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Moody's: Brazilian B3's new cash equities settlement is credit positive

B3 SA - Brasil Bolsa Balcão's announcement that it would begin settling cash equities trades in two days instead of three is credit positive for the stock exchange operator, Moody's said.

The rating agency believes that the new settlement period "reduces the risk it is exposed to in its central counterparty clearing house, against which it dedicates its own cash resources as the last layer of a safeguard structure that also includes participant's collateral."

By lessening the time frame for settlement by a day, the default risk that B3 is exposed to from market participants will lower, as the total number of unsettled trades and their market value at a given time will be reduced, which according to Moody's is credit positive for the entity.

Furthermore, a shorter period will boost the Brazilian stock market's liquidity, allowing the stakeholders to realize proceeds from trades faster, and requiring them to post capital or collateral against open positions for a shorter time frame.

Consequently, the stock market turnover would increase by the freed up sources, ready to be used for reinvestment. This, the rating agency noted, is an additional credit positive.