The small teams of professionals who work for the three clearing houses (foreign exchange, securities, derivatives) at Brazil’s Bolsa de Mercadorias & Futuros (BM&F) have a claustrophobia-inducing office, locked as they are inside a glass cube that sits in the centre of a larger room inside the exchange’s headquarters. Despite working in this intimidating setting, the clearing houses’ directors are welcoming and their efforts are for now focused on increasing foreigners’ access to and participation in Brazil’s growing derivatives market.
“We are launching new products, such as a dollar option contract with daily variation margin, that will facilitate structured volatility transactions and make them cheaper,” says Cicero Vieira, director of the derivatives clearing house. He says that foreign participants are involved in about 15% of the exchange’s daily trades by volume, up from 5% just three years ago. Brazil’s notoriously complex regulatory and tax regime is, however, still a major barrier to foreign investment. One key measure that could encourage more hedging in Brazil would be if the BM&F could accept collateral abroad: at the moment the law says that it can collect from a defaulting institution only the collateral that it holds in Brazil.