Edemir Pinto is CEO of BM&FBOVESPA, a position he has held since BM&F and Bovespa merged in May 2008. Prior to that, he served as CEO of BM&F and he has held key positions at the exchange since he joined in 1986. JLN’s Jim Kharouf spoke with him about the merger, the economic downturn, its partnership with CME Group and the potential for BM&FBOVESPA.
Q: BM&F and Bovespa merged in May 2008. What has that merger done for the exchange over the past year and what has been your biggest challenge as CEO?
A: The merger has strengthened the Brazilian capital markets and has created the largest exchange in Latin America and one of the largest in the world in terms of market value. Today, BM&FBOVESPA has a state-of-the-art trading environment that offers an array of products, such as stocks, derivatives, OTC, public bonds, among others. The exchange’s business model offers four clearing houses – equity, derivatives, foreign exchange, and securities – as well as a full service central securities depository.
The biggest challenge any CEO faces with the merger of two powerhouses is to unite and conciliate two totally different corporate structures and work environments. One must be able to create a new company that brings together the best aspects and positive forces of the former companies. We cannot forget where we came from and what we have conquered, we must use our experiences and what we have learned in the past to build a new company for the future.
Q: BM&FBOVESPA stands as the largest derivatives exchange in Latin America and the fourth largest in the world. What is the biggest reason for the exchange’s successes over the years, primarily as domestic markets, and what are the keys to its growth going forward?
A: What attracts investors to the BM&FBOVESPA markets is our tradition, robustness, and strive for innovation. The fact that we offer a totally integrated business model and a full service central securities depository is perceived as highly attractive by the market. The investor doesn’t need to seek another trading environment; he is able to carry out all his transactions in one place: buy, sell, register, net, and settle – with a guarantee system. It’s a vertical trading structure.
The recipe for continuous growth is to be constantly aware of new market tendencies, by offering new products or the latest technological trading environment. On July 1, all of BM&FBOVESPA markets went totally electronic. We also offer several types of Direct Market Access, including co-location connection, which allows algorithmic trading.
Q: How has the economic downturn affected your exchange on the derivatives as well as equities businesses?
A: The current crisis has affected not only the Brazilian exchange, but all exchanges around the world. BM&FBOVESPA markets have registered small decreases in stock quotes and trading volumes, but the situation has been improving during the past months. Currently, we have registered a comeback of foreign investors to our markets.
Q: CME Group, which holds a 5 percent stake in your exchange, has a link to your exchange and vice versa. The link allows trading on Globex and BM&FBOVESPA’s GTS system. How is that linkage working so far, and what are the prospects for it going forward?
A: Our partnership with CME Group is going very well. The order routing agreement enables customers in more than 80 countries using CME Globex, CME Group’s electronic trading platform, to trade BM&FBOVESPA products directly, via the Brazilian exchange’s electronic trading platform, GTS. These products include: futures and options on One Day Inter-Bank Deposits, the Bovespa Stock Index, commodities, energy, and metals. The partnership between CME Group and BM&FBOVESPA also allows Brazilian investors to trade CME Group products directly through the GTS system.
During the month of May, the number of BM&F market segment transactions carried out via the CME Globex – GTS order routing system reached a record 67,698 trades, a 273 percent increase over the 18,122 trades in April. The system also set a historic record of 645,825 contracts traded, a 136.97 percent growth in comparison to the 272,540 contracts traded during the previous month.
Q: When you look at emerging economies such as Brazil, China, India and elsewhere, what do you see for BM&FBovespa’s growth potential?
A: We are striving towards the goal of transforming BM&FBOVESPA into a financial hub of Latin America and also into a global exchange. I firmly believe that the exchange has an enormous potential for the future. As I mentioned before, the fact that we have in one sole environment, a totally integrated business model is very attractive for investors. I think other exchanges can view BM&FBOVESPA as a role model, of how by concentrating several trading activities into one place can be beneficial for the investor and for the exchange industry as a whole, because it strengthens us.
Currently, BM&FBOVESPA has a representative office in Shanghai, one in New York, and another, recently opened in London. The exchange has intentions of developing and forming a partnership with the Dalian Commodities Exchange in China, and possibly developing a soybean contract in conjunction. We are studying all possibilities.
Q: Brazil stands to be a major player in energy as well as in the carbon markets. Where do you see BM&F in both of those markets?
A: BM&FBOVESPA certainly has a huge potential to become a major global player in both the energy and carbon markets. Currently, the exchange has a carbon market model that includes an electronic registration system, whose main purpose is to provide a free-of-charge public domain where Clean Development Mechanism (CDM) projects can be viewed by interested parties throughout the world. All duly validated CDM projects are eligible for registration in the BM&FBOVESPA Carbon Facility. Our carbon market also allows the registration known as expression of interest (EOI). Through an EOI registration, investors can openly express their interest in purchasing carbon credits or in funding CDM projects.
The exchange has carried out two credit auctions for the sale of Certified Emission Reductions (CERs) held by the São Paulo Municipal Government. Both auctions have proved to be a success. The first auction was held in September 2007 and it was the first such auction in the world, within the CDM, to take place in an exchange.
Q: You have been on the board of the World Federation of Exchanges, now chaired by CBOE chairman and CEO Bill Brodsky. What role do you see global exchanges playing as the global economy attempts to come back amidst major regulatory reforms?
A: In my opinion, the exchanges have a fundamental role in recovering the global economy, by promoting the development and stability of the markets. I also believe the exchanges will have to adapt to the new regulations. But this is a positive thing, we must think about the investors. The faster we are able to bring about a sense of stability, robustness and solidity to the markets the better it is for the investors, and consequently, for the world markets.
The vertically integrated trading systems at BM&FBOVESPA, together with Brazil’s efficient regulation of its capital markets, contribute to the security of Brazilian markets. Currently, Brazil’s capital markets are being considered as a reference model for the rest of the world in view of the latest financial crisis. Many of President Obama’s regulatory proposals for the markets have been put into practice in Brazil for many years.