Watch out Bovespa, here comes Cetip

BM&FBovespa’s monopoly over Brazilian capital markets is under threat, it seems.
 
After the publication of an independent report on Monday showing the benefits of allowing more exchange operators into Brazil, the country’s post-trade services group, Cetip, also piled on the pressure on Tuesday.
 
Cetip requested permission from the central bank and the market regulators, CVM, to act as a central counterparty, taking a step to becoming a fully-fledged exchange, according to local newspaper Valor.
 
And no wonder everyone is keen to get in on the action. BM&FBovespa is now easily one of the five biggest exchange operators in the world by market value, and has the potential for phenomenal long-term growth as the hub of Latin American trading.
 
US-based exchanges BATS Global Markets and Direct Edge have both announced plans to enter the Brazilian market, but at the moment it’s more like wishful thinking. While newcomers are free to set up in Brazil, they currently need to either set up their own clearing services (hugely costly, takes ages, and wouldn’t go down well with the traditionally conservative regulators) or ask to borrow BM&FBovespa’s.
 
Needless to say, BM&FBovespa has neither the incentive nor the obligation to agree to this.
 
However, pressure is building on CVM to intervene somehow to pave the way for greater competition in the market.
 
After the recent flurry of foreign interest in the issue, the regulators commissioned a report from the Oxford-based consultancy, Oxera, to present the pros and cons of breaking BM&FBovespa’s monopoly.
 
The report, which was published on Monday, has something for everyone. While investors would benefit from lower fees, regulation costs would go up and infrastructure providers may see lower profits, it explains.
 
However, from the government’s point of view, the following paragraph from Oxera may be hard to ignore:
 
The reduction in trading and/or post-trading prices can be expected to have some impact on the cost of capital for Brazilian-listed companies, which, at the margin, is likely to stimulate investment and economic growth. This could have a substantial (positive) impact on the wider economy.
 
The question of whether BM&FBovespa’s monopoly should be broken is no longer one of “if”, it seems, but rather one of “when” and more crucially “how”.
 
While BM&FBovespa of course publically welcomes greater competition in the market, anyone who has ever met the chief executive of BM&FBovespa, the charming and feisty Edemir Pinto, will know that the exchange certainly won’t go down without a fight.

(Samantha Pearson | ft.com)