Decree 8.746 was published in the Official Gazette today regulating the selection process for the position of Exchange Traded Fund (ETF) Manager, supported by the National Treasury Secretariat (Secretaria do Tesouro Nacional - STN) and regulated by art 3-A of Law 10,179 of 2001.
Since 2013, the STN and the World Bank have been working together in a program to develop a new Issuer-Driven Exchange Traded Fund Program (ID ETF) to democratize access to efficient savings products and increase competitiveness with financial services. This program is a global initiative devised by the World Bank to support the development of domestic bond markets and increase the financial stability of emerging market economies (EMEs). Brazil will be a pioneer in structuring, developing and launching the ID ETF; the country's experience will be a reference for program replication worldwide.
In Brazil, the program aims to stimulate the launch of Fixed Income ETFs referenced in government fixed rate or inflation-linked securities. ETFs are known by investors to boast greater liquidity, price transparency and ease of trading than the individual assets of which they are composed. The ID ETF differs from traditional fixed income ETFs; upon its creation, the STN will issue the underlying basket of securities to compose the portfolio of Index Funds in equal proportion to those that make up the benchmark index.
The ID ETF also aims to reduce the degree of indexation to overnight interest rates (SELIC and CDI) by consolidating alternative benchmarks while fostering the diversification of the investor base, the extension of public and private debt, increased liquidity of assets and competitiveness in the asset management sector, in addition to providing a new and more democratic savings mechanism for individual investors and investor groups.
In this sense, the partnership between the STN and the World Bank to promote ID ETF in Brazil will allow the index followed by the Index Fund to be aligned with the objectives of Federal Public Debt management. It will also mitigate one of the major bottlenecks in the development of this product in emerging markets, which is obtaining the assets that will compose the index, thus helping reduce the launch costs and risks incurred by the institution managing the fund.
In November 2014, changes were introduced to Law 10,179 to enable the STN to operate under the specifications of the ID ETF program, including the possibility of direct bond issuance by the STN in favor of the Index Fund, against payment, when deriving from an agreement between the Federal Government and the institution managing the fund. Decree xx regulates and establishes the criteria, conditions and terms of the selection process.
In the first semester of 2016, the STN will post a Request for Proposal on its website (www.tesouro.fazenda.gov.br) including all the details of the selection process for the position of Fund Manager.