - (199)
6
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to the pro forma consolidated financial statements (unaudited)
December 31, 2016
(In thousands of reais, unless otherwise stated)
On May 12, 2017, the management of BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e
Futuros (BM&FBOVESPA) and CETIP S.A. Mercados Organizados (CETIP) executed a
Merger Agreement for acquisition by BM&FBOVESPA of its wholly-owned subsidiary CETIP (the
Transaction), which will be submitted to its shareholders for approval in an Extraordinary General
Meeting. This Transaction provides for that: (i) BM&FBOVESPA will receive, at book value, the
total assets, rights and obligations of CETIP, which will cease to exist; (ii) The acquisition will not
result in any increase or decrease in the equity or capital of BM&FBOVESPA; and (iii)
Extinguishment of all shares issued by CETIP, without any attribution of shares issued by
BM&FBOVESPA in substitution for the shareholders' rights.
The unaudited pro forma consolidated financial information related to the unaudited pro forma
condensed consolidated balance sheet as at December 31, 2016 and the unaudited pro forma
condensed consolidated income statement for the year ended December 31, 2016 was prepared and
is presented solely to illustrate the consolidated balance sheet as at December 31, 2016 and the
consolidated income statement of BM&FBOVESPA for the year ended December 31, 2016,
considering as if the Transaction had occurred at December 31, 2016 for the balance sheet and at
January 1st, 2016 for the income statement in relation to the year ended December 31, 2016 and
should not be used as indicative of future consolidated income statements or interpreted as an actual
income statement or balance sheet of BM&FBOVESPA.
The unaudited pro forma consolidated financial information is based on BM&FBOVESPAs and
CETIPs historical consolidated financial statements, and is presented according to Instruction CTG
06 Presentation of Pro Forma Financial Information. The pro forma adjustments were determined
based on assumptions and estimates which management believes are reasonable, factually
supportable and directly attributable to the Transaction.
The business combination involving the abovementioned companies will be accounted for under the
acquisition method of accounting. The unaudited pro forma consolidated financial information,
including the preliminary purchase price allocation, is based on preliminary valuation analysis of the
fair value of the assets acquired and liabilities assumed, available information on this date and
assumptions made by management of BM&FBOVESPA, and will be reviewed after the final
purchase price allocation. The final purchase price allocation will reflect the fair value measurement
to be made by an independent appraiser to be engaged by management of BM&FBOVESPA.
7
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to the pro forma consolidated financial statements (unaudited)
December 31, 2016
(In thousands of reais, unless otherwise stated)
1. Description of the transaction and basis of the pro forma presentation -- Continued
The final valuation analysis will be based on tangible and intangible assets acquired and liabilities
assumed on the Transaction date. Adjustments to the acquisition price and to the final valuation
analysis may impact the allocated fair value of the assets and liabilities and result in a significant
change to the unaudited pro forma consolidated financial information, including, but not limited to,
an increase or decrease in the goodwill amount and changes in the depreciation and amortization
expense, including the tax effects.
The unaudited pro forma consolidated financial information was prepared on a recurring basis and
therefore does not include any non-recurring gains or losses on the Transaction. In addition, such
unaudited pro forma financial information does not reflect, for example: (i) any synergy, operational
efficiency and cost savings that may result from the Transaction; or (ii) any possible benefit
generated by the combined growth of both companies.
The historical financial statements of BM&FBOVESPA used in the preparation of this pro forma
consolidated financial information were obtained from its consolidated financial statements for the
year ended December 31, 2016, prepared in accordance with accounting practices adopted in Brazil
and IFRS, audited by Ernst & Young Auditores Independentes S.S., whose auditors report dated
February 17, 2017 contains no qualification.
The historical financial statements of CETIP used in the preparation of this pro forma consolidated
financial information were obtained from its consolidated financial statements for the year ended
December 31, 2016, prepared in accordance with accounting practices adopted in Brazil and IFRS,
audited by PricewaterhouseCoopers Auditores Independentes, whose auditors report dated
February 14, 2017 contains no qualification.
The unaudited pro forma condensed consolidated balance sheet and the unaudited pro forma
condensed consolidated income statement of BM&FBOVESPA should be read in conjunction with
the consolidated historical financial statements of both BM&FBOVESPA and CETIP for the year
ended December 31, 2016.
8
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to the pro forma consolidated financial statements (unaudited)
December 31, 2016
(In thousands of reais, unless otherwise stated)
2.1 Adjustments to the unaudited pro forma condensed consolidated balance sheet as at
December 31, 2016
(a) Reflects the preliminary purchase price allocation considering the fair value of the assets
acquired and liabilities assumed, as summarized below:
(i) The estimated useful life for amortization of the brand is 3 years.
(ii) The estimated useful life for amortization of the platforms is 7 years, except for the payments platform which has an
estimated useful life of 3.8 years (R$92,956).
(iii) The estimated useful life for amortization of customer relationships is 5 years.
(iv) Out of the total goodwill, the amount of R$7,003,884 is estimated to be amortized over 5 years.
The consideration paid to the shareholders of CETIP was determined as described in the Notice to
Shareholders dated March 28, 2017. For measurement of the acquisition price in accordance with CPC
15 Business Combination, the fair value considered was R$19.35 per share of BM&FBOVESPA
issued and delivered to the shareholders of CETIP upon the Transaction.
9
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to the pro forma consolidated financial statements (unaudited)
December 31, 2016
(In thousands of reais, unless otherwise stated)
2.1 Adjustments to the unaudited pro forma condensed consolidated balance sheet as at December
31, 2016 -- Continued
Consideration paid in cash for redemption of the preferred shares of the Holding 8,296,668
Issue and exchange of shares at fair value 4,724,080
Total consideration 13,020,748
(b) Reflects the present value adjustment to revenue from liens placed on CETIPs vehicles of
R$9,650.
(d) Reflects the estimated provision for costs associated with the Transaction of approximately
R$55,153.
(e) Reflects the early vesting of CETIPs long-term incentive programs (principal and interest), as
a result of the Transaction.
(f) Includes the write-off of the deferred tax liability on the historical goodwill of R$324,366 and
the tax effects from: (i) early vesting of CETIPs long-term incentive programs of R$41,753;
(ii) Projects to be discontinued after the Transaction of R$30,339; and (iii) estimated provision
for costs associated with the Transaction of R$18,752;
(g) Reflects the amount of R$4,724,080 resulting from the shares issued by BM&FBOVESPA for
the shareholders of CETIP, as part of the Transaction; the elimination of the historical equity of
CETIP of R$1,834,541; and the effects of the other adjustments described above;
10
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to the pro forma consolidated financial statements (unaudited)
December 31, 2016
(In thousands of reais, unless otherwise stated)
2.2 Adjustments to the unaudited pro forma condensed consolidated income statement for the
year ended December 31, 2016
(h) Reflects the adjustment of depreciation and amortization resulting from the preliminary
allocation of the fair value of (i) in fixed assets, mainly real estate and equipment and (ii) in
intangible assets, related to the brand, customer relationships and CETIP platform and (iii) effect
of the write-off of discontinued projects, generating an additional effect on the depreciation and
amortization expense of R$ 742,730.
(j) Reflects the exclusion from financial income of cash funds for the payment of the amount in
cash for the Transaction.
(k) Reflects an increase in financial expenses due to the allocation of interest on debentures in 2016,
considering the borrowing to be obtained to finance part of the Transaction of R$3,000,000 at
an interest rate of 104.25% of CDI.
(l) Reflects the exclusion of a non-recurring effect from the disposal of CME Group shares.
(m) Reflects the tax effects on the pro forma adjustments made in the 2016, including the tax effects
of goodwill, calculated by applying the rates established by prevailing tax legislation of 25% for
income tax and 9% for social contribution on taxable income. This rate shall not be taken as
indicative of a future effective rate.
(n) Reflects the exchange of shares between the companies as part of the Transaction.
* * *
11
ATTACHMENT III
In addition, PwC has broad experience with projects of this nature, having
several similar reports filed in Comisso de Valores Mobilirios.
3. Describe any relevant existing relation from the past 3 (three) years
between the recommend appraisers and related parties to the company,
as defined in the accounting standards about this topic.
In the past 36 months, PwC has not provided any kind of professional services
to BM&FBOVESPA and provided the following professional services to
CETIP: