Brazil's new guidelines for the public distribution of structured notes (certificado de operações estruturadas - COE) have been welcomed by the domestic securities market as they will provide a framework for greater agility in product development and the ability to reach a new audience outside of banks' customer base, according to Luis Kondic (pictured), head of treasury products and structuring at Citi Brazil.
Under Instruction 569, which regulates the public offering of structured notes, the Brazilian Securities Commission (CVM) has established the basis to develop an onshore retail segment for structured products in the country. "The [rules] came to address the needs of the market, and they have met our expectations," said Kondic. "[The new rules] will result in an increase in volume in the market with the possibility of wider product offering."
As a result, Citi is seeking to use partners to expand its distribution reach and leverage its structuring capabilities. "This factor is also important. We now have more access to customers who are not in our network," said Kondic. "It is important to Citi which has the product expertise abroad to access other potential customers here."
According to Kondic, one of the main effects of the new rules will also be around the flexibility of developing new structures linked to a wide variety of assets and the speed to market. "There is a risk of missing a market opportunity if you have to spend days until the registration of a COE [is completed]," said Kondic. "With the new rules, we can put together a COE quickly to seize the price of an asset, taking full advantage of the expected cycle, high or low."
One of the most important elements of the new public distribution guidelines is the requirement to provide investors with a Key Information Document (Kid), known locally as Documento de Informações Essenciais (Die). The Kid/Die is a standard document and will have to provide all the relevant information so that end-investors understand the product and the risks involved.
Citi believes that under the new public offering rules the activity in the market will increase as "banks now have clear rules on how to offer the product", especially "among investors who are not in their network," said Kondic.
According to the latest figures from Central de Custódia e de Liquidação Financeira de Títulos (Cetip), the clearing house authorised by the Central Bank of Brazil and the CVM to keep a track record of the market, the volume of COEs registered in Brazil has reached R$7.2bn (US$1.8bn), doubling the volume recorded in the same period of 2014.
According to Cetip, the market continues to be driven by products linked to the domestic inflation index (National Wide Consumer Price Index - IPCA), followed by structures linked to exchange rates and international stocks.
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