Direct Edge, the fourth-largest US exchange operator, has insisted that access to clearing at Brazil’s biggest exchange operator should be opened up in the interest of competition.BM&FBovespa, which runs a near monopoly on equities and derivatives trading, is refusing to open its clearing arm to outsiders in a stance rivals say will stifle competition.The issue has become a focus of traders interested in the Brazilian market since competition against established exchanges has swept most other markets, with few barriers to usage of clearing systems.Australia’s exchange last year faced competition from Chi-X Global, an alternative trading system, but is allowing the system to use its clearing services – for a fee.Direct Edge said in November that it would launch an electronic equities exchange platform in Rio de Janeiro by the end of this year. Rival BATS Global Markets, which operates the third-largest US stock exchange, has said it is considering launching an equities trading platform.Both would compete against Bovespa, but would first need to have a solution for the clearing of trades done on their platforms.Clearing is part of the essential post-trade process that helps guarantee that deals go ahead even if one party in a trade defaults.Direct Edge’s hopes of using Bovespa’s clearer appeared to have been dashed late last year after Bovespa chief executive Edemir Pinto told the Financial Times that the company was not interested in providing services to third parties.He said Bovespa was concentrating on investing in technology and services for its own customers.A few days later the Brazilian market regulator, CVM, announced its backing for a study by London-based consultancy Oxera Consulting on efficiency and competition in Brazilian capital markets.Anthony Barchetto, Direct Edge head of strategy, said he hoped the study would recommend that newcomers be given access to the existing clearing corporation. “It is only logical that if you want the benefits of competition, the benefits of transparency, that you would open the existing clearing facility to various competition,” he told the FT.Mr Barchetto said the company had already approached Bovespa about gaining access to its clearing house, CBLC. He said that while Direct Edge was pursuing other options, its preferred route was to use CBLC, which he said would better fit the requirements of CVM for greater market transparency.Brazilian regulators are proud of their market’s system of ensuring that the ultimate beneficiaries of all trades are known to the authorities.“Ultimately, it is really regulators that lay out rules of the game and how they want competition in the capital markets to work, so we believe that with this study coming out and looking at the efficiency of the Brazilian market, especially on clearing, there would need to be some level of government involvement if we were to have access to CBLC,” Mr Barchetto said.Foreign interest in Brazil’s market infrastructures was further underlined last July when IntercontinentalExchange, the US futures and commodities exchange and operator of clearing houses, bought a 12.5 per cent stake in Cetip, the Brazilian post-trade services group, for $512m.
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