The Brazilian Securities, Commodities and Futures Exchange
QUARTERLY FINANCIAL REPORT
Three-month period ended March 31, 2014
M A N A G E M E N TS D I S C U S S I O N A N D A N A L I S Y S 1Q14
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Dear Shareholders, We are pleased to present to you this discussion and analysis of the financial condition and results of operations of BM&FBOVESPA S.A. (BM&FBOVESPA or Company or us) for the quarter ended March 31, 2014.
OPERATING PERFORMANCE Equities and Equity Derivatives (Bovespa Segment) The average daily trading value (ADTV) in the quarter to March 2014 hit R$6.45 billion, a 14.1% year-over-year decline compared to the quarter to March 2013 (1Q13), primarily due to a slump in volumes traded on the cash market as well as the markets for equity derivatives (options and forward markets). The average daily value traded in options on single stocks and stock indices dropped 34.0% year-on-year due mainly to reduced volumes traded of options on Vale and Petrobras stocks, which registered year-on-year falls of 43.7% and 28.7%, respectively. Still, trading in these options in the first quarter accounted for 62.5% of the overall options ADTV, as compared to 68.5% one year ago. Average Daily Trading Value (ADTV)
(In R$ millions, unless otherwise indicated)
1Q14 1Q13 1Q14/1Q13 (%) 4Q13 1Q14/4Q13 (%) Stocks and Equity Derivatives 6,453.4 7,514.3 -14.1% 6,617.8 -2.5% Cash market 6,217.8 7,187.6 -13.5% 6,353.0 -2.1% Derivatives 235.6 326.6 -27.9% 264.8 -11.0% Options market (stocks / indices) 155.1 235.2 -34.0% 166.1 -6.6% Forward market 80.5 91.5 -12.0% 98.7 -18.5% Fixed income and other spot securities 1.2 2.3 -48.3% 2.0 -40.0% TOTAL 6,454.6 7,516.6 -14.1% 6,619.8 -2.5% Source: BM&FBOVESPA The average equity market capitalization 1 fell 10.1% year-over-year, to R$2.23 trillion from R$2.48 trillion one year earlier. In addition, turnover velocity 2 was 69.3%, as compared to 71.7% in the year-ago first quarter.
Source: BM&FBOVESPA The average daily number of trades picked up 4.7% year-on-year due mainly to growth in trading activity from high turnover investors, who typically execute a large number of trades with an average size (value) lower than the overall market average. Average Daily Number of Trades
(In thousands, unless otherwise indicated) 1Q14 1Q13 1Q14/1Q13 (%) 4Q13 1Q14/4Q13 (%) Stocks and Equity Derivatives 886.2 846.5 4.7% 823.0 7.7% Cash market 805.6 726.6 10.9% 734.0 9.8% Derivatives 80.6 120.0 -32.8% 89.0 -9.5% Forward market 79.9 119.0 -32.9% 88.3 -9.5% Options market (stocks / indices) 0.7 0.9 -28.4% 0.7 -5.4% Fixed income and other cash-market securities 0.007 0.012 -39.3% 0.008 -12.9% TOTAL 886.2 846.6 4.7% 823.0 7.7% Source: BM&FBOVESPA In a comparison of the first quarter distribution of value traded by investor group, foreign investors and local institutional investors continue to top the rank, having accounted for 49.7% and 30.3% of the overall trading value for the segment (as
1 Equity market capitalization is a measure of the size of the stock market given by the total market capitalization of all listed issuers, where the market capitalization by issuer is calculated as stock price multiplied by the number of shares outstanding of each listed issuer . 2 Turnover velocity for the quarter is defined as the ratio of annualized turnover (value) of stocks traded on the cash market over a three-month period average market capitalization for the same period. 2.48 2.41 2.33 2.45 2.23 71.7% 81.6% 73.7% 64.4% 69.3% 1T13 2Q13 3Q13 4Q13 1Q14 Average Market Capitalization (R$ trillions) Turnover Velocity (%) M A N A G E M E N TS D I S C U S S I O N A N D A N A L I S Y S 1Q14
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compared to 41.3% and 33.1% in 1Q13), respectively, with the foreign investor group responding for higher volume than one year ago. ADTV by investor category (In R$ billions)
Source: BM&FBOVESPA The quarterly net flow of foreign investments into the stock market amounted to positive R$3.4 billion and correlates with secondary market investments, as there have been no initial public offerings or follow-ons in the quarter to March 2014. Net flow of foreign investments into the equities markets (In R$ billions)
Financial and Commodity Derivatives (BM&F Segment) The average daily volume (ADV) traded in financial and commodity derivatives (BM&F segment) over the quarter to March 2014 hit 2,8 million contracts, a 6.6% year-on-year fall attributable primarily to an 18.0% plunge in volumes traded in Brazilian- interest rate contracts, typically the top traded product for the segment. This was somewhat counterbalanced by year-on climbs of 7.9% and 46.3% rise in average daily volumes traded in FX contracts and U.S. dollar-denominated interest rate contracts, respectively. Average daily volume (ADV)
(In thousands of contracts, unless otherwise indicated) 1Q14 1Q13 1Q14/1Q13 (%) 4Q13 1Q14/4Q13 (%) Brazilian-interest rate contracts 1,734.7 2,115.3 -18.0% 1,276.8 35.9% FX contracts 524.3 485.9 7.9% 462.7 13.3% U.S. dollar-denominated interest rate contracts 196.7 134.4 46.3% 169.5 16.0% Index-based contracts 97.2 102.4 -5.1% 94.8 2.5% Commodity derivatives 10.9 7.5 44.6% 9.8 11.1% Mini-sized contracts 249.4 175.4 42.2% 202.8 23.0% OTC derivatives 13.5 5.5 145.8% 11.5 17.8% TOTAL 2,826.6 3,026.5 -6.6% 2,228.0 26.9% Source: BM&FBOVESPA Moreover, the quarterly average rate per contract (RPC) for the segment went up 8.0% from the year-ago first quarter due mainly to year-on climbs of 13.4% for FX contracts and 28.4% for U.S. dollar-denominated interest rate contracts, as the fees we charge for these two contract groups are denominated in U.S. dollars, and the currency appreciated 18.2% against the Brazilian real over the 12-month period to March 2014 3 .
3 As measured by the fluctuation in average selling rate between the two quarters, based on the PTAX selling rate (compiled by the Central Bank) for the last business day of each of the months of December 2012, January and February 2013 versus the PTAX selling rate for the last business day of each of the months of December 2013, January and February 2014 (which served as the basis on which we calculated the RPC for 1Q13 and 1Q14, respectively). 3.1 3.6 3.2 3.0 3.2 2.5 2.7 2.4 2.1 2.0 1.3 1.2 1.1 1.0 0.9 0.7 0.8 0.6 0.5 0.4 1Q13 2Q13 3Q14 4Q14 1Q14 Foreign Institutional Retail Others 8.5 (4.3) 4.6 1.1 3.4 0.6 6.9 0.5 2.3 9.1 2.6 5.1 3.4 3.4 1T13 2T13 3T13 4T13 1T14 Secondary Market Public Offers M A N A G E M E N TS D I S C U S S I O N A N D A N A L I S Y S 1Q14
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Average rate per contract (RPC)
(In Brazilian reais) 1Q14 1Q13 1Q14/1Q13 (%) 4Q13 1Q14/4Q13 (%) Brazilian-interest rate contracts 1.037 1.027 1.0% 1.190 -12.8% FX contracts 2.626 2.316 13.4% 2.689 -2.3% U.S. dollar-denominated interest rate contracts 1.426 1.111 28.4% 1.314 8.5% Index-based contracts 1.774 1.663 6.7% 1.885 -5.9% Commodity derivatives 2.410 2.414 -0.2% 2.591 -7.0% Mini-sized contracts 0.122 0.120 1.3% 0.122 -0.7% OTC derivatives 1.107 2.021 -45.2% 1.099 0.7% TOTAL 1.309 1.212 8.0% 1.449 -9.7% Source: BM&FBOVESPA An analysis of the distribution of overall volume traded by investor category shows foreign investors increasing their volumes in 10.5% year-on and accounting for 30.1% of the total for the segment. Financial institutions slightly rose their volumes traded (32.2% versus 31.2% one year ago) and local institutional investors gave back some of the year-ago volume (31.2% versus 38.9% one year earlier). Distribution of Average Daily Volume by investor category (As a percentage)
Source: BM&FBOVESPA Treasury Direct platform (Tesouro Direto) Tesouro Direto (Treasury Direct) is a platform developed in collaboration with the Brazilian Treasury, which we operate for the trading of government bonds and debt securities through the Internet. Trading on this platform has sustained the uptrend of previous quarters, with the average financial value of government bonds and debt securities held in custody having climbed to record high of R$10.7 billion, a 9.0% surge from the year-ago first quarter. This performance is due primarily to increased dealings from retail investors seeking diversification, whose universe ballooned to record 106.7 thousand, a 20.1% year-on surge from the first quarter one year earlier. Treasury Direct platform evolution
DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL PERFORMANCE Revenues Total gross revenues of R$546.1 million for the quarter to March 2014 declined 5.9% year-on-year due mainly to a plunge in revenues from trading and clearing fees within the Bovespa Segment, and a retreat in revenues unrelated to trading and clearing activities. On the other hand, revenues from fees attributable to dealings within our BM&F segment increased. 3.8% 4.2% 5.9% 5.9% 5.3% 25.0% 25.7% 24.8% 26.0% 30.1% 38.9% 34.8% 35.4% 34.2% 31.2% 31.2% 34.0% 32.2% 32.3% 32.2% 1Q13 2Q13 3Q12 4Q13 1Q14 Financial Institutions Institutional Foreign Retail Companies Central Bank M A N A G E M E N TS D I S C U S S I O N A N D A N A L I S Y S 1Q14
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The volume-related revenues (from trading and clearing fees) derived within both Bovespa and BM&F segments amounted to aggregate R$446,1 million (a 6.7% tumble from one year ago) and accounted for 81.7% of total revenues for the quarter. Revenues from trading and clearing fees BM&F segment. At R$226.4 million, this line item climbed 2.1% year-on-year to account for 41.5% of total revenues, primarily because of an 8.0% year-on rise in average RPC attributable mainly to the Brazilian real depreciation against the U.S. dollar, as the fees we charge for dealings in FX contracts and U.S. dollar-denominated interest rate contracts are denominated in U.S. dollars, and by a change in the mix of more heavily traded contract groups, where the volume of trading in Brazilian-interest rate contracts lost ground to the former two contract groups. The average daily trading volume for the segment retreated 6.6% from the first quarter one year ago, which is explained primarily by the comparatively lower volumes traded in Brazilian-interest rate contracts (18.0% year-on plunge). Revenues from trading and clearing fees Bovespa segment. At R$219.7 million, this line item tumbled 14.2% year-on-year to account for 40.2% of total revenues. The volume-related revenues (trading and clearing fees earned on trade and post-trade transactions) hit R$212.2 million, plummeting 16.1% from the prior-year first quarter primarily due to (i) a 14.1% fall in average daily value traded, reflecting a 10.1% slump in average stock market capitalization and toned down turnover velocity (69.3% versus 71.7% one year ago); and (ii) a 5.6% fall in (trade + post-trade) transaction margin for the segment (to 5.389 basis points (bps) from 5.706 bps in the year-ago first quarter) due mainly to changes in pricing policies over the course of 2013, some of which cut down the fee rates charged from foreign and retails investors, in addition to widening the discounts by volume tier for day-traders (who ultimately increased their dealings and share of the average value traded). Other revenues. The volume-unrelated revenues of R$100.0 million fell 2.6% from the year-ago first quarter and accounted for 18.3% of the quarterly total revenues. The highlights for the period are discussed below. Securities lending. Revenues of R$20.8 million from the operation of our securities lending facility accounted for 3.8% of total revenues, having declined 15.4% from the year-ago first quarter due mainly to a 22.7% year-on plunge in average financial value of open interest positions. Depositary, custody, back office services. Quarterly revenues of R$28.6 million accounted for 5.2% of total revenues, having soared 4.6% from the earlier year first quarter due primarily to sound performance revenues from registration services for transactions in agribusiness credit bills (locally known as LCAs, Letras de Crdito do Agronegcio). Market data sales (vendors). Revenues from market data sales of R$17.2 million accounted for 3.2% of total revenues and were up 2.9% year-on-year due primarily to year-on-year depreciation of the Brazilian real against the U.S. dollar, since we derive about half of the revenues in this line item from U.S. dollar-denominated fees charged from foreign clients. Net revenue. The net revenue hit R$489.7 million, a 6.0% fall from the year-ago first quarter. Expenses The expenses totaled R$186.3 million and were up 7.8% from the quarter to March 2013. Set forth below is a discussion of the principal changes in operating expense line items. Personnel and related charges. This expense line totaled R$85.9 million, up 4.9% year-on-year, reflecting mainly the annual collective bargaining agreement of August 2013 that adjusted wages. Data processing. This line item totaled R$27.7 million, up 20.8% from the prior year first quarter due mainly to adjustments for inflation prescribed under the technology maintenance contracts, as well as increased expenses, starting from the quarter ended September 30, 2013, with software and hardware services and maintenance related to IT platforms recently rolled out (including the PUMA Trading System), given the change in the accounting treatment of these expenses that are no longer capitalized as occurred at the stage of development and implementation. Depreciation and amortization. This line item totaled R$29.6 million, up 9.1% from the first quarter one year earlier primarily as a result of additional depreciation related to increased IT investments implemented over the course of 2013, including the PUMA Trading System. Taxes. This expense line totaled R$7.0 million, a 33.2% upsurge from the earlier year first quarter due mainly to taxes paid on dividends received from CME Group (a R$5.5 million tax payment in 1Q14 versus R$4.6 million the year before). Equity in results of investees Our net share of gain from the equity-method investment in CME Group shares totaled R$50.2 million, where R$18.2 million were provisioned as recoverable tax paid abroad.
M A N A G E M E N TS D I S C U S S I O N A N D A N A L I S Y S 1Q14
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Interest income, net Net interest income for the first quarter hit R$48.0 million, up 29.3% from the year-ago first quarter. The interest income went up 29.2% year-on-year to R$79.4 million influenced by a spike in interest rates paid on our financial investments, whereas the interest expenses climbed 29.0% to R$31.4 million due mainly to the currency depreciation against the U.S. dollar, as most our interest expenses correlate with debt under global senior notes issued in a July 2010 cross-border offering. Income tax and social contribution The line item comprising income tax and social contribution plus deferred income tax and social contribution for the quarter totaled R$145.3 million, where current income tax and social contribution amount to R$19.4 million and include R$1.2 million in taxes with impact on cash flow, in addition to R$18.2 million in the line item recoverable tax provision related to tax paid overseas by CME Group. Deferred income tax and social contribution totaled R$125.9 million, comprised of R$138.6 million in quarterly recognition of temporary differences from the amortization of goodwill for tax purposes and R$12.7 million in reversal of tax credits. Deferred income tax and social contribution have no impact on cash flow. Net income The quarterly net income attributable to BM&FBOVESPA shareholders totaled R$256.1 million, down 4.1% from the year-ago first quarter.
MAIN LINE ITEMS OF THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2014 Main lines items under Assets As determined in our consolidated balance sheet as of March 31, 2014, total assets of R$26,000.2 million are roughly flat from total assets at December 31, 2013. Cash and cash equivalents, including short- and long-term financial investments, totaled R$5,077.8 million and accounted for 19.5% of total assets. Non-current assets amounted R$21,575.2 million, where long-term receivables amount to R$1,195.5 million (including long-term financial investments of R$880.0 million), the investments amount to R$3,248.7 million, property and equipment amount to R$431.9 million and intangible assets amount to R$16,699.1 million. Intangible assets consist primarily of goodwill related to expectations of future profitability in connection with the acquisition of Bovespa Holding. After review the findings of the analysis carried out in December 31, 2013, we have not identified any internal or external factors that would change the previous findings, so that, in the absence of impairment indicators as of March 31, 2014, no further measurements of carrying value are required. Main lines items under Liabilities and Shareholders Equity Current liabilities of R$3.142.5 million accounted for 12.1% of total liabilities and shareholders equity, a 15.9% climb from total liabilities as of December 31, 2013. Current liabilities is comprised mainly of cash collateral posted by market participants (up to R$2,380.9 million at the quarter-end versus R$2,073.0 at the end of the quarter to December 2013). Noncurrent liabilities of R$3,986.0 million consist primarily of R$1,377.8 million worth of debt issued abroad plus deferred tax liabilities (income tax and social contribution) amounting to R$2,436.6 million. Shareholders equity of R$18,871.7 million at March 31, 2014, slightly down 2.2% from end-2013 and consists mainly of capital stock totaling R$2,540.2 million and capital reserves of R$15,202.3 million.
OTHER FINANCIAL INFORMATION Capital Expenditures We capitalized investments on the order of R$64.5 million in the quarter to March 2014, including R$62.6 million related to investments in technology infrastructure and other IT resources (including construction of our new data center), in addition to R$1.8 million worth of investments in facilities and equipment. Our capital expenditure budget sets an interval between R$230.0 million and R$260.0 million for investments in 2014, while the capital expenditures for 2015 have been set at an interval between R$190.0 million and R$220.0 million. Earnings distribution; Share buyback program Interim dividends. On May 8, 2014, our board of directors declared interim dividends amounting to aggregate R$204.9 million. Payment thereof is set to be made on May 30, 2014, based on the book closure date of May 19, 2014, which will determine the ownership structure pursuant to which holders of record will be entitled to earnings. M A N A G E M E N TS D I S C U S S I O N A N D A N A L I S Y S 1Q14
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Share buyback program. In the three-month period ended March 31, 2014, we repurchased 46.5 million shares at average price of R$10.09 per share (totaling R$469.7 million) and in April 2014 we repurchased 7.7 million additional shares at the average of R$11.43 per share (totaling 87.7 million). Therefore, we have repurchased aggregate 17.3% of the 100 million shares authorized under the buyback program approved by our board of directors on February 13, 2013, which is set to end on December 31, 2014.
OTHER HIGHLIGHTS Central counterparty risk; Risk management Transactions carried out on markets we operate are secured with collateral market participants pledge to our clearing houses in the form of cash, government bonds and corporate debt securities, bank letters of guarantee and stocks, among other eligible collaterals. As of March 31, 2014, the aggregate of pledged collaterals totaled R$223.9 billion, up 8.6% from the amount pledged at the end of the quarter to March 2013 due primarily to a 33.4% climb in average financial value of collateral posted with the derivatives clearing house on account mainly of the increase in financial value of open positions in FX contracts. Financial value of collaterals pledged to our clearing facilities
(In R$ billions, unless otherwise indicated)
March 31, 2014 March 31,2013 Variation (%) December 31, 2013 Variation (%) Derivatives 136.1 102.0 33.4% 127.4 127.4% Equities and Corporate Debt Securities 82.0 98.0 -16.3% 80.3 80.3% Forex 5.0 5.0 -0.5% 5.9 5.9% Bonds 0.7 1.0 -28.0% 0.8 0.8% Total 223.9 206.0 8.6% 214.4 214.4% Source: BM&FBOVESPA Where our business requires we perform activities as central counterparty clearing house, corporate and operational risk exposures are monitored, assessed and managed under oversight from the Risk Committee, a standing advisory committee to our board of directors whose primary responsibilities include taking a strategic structural approach to monitoring and assessing exposures to market risks, liquidity and credit risks and, not least importantly, systemic risk in the markets we operate. Sustainability; Social Investment We announced in February certain new features of BM&FBOVESPAs Corporate Sustainability Index (ndice de Sustentabilidade Empresarial), or ISE index, and the yearly schedule of activities pertaining to the index composition and rebalancing. A highlight for the three-month period ended March 2014 was the introduction of a selection feature (accessible to every listed issuer) we call Mock Test, based on which issuers have the ability to test whether they would qualify to index membership. It is a practical and nimble diagnosis tool of particular value for companies seeking to improve and measure their sustainability track record, which can assist them in preparing to qualify for future membership with better knowledge of the selection process and requirements. In March 2014 the BM&FBOVESPA Institute rolled out two projects as part of its corporate citizenship and social investment initiatives. The first such project launched the new Financial Education Module within the scope of programs administered by the BM&FBOVESPA Job Training Association (Associao Profissionalizante BM&FBOVESPA), which we welcomed during the Global Money Week, a worldwide celebration sponsored by multiple Exchanges to empower the next generation to be confident, responsible and skilled economic citizens, helping prepare young people to get involved in reshaping finance and their own future. Additionally, the BM&FBOVESPA Athletics Club announced two new partnerships, one a collaboration with the Brazilian Track & Field Confederation for athletes selected for the shot put as well as discus, javelin and hammer throw national teams to train at the Clubs Sports Training Center; the other a collaboration with the Brazilian Paralympics Committee for their track & field teams to train at the at the Clubs Sports Training Center . Market developments; Technology Developments OTC platform (iBalco). On March 12, 2014, through our OTC platform, we started to provide registration services for transactions in structured notes (Certificados de Operaes Estruturadas, or COEs), bank deposit certificates (Certificados de Depsito Bancrio, or CDBs) and real estate credit bills (Letras de Crdito Financeiro, or LCIs). Other OTC derivatives for which this platform provides transaction registration services include certain flexible options, swap transactions and forward contracts (including non-deliverable forward currency contracts) as well as agribusiness credit bills (Letras de Crdito do Agronegcio, or M A N A G E M E N TS D I S C U S S I O N A N D A N A L I S Y S 1Q14
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LCAs) and other agribusiness securities. As of March 31, 2014, the aggregate financial value of dealings in such securities registered through our OTC platform hit over R$210 billion. Integrated Clearing Facility (Post-Trade Facility Program, or IPN). As part of our IPN program, we have planned a four-phased cycle of parallel production tests contemplating the future transition to our new integrated clearing facility. The parallel production testing rounds replicate the production activities currently performed in our derivatives clearinghouse, ahead of the actual transition to the new integrated clearing platform. The derivatives module of the new platform is set to roll out in June 2014 after authorization is obtained from the regulator. In addition, we announced in March 2014 certain changes to our clearing model designed for conformity with certain Basel III capital requirements and aimed to ensure we obtain a license as Qualifying Central Counterparty (QCCP), so our customers can benefit from more favorable capital allocation requirements when engaging in clearing transactions. Securities lending. With the aim of enhancing the securities lending services we provide, adding transparency to this market and encouraging investors to direct their business to our facility, starting from February 17, 2014, we began to disseminate the average quotes for loan agreements registered in our securities lending facility. These are average quotes per trading day, the last three trading days and the last 15 trading days preceding the dissemination date. In addition, per-trading day market information includes data on lowest and highest prices as well.
INDEPENDENT AUDITORS Our Company and subsidiaries have retained the audit firm of Ernst & Young Auditores Independentes S.S. to audit the financial statements. The policy that governs the engagement of external audit services by us and our subsidiaries is based on generally accepted auditing standards which preserve service independence and include the following practices: (i) the auditors must not hold executive or managerial positions in the Company and its subsidiaries; (ii) the auditors must abstain from performing for the Company and its subsidiaries operating activities which could compromise the audit function; and (iii) in expressing their opinion regarding financial statements and reports, the auditors must maintain objectivity (avoiding conflicts of interest and loss of independence). In the three-month period ended March 31, 2014, neither the independent auditors nor any of their related parties provided non-audit services superior to 5% of their annual fees related to external audit services.
Quarterly Information (ITR)
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
March 31, 2014
1 Condomnio So Luiz Av. Presidente Juscelino Kubitschek, 1830 Torre I - 8 Andar - Itaim Bibi 04543-900 - So Paulo - SP - Brasil
Tel: (5511) 2573-3000 ey.com.br
Uma empresa-membro da Ernst & Young Global Limited A free translation from Portuguese into English of Independent Auditors Review Report on Quarterly Information prepared in accordance with accounting practices adopted in Brazil applicable to the preparation of Quarterly Financial Information (ITR) and in Reais (R$), and presented according to standards issued by the Brazilian Securities and Exchange Commission.
Independent auditors review report on quarterly information
The Shareholders, Board of Directors and Officers BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Introduction
We have reviewed the accompanying individual and consolidated interim financial information of BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros (Company), included in the Quarterly Information Form ITR for the quarter ended March 31, 2014, which comprise the balance sheet as at March 31, 2014 and the related income statement, statements of comprehensive income, of changes in equity and cash flows for the three-month period then ended, including a summary of significant accounting practices and other explanatory information.
Management is responsible for the preparation of the individual interim financial information in accordance with Accounting Pronouncement CPC 21 Interim Financial Reporting, and of the consolidated interim financial information in accordance with CPC 21 and IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board IASB, as well as for the fair presentation of this information in conformity with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Financial Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.
Scope of the review
We conducted our review in accordance with Brazilian and International Standards on Review Engagements (NBC TR 2410 Review of Interim Financial Information Performed by the Auditor of the Entity and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
2 Conclusion on the individual interim financial information
Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual interim financial information included in the quarterly information referred to above was not prepared, in all material respects, in accordance with CPC 21 applicable to the preparation of Quarterly Financial Information (ITR), and presented consistently with the rules issued by the Brazilian Securities and Exchange Commission.
Conclusion on the consolidated interim financial information
Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial information included in the quarterly information referred to above was not prepared, in all material respects, in accordance with CPC 21 and IAS 34, applicable to the preparation of Quarterly Financial Information (ITR), and presented consistently with the rules issued by the Brazilian Securities and Exchange Commission.
Other matters
Statements of value added
We have also reviewed the individual and consolidated Statements of Value Added for the three- month period ended March 31, 2014, prepared under the responsibility of Companys management, the presentation of which in the interim information is required by the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to preparation of Quarterly Financial Information (ITR), and as supplemental information under the IFRS, whereby no statement of value added presentation is required. These statements have been subject to the same review procedures previously described and, based on our review, nothing has come to our attention that causes us to believe that they were not prepared, in all material respects, consistently with the overall individual and consolidated interim financial information.
So Paulo, May 08, 2014
ERNST & YOUNG Auditores Independentes S.S. CRC-2SP015199/O-6
Repurchase of shares 15(b) (470,184) - (470,184) -
Interest paid (46,476) (40,333) (46,476) (40,333)
Payment of dividends and interest on equity (3) (40) (3) (40)
Net cash used in financing activities (512,404) (15,235) (512,404) (15,235)
Net increase/(decrease) in cash and cash equivalents 84,983 (6,036) 92,105 (10,868)
Cash and cash equivalents at beginning of period 36,774 36,326 41,687 43,642
Cash and cash equivalents at end of period 121,757 30,290 133,792 32,774
The accompanying notes are an integral part of the quarterly information.
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BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros
Statements of value added Quarters ended March 31, 2014 and 2013 (In thousands of reais)
BM&FBOVESPA Consolidated
Note 1Q14 1Q13 1Q14 1Q13
1 - Revenues 20 536,089 573,154 546,082 580,586
Trading and/or settlement system 446,106 477,938 446,103 477,938
Other revenue 89,983 95,216 99,979 102,648
2 - Goods and services acquired from third parties 60,476 55,869 61,754 56,871
Expenses (a) 60,476 55,869 61,754 56,871
3 Gross value added (1-2) 475,613 517,285 484,328 523,715
4 - Retentions 29,118 26,647 29,550 27,083
Depreciation and amortization 8 29,118 26,647 29,550 27,083
5 Net value added produced by the Company (3-4) 446,495 490,638 454,778 496,632
6 - Value added transferred from others 131,295 99,345 129,604 98,640
Equity picked up in subsidiaries and associate 7 52,883 38,283 50,171 37,152
Financial income 22 78,412 61,062 79,433 61,488
7 - Total value added to be distributed (5+6) 577,790 589,983 584,382 595,272
8 - Distribution of value added 577,790 589,983 584,382 595,272
Personnel and related charges 82,065 78,435 85,942 81,955
Board and committee members compensation 2,069 1,644 2,069 1,644
Taxes, charges and contributions (b)
Federal 199,594 211,851 201,488 213,049
Municipal 7,064 7,112 7,247 7,253
Financial expenses 22 30,856 23,966 31,414 24,359
Retained net income for the period 256,142 266,975 256,222 267,012
(a) Expenses (excludes personnel, board and committee members compensation, depreciation and taxes).
(b) Includes: Taxes, PIS and COFINS, taxes on services, current and deferred income tax and social contribution.
The accompanying notes are an integral part of the quarterly information.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
12 1 Operations
BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros (BM&FBOVESPA) is a publicly-traded corporation having its headquartered in the city of So Paulo.
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).
2 Preparation and presentation of quarterly information
This quarterly information was approved by the Board of Directors of BM&FBOVESPA on May 8, 2014.
The quarterly information has been prepared and is being presented in accordance with accounting practices adopted in Brazil. Additionally, the quarterly information contains the minimum disclosure requirements prescribed by CPC 21(R1) Interim Financial Statements, as well as other information considered relevant. These information does not include all requirements of annual financial statements, and therefore should be read in conjunction with the individual and consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) and the accounting practices adopted in Brazil issued by the Brazilian Accounting Pronouncements Committee (CPC) and approved by the Brazilian Securities Commission (CVM) for the year ended December 31, 2013, therefore, the March 31, 2014 quarterly information were not subject to full fill by reason of redundancy with the already presented in the annual financial statements, and as provided in CVM/SNC/SEP Circular Letter n 003/2011.
The preparation of the quarterly information requires the use of certain critical accounting estimates and also requires that the Companys management exercise its judgment in the adoption process of accounting practices. There werent any changes in assumptions and judgments made by the management of BM&FBOVESPA in the use of estimates for the preparation of the quarterly information compared to those used in the financial statements of December 31, 2013, disclosed on February 13, 2014.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
13 (a) Consolidated quarterly information
The consolidated quarterly information includes the balances of BM&FBOVESPA and its subsidiaries, as well as special purpose entities comprising investment funds, as follows:
Ownership %
Subsidiaries and controlled entities
Banco BM&FBOVESPA de Servios de Liquidao e Custdia S.A. (Banco BM&FBOVESPA) 100.00 Bolsa Brasileira de Mercadorias 53.42 Bolsa de Valores do Rio de Janeiro BVRJ (BVRJ) 86.95 BM&F (USA) Inc. 100.00 BM&FBOVESPA (UK) Ltd. 100.00
Exclusive investment funds: Bradesco Fundo de Investimento Renda Fixa Letters BB Pau Brasil Fundo de Investimento Renda Fixa HSBC Fundo de Investimento Renda Fixa Longo Prazo Eucalipto
(b) I ndividual quarterly information
In the individual quarterly information (BM&FBOVESPA), subsidiaries are recorded using the equity method. The same adjustments are made both to the individual and consolidated quarterly information to achieve the same profit or loss and net assets attributable to the owners of the parent company.
3 Significant accounting practices
The accounting policies and methods of calculation used in the preparation of these interim financial statements are the same as those adopted in preparing the financial statements for the year ended December 31, 2013.
4 Cash and cash equivalents and financial investments
a. Cash and cash equivalents
BM&FBOVESPA Description 03/31/2014 12/31/2013
Cash and bank deposits in local currency 65 267 Bank deposits in foreign currency 121,692 36,507 Cash and cash equivalents 121,757 36,774 Bank deposits in foreign currency thirdparty funds (1) 1,185,812 1,154,902 Total 1,307,569 1,191,676
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
14
Consolidated Description 03/31/2014 12/31/2013
Cash and bank deposits in local currency 214 417 Bank deposits in foreign currency 133,578 41,270 Cash and cash equivalents 133,792 41,687 Bank deposits in foreign currency thirdparty funds (1) 1,185,812 1,154,902 Total 1,319,604 1,196,589
(1) Third-party funds restricted to full settlement of the exchange transaction (Exchange clearing), which occurred by April 2, 2014.(12/31/2013 - January 2, 2014)
Cash and cash equivalents are held with top-tier financial institutions in Brazil or abroad. Deposits in foreign currency are primarily in US dollars.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
15 b. Financial investments
The breakdown of financial investments by category, nature and maturity is as follows:
BM&FBOVESPA
Without maturity More than More than More than 5 years 03/31/2014 12/31/2013 Description Up to 3 months 3 months and up to 12 months 12 months and up to 5 years
Financial assets measured at fair value through profit or loss
Total financial investments 2,518,712 20 219,370 501,437 98,850 3,338,389 3,222,117
Short-term
2,738,102 2,784,750 Long-term
600,287 437,367
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
16
Consolidated
Without maturity More than More than More than 5 years 03/31/2014 12/31/2013 Description Up to 3 months 3 months and up to 12 months 12 months and up to 5 years
Financial assets measured at fair value through profit or loss
Total financial investments 300,179 2,124,671 453,404 753,641 126,346 3,758,241 3,674,171
Short-term
2,878,254 2,853,393 Long-term
879,987 820,778
(1) Refers to investments in financial investment funds, whose portfolios mainly comprise investments in government securities and 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 in proportion of the net assets invested. BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
17 The net assets of the main investment funds included in the consolidation of the quarterly information are: (i) Bradesco FI Renda Fixa Letters R$1,609,745 (R$1,529,024 at December 31, 2013); (ii) BB Pau Brasil FI Renda Fixa R$349,123 (R$340,641 at December 31, 2013); (iii) HSBC FI Renda Fixa Longo Prazo Eucalipto R$260,974 (R$254,933 at December 31, 2013).
(2) Issued by top-tier banks and backed by government securities.
(3) Refers mainly to investments in gold.
(4) The primary non-exclusive investment funds are: (i) Bradesco Empresas FICFI Referenciado DI Federal, of R$54,571 (R$62,432 at December 31, 2013); (ii) Araucria Renda Fixa FI R$103,689 (R$101,031 at December 31, 2013); (iii) FI Jacarand Renda Fixa R$61,142 (R$59,722 at December 31, 2013) and (iv) Santander Fundo de Investimento Cedro Renda Fixa R$50,649.
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 and the shares are in the custody of BM&FBOVESPAs Equity and Corporate Debt Clearinghouse.
There was no reclassification of financial instruments between categories in the quarter.
Derivative financial instruments
Derivative financial instruments comprise future interest rate contracts (DI1) stated at their market values. These contracts are included in the exclusive fund portfolios which were consolidated (Note 2(a)) and are used to cover fixed interest rate exposures, swapping fixed interest rate for floating interest rate (CDI). Even though these derivatives are designated for hedge, management has opted not to apply hedge accounting in respect to them.
The net result between the derivative transactions and the related financial instrument refers to the short position in future interest rate contracts, with market value of R$6,765 (R$16,528 at December 31, 2013).
DI1 contracts have the same maturity dates as the fixed interest rate contracts to which they relate.
Financial risk management policy BM&FBOVESPAs policy for cash investments favors alternatives with very low risk, highly liquid and with sovereign risk, whose overall performance is tied to the SELIC / CDI rate, resulting in a significant proportion of government securities in its portfolio, purchased directly, via repurchase agreements backed by government securities and also through exclusive and non-exclusive funds.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
18 Sensitivity analysis
The table below presents the net exposure of all financial instruments (assets and liabilities) by market risk factors, classified in accordance with their rates:
Exposure to Risk Factors (Consolidated) 03/31/2014
0.45% Foreign exchange Higher dollar exchange rate 0.94%
1.77% Gold price Lower gold price 0.25%
0.24% Inflation Lower inflation rate 0.01%
0.01% 100.00%
100.00%
I nterest rate risk
This risk arises from the possibility that fluctuations in future interest rates for the corresponding maturities could affect the fair value of BM&FBOVESPAs transactions.
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 indexed to floating interest rates.
We present in the table below the possible impacts on profit or loss of a change of 25% and 50% from the probable scenario for the CDI/SELIC rate, for the next three months:
Index rates CDI/SELIC 5.32% 7.99% 10.65% 13.31% 15.97%
Fixed-rate position
Part of BM&FBOVESPAs financial investments bears fixed interest rates and this results in a net exposure to such rates. However, in terms of percentage, in view of the amounts involved, the effects on the portfolio are not considered material.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
19 Currency risk
This risk arises from the possibility of fluctuations in exchange rates in connection with the acquisition of inputs, product sales and asset and liability financial instruments could have an impact on the related amounts in local currency.
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 and also own funds in foreign currency abroad. At March 31, 2014, the net foreign currency exposure amounted to R$32,960 (negative R$64,049 at December 31, 2013). In view of the amounts involved, the effects on the portfolio are not considered material.
Liquidity risk
The following table shows the main financial liabilities of BM&FBOVESPA by maturity, represented by non- derivative financial liabilities, on an undiscounted cash flows basis:
No maturity Within 1 year From 1 to 2 years From 2 to 5 years Above 5 years
BM&FBOVESPA prefers very low risk investments, where more than 99% of the allocation of assets is linked to government securities with ratings set by Standard & Poor's and Moody's of "A-" and "Baa2", respectively, for long-term issues in local currency and characterized as investment grade, in order to obtain high liquidity and sovereign risk, with overall performance linked to the CDI/SELIC rate.
The issue of Senior Notes (Note 12) was linked to increasing our equity interest in CME and the creation of a strategic partnership between the companies. In addition, it serves as a natural hedge for the USD exposure generated by the increased investment in CME Group.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
20 5. Accounts receivable
The breakdown of accounts receivable is as follows:
BM&FBOVESPA Description 03/31/2014 12/31/2013
Fees 18,147 10,972 Annual fees 5,859 5,485 Vendors - Signal broadcasting 11,171 11,620 Trustee and custodial fees 18,262 23,592 Other accounts receivable 8,101 8,704
Subtotal 61,540 60,373
Allowance for doubtful accounts (7,492) (7,677)
Total 54,048 52,696
Consolidated Description 03/31/2014 12/31/2013
Fees 19,198 12,287 Annual fees 5,859 5,485 Vendors - Signal broadcasting 11,171 11,620 Trustee and custodial fees 18,262 23,592 Other accounts receivable 8,879 9,172
Subtotal 63,369 62,156
Allowance for doubtful accounts (7,814) (7,929)
Total 55,555 54,227
The amounts presented above are primarily denominated in Brazilian reais and approximately 90% falls due within 90 days. At March 31, 2014, the amounts overdue above 90 days totaled R$7,316 (R$7,682 at December 31, 2013).
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
Dividends receivable - CME Group (Note 16) - 71,878 Receivables - related parties (Note 16) 3,566 3,307 Properties held for sale 3,812 3,812 Advances to employees 3,321 1,814 Other 97 78
Total 10,796 80,889
Consolidated
03/31/2014 12/31/2013 Current Dividends receivable - CME Group (Note 16) - 71,878 Receivables - related parties (Note 16) 379 285 Properties held for sale 3,812 3,812 Advances to employees 3,332 1,841 FX transactions (Banco BM&FBOVESPA) 8,221 - Other 1,571 1,456
Total 17,315 79,272
Non-current
Brokers in court-ordered liquidation (1) 2,200 2,200
Total 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. BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
22 7. Investments
a. I nvestments in subsidiaries and associates Investments in subsidiaries and associates comprise the following:
Companies Equity Total number of shares Adjusted P&L Ownership % Investment 03/31/2014 Investment 12/31/2013 Equity pickup 1Q14 Equity pickup 1Q13
Subsidiaries Banco BM&FBOVESPA de Liquidao e Custdia S.A. 60,769 24,000 1,739 100 60,769 59,028 1,739 940 Bolsa Brasileira de Mercadorias 14,168 403 (230) 53.42 7,569 7,692 (123) (392) Bolsa de Valores do Rio de Janeiro - BVRJ 62,080 115 1,405 86.95 53,978 52,756 1,222 762 BM&F (USA) Inc. 1,126 1,000 (27) 100 1,126 1,189 (27) (98) BM&FBOVESPA (UK) Ltd. 1,227 1,000 (99) 100 1,227 1,353 (99) (81)
124,669 122,018 2,712 1,131 Associate
CME Group, Inc. (1) 48,224,756 334,010 628,061 5.1 3,215,425 3,312,606 31,924 23,793 Recoverable income tax paid abroad (2)
- - 18,247 13,359
3,215,425 3,312,606 50,171 37,152
Total
3,340,094 3,434,624 52,883 38,283
Summary of key financial information of subsidiaries and associates at March 31, 2014:
Description Banco BM&FBOVESPA Bolsa Brasileira de Mercadorias Bolsa de Valores do Rio de Janeiro - BVRJ BM&F (USA) Inc. BM&FBOVESPA (UK) Ltd. CME Group, Inc.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
23 Changes in investments:
Subsidiaries Associate Investments Banco BM&FBOV ESPA Bolsa Brasileira de Mercadorias Bolsa de Valores do Rio de Janeiro - BVRJ BM&F (USA) Inc. BM&FBOV ESPA (UK) Ltd. CME Group, Inc. Total
Balances at December 31, 2013 59,028 7,692 52,756 1,189 1,353 3,312,606 3,434,624
Comprehensive income of associate/subsidiary 2 - - - - 2,891 2,893
Dividends received - - - - - (18,451) (18,451)
Balances at March 31, 2014 60,769 7,569 53,978 1,126 1,227 3,215,425 3,340,094
(1) In July 2010, with the acquisition of a 3.2% interest in CME Group for the amount of R$1,075,119, increasing the ownership interest from 1.8% to 5%, BM&FBOVESPA began to recognize the investment using the equity method in accordance with CPC 18/IAS 28, because management understands that the qualitative aspects of the relationship between the two companies indicate the existence of significant influence of BM&FBOVESPA over CME Group.
At March 31, 2014, the investments fair value based on share market quotation was R$2,843,891. Considering that the market value of the investment in the CME Group is lower than the book value, BM&FBOVESPA management conducted the impairment test at the base date November 30, 2013. The result did not indicate the need to recognize loss on investment in the CME Group. In the first quarter of 2014, management reviewed the internal and external indicators and concluded that assumptions and sensitivity analyses considered in the previous valuation remain adequate, not indicating the need for recognition of impairment.
(2) Refers to recoverable tax paid by the foreign associate, according to Law No. 9249/95 and Revenue Procedure No. 213/02 of the Brazilian Internal Revenue Service (RFB)
(3) In July 2010, BM&FBOVESPA issued debt abroad to protect part of the foreign exchange risk on the investment in CME Group (hedge of net investment) through the designation of a non-derivative financial instrument (debt issuance abroad) as a hedge, as presented in Note 12. We present below the sensitivity analysis to exchange rate variations for the non-hedged portion of the investment in CME Group:
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
24
Impact on equity
Decrease in exchange rate Increase in exchange rate -50% -25% 25% 50%
Exchange rate 1.1315 1.6973 2.8288 3.3945
Exchange variation on investment in foreign associate (1,607,712) (803,856) 803,856 1,607,712 Exchange variation on hedge of net foreign investment 692,478 346,239 (346,239) (692,478) Tax effect on exchange variation on hedge of net foreign investment (235,443) (117,721) 117,721 235,443
Net effect (1,150,677) (575,338) 575,338 1,150,677
b. I nvestment properties
This category comprises properties owned by subsidiary BVRJ - Bolsa de Valores do Rio de Janeiro of rent, which are carried at cost and depreciated at the rate of 4% per year.
Consolidated
Balance at December 31, 2013 33,671
Depreciation (380)
Balances at March 31, 2014 33,291
Rental income from these properties for the quarter ended March 31, 2014 was R$2,361 (R$1,872 at March 31, 2013).
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
25 8. Property and equipment (P&E)
BM&FBOVESPA Changes Buildings Furniture and fixtures Computer devices and equipment Facilities Other Construction in progress Total
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
26 In the quarter, BM&FBOVESPA absorbed as part of the project development cost the amount of R$471 related to the depreciation of equipment used in developing these projects.
Properties with a carrying amount of R$38,273 were pledged as collateral in lawsuits. BM&FBOVESPA is not allowed to assign these assets as collateral for other lawsuits or sell them.
The annual rates of depreciation of assets classified in Property and equipment (P&E) at March 31, 2014 are the same as presented as of December 31, 2013.
9. Intangible assets
Goodwill
The goodwill of R$16,064,309 is attributed to expected future profitability, supported by an economic and financial valuation report of the investment. According to the guidelines of CPC 01/IAS 36, the goodwill must be tested annually for impairment, or more frequently when there are indicators that impairment may have occurred. Goodwill is stated at cost less accumulated impairment losses. Impairment losses recognized on goodwill are not reversed.
The testing supported by the valuation report issued by experts did not indicate the need for adjustments to the value of goodwill at December 31, 2013. In the first quarter of 2014, management reviewed the internal and external indicators and concluded that the assumptions adopted in the previous test remain adequate and then new calculations for the quarter are not required.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
27 Software programs and projects
BM&FBOVESPA and Consolidated Changes Cost of software development internally generated Software internally generated projects completed Software Total
Balances at December 31, 2013 274,154 272,455 61,407 608,016 Additions 31,347 - 13,237 44,584 Transfer (Note 8) (344) - - (344) Reallocations/adjustments (3,008) 3,008 - - Amortization - (11,202) (6,281) (17,483) Balances at March 31, 2014 302,149 264,261 68,363 634,773
At March 31, 2014
Cost 302,149 322,350 311,026 935,525 Accumulated amortization - (58,089) (242,663) (300,752) Net book balance 302,149 264,261 68,363 634,773
The balance comprises costs for the acquisition of licenses and development of software programs and systems, with amortization rates from 10% to 33% per year, and expenditures for the implementation and development in progress of new systems and software programs.
In the quarter, BM&FBOVESPA absorbed as part of the project development cost the amount of R$2,255 related to the amortization of software programs used in developing these projects.
10. Earnings and rights on securities in custody
These comprise dividends and interest on equity received from listed companies, which will be transferred to the custody agents and by them to their clients, who are the owners of the listed companies shares.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
28 11. Provision for taxes payable
BM&FBOVESPA Description 03/31/2014 12/31/2013
Taxes withheld at source 5,157 8,036 PIS and COFINS payable 15,072 14,732 ISS payable 2,128 1,987
Total 22,357 24,755
Consolidated Description 03/31/2014 12/31/2013
Taxes withheld at source 5,619 9,139 PIS and COFINS payable 15,231 14,845 ISS payable 2,137 1,995
Total 22,987 25,979
12. Debt issued abroad
The debt composition is unchanged compared to disclosed in the financial statements at December 31, 2013.
The updated balance of the loan at March 31, 2014 is R$1,396,255 (R$1,468,322 at December 31, 2013), which includes R$18,491 (R$42,129 at December 31, 2013) of accrued interest through the reporting date.
The fair value of the debt, calculated using market data, is R$1,487,969 at March 31, 2014 (R$1,528,652 at December 31, 2013) (Source: Bloomberg).
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
29 13. Other liabilities
BM&FBOVESPA
03/31/2014 12/31/2013 Current
Prepaid income Annuities 24,235 - Payables to related parties (Note 16) 19,534 18,208 Purchase of treasury shares payable 22,174 7,672 Custody agents 6,031 5,939 Amounts to be transferred - Direct Treasury 4,917 3,390 Advance received from sale of property 8,192 8,192 Preferred shares payable 1,838 1,838 Third-parties services 862 862 Other 8,245 7,301
Total 96,028 53,402
Non-current
Payables to related parties (Note 16) 48,708 50,422
Total 48,708 50,422
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
30
Consolidated Description 03/31/2014 12/31/2013
Prepaid income Annuities 24,235 - Payables to related parties (Note 16) 18,986 17,827 Purchase of treasury shares payable 22,174 7,672 Custody agents 6,031 5,939 Amounts to be transferred - Direct Treasury 4,917 3,390 Advance received from sale of property 8,192 8,192 Third-parties services 1,326 1,296 Preferred shares payable 1,838 1,838 Demand deposits (1) 94,894 111,067 Repurchase agreements (2) 225,293 227,309 FX transactions (Banco BM&FBOVESPA) 11,667 3,837 Other 9,266 8,211
Total 428,819 396,578
Non-current
Payables to related parties (Note 16) 48,708 50,422
Total 48,708 50,422
(1) 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) Refers open market funding made by Banco BM&FBOVESPA, comprising repurchase agreements maturing on April 1, 2014 (2013 - January 2, 2014) and backed by Financial Treasury Bills (LFT) and National Treasury Bills (LTN).
14. Provisions for tax, civil and labor contingencies, contingent assets and liabilities and judicial deposits
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 future gains.
b. Provisions for tax, civil and labor contingencies
BM&FBOVESPA and its subsidiaries are defendants in a number of judicial and administrative proceedings involving labor, tax and civil matters arising in the ordinary course of business.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
31 The judicial and administrative proceedings are classified by their probability of loss (probable, possible or remote), based on an evaluation by BM&FBOVESPA and its legal advisors, using parameters such as previous legal decisions and the history of loss in similar cases.
The proceedings in which the loss is evaluated as probable 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;
Civil proceedings mainly relate to aspects of civil liability for losses and damages of BM&FBOVESPA and its subsidiaries;
Tax cases mostly relate to PIS and COFINS levied on (i) BM&FBOVESPA revenues and (ii) receipt of interest on equity.
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. Changes in balances
Changes in provisions for contingencies and legal obligations can be detailed as follows:
BM&FBOVESPA
Civil proceedings Labor claims Legal obligations Tax proceedings Total Balances at December 31, 2013 8,242 24,576 35,064 15,489 83,371 Provisions 7 3,372 1,179 - 4,558 Provision expenditure - (41) - - (41) Reversal of provisions - (194) - - (194) Reassessment of risks - 876 - - 876 Monetary restatement 383 781 545 273 1,982 Balances at March 31, 2014 8,632 29,370 36,788 15,762 90,552
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
32
Consolidated
Civil proceedings Labor claims Legal obligations Tax proceedings Total Balances at December 31, 2013 12,967 25,072 35,064 15,489 88,592 Provisions 7 3,446 1,179 - 4,632 Provision expenditure - (41) - - (41) Reversal of provisions - (194) - - (194) Reassessment of risks - 862 - - 862 Monetary restatement 724 797 545 273 2,339 Balances at March 31, 2014 13,698 29,942 36,788 15,762 96,190
Considering the characteristics of the provisions, the timing of the cash disbursements, if any, cannot be predicted.
e. Possible losses
The proceedings classified as possible loss are so classified as a result of uncertainties surrounding their outcome. They are legal or administrative proceedings for which case law has not yet been established or which still depend on verification and analysis of the facts, or even involve specific aspects that reduce the chances of loss.
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 evaluation of their 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. The lawsuits classified as possible losses at March 31, 2014 total R$39,745, Company and consolidated (R$34,688 at December 31, 2013);
Civil proceedings mainly relate to aspects of civil liability for losses and damages. The total amount involved in the civil lawsuits classified as possible losses at March 31, 2014 is R$84,145 in BM&FBOVESPA (R$81,315 at December 31, 2013) and R$245,858 on a consolidated basis (R$81,911 at December 31, 2013;
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
33 The amount at March 31, 2014 and December 31, 2013 is almost entirely related to two legal proceedings. The first one refers to the possibility of BM&FBOVESPA being required to deliver its shares (surviving company of the merger with BM&F S.A.), corresponding to the shares resulting from the conversion of the membership certificate of a commodities broker in the former BM&F, or indemnify the corresponding amount, if the cancellation of the certificates in the former BM&F is found to be illegal, as alleged by a commodities broker in bankruptcy. The second administrative proceeding arises from 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 total amount involved in tax proceedings classified as possible loss is R$709,558, Company and consolidated (R$577,004 at December 31, 2013). 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 to 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 exemption from COFINS on revenue arising from the exercise of the activities for which they were established, which does not fall under the concept of revenue. The amount involved in the aforementioned proceedings as of March 31, 2014 is R$53,804 (R$53,091 at December 31, 2013).
(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 supposed 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 March 31, 2014 is R$168,797 (R$165,225 at December 31, 2013).
(iii) as the successor of Bovespa Holding S.A., the deductibility, for purposes of calculating IRPJ and CSLL, of expenses paid by Bovespa Holding S.A. in connection with the commission to intermediary institutions responsible for the secondary public offering of its shares held in 2007, and the liability for IRRF on part of the payments made to intermediaries who participated in said public offering. The amount involved in this administrative proceeding at March 31, 2014 is R$129,589 (R$126,755 at December 31, 2014), classified as follows: (i) R$120.654 (R$118.015 at December 31, 2013) as possible loss; and (ii) R$8,935 (R$8,739 at December 31, 2013), relating to isolated fine for the non-withholding of income tax at source, as remote loss.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
34 (iv) alleged levy of social security contributions on options granted under the Stock Option Plan of BM&F S.A., assumed by BM&FBOVESPA and exercisable by the beneficiaries of the Plan, in 2007 and 2008, as well as isolated 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 March 31, 2014 are (i) R$88,796 (R$86,844 at December 31, 2013), relating to social security taxes allegedly due, classified as possible loss, and (ii) R$47,292 (R$46,252 at December 31, 2013), relating to isolated fine for the non- withholding of income tax, classified as remote loss.
(v) alleged levy of social security taxes on options granted under the Stock Option Plan of BM&F S.A., assumed by BM&FBOVESPA, and of BM&FBOVESPA itself, exercised by the beneficiaries of the Plan in 2009 and 2010, as well as isolated 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 granted to employees have a salary nature, as they represent compensation for services rendered. The amounts involved in these administrative proceedings at March 31, 2014 are (i) R$114,381, relating to social security taxes allegedly due, classified as possible loss, and (ii) R$45,841, relating to isolated fine for the non-withholding of income tax, classified as remote loss.
(vi) alleged differences in payment of IRPJ and CSLL stemming from questioning the limits of deductibility of interest on equity paid by BM&FBOVESPA to its shareholders in 2008. The total amount involved in this administrative proceeding is R$122,362 (R$119,672 at December 31, 2013), including arrears interest and automatic fine.
f. Remote losses
BM&FBOVESPA, as successor of the former BOVESPA, and subsidiary BVRJ figure as defendants in a claim for property damages and pain and suffering filed by Naji Robert Nahas, Selecta Participaes e Servios SC Ltda., and Cobrasol - Companhia Brasileira de leos e Derivados, on the grounds of alleged losses in the stock market sustained in June 1989. The amount attributed to the cause by the plaintiffs is R$10 billion. In relation to property damages and pain and suffering claimed, the plaintiffs ask that BM&FBOVESPA and BVRJ be sentenced in proportion to their responsibilities. A sentence was published in which the claims made by the plaintiffs were considered completely unfounded. This sentence was confirmed by the High Court of Justice of Rio de Janeiro State by means of a decision published on December 18, 2009. The plaintiffs filed special and extraordinary appeals and both of which were denied. Bill of reviews was filed with the High Court of Justice and with the Federal Supreme Court of Brazil, which was accepted for analysis of the appeal to the High Court of Justice filed by the plaintiffs. The appeal is currently pending judgment. BM&FBOVESPA believes that the chances of loss in this lawsuit are remote.
On November 29, 2010, BM&FBOVESPA received an assessment notice from the Brazilian IRS demanding the payment of income tax (R$301,686 of principal, plus fines and interest) and social contribution tax (R$108,525 of principal, plus fines and interest) that, in the opinion of the Brazilian IRS, BM&FBOVESPA underpaid in the years 2008 and 2009 with respect to the amortization for tax purposes of the goodwill generated upon the merger of Bovespa Holding S.A., approved at the Special General Meeting held on May 8, 2008. In October 2011, the Brazilian IRS Judgment Office in So Paulo issued a decision on the challenge presented by BM&FBOVESPA, upholding, in substance, the assessment notice. BM&FBOVESPA filed an BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
35 appeal with the Board of Tax Appeals in November 2011, which was denied in December 2013, thus upholding the referred to tax notice. BM&FBOVESPA will await the official notification to be drawn in order to analyze, together with its legal advisors, the most adequate appeal strategy to be followed. BM&FBOVESPA believes 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.
BM&FBOVESPA, as the successor of Bolsa de Mercadorias e Futuros - BM&F ("BM&F") and as disclosed in its Form of Reference (item 4.3), figures as a defendant in civil public actions and class actions filed in order to investigate the practice of possible acts of administrative impropriety, and to receive compensation for alleged damages to the federal treasury as a result of transactions conducted by the Central Bank of Brazil in January 1999 in the US dollar futures market run by the former BM&F. On March 15, 2012, those proceedings were deemed valid and sentenced most of the defendants, among them, BM&F. The total amount arising from this unfavorable decision is R$7,005 million, and, according to one of the decisions handed down, the gains that the Central Bank of Brazil obtained by reason of the non-use of international reserves, amounting to R$5,431 million, may be deducted. BM&FBOVESPA was also ordered to pay a civil penalty in the amount of R$1,418 million. The figures refer to January 1999 and should be monetarily restated, including arrears interest and burden of defeat. BM&FBOVESPA believes that these proceedings are fully groundless and will not recognize in its quarterly information any provision for such lawsuits as the risk of loss is remote. Appeals were filed, which have caused the execution of the trial court judgment to be suspended until the Federal Court of Appeals of the 1 st Chapter renders a decision on those appeals.
Out of the total judicial deposits, the following are highlighted: (i) R$48,056 (R$47,315 at December 31, 2013) relates to disputes over the classification of the exchanges as subject to payment of COFINS, assessed as possible loss by BM&FBOVESPA, as described in item e above; and (ii) R$11,725 (R$11,425 at December 31, 2013) refers to cases regarding PIS and COFINS on interest on equity received. Out of the total deposits relating to legal obligations, R$34,932 (R$33,208 at December 31, 2013) relates to the processes in which BM&FBOVESPA claims exemption from additional social security tax 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.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
36 15. Equity
a. Capital
At the meeting held on February 13, 2014, the Board of Directors approved the cancellation of 80,000,000 shares (Note 15 (b)) issued by BM&FBOVESPA, held in treasury, which were purchased under the share buyback program. Accordingly, the capital of BM&FBOVESPA of R$2,540,239 is now represented by 1,900,000,000 registered common shares with voting rights and no par value, of which 1,847,585,216 are outstanding at March 31, 2014 (1,893,582,856 common shares at December 31, 2013). The shareholders will deliberate at Extraordinary General Meeting to be held on May 13, 2014, about the changes in the Act of Incorporation so it can reflect the new number of shares representing the capital
BM&FBOVESPA is authorized to increase its capital up to the limit of 2,500,000,000 common shares, through a resolution of the Board of Directors, without any amendment to its Articles of Incorporation.
b. Treasury shares
Share buyback program
At a meeting held on July 25, 2013, the Board of Directors approved the Companys Share Buyback Program, starting on July 1, 2013 and ending on June 30, 2014. The limit of shares to be repurchased by BM&FBOVESPA is 60,000,000 common shares, representing 3.13% of the total shares outstanding.
BM&FBOVESPA repurchased the 60,000,000 shares projected for the period between July 1, 2013 and January 29, 2014, of which 23,050,000 in 2013 and 36,950,000 in 2014.
At a meeting held on February 13, 2014, the Board of Directors approved the Companys Share Buyback Program, starting on February 14, 2014 and ending on December 31, 2014. The limit of shares to be repurchased by BM&FBOVESPA is 100,000,000 common shares, representing 5.4% of the total shares outstanding.
Until March 31, 2014, BM&FBOVESPA had repurchased 9,583,100 shares, representing 9.58% of the total number projected in the share buyback program.
The shares acquired under the Share Buyback Program may be canceled or used in connection with the exercise of the stock options by the beneficiaries of the Stock Option Plan of BM&FBOVESPA.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
37 The changes in treasury shares for the quarter are as follows:
Number Amount
Balances at December 31, 2013 86,417,144 955,026
Purchase of shares - Share buyback program 46,533,100 470,184 Shares cancelled (Note 15(a)) (80,000,000) (859,793) Shares sold - stock options (Note 18) (535,460) (5,727)
Balances at March 31, 2014 52,414,784 559,690
Average cost of treasury shares (R$ per share)
10.678 Market value of treasury shares
589.666
c. Revaluation reserves
Revaluation reserves were established as a result of the revaluation of works of art in BM&FBOVESPA and of the properties of the subsidiary BVRJ in 2007, based on independent experts appraisal reports.
d. Capital reserve
Refer 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 plan.
e. I ncome reserves
(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.
(ii) Statutory reserves
Represent funds and safeguard mechanisms required for the activities of BM&FBOVESPA, in order to ensure the proper settlement and reimbursement of losses arising from the intermediation of transactions carried out in its trading sessions and/or registered in any of its trading, registration, clearing and settlement systems, and from custody services.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
38 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.
f. Other comprehensive income
The purpose is to record the effects of (i) exchange variation of investments abroad, (ii) hedge accounting on net foreign investment (Note 12), (iii) comprehensive income of associate and subsidiaries and (iv) actuarial gains/losses on post-retirement health care benefits.
g. Dividends and interest on equity
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.
At the Ordinary General Meeting held on March 24, 2014 approval was given to proposed payment of dividends to shareholders, of R$145,703 a complement of dividends relating to income for the year ended December 31, 2013, which will be paid on June 27, 2014.
The management of BM&FBOVESPA did not set up an income reserve for the difference between the amount recognized as equity pickup and the amount received as dividends arising from the interest held in the associate CME Group (Note 7).
h. Earnings per share
Basic Consolidated
1Q14 1Q13 Numerator Net income available to shareholders of BM&FBOVESPA 256,142 266,975
Denominator Weighted average number of outstanding shares 1,851,586,787 1,934,143,076
Basic earnings per share (in R$) 0.138336 0.138033
Diluted Consolidated
1Q14 1Q13 Numerator Net income available to shareholders of BM&FBOVESPA 256,142 266,975
Denominator Weighted average number of outstanding shares adjusted by effects of stock options plans 1,853,816,780 1,941,240,424
Diluted earnings per share (in R$) 0.138170 0.137528
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
39 16. Related parties
a. Balances and transactions with related parties
Assets / (liabilities) Income / (expenses) Description 03/31/2014 12/31/2013 1Q14 1Q13 Banco BM&FBOVESPA de Servios de Liquidao e Custdia S.A. (1) Accounts receivable 839 673 Interest on equity receivable 2,338 2,338 Recovery of expenses
2,500 2,095 Bolsa Brasileira de Mercadorias (1) Accounts receivable 8 9 Accounts payable (303) (100) Minimum contribution on membership certificates (fees)
118 127 Other related parties Accounts receivable 13 7 Accounts payable - (10) Recovery of expenses
33 16
(1) Subsidiaries included in the consolidation process.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
40 The main recurring transactions with related parties are described below and were carried out under the following conditions:
BM&FBOVESPA pays a minimum monthly fee to Bolsa Brasileira de Mercadorias. The payment that BM&FBOVESPA makes to Bolsa Brasileira de Mercadorias is established by the articles of incorporation of the latter, under which the member (as is the case of BM&FBOVESPA) must regularly pay fees for membership certificates.
Bolsa Brasileira de Mercadorias periodically reimburses BM&FBOVESPA for expenses associated with the resources and infrastructure provided by BM&FBOVESPA to aid in carrying out its activities.
In order to further the development of the market and strengthen the founding member commitment to the development of markets administered by Bolsa Brasileira de Mercadorias, BM&FBOVESPA decided to offer, free of charges, services provided by the Founding Member that may be necessary for the development of markets administered by Bolsa Brasileira de Mercadorias, in the amount of R$2,970, for a maximum period of 5 years as from April 2013, upon the previous approval of the Founding Member.
The amounts owed by Banco BM&FBOVESPA to BM&FBOVESPA refer to the Companys funds used by Banco BM&FBOVESPA in performing its activities under a formal agreement signed by the parties. Such amounts are paid upon presentation of a descriptive document prepared by BM&FBOVESPA and approved by Banco BM&FBOVESPA, according to the terms of the agreement.
Other liabilities to CME Group refer to the remaining portion for the acquisition of the perpetual license of modules related to the multi-asset class electronic trading platform, PUMA Trading System, which was developed along with CME Group.
BSM has entered into an agreement with BM&FBOVESPA for the transfer and recovery of costs which establishes the reimbursement to BM&FBOVESPA for expenses incurred for resources and infrastructure made available to BSM to assist it in the performance of its supervision activities. Such costs are determined on a monthly basis using the methodology specified in the agreement signed by the parties and also include the activities related to the Mecanismo de Ressarcimento de Prejuzos (Loss Recovery Mechanism) as this mechanism is administered by BSM.
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.
Associao BM&F, Associao Bovespa, Instituto BM&FBOVESPA and Associao Profissionalizante BM&FBOVESPA periodically reimburse BM&FBOVESPA for expenses associated with the resources and infrastructure provided by BM&FBOVESPA to assist them in performing their activities.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
41 b. Key management personnel compensation
Key management personnel include Members of the Board of Directors, Executive Officers, Internal Audit Officer, Corporate Risk Officer, Officer of BM&FBOVESPA Bank and Human Resources Officer.
(1) Represents the expense calculated for the quarter in relation to the stock options granted to key management personnel, which was recognized in accordance with the criteria described in Note 18.
17. Structure of guarantees
BM&FBOVESPA operating as a central counterparty (CCP) manages four clearinghouses considered systemically important by the Central Bank of Brazil: the Derivatives, Foreign Exchange and Securities Clearinghouses and the Equity and Corporate Debt Clearinghouse (CBLC).
On March 5, 2014, according to BM&FBOVESPA Circular Letter No. 003/2014, new versions of BM&FBOVESPA Clearinghouse rules became effective, aiming at compliance with the 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 transactions 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$2,380,859 (R$2,072,989 at December 31, 2013), are recorded as liabilities under Collateral for transactions and other non-cash collaterals, in the amount of R$221,467,787 (R$212,316,376 at December 31, 2013), are recorded in memorandum accounts (off balance sheet). At March 31, 2014, collaterals deposited, comprised of clearing, amounted to R$223,848,646 (R$214,389,365 at December 31, 2013), as shown below:
a. Collaterals deposited by market participants:
i) Derivatives Clearinghouse:
Breakdown 03/31/2014 12/31/2013
Government securities 126,752,020 118,581,479 Letters of guarantee 2,875,769 2,796,183 Shares 4,173,166 4,019,309 Bank Deposit Certificates (CDBs) 1,298,670 1,185,727 Cash amounts deposited 857,639 701,705 Gold 31,708 56,182 BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
42 Other 96,788 66,000
Total 136,085,760 127,406,585
ii) Corporate Debt Market (CBLC) Clearinghouse:
Breakdown 03/31/2014 12/31/2013
Government securities 37,001,776 34,423,146 Shares 40,971,777 42,654,968 International Securities (1) 2,287,123 1,616,091 Bank Deposit Certificates (CDBs) 214,416 239,198 Letters of guarantee 1,156,414 1,055,421 Cash amounts deposited 334,231 212,527 Other 84,226 86,429
Total 82,049,963 80,287,780
(1) American and German government securities as well as ADRs (American Depositary Receipt).
iii) Foreign Exchange Clearinghouse:
Breakdown 03/31/2014 12/31/2013
Government securities 3,781,653 4,782,607 Cash amounts deposited 1,185,816 1,154,906
Total 4,967,469 5,937,513
iv) Assets Clearinghouse:
Breakdown 03/31/2014 12/31/2013
Government securities 745,454 757,487
b. Other safeguard mechanisms
i) Derivatives Clearinghouse
Joint liability for paying the broker and clearing member that acted as intermediaries, as well as collaterals deposited by such participants.
Fundo de Desempenho Operacional, composed of funds provided by holders of right of settlement in the Derivatives Clearinghouse (clearing members) and holders of unrestricted right to bargain with the sole purpose of ensuring the operations. This fund has the following position: BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
43
Breakdown 03/31/2014 12/31/2013 Government securities 806,300 852,276 Letters of guarantee 145,000 141,000 Bank Deposit Certificates (CDBs) 5,810 5,720 Shares 11,014 10,765 Cash amounts deposited 83 224 Amounts deposited 968,207 1,009,985 Amounts required from participants 783,000 808,500 Amount in excess of the minimum required 185,207 201,485
Fundo de Operaes do Mercado Agropecurio, in the amount of R$50,000 at March 31, 2014 and December 31, 2013, intended to hold funds of BM&FBOVESPA to guarantee the proper settlement of transactions involving agricultural commodity contracts.
Fundo Especial dos Membros de Compensao, in the amount of R$40,000 until December 31, 2013, intended to hold funds of BM&FBOVESPA to guarantee the proper settlement of transactions, regardless of the type of contract. This fund was terminated on March 5, 2014.
Fundo de Liquidao de Operaes, composed of collaterals transferred by clearing members and BM&FBOVESPA funds. This fund has the following position:
Breakdown 03/31/2014 12/31/2013 Government securities 1,186,612 322,274 Letters of guarantee 30,750 30,750 Cash amounts deposited 490 - Shares 3,188 3,075 Amounts deposited 1,221,040 356,099 Amounts required from participants 243,000 252,000 Amount required from BM&FBOVESPA (1) 243,000 - Amount in excess of the minimum required 735,040 104,099
(1) Comprised of Federal Government Securities.
Patrimnio Especial (Especial equity), in the amount of R$46,862 (R$45,729 at December 31, 2013), in compliance with the provisions of article 5 of Law No. 10214 of March 27, 2001 and article 19 of BACEN Circular No. 3057 of August 31, 2001.
ii) Corporate Debt Market (CBLC) Clearinghouse:
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
44 Joint liability for paying the broker and clearing member that acted as intermediaries, as well as collaterals deposited by such participants.
The Settlement Fund, composed of collaterals transferred by clearing members and BM&FBOVESPA funds, intended to guarantee the proper settlement of transactions.
Breakdown 03/31/2014 12/31/2013
Government securities 633,010 393,283 Cash amounts deposited 2,600 2,627
Amounts deposited 635,610 395,910
Amounts required from participants 272,400 272,400 Amount required from BM&FBOVESPA (1) 272,400 -
Amount in excess of the minimum required 90,810 123,510
(1) Comprised of Federal Government Securities.
Patrimnio Especial (Especial equity), in the amount of R$49,681 (R$48,874 at December 31, 2013), in compliance with the provisions of article 5 of Law No. 10214 of March 27, 2001 and article 19 of BACEN Circular No. 3057 of August 31, 2001.
iii) Foreign Exchange Clearinghouse:
Fundo de Liquidao de Operaes de Cmbio, formerly Fundo de Participao, composed of collaterals transferred by Foreign Exchange Clearinghouse participants and BM&FBOVESPA funds, intended to guarantee the proper settlement of transactions.
Breakdown 03/31/2014 12/31/2013
Government securities 303,750 214,809 Cash amounts deposited - 1,000
Amounts deposited 303,750 215,809
Amounts required from participants 109,000 111,000 Amount required from BM&FBOVESPA (1) 109,000 -
Amount in excess of the minimum required 85,750 104,809
(1) Comprised of Federal Government Securities. BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
45
Fundo Operacional da Clearing de Cmbio, in the amount of R$50,000 until December 31, 2013, intended to hold funds of BM&FBOVESPA to cover losses arising from operational or administrative failures. This fund was terminated on March 5, 2014.
Patrimnio Especial (Especial equity), in the amount of R$46,935 (R$45,799 at December 31, 2013), in compliance with the provisions of article 5 of Law No. 10214 of March 27, 2001 and article 19 of BACEN Circular No. 3057 of August 31, 2001.
iv) Assets Clearinghouse:
Fundo Operacional da Clearing de Ativos, in the amount of R$40,000 at March 31, 2014 and December 31, 2013, intended to hold funds of BM&FBOVESPA to cover losses arising from operational or administrative failures.
Patrimnio Especial (Especial equity), in the amount of R$32,998 (R$32,200 at December 31, 2013), in compliance with the provisions of article 5 of Law No. 10214 of March 27, 2001 and article 19 of BACEN Circular No. 3057 of August 31, 2001.
e. Guarantee funds
The subsidiaries Bolsa Brasileira de Mercadorias and Bolsa de Valores do Rio de Janeiro (BVRJ) also manage Guarantee Funds, special purpose entities without a legal status. The maximum liability of these Guarantee Funds is limited to the sum of their net assets.
18. Employee benefits
a. Stock options - Long-term benefit
BM&FBOVESPA has a Stock Option Plan (Option Plan) approved at the Special General Meeting held on May 8, 2008, as amended at the Special General Meeting held on April 18, 2011 and at the Annual and Special General Meeting held on April 15, 2013, by which the employees of BM&FBOVESPA and its subsidiaries are eligible to receive stock options.
As from 2013, the Plan provides for granting of stock options to Executive Board members, under item 13, through which a total of 330,000 options will be granted annually, to be distributed equally among the members. The options will be granted to members in a single lot, and may be exercised by the beneficiary after two years, as from the end of each term of office as a Board member in which the related options were granted.
Currently there are nine Programs to grant options under the Option Plan, approved by the Board of Directors, and one stock option grant to the Board of Directors.
BM&FBOVESPA recognized expenses related to grants of the Option Plan in the amount of R$6,859 in the quarter (R$7,877 at March 31, 2013), matched against capital reserves in equity. BM&FBOVESPA considered BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
46 in this calculation an estimated turnover between 11% and 20%, i.e. the estimated number of options which will not vest due to employees who opt to leave BM&FBOVESPA or whose employment is terminated before achieving vested rights to exercise the options.
At March 31, 2014, BM&FBOVESPA used 2.26% (1.69% at December 31, 2013) of the total limit of 2.5% of the capital for stock option grants, leaving 0.24% of the capital for new programs. When the options are exercised by the beneficiaries, new shares will be issued, by increasing the capital of BM&FBOVESPA, or treasury shares will be used.
The exercise price per share is equal to the average closing price of the 20 trading days preceding the date of grant, subject to vesting periods for its exercise.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
47 Total options granted
Plan Grant date Vesting period Exercise price (R$ per share) Granted Exercise and cancelled in prior periods Canceled and lapsed at 03/31/2014 Exercised at 03/31/2014 Outstanding contracts at 03/31/2014 Fair value of options on the grant date (R$ per share) Program 2008 12/19/2008 06/30/2009 5.174 1,132,966 (1,104,841) - (1,625) 26,500 3.71
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
49 Effects arising from the exercise of options
1Q14 1Q13
Amount received from the exercise of options 4,259 25,138 (-) Cost of treasury shares disposed of (5,727) (27,688)
Effect from disposal of shares (1,468) (2,550)
b. Supplementary pension plan
The pension plan Fundo de Penso Multipatrocinado das Instituies do Mercado Financeiro e de Capitais (Mercaprev) is structured as a defined contribution plan, as one of the sponsors BM&FBOVESPA, with voluntary participation open to all employees.
c. Post-retirement health care benefit
BM&FBOVESPA maintains a post-retirement health care plan for a group of employees and former employees. At March 31, 2014, the actuarial liabilities related to this plan were R$26,672 (R$25,940 at December 31, 2013), calculated using the following assumptions at December 31, 2013, still at March, 31, 2014:
Average life expectancy in years of a pensioner retiring at age 65 is as follows:
Retirement at balance sheet date (age 65) 20 years Retirement in 25 years (age 40 today) 20 years
The sensitivity of the actuarial liability of the health care plan at December 31, 2013 to the changes in key assumptions is as follows:
Increase of 0.5% Decrease of 0.5%
Discount rate (1,636) 1,814 Medical inflation 1,914 (1,747)
Life expectancy + 1 Life expectancy - 1
Mortality table 1,045 (1,029)
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
50 19. Income tax and social contribution
a. Deferred income tax and social contribution
The balances of deferred tax assets and liabilities are as follows:
BM&FBOVESPA and Consolidated Description 03/31/2014 12/31/2013
Tax, civil and labor contingencies 18,395 16,554 Tax loss carryforwards 50,539 29,107 Exchange variation on issuance of debt abroad 103,936 120,499 Other temporary differences 28,549 36,877
Total deferred assets 201,419 203,037
Goodwill amortization (1) (2,433,991) (2,295,347) Other (2,644) (427)
Total deferred liabilities (2,436,635) (2,295,774)
Deferred taxes, net (2,235,216) (2,092,737)
(1) 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.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
51 Changes in deferred tax assets and liabilities during the quarter:
BM&FBOVESPA and Consolidated
12/31/2013 Debt (credit) in the income statement Debt (credit) in comprehensive income 03/31/2014 Deferred assets
Tax, civil and labor contingencies 16,554 1,841 - 18,395 Deferred assets on tax loss carryforwards 29,107 21,432 - 50,539 Exchange variation on issuance of debt abroad 120,499 - (16,563) 103,936 Other temporary differences 36,877 (8,328) - 28,549 Total deferred assets 203,037 14,945 (16,563) 201,419
Deferred liabilities
Goodwill amortization (2,295,347) (138,644) - (2,433,991) Other (427) (2,217) - (2,644) Total deferred liabilities (2,295,774) (140,861) - (2,436,635)
Deferred taxes, net (2,092,737) (125,916) (16,563) (2,235,216)
b. Estimated realization period
Deferred income tax and social contribution 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$50,539) are expected to be realized in the amount of R$29,860 within one year and R$171,559 after one year and realization of deferred liabilities is expected to occur after one year. At March 31, 2014, the present value of the deferred tax assets, considering their expected realization, is R$133,938.
Since the income tax and social contribution base arise 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 deferred 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 is R$5,998,261 at March 31, 2014 (R$6,406,038 at December 31, 2013).
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.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
52 c. Reconciliation of income tax and social contribution expense
Reconciliation of the income tax and social contribution amounts recorded in P&L (Company and consolidated) and their respective amounts at statutory rates are as under:
BM&FBOVESPA
1Q14 1Q13
Income before income tax and social contribution 400,304 421,817
Income tax and social contribution before additions and exclusions computed at the statutory rate of 34% (136,103) (143,418)
Income tax and social contribution (144,162) (154,842)
Consolidated
1Q14 1Q13 Income tax before income tax and social contribution 401,545 422,481 Income tax and social contribution before additions and exclusions computed at the statutory rate of 34% (136,525) (143,644) Additions: (25,856) (24,459) Stock Option Plan (2,332) (2,678) Nondeductible expenses - permanent (1) (23,524) (21,781)
Other - 2 Income tax and social contribution (145,323) (155,469)
(1) Refers mainly to R$18,247 of recoverable income tax paid abroad (Note 7).
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
53 d. Taxes recoverable and prepaid
Taxes recoverable and prepaid are as follows:
BM&FBOVESPA Description 03/31/2014 12/31/2013
Prepaid IRPJ/CSLL current period 28 7,989 IRRF Financial investments - current period 21,447 49,252 IRPJ and CSLL tax losses - prior years 68,261 13,904 Taxes paid abroad 24,765 24,765 PIS/COFINS recoverable 19,943 20,138 Other taxes 3,581 4,332
Total 138,025 120,380
Consolidated Description 03/31/2014 12/31/2013
Prepaid IRPJ/CSLL current period 28 7,988 IRRF Financial investments - current period 21,447 49,252 IRPJ and CSLL tax losses - prior years 68,261 13,904 Taxes paid abroad 24,765 24,765 PIS/COFINS recoverable 19,943 20,138 Other taxes 3,596 4,349
Total 138,040 120,396
e. Transition Tax Regime (RTT)
Provisional Executive Order (MP) No. 627/13 of November 11, 2013 and the Brazilian Internal Revenue Service (RFB) Revenue Procedure No. 1397 (IN No.1397) of September 16, 2013 significantly amend the federal tax regulations, especially regarding the adjustments required for the extinguishment of the Transition Tax Regime (RTT) set forth by Law No. 11941 of May 27, 2009. The provisions of this MP will be compulsorily effective from calendar year 2015, but may be early adopted from calendar year 2014.
Based on management's analysis on the possible tax impacts of the new provisions of MP No. 627 (which, to date, has not been converted into law), BM&FBOVESPA intends to early adopt such provisions as from calendar year 2014 (article 71), admitting that said MP will be regulated and converted into law in terms essentially corresponding to the current wording as regards the major aspects.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
54 20. Revenue
BM&FBOVESPA Consolidated
1Q14 1Q13 1Q14 1Q13
Trading and/or settlement system BM&F 226,434 221,768 226,431 221,768
Derivatives 222,451 216,289 222,451 216,289
Exchange 3,983 5,475 3,980 5,475
Assets - 4 - 4
Trading and/or settlement system Bovespa (1) 219,672 256,170 219,672 256,170
Trading trading fees 35,406 59,680 35,406 59,680
Transactions - clearing and settlement 176,780 193,368 176,780 193,368
Other 7,486 3,122 7,486 3,122
Other revenue 89,983 95,216 99,979 102,648
Securities lending 20,834 24,618 20,834 24,618
Securities listing 11,792 11,414 11,792 11,414
Depository, custody and back-office 28,569 27,322 28,569 27,322
Vendors - quotations and market information 17,245 16,759 17,245 16,759
Bolsa Brasileira de Mercadorias fees and contributions - - 1,124 792
Banco Trading and bank fees - - 6,454 4,698
Other 1,946 1,876 4,364 3,818
Deductions (55,769) (59,119) (56,398) (59,567)
PIS and COFINS (48,806) (52,049) (49,298) (52.375)
Service Tax (ISS) (6,963) (7,070) (7,100) (7.192)
Revenue 480,320 514,035 489,684 521,019
(1) In April 2013, given changes in the policies of the spot market, trading and after-trading fees (transactions) for local institutional investors and day traders were rebalanced, and the fees for the other investors were reduced.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
55 21. Sundry expenses
BM&FBOVESPA Description 1Q14 1Q13
Sundry provisions (1) 5,222 9,176 Electricity, water and sewage 2,535 2,650 Contributions and donations 4,017 1,001 Travels 658 464 Expenses with entities abroad 513 601 Rental 572 487 Consumption material 341 133 Minimum trading fees BBM (Note 16) 303 321 Insurance coverage 137 144 Transportation 269 210 Other 1,158 725
Total 15,725 15,912
Consolidated Description 1Q14 1Q13
Sundry provisions (1) 5,404 9,179 Electricity, water and sewage 2,588 2,692 Contributions and donations 4,034 1,015 Travels 803 562 Rental 668 672 Consumption material 346 137 Insurance coverage 138 145 Transportation 276 214 Other 1,229 737
Total 15,486 15,353
(1) Basically refers to the provision for contingencies and allowance for doubtful accounts.
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
56 22. Financial income (expenses)
BM&FBOVESPA
1Q14 1Q13 Financial income
Income from financial assets measured at fair value 71,397 57,279 Exchange gains 5,426 1,703 Other financial income 1,589 2,080
78,412 61,062
Financial expenses
Interest and exchange variation on foreign debt (23,124) (20,097) Exchange losses (6,440) (2,003) Other financial expenses (1,292) (1,866)
(30,856) (23,966)
Financial income (expenses) 47,556 37,096
Consolidated
1Q14 1Q13 Financial income
Income from financial assets measured at fair value 72,408 58,000 Exchange gains 5,426 1,703 Other financial income 1,599 1,785
79,433 61,488
Financial expenses
Interest and exchange variation on foreign debt (23,124) (20,097) Exchange losses (6,440) (2,003) Other financial expenses (1,850) (2,259)
(31,414) (24,359)
Financial income (expenses) 48,019 37,129
23. Business segment reporting
We present below consolidated information based on reports used by the Executive Board for making decisions, comprising the following segments: Bovespa, BM&F, Institutional and Corporate Products. Due to the nature of the business, the Executive Board does not use any information on assets and liabilities by segment to support decision-making.
There were no changes in the structure of segments presented in the financial statements of December 31, 2013. BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
57
1Q14 Consolidated Bovespa Segment BM&F Segment Institutional and Corporate Products Segment Total Trading and/or settlement system 219,672 226,431 99,979 546,082 Deductions (23,475) (23,527) (9,396) (56,398) Revenue 196,197 202,904 90,583 489,684 Adjusted expense (44,124) (48,805) (43,559) (136,488) Depreciation and amortization (9,887) (13,025) (6,638) (29,550) Stock options (2,139) (2,493) (2,227) (6,859) Allowance for doubtful accounts and other provisions (2,045) (2,329) (1,388) (5,762) Transfer of fines (947) (935) (252) (2,134) Other (2,216) (2,292) (1,028) (5,536) Total expense (61,358) (69,879) (55,092) (186,329) P&L 134,839 133,025 35,491 303,355 Equity pickup
50,171 Financial income (expenses)
48,019 Income tax and social contribution
(145,323) Net income for the period 134,839 133,025 35,491 256,222
1Q13 Consolidated Bovespa Segment BM&F Segment Institutional and Corporate Products Segment Total Trading and/or settlement system 256,170 221,768 102,648 580,586 Deductions (26,964) (22,930) (9,673) (59,567) Revenue 229,206 198,838 92,975 521,019 Adjusted expense (47,536) (37,749) (38,684) (123,969) Depreciation and amortization (12,187) (9,101) (5,795) (27,083) Stock options (2,956) (2,462) (2,459) (7,877) Allowance for doubtful accounts and other provisions (3,344) (3,015) (2,915) (9,274) Other (2,135) (1,917) (564) (4,616) Total expense (68,158) (54,244) (50,417) (172,819) P&L 161,048 144,594 42,558 348,200 Equity pickup
37,152 Financial income (expenses)
37,129 Income tax and social contribution
(155,469) Net income for the period 161,048 144,594 42,558 267,012
24. Other information
a. BM&FBOVESPA seeks advice from insurance brokers to ensure that it has a sufficient level of insurance cover for its size and operations. The main coverage in its insurance policies at March 31, 2014 is shown below:
Insurance line Amounts insured
Amounts at risk, property damages, buildings and equipment 416,563 Civil liability 134,000 BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)
58 Works of art 16,133
b. Associao Profissionalizante BM&FBOVESPA (APBM&FBOVESPA) is a not-for-profit entity engaged in promoting educational, social welfare and sports activities. The sports-related initiatives included offering support to the BM&FBOVESPA Athletics Club and sponsorship to athletes (these activities were incorporated by specific association, known as Clube de Atletismo BM&FBOVESPA in July 2013). APBM&FBOVESPA is supported by the BM&FBOVESPA Institute, a not-for-profit association that has BM&FBOVESPA as its founding member.
APBM&FBOVESPA figures as a defendant in legal and administrative proceedings involving tax matters, classified as probable loss, most of which are related to challenges by Brazilian IRS about social security contributions allegedly owed by APBM&FBOVESPA on payments made to third parties and on sponsorships to athletes of the BM&FBOVESPA Athletics Club. If the outcome of these proceedings is not favorable to APBM&FBOVESPA, BM&FBOVESPA may have to provide funds to maintain the activities of the BM&FBOVESPA Athletics Club. The case amounts at March 31, 2014 total R$16,650.
25. Subsequent events
a. At the meeting held on May 8, 2014, the Board of Directors approved payment of dividends of R$204,914 to shareholders, which will be attributed mandatory dividends for 2014. Dividends will be paid out on May 30, 2014, and the equity position on May 19, 2014 will be used as calculation base.
b. BM&FBOVESPA repurchased 7,672,900 shares between April 1 st and 23, 2014, observing the black-out period to the business, as determined by CVM Ruling No. 358, which represents 7.67% of the total expected in the Share Buyback Program approved by the Board of Directors on February 13, 2014 (Note 15(b)).
26. Notes submitted in the annual financial statements that are not being fully presented in the financial statements
In accordance with CPC 21 (R1) - Interim Financial Reporting and CVM/SNC/SEP Circular Letter n 003/2011, the following notes have been condensed in this quarterly information, compared to the annual financial statements for the year ended December 31, 2013:
Note 1 Operations Note 2 Preparation and presentation of quarterly information Note 3 Significant accounting practices Note 4 Cash and cash equivalents and financial investments Note 8 Property and equipment (P&E) Note 9 Intangible assets Note 12 Debt issued abroad Note 17 Structure of guarantees Note 18 Employee benefits Note 23 Business segment reporting BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Notes to quarterly information March 31, 2014 (In thousands of reais)