Brazil’s structured products market is set to grow around the development of the structured note wrapper (Certificado de Operacoes Estruturadas - COE) introduced in the country back in January, according to Emerson Erik Schmitz, deputy adviser at the financial system regulation department of the Banco Central do Brasil,

Speaking at the SRP North America Structured Products Conference in Boston, Schmitz said that development of the market will be boosted by new formal public offering regulations that are now being drafted by the Securities and Exchange Commission of Brazil, known as the Comissão de Valores Mobiliários (CVM).

According to Schmitz, these new regulations, which are being adopted with an eye to selling into the retail investor market, are expected by the end of this year.

“Right now, Brazil only has general disclosure rules which require, for example, disclosures about a product’s risks,” he said.

Any concerns over advertisements and marketing materials used to sell COEs would fall to the purview of the CVM, said Schmitz.

COEs
Schmitz explained to the audience of attendees that a highly anticipated rule adopted in 2013 in Brazil “allowed for the creation of the single product (COE) but also gave us the power to monitor and supervise”. By requiring the registration of COEs, Schmitz said, risk management can be supervised, thereby strengthening the Brazilian capital markets.

Issuers of COEs include commercial and investment banks who are initially targeting institutional investors, but some providers are already gearing up to target high income/private bank investors with a view to entering the retail investor market at a later stage.

“We are very flexible with the COE,” Schmitz said, noting that the product can include indices, interest rates, securities, commodities, foreign assets, exchange rates and baskets of securities, with the exception of products linked to credit events. He added that 96% of these products are currently capital-protected and that the COE market will help to develop the domestic structured products market. “The COE is just in its beginnings,” Schmitz said.

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