São Paulo Diary: The Tupi Capital Markets Yearn to Churn!

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“What is your opinion about the lawsuits the Universal Church has brought against journalists and media vehicles? They are an attempt to intimidate the press regarding matters the Church does not want made public (49%). They are a tool for dampening media persecution of the Church (5%). They are democratic methods, guaranteed by law, that anyone case have recourse to (45%).” I guess I would vote, cautiously, for the third if I could be assured that we are talking about some civilized civil libel standard here and not the absurd and atavistic criminalization of the kind we saw in Amorim v. Mainardi. On the Church and the Brazilian boob tube wars, see also The Pornography of Porrada: Ambush Interviews With Naked Globo Talking Heads and the Imminent Apocalypse on Tupi TV!

The deal with the CME will increase the number of electronic terminals connected to the exchange from some 600 to something like 90,000 to 100,000, according to BM&F CEO Pinto.

It was a damned interesting week in newsflow here in São Paulo: The case of purloined Petrobras oil and gas exploration data ended in the arrest of four cheerfully larcenous security guards from a Rio port facility (was the possible espionage angle on the case an instance of “moral panic” journalism or not?); Father Lanzelotti was the victim of extortion; the European Union’s ban on Brazilian beef exports started to lift; two more members of the 18th Military Police Battalion (São Paulo) were arrested and charged with murdering a Tactical Force colleague, allegedly in a dispute over a moonlighting job at an illegal gambling joint (one of them, wounded in the 2006 death-squad gunbattle, said at the time that the PCC criminal organization did it); and the federal police, INCRA (ministry of agrarian reform) and the federalized National Public Security Force (FNSP) invaded a small town in the Amazon called Tailândia and declared a sustained war on deforestation.

Which is a huge deal, that last item.

Most interesting infographic (let me see if I can find it): The Estado de S. Paulo, with a simple bar chart showing that some 31% of the land in the region is “in private hands and irregular.”

It seems like the latifúndio plays a major role in the problem after all. I saw an informative analysis on this — perverse economic incentives and general, heavily-armed lawlessness reminiscent of the Thirty Years War — that I have clipped here somewhere. (What the hell did I do with that? It was a busy week. I am a little atrapalhado.)

TV Globo, in partnership with Globo affiliate TV Bahia (its owners and station manager are all named Magalhães) has (gabblingly) insinuated otherwise in the past. See

Meanwhile, the possibility of a merger between the two major exchanges here (with a possible role to be played by the CME, which I think I read upped its stake in the BM&F recently) is generating ink as well.

André Siqueira — a relatively new name to me — reports for CartaCapital magazine.

Which was not available on any of my local newsstands (I was in Moema-Brooklin at the time) when I asked for it by name yesterday. Why is that? It’s usually available on Friday afternoon, in my experience.

Pardon me if I am little jumpy on this question, but the print distribution business in São Paulo is a monopoly. A monopoly in the hands of demonstrably irresponsible people. See

CartaCapital — it boasts of being the only glossy Brazilian newsweekly whose circulation increased last year — seems to have gotten fatter, staffed up, and has redesigned its Web site (in a good way, mind you: No Macromedia Flash).

I make a point of buying one every week.

It is not the only newsmagazine you need to read here, not by a long shot. But most of the other newsmagazines of comparable journalistic quality have not been invented yet. (There is a R$10 publication by the Getúlio Vargas Foundation, new to me, that I meant to pick up a copy of as well.)

A possível fusão entre a Bolsa de Valores de São Paulo (Bovespa) e a Bolsa de Mercadorias e Futuros (BM&F) deverá ser o ato final de um conjunto de medidas destinadas a preparar o mercado de capitais brasileiro para uma significativa mudança de patamar. Nos últimos meses, os pregões nacionais galgaram posições e passaram a figurar entre os mais cobiçados do mundo. O salto será ainda maior, segundo analistas, quando o País receber a esperada classificação investment grade, concedida pelas agências de avaliação de risco às nações consideradas portos seguros para os investidores. A tentativa de unir operações, anunciada na terça-feira 19, e com prazo de até 60 dias para ser acertada, é mais um esforço de eliminar eventuais gargalos ao ingresso de recursos estrangeiros e garantir a liquidez das operações.

A possible merger between the Stock Exchange of [the State of] São Paulo (BOVESPA) and the Commodities and Futures Exchange (BM&F) may be the final act in a series of measures designed to prepare the Brazilian capital markets for [a qualitative leap]. In recent months, Brazilian issues [overflowed with trading volume?] and became some of the most coveted in the world. The leap will be even greater, analysts say, when Brazil finally receives an “investment grade” rating from risk ratings agencies in nations considered safe harbor for investors. The bid to unify exchange operations, announced on Wednesday, February 19, with a deadline of 60 days to get the deal done, is one more effort to eliminate potential bottlenecks to the entry of foreign capital and ensure liquidity.

Juntas, Bovespa e BM&F terão condições de cortar custos operacionais e tornar o mercado nacional mais atraente ao investidor. De quebra, podem reduzir o risco de ser arrematadas por uma concorrente estrangeira, na esteira do movimento global de fusões e aquisições no setor. A ameaça passou a ser real em 2007, após o processo de abertura de capital das bolsas brasileiras, processo conhecido como desmutualização. Ao deixar de pertencer a um grupo de corretoras e diluir o controle entre vários acionistas, as empresas tornaram-se alvos potenciais de ofertas hostis de grupos internacionais.

… The threat was realized in 2007 after the IPOs of the Brazilian exchanges, a process known as demutualization. When they are no longer controlled by a group of brokers and control of the shares is diluted [and fragmented], they become potential targets for hostile takeovers by international groups.

A expectativa de crescimento e o desempenho apresentado pelo mercado local até agora justificam o interesse estrangeiro e as preocupações nacionais. Só no ano passado, o valor das principais ações negociadas no País, representadas pelo Índice Bovespa, aumentou 43,65%. O volume de contratos de derivativos (instrumentos financeiros com preço atrelado a outros ativos, como produtos agrícolas e minerais) cresceu 50,7%. As ações brasileiras tornaram-se as de maior peso entre os papéis de países emergentes no índice global MSCI, da empresa de ratings Morgan Stanley. A nova bolsa, resultante da fusão, por si só, seria o segundo maior pregão das Américas, maior até do que a Bolsa de Nova York. Mundialmente, ficaria entre a quarta e a quinta posições em valor de mercado.

[tktktktk]

Na quarta-feira 27, a BM&F deu mais um passo fundamental para abrir as fronteiras do mercado, ao anunciar um acordo com o CME Group, empresa controladora das bolsas de Chicago. A partir do terceiro trimestre deste ano, dezenas de milhares de investidores conectados aos pregões americanos poderão aplicar recursos diretamente no Brasil. O inverso também será possível, com corretoras brasileiras a oferecer, por exemplo, contratos futuros do índice de ações da Bolsa de Nova York S&P 500, o mais negociado do mundo.

On February 27, the BM&F took another fundamental step toward widening its horizons, announcing a deal with the CME Group, which controls the Chicago exchanges. Starting in the third quarter of this year, tens of thousands of investors connected to American trading floors will be able to invest directly in Brazil. The inverse will also be possible, with Brazilian brokersable to offer, for example, S&P 500 futures contracts, the most actively traded in the world.

O acordo com o CME aumentará o número de terminais eletrônicos conectados à bolsa de cerca de 600 para algo entre 90 mil e 100 mil, de acordo com o diretor-geral da BM&F, Edemir Pinto. “Diante dessa mudança, qualquer estimativa que façamos de aumento do volume de negócios seria conservadora”, afirma. Segundo o executivo, a integração das plataformas de negociação da BM&F e do CME Group pode ser estendida à Bovespa, caso a união saia do papel.

The deal with the CME will increae the number of electronic terminals connected to the exchange from some 600 to something like 90,000 to 100,000, according to BM&F CEO Pinto. “Given this change, any estimate we might make of transaction volume is going to be conservative,” he says. According to the exchange exec, the integration of the CME and BM&F trading platforms could be extended to the Bovespa if the merger gets off the drawing board.

Those kinds of tech Big Digs are always interesting to watch.

I may be mistaken, but I do believe the CME trading platform, Globex, is Linux-powered. https://i0.wp.com/kadu.blogs.sapo.pt/arquivo/kurumin3.png

Disclosure: I am dogged, determined and die-hard Linux user as a matter of personal preference.

Além da interligação dos sistemas eletrônicos de negociação, a BM&F e o CME acertaram uma troca de ações da ordem de 700 milhões de dólares. A Bolsa brasileira assumiu uma fatia de 2,18% na empresa de Chicago, enquanto o grupo americano passou a deter 10% de participação na BM&F S.A., tornando-se o maior acionista individual da companhia. Conseqüentemente, terá papel importante na decisão sobre as negociações com a Bovespa.

Besides linking the electronic trading systems, the BM&F and the CME agreed on an equity swap worth some R$700 million. The Brazilian exchange will take a 2.18% stake in the Chicago company while the [gringos] will take a 10% stake in BM&F S.A., making the CME the largest individual shareholder. As a result, it will have a significant say in the decision on the Bovespa negotiations.

Ao menos no discurso, os americanos não serão um empecilho à criação da nova bolsa nativa. O diretor-geral do CME Group, Craig Donohue, diz reconhecer o potencial de integração entre as bolsas brasileiras e acrescenta que a hipótese foi prevista antes da assinatura do acordo com a BM&F. “Temos confiança na capacidade de nossos parceiros de chegar ao melhor resultado (na negociação com a Bovespa)”, afirmou.

The American say, at least, that they will not stand in the way of creating a new Brazilian bourse. CME Group CEO Donohue said he recognizes the potential of a merger between the Brazilian exchanges and adds that the possibility was factored in before the deal with the BM&F was signed. “We are confident in the ability of our partners to arrive at the best result (in the negotiations with the Bovespa),” he said.

Donohue is a smart man.

O protocolo de intenções assinado pelas bolsas brasileiras elimina a possibilidade de ocorrer uma oferta hostil pelo controle de uma das duas durante os dois meses do prazo para os acertos entre as empresas. E também evita que elas partam para a briga, numa disputa pelo interesse dos investidores. A preocupação foi expressa pelo diretor-geral da BM&F: “Nada impede, hoje, que a Bovespa decida vender derivativos e nós, ações. Mas a competição local seria muito ruim para o mercado brasileiro”.

The [memorandum of understanding] signed by the Brazilian exchanges rules out the possibility of any hostile takeover bid for either of the two during the two months set for negotiations. It also prevents the two from going to war with one another in a dispute for investment capital. This concern was voiced by the CEO of the BM&F: “There is nothing to prevent the Bovespa from starting to sell derivatives, and us from selling stocks. But the local competition would be bad for the Brazilian market.”

A trajetória dos dois mercados revela estratégias e estilos de administração nem sempre coincidentes. A Bovespa foi forçada a ir à luta para atrair investidores e empresas enquanto o crescimento do País era insignificante e pairavam dúvidas quanto à estabilidade econômica. Os mercados de derivativos, de outro lado, também se alimentam das oscilações e incertezas para crescer, e por isso mantiveram o volume de negócios em alta durante os períodos de crise.

The history of the two markets reveals strategies and managment styles that have not always been in sync. The Bovespa was forced to go to war to attract investors and listed companies when economic growth was trivial and doubts hovered about Brazil’s economic stability. The derivatives market, on the other hand, is fed by volatility and uncertainty … and for that reason has high transaction volumes during periods of crisis.

Ao dar impulso às negociações eletrônicas, a BM&F procura alcançar a Bovespa, que além de catequizar os investidores não institucionais, lançou mão de ferramentas de negociação via internet (home broker) para atrair maciçamente ao mercado de capitais as pessoas físicas, que hoje respondem por 24% do volume das compras e vendas de ações brasileiras. A imagem dos corretores a gritar e gesticular nos pregões, por exemplo, hoje só é vista na bolsa de futuros.

In encouraging electronic trading, the BM&F is trying to overtake the Bovespa, which along with offering investor education to individual investors has also launched an Internet trading application called Home Broker to attract individual investors, who now make up 24% of trade volume in Brazilian stocks, to the market en masse. The image of floor traders shouting and gesturing during trading,for example, is today only seen in the futures pit.

“À medida que o Brasil começa a desenvolver uma cultura de poupança, as bolsas tendem a apresentar um enorme apelo para a população”, diz o diretor da BDO Trevisan, Henrique Campos. Ele prevê que a participação de pessoas físicas no mercado brasileiro possa chegar a cerca de 40% do total das negociações, a exemplo do que ocorreu em países desenvolvidos. “Há tanto potencial a ser explorado no Brasil, sobretudo após uma fusão entre Bovespa e BM&F, que as duas não precisariam, em um primeiro momento, comprar bolsas de outros países para expandir.”

“As Brazil begins to cultivate a culture of savings, the markets tend to appeal enormously to the population,” said BDO Trevisan CEO Henrique Campos.

One of the major brokerage firms here.

He predicts individual investors will account for 40% of all trading, as happens in developed nations. “There is so much potential to be explored in Brazil, especially after a Bovespa-BM&F merger, that the two would not need to buy exchanges in other countries in order to expand.

Brazil has some regional exchanges here and there. Freaky little operations, mostly, but imagine them getting bought up and turned into private-sector development engines. Could be cool.  The ManausDAQ. The Mato Grosso Commodities Exchange.

O diretor-executivo da Associação Nacional das Corretoras (Ancor), Gilberto Biojone, lista as razões por que considera o momento propício para a criação da superbolsa. “A economia está em crescimento, os investidores mostram disposição para vir ao mercado e as corretoras estão capitalizadas”, enumera. Campos, da Trevisan, acrescenta que não existem barreiras para a entrada de recursos no mercado brasileiro, nem tampouco é possível apontar um grande chamariz. “Uma bolsa fortalecida, com custos reduzidos, seria o atrativo que falta”, afirma o especialista.

The executive director of the Brazilian national trade association for securities brokers, ANCOR, Mr. Biojone, lists the reasons why he considers the moment auspicious for the creation of a “superexchange.” “The economy is growing, investors are inclined to go to the market, and the brokerage houses are capitalized,” he enumerates. Campos of Trevisan adds that while there are no barriers to entry in the Brazilian capital markets, is it also not possible to point to any major [attraction]. “A strengthened exchange, with reduced costs, could be the attraction that is missing,” the specialist says.

As always, this is draft-quality translation, as fast as I can type. If the writer seems clumsy, it is probably the fault of the traitorous translator.

Does anyone not want this?

The fascinating question, I think, is how well the Brazilian securities regulator is prepared for this quantum wave of electronic churn.

I cannot claim to have studied the issue enough, or have any direct knowledge at all — I should really try to study this harder — but I guess I can make one vague observation: The markets do seem to be sort of afraid of the CVM, and eager to live by the new rules. The thing may have teeth. It occasionally even engages in an enforcement action.

Stay tuned.

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