Determination of fair value

3 Months Ended

12 Months Ended

Mar. 31, 2020

Dec. 31, 2019

22. Determination of fair value

The Group measures financial instruments such as certain financial investments and derivatives at fair value at each balance sheet date.

Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The financial instruments included in the level 1 consist mainly in public financial instruments and financial instruments negotiated on active markets (i.e. Stock Exchanges).

Level 2: The fair value of financial instruments that are not traded in active markets is determined using valuation techniques, which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value as instrument are directly or indirectly observable, the instrument is included in level 2. The financial instruments classified as level 2 are composed mainly from private financial instruments and financial instruments negotiated in a secondary market.

Level 3: If one or more of the significant inputs is unobservable, the instrument is included in level 3. This is the case for unlisted equity securities. As of March 31, 2020 and December 31, 2019, there were no financial instruments classified as level 3.

Specific valuation techniques used to value financial instruments include:

•

Financial assets (other than derivatives)—The fair value of securities is determined by reference to their closing prices on the date of presentation of the consolidated financial statements. If there is no market price, fair value is estimated based on the present value of future cash flows discounted using the observable rates and market rates on the date of presentation.

•

Swap—These operations swap cash flow based on the comparison of profitability between two indexers. Thus, the agent assumes both positions—put in one indexer and call on another.

•

Forward—at the market quotation value, and the installments receivable or payable are prefixed to a future date, adjusted to present value, based on market rates published at B3.

•

Futures—Foreign exchange rates, prices of shares and commodities are commitments to buy or sell a financial instrument at a future date, at a contracted price or yield and may be settled in cash or through delivery. Daily cash settlements of price movements are made for all instruments.

•

Options—option contracts give the purchaser the right to buy the instrument at a fixed price negotiated at a future date. Those who acquire the right must pay a premium to the seller. This premium is not the price of the instrument, but only an amount paid to have the option (possibility) to buy or sell the instrument at a future date for a previously agreed price.

•

Other financial assets and liabilities—Fair value, which is determined for disclosure purposes, is calculated based on the present value of the principal and future cash flows, discounted using the observable rates and market rates on the date the financial statements are presented.

Below are the Group financial assets and liabilities by level within the fair value hierarchy. The Group assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels:


	March, 31 2020
	Level 1		Level 2		Fair Value		Book Value
Financial Assets
Financial assets at Fair value through profit or loss
Securities		22,640,753		2,450,970		25,091,723		25,091,723
Derivative financial instruments		1,215		8,513,577		8,514,793		8,514,793
Fair value through other comprehensive income
Securities		4,896,387		—		4,896,387		4,896,387
Evaluated at amortized cost
Securities		—		1,267,826		1,267,826		1,267,826
Securities purchased under agreements to resell		—		14,916,794		14,916,794		14,916,794
Securities trading and intermediation		—		1,015,785		1,015,785		1,015,785
Accounts receivable		—		424,702		424,702		424,702
Loan operations		—		63,589		63,589		63,589
Other financial assets		—		25,472		25,472		25,472
Financial liabilities
Fair value through profit or loss
Securities loaned		721,131		—		721,131		721,131
Derivative financial instruments		—		7,526,075		7,526,075		7,526,075
Evaluated at amortized cost
Securities sold under repurchase agreements		—		21,111,301		21,111,301		21,111,301
Securities trading and intermediation		—		13,333,539		13,333,539		13,333,539
Borrowings and lease liabilities		—		644,184		644,184		644,439
Debentures		—		832,810		832,810		844,361
Accounts payables		—		265,197		265,197		265,197
Structured operations certificates		—		150,461		150,461		150,461
Other financial liabilities		—		31,485		31,485		31,485


	December 31, 2019
	Level 1		Level 2		Fair Value		Book Value
Financial Assets
Financial assets at Fair value through profit or loss
Securities		20,277,031		2,166,361		22,443,392		22,443,392
Derivative financial instruments		21,809		4,063,195		4,085,004		4,085,004

Fair value through other comprehensive income
Securities		2,616,118		—		2,616,118		2,616,118

Evaluated at amortized cost
Securities		—		3,914,923		3,914,923		2,266,971
Securities purchased under agreements to resell		—		9,490,090		9,490,090		9,490,090
Securities trading and intermediation		—		504,983		504,983		504,983
Accounts receivable		—		462,029		462,029		462,029
Loan operations		—		386		386		386
Other financial assets		—		19,805		19,805		19,805

Financial liabilities
Fair value through profit or loss
Securities loaned		2,021,707		—		2,021,707		2,021,707
Derivative financial instruments		—		3,229,236		3,229,236		3,229,236

Evaluated at amortized cost
Securities sold under repurchase agreements		—		15,638,407		15,638,407		15,638,407
Securities trading and intermediation		—		9,114,546		9,114,546		9,114,546
Borrowings and lease liabilities		—		633,781		633,781		637,484
Debentures		—		836,001		836,001		835,230
Accounts payables		—		266,813		266,813		266,813
Structured operations certificates		—		19,474		19,474		19,474
Other financial liabilities		—		79,127		79,127		79,157

32. Determination of fair value

The Group measures financial instruments such as certain financial investments and derivatives at fair value at each balance sheet date.

Level 3: If one or more of the significant inputs is unobservable, the instrument is included in level 3. This is the case for unlisted equity securities. As of December 31, 2019, 2018 and 2017 there were no financial instruments classified as level 3.

Fair values have been assessed for purposes of measurement based on the methods below,

(a) Cash and cash equivalents, Securities purchased under agreements to resell and Securities sold under repurchase agreements

The fair value of cash and cash equivalents, securities purchased under agreements to resell and securities sold under repurchase agreements approximates the carrying amount.

(b) Financial assets (other than derivatives)

The fair value of securities is determined by reference to their closing prices on the date of presentation of the consolidated financial statements. If there is no market quotation, fair value is estimated based on the present value of future cash flows discounted using the observable rates and market rates on the date of presentation.

(c) Derivative financial instruments

Criteria and methodologies for calculating the fair value of derivative financial instruments are described in Note 8.

(d) Other financial assets and liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of the principal and future cash flows, discounted using the observable rates and market rates on the date the financial statements are presented.

Financial instruments not measured at fair value (securities trading and intermediation, accounts receivable and accounts payables) were not disclosed as their carrying amounts approximates their fair values.


	2019
	Level 1		Level 2		Fair Value		Book Value
Financial Assets
Financial assets at Fair value through profit or loss
Securities		20,277,031		2,166,361		22,443,392		22,443,392
Derivative financial instruments		21,809		4,063,195		4,085,004		4,085,004
Fair value through other comprehensive income
Securities		2,616,118		—		2,616,118		2,616,118
Evaluated at amortized cost
Securities		—		3,914,923		3,914,923		2,266,971
Securities purchased under agreements to resell		—		9,490,090		9,490,090		9,490,090
Securities trading and intermediation		—		504,983		504,983		504,983
Accounts receivable		—		462,029		462,029		462,029
Other financial assets		—		20,191		20,191		20,191
Financial liabilities
Fair value through profit or loss
Securities loaned		2,021,707		—		2,021,707		2,021,707
Derivative financial instruments		—		3,229,236		3,229,236		3,229,236
Evaluated at amortized cost
Securities sold under repurchase agreements		—		15,638,407		15,638,407		15,638,407
Securities trading and intermediation		—		9,114,546		9,114,546		9,114,546
Borrowings and lease liabilities		—		633,781		633,781		637,484
Debentures		—		836,001		836,001		835,230
Accounts payables		—		266,813		266,813		266,813
Other financial liabilities		—		98,601		98,601		98,631


	2018
	Level 1		Level 2		Fair Value		Book Value
Financial Assets
Financial assets at Fair value through profit or loss
Securities		5,259,591		1,031,380		6,290,971		6,290,971
Derivative financial instruments		6,599		1,685,432		1,692,031		1,692,031
Fair value through other comprehensive income
Securities		695,778		—		695,778		695,778
Evaluated at amortized cost
Securities		—		153,709		153,709		155,292
Securities purchased under agreements to resell		—		6,568,246		6,568,246		6,570,609
Securities trading and intermediation		—		898,312		898,312		898,312
Accounts receivable		—		219,200		219,200		219,200
Other financial assets		—		60,423		60,423		60,423
Financial liabilities
Fair value through profit or loss
Securities loaned		1,259,579		—		1,259,579		1,259,579
Derivative financial instruments		—		991,399		991,399		991,399
Evaluated at amortized cost
Securities sold under repurchase agreements		—		6,792,316		6,792,316		6,640,694
Securities trading and intermediation		—		5,306,628		5,306,628		5,306,628
Borrowings		—		459,487		459,487		469,609
Debentures		—		406,540		406,540		406,538
Accounts payables		—		134,579		134,579		134,579
Other financial liabilities		—		7,011		7,011		7,011