Structured notes (Certificados de Operacoes Estruturadas, COEs) continue to gain momentum in the Brazilian market and have reached R$7.7bn (US$1.9bn) in assets under management, double the amount gathered in 2014 (R$3.8bn), two years after their introduction to the market.

Figures released by the Central de Custódia e de Liquidação Financeira de Títulos (Cetip) show that the COE market is growing consistently and robustly despite a challenging economic environment and that with the introduction of the rules for public distribution, the scope for development remains high, according to Fábio Zenaro (pictured), head of products at Cetip. "The findings of this report reinforces the view that COEs are flexible and can be suited to different investor profiles and economic scenarios," said Zenaro.

According to Cetip, the clearing house authorised by the Central Bank of Brazil and the securities regulator (CVM) to list structured notes in Brazil, COEs have exceeded all initial expectations and sales in its second year of existence with 17 banks active in the segment involved in a total of 74,143 COE transactions in 2015. According to Cetip, the sales volume during 2015 reached R$8.7bn, a 39% increase compared to 2014.

Most transactions (91.7%) involved investors in the individual category, followed by non-financial corporates (8.2%) and institutional investors (0.1%). Of the total volume sold in 2015, COEs with protected nominal value represented 93.6% of the total issuance.

According to Cetip, 'the profitability of the instruments has been one of the highlights during the first two years of COE market'. Cetip figures show that since its launch, 59% of the COEs delivered higher yields than fixed income deposits (depositos interbancarios). In 2015, the average ticket for each COE was R$87,500 for individual investors, US$1.5m for institutional investors and R$436,000 for non-financial corporations.

In 2015, almost 40% of the COEs marketed (39.3%) had an investment term of between 361 to 720 days, followed by investments with a maturity of 720 days (23.4%) and between 91 to 180 days (22.3%). Debt maturing between 181 and 360 days accounted for 11% and up to 90 days, 4% of the financial volume issued in the period.

In terms of asset classes, the clearing house reported that FX-linked products lead the issuance (35.3%), followed by price indices (20.3%) and national equity indices (20.2%). The remaining issuance was dominated by international equity indices (12.6%), interest rates (6.5%), baskets of indices (3.5%), single domestic shares (1.12%) and international shares (0.43%).

However, according to Cetip, looking at COEs' AUM, products with a maturity of 720 days dominate the market (47.2%), followed by periods of between 361 and 720 days (43.3%). Maturities of between 91 and 180 days represent 5.2% of the AUM; those with maturities of between 181 to 360 days represent 4.2% of the market AUM; while those with investment terms of less than 90 days represent 1% of the total AUM. The most popular asset classes in terms of AUM are price indices (43.1%), FX (22.8%), international equity indices (12.4%) and national equity indices (10.6%).

Brazil's COE market was boosted in the last quarter of 2015 when the country's Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM) published a circular (CVM Instruction 569), setting the regulatory framework for the public offering of structured notes (COE). The new guidelines were introduced after a consultation by the regulator conducted between November 25, 2014 and February 23, 2015.

The new regulation, published on October 14, 2015, contains the guidelines establishing the framework for the public distribution of structured notes in Brazil. The aim is to clarify to market participants the procedures which, if adopted in the placement of these products, will constitute public offering, stated the regulator.

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