U.S. Exchanges Urge Brazil to Open Bourse Competition

U.S. exchanges Direct Edge and BATS Trading on Friday urged Brazilian securities regulators to take bolder steps to open competition in the local bourse industry as they prepare to enter the South American nation's burgeoning financial markets.

Currently, Brazil has only one exchange, BM&FBovespa , operating trading, clearing, custody and settlement facilities. Direct Edge Chief Executive William O'Brien asked regulators at the CVM agency to create mechanisms that would allow his exchange to rent BM&FBovespa's clearing unit, CLBC.

At a hearing to discuss the results of a CVM-commissioned study on competition in the local markets, O'Brien asked the CVM and lawmakers to implement a clear framework for access to the CLBC for new entrants in the $3.5 billion-a-day exchange market.

The study, conducted by UK-based Oxera Consulting, was largely inconclusive on whether fostering competition would ultimately benefit market participants, regulators and the nation's financial markets.

There are currently no rules in place requiring BM&FBovespa to sell or rent clearing services, a strategic part of any trading business requiring a huge investment of time and money.

"Our efforts to negotiate on a voluntary basis were unsuccessful," O'Brien said at the CVM headquarters in Rio de Janeiro. "Ensuring access to that platform, the CLBC, is primary evidence of this need."

A representative of BATS Trading said at the hearing that the study showed how beneficial competition would be to bring about "fair prices" while preserving oversight and transparency.

CVM President Maria Helena Santana said she sees no "urgent" need to open competition in the local bourse industry and any action to require BM&FBovespa to sell or rent clearing services could "weaken the market." A better option would be the introduction of a new clearing service, she said.

Santana told Reuters last month that her core concern is not competition, but maintaining adequate levels of liquidity and transparency.

Under current rules, BM&FBovespa enjoys a near-monopoly on all trading, clearing and settlement services for most locally traded shares. While depositary receipts in New York and other global financial hubs provide a possible alternative to trading on BM&FBovespa, many investors cannot trade them due to legal or tax restrictions.

The Oxera study draws comparisons between global rivals that can be misleading, Cicero Augusto Vieira, head of BM&FBovespa's custody and clearing operations, said at the hearing. BM&FBovespa practices prices that are competitive, he added.

(Reporting by Guillermo Parra-Bernal in Sao Paulo; editing by Matthew Lewis and Leslie Gevirtz)