BM&FBovespa, Brazils main stock exchange, has signed a commercial agreement with the Santiago Stock Exchange, Chiles main bourse, enabling order routing in equities and derivatives between the two markets by the second quarter of next year.
Brazilian or Chilean financial institutions must be registered in and have a brokerage in each others countries to trade in stocks, stock options or derivatives outside their own country. The new plans will simplify this greatly and mean that market participants in Chile and Brazil will be able to route orders directly for securities listed on the other countrys exchange. Under the arrangements, they will also be able to disseminate data from each others markets.
Clearing and settlement of orders will be carried out according to the rules of the local market in which the stock or derivative is listed.
BMV and Mila
BM&FBovespa is also in talks with the Bolsa Mexicana de Valores (BMV), the Mexican stock exchange, and with the Latin American Integrated Market (Mila), the new index made up of the biggest stocks listed in Colombia, Peru and Chile, about similar order-routing agreements.
"Our growth has been organic and we are exploring as many opportunities as we can in Brazil"
"Our growth has been organic and we are exploring as many opportunities as we can in Brazil," says Eduardo Guardia, chief financial officer and head of investor relations at BM&FBovespa. "We have already entered into strategic partnerships in the US and we are considering other ones in Latin America and Asia."
The agreement with Chile focuses mainly on the order routing of equities but also expands to derivatives, as BM&FBovespa would like to help Chile develop its derivatives market (some 90% of derivatives trading in Latin America takes place on the Brazilian exchange).
The Brazilian bourse is also pursuing a dual-listing arrangement with the Hong Kong Stock Exchange. This would benefit from the growing links between China/Hong Kong and Brazil and from the difference in time zones.
BM&FBovespa also plans to introduce high-frequency trading in equities next year, something that the Mexican stock exchange has already done. High-frequency trading makes up more than 50% of all trades in the US but it is not expected to reach more than 20% of all trades in Brazil.
Otavio Vieira, chief investment officer at Safdie Asset Management, a Brazilian wealth manager, says: "The initiatives by the Bovespa just follow the global trend of integration by exchanges around the world. High-net-worth investors are no longer local investors, they are global ones and they want exposure to all the key bourses in the world."
of all regional derivatives trading happens in Brazil
Victor Rodriguez, chief executive of LatAm Alternatives, a hedge fund manager, and director of the Latin American chapter of the Hedge Fund Association, says: "The Bovespa index is down 16% since its high in November but Moodys has just upgraded Brazil again. The stock market is currently suffering because of events in Europe. It will pick up later in the year as investors sentiment improves and because of all these new initiatives and the Bovespas very strong management."
In April, the Mexican Derivatives Exchange and CME Group, the worlds leading derivatives market, based in Chicago, also entered into an order-routing agreement. CME Group and BM&FBovespa already own 5% of each other.