Bloomberg News

ATG, NYSE Euronext Plan Trading Venue for Brazilian Equities

November 05, 2012

Americas Trading Group, a provider of financial technology, will create a platform with NYSE Euronext (NYX:US) for buying and selling Brazilian stocks starting next year.

Americas Trading System Brasil, or ATS Brasil, plans to begin in 2013 and will compete with BM&FBovespa SA (BVMF3), owner of the country’s dominant exchange, Rio de Janeiro-based ATG said in a statement today. ATG will have a controlling interest and operational management while NYSE Technologies, a unit of NYSE Euronext, will be a minority shareholder. NYSE Technologies will be the “core technology provider” for the system, which will seek to attract investors including high-frequency traders within the country and from outside, the statement said.

“New entrants will capture market share but BM&FBovespa will keep the lion’s share of trading and 100 percent of post- trading services,” Paulo Ribeiro, an analyst at HSBC, said in a telephone interview today. “BM&FBovespa will still grow, but if you have less market share of trading, you capture less of the market growth.”

BM&FBovespa is facing a loss in equities market share estimated at as much as 30 percent by HSBC Holdings Plc and Banco Itau BBA SA as the nation considers boosting competition for equities trading. A June report commissioned by the country’s securities regulator to examine competition for trading services bolstered bids by Direct Edge Holdings LLC, Bats Global Markets Inc., Cetip SA-Mercados Organizados and IntercontinentalExchange Inc. (ICE:US) to compete against BM&FBovespa.

Market Competition

BM&FBovespa, based in Sao Paulo, rose 35 percent to 13.20 reais this year. The shares fell 30 cents, or 2.2 percent today. Ribeiro said the prospect of competition in equities trading is already reflected in the bourse’s stock price.

Ribeiro expects competition to start in 2014, with rivals capturing 30 percent of equities trading by 2016. Itau analysts including Regina Longo Sanchez said BM&FBovespa may lose 20 to 30 percent of its share, according to a June 18 research note.

“The entry of ATS Brasil starts a new cycle in the Brazilian exchange market,” Fernando Cohen, president of ATG, said in the statement. “Our innovative, high-performance order execution platform will generate more liquidity for the capital markets. This initiative should stimulate cost reduction by offering efficiency gains for investors.”

‘Infrastructure Provider’

Ending BM&FBovespa’s monopoly would help spur economic growth in Brazil, Oxera Consulting Ltd. said in its June report to the Brazilian regulator. Bovespa is the only “infrastructure provider” for equities trading and post-transaction services in Brazil, Oxera said in the report.

“We see customers who want to access the vibrancy, growth in Brazil,” Dominique Cerutti, New York-based NYSE Euronext’s president and deputy chief executive officer, told reporters in Rio de Janeiro today. “We’ll bring more liquidity,” which will increase volume for the Bovespa exchange, he said. “We see this desire for more trading.”

ATS Brasil, which will use NYSE Technologies’ Universal Trading Platform, will operate initially as a so-called organized OTC market, the statement said. The platform needs the approval of the Central Bank of Brazil and the Brazilian securities regulator before it can start trading, ATG said.

The company plans to negotiate with Bovespa about clearing shares traded on the platform, Cerutti said. “I don’t see why we would try to fragment the clearing,” he said.

Clearinghouse Integration

The Sao Paulo-based exchange owner is working to integrate its four clearinghouses across asset classes to lower margin requirements for users by up to 40 percent, BM&FBovespa Chief Executive Officer Edemir Pinto said in 2011. Discussion about opening up the clearinghouse to other trading platforms must wait until after the integration is completed, Chief Financial Officer Eduardo Refinetti Guardia said on a conference call on Aug. 8. Direct competition for the equities exchange isn’t likely until 2015, he said.

The Brazilian bourse said in a statement on its website that trading fees in Brazil are in line with those in other countries. The cost for trading and services required after transactions are completed are 13 to 27 times higher on Bovespa than NYSE and less than half that on the Buenos Aires Stock Exchange, according to Oxera. They’re in line with costs in Indonesia, Poland and Spain, the report said.

The report “confirmed what market participants always suspected: trading at BVMF is expensive and there are substantial gains to be extracted from introducing competition,” Banco Santander Brasil SA analysts including Henrique Navarro wrote in a note to clients on June 19.

Electronic Trading

Cetip, whose main businesses include the custody and registration of fixed-income securities, is starting a new electronic bond-trading platform developed with Atlanta-based ICE, the second-largest U.S. futures operator, Luiz Fernando Fleury, its president, said in Sao Paulo in August. The system will combine electronic trading, settlement of trades and custody services, according to Cetip. ICE spent almost $492 million to buy a 12.4 percent stake in the company in 2011.

BM&FBovespa also offers an electronic trading platform for corporate fixed-income securities that integrates trading, settlement and custody.

The announcement by ATG and NYSE Euronext today followed plans by Jersey City, New Jersey-based Direct Edge, the fourth- largest U.S. equity exchange, to start an electronic exchange for stock trading in Rio de Janeiro. The target date for that exchange is now January 2014, William O’Brien, CEO of Direct Edge, said in a phone interview in September. It was initially scheduled to start this quarter.

New Exchange

Bats and Sao Paulo-based Claritas Investimentos also signed an agreement to work on the creation of a new stock exchange with clearing and depository services in Brazil, according to a statement from Bats in 2011. Principal Financial Group Inc., based in Des Moines, Iowa, bought 60 percent of the asset manager this year, according to data compiled by Bloomberg.

While the Brazilian securities regulator said in a statement on its website that the Oxera findings don’t necessarily reflect its views, the report will help it decide if a change is needed to encourage more competition. BM&FBovespa is the second-largest exchange operator by market value in the Americas after Chicago-based CME Group Inc., which owns a minority stake in the Brazilian bourse.

To contact the reporter on this story: Nina Mehta in New York at nmehta24@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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