BM&FBovespa open to Asian partners

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Brazil’s BM&FBovespa, Latin America’s largest exchange operator, said it is looking to grow through partnerships in China, Hong Kong, India and even Japan as it battles for market share in a rapidly changing industry.

“There is no doubt that Asia is where we see the possibility of development and growth,” Edemir Pinto, chief executive, told reporters on Friday after the release of the group’s fourth quarter results.

The exchange operator told the Financial Times earlier this week that it will sign a memorandum of understanding next week with the Shanghai Stock Exchange, with the view to the eventual cross-listing of stocks.

“China has a volume five times as big as we do... it’s a market with spectacular potential,” said Mr Pinto. But he added that it was more of a “medium to long-term project” because of regulation issues and the closed nature of the Shanghai market. “Sometimes you need to sign an agreement just to have lunch with the Chinese,” he joked.

The exchange operator beat market expectations for the fourth quarter, increasing its net income nearly 19 per cent against the same quarter a year earlier to R$261.5m. Net profit for the full-year was R$1.14bn ($6.86m), up nearly 30 per cent since 2009 as investors flocked to emerging markets such as Brazil.

Net revenue rose 10.7 per cent to R$470.1m in the fourth quarter and 25.8 per cent for the full-year to R$1.89bn. High-frequency trading, which accounted for 5.7 per cent of the total traded volume in January 2011, is also expected to help drive growth this year.

However, BM&FBovespa, the world’s fourth-largest exchange operator by market value, is now facing the prospect of competition from a new alliance led by BATS Global Markets, the alternative trading venue, and Claritas, the Brazilian asset manager.

The pair announced this week an agreement to explore the creation of a new trading platform with its own clearing and depository services to challenge the BM&FBovespa’s virtual monopoly. This comes as other national incumbents are seeking to protect their market positions through equity tie-ups.

Mr Pinto said he welcomed the competition and was confident BM&FBovespa could increase trading volumes through its various partnerships, rather than outright acquisitions.

Its existing partnership with the Chicago-based CME Group, the world’s largest futures exchange, is likely to grow, but Mr Pinto denied speculation the two were engaged in discussions over a possible merger.

“We’re partners with CME and partners get closer, they fall in love...they can even separate. But everything indicates this love affair is going well.”

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