Exchange-Traded Derivatives in Brazil

A Focus on Regulations, Market Structure, and Technology
by Alexander Camargo, November 23, 2011
Product Trends/ Reviews
Latin America

Abstract

The Brazilian derivatives market remains the largest in Latin America and the only Latin American exchange to crack the top ten largest derivatives exchanges in the world. Despite moderate forecasts of future economic growth, Brazil’s prospects for continuing growth in trading volume remain strong. Celent expects the BM&FBovespa to post record derivatives trade volumes in 2011.

In a new report, Exchange-Traded Derivatives in Brazil: A Focus on Regulations, Market Structure, and Technology, Celent examines the landscape for derivatives trading in Latin America’s largest economy. The BM&FBovespa remains the engine through which derivatives trading grows in Brazil, with over 90% of all derivatives in Brazil standardized, exchange-traded, and centrally cleared. By the end of 2010, the BM&FBovespa was ranked the sixth largest derivatives exchange in the world.

Rank

Exchange

Volume 2010 (Millions of Contracts)

Contract Growth
2009-2010

1

Korea Exchange

3,748.9

20.8%

2

Group (includes CBOT and Nymex)

3,080.5

19.0%

3

Eurex (includes ISE)

2,642.1

 -0.2%

4

NYSE Euronext

2,154.7

24.6%

5

National Stock Exchange of India

1,615.8

75.9%

6

BM&FBovespa

1,422.1

54.5%

7

CBOE Group (includes CFE and C2)

1,123.5

-1.1%

8

Nasdaq OMX

1,099.4

34.8%

9

Multi Commodity Exchange of India (includes MCX-SX)

1,081.8

180.7%

10

Russian Trading Systems Stock Exchange

623.99

31.5%

Source: FIA, exchange data, Celent

“There are several reasons for the BM&FBovespa's continued strength going forward. Central to this long-term success is a stable and well-defined regulatory environment, and the BM&FBovespa's continued commitment to developing technology that improves modes of access, latency, and capacity,” says Alexander Camargo, Celent Analyst and author of the report. “The BM&FBovespa's ongoing efforts toward developing a new multiasset trading platform and toward post-trade integration and infrastructure development will be particularly beneficial in the medium to long term.”

This report begins with an overview of Brazil’s regulatory environment as it relates to derivatives trading and market structure. Against this backdrop, Celent provides an introduction to Brazil's derivatives exchange, the BM&Fbovespa, and describes the products offered, market access options, alliances, and clearing and settlement on the exchange. Next, Celent provides a brief look at the exchange and its recent growth. The report concludes with a discussion of economic and regulatory trends and technological advances that will influence market access and trading on the exchange.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

6

Regulatory Environment

8

 

Regulatory Agencies

8

 

Overview of Registry, Disclosure, and Clearing in the Derivatives Market

10

 

OTC Derivatives Regulations

11

 

Hindrance in the Market

12

 

Recent Changes

13

The BM&FBovespa

15

 

Products

15

 

Market Access

16

 

Clearing and Settlement

17

 

Alliances

18

Recent Trade Volume on the Exchange

20

 

Brazil and the Global ETD Derivatives Market

20

 

The BM&F Segment

22

 

Bovespa Segment

24

Looking Forward

25

 

Economic Developments

25

 

Regulatory Developments

27

 

Technology Enhancements and Customer Segments

28

Final Thoughts

34

Leveraging Celent’s Expertise

35

 

Support for Financial Institutions

35

 

Support for Vendors

35

Related Celent Research

36

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