Brazil overhauls derivatives market
Sao Paulo-based BM&F Bovespa is making major changes to its post-trade infrastructure
Brazil’s BM&F Bovespa exchange has begun a major new project to bring all of its four clearing houses onto a single technology platform. Billed as the “world’s largest clearing project”, the Brazilian derivatives market – one of the world’s largest – has been moved first.
The four clearing houses each cover a different asset class: derivatives, equities, FX and fixed income. The plan is to move them all onto a new platform built by specialist trading technology company Cinnober, based on the firm’s TRADExpress RealTime Clearing system. The aim is to reduce the cost and complexity for the exchange, and also to boost trading efficiency by making it easier for market participants to net their positions across all asset classes. Cinnober says the platform has been ‘scaled’ to process 10 million transactions a day on 12 million accounts with real time risk calculations, although it can be scaled up later if more capacity is needed.
BM&F Bovespa also launched a new risk calculation system, called Closeout Risk Evaluation, which is aimed at portfolio margin calculation. It focuses on market, liquidity and funding risks for listed and OTC derivatives, equities, bonds, FX and collateral.
“This pioneering project will result in one of the most innovative and sophisticated clearing systems in the trading industry,” said Cicero Vieira, chief operating officer at BM&F Bovespa. “It will not only allow faster rollout of new products, but will revolutionise the Brazilian post-trade landscape. It strengthens risk management, reduces costs and delivers better capital efficiency to customers. When all units are installed the system will handle all asset classes, and when the market is ready, all CCPs will be integrated in a single collateral pool.”
The next step for the Brazilian exchange will be to move its equities market onto the new clearing platform, which is expected in 2015.
When it was created in 2008, BM&F Bovespa was one of the top three derivatives exchanges in the world, with only the CME in the US and the Korean derivatives market worth more by market capitalisation. According to the CME (with which BM&F Bovespa has an order routing arrangement), the Brazilian exchange still occupies that position. The order routing deal with the US means that members on the CME can trade BM&F Bovespa contracts using their connection to the CME.
