BM&FBovespa Sees Barriers To New Stock Trading Competitors

A senior BM&FBovespa SA (BVMF3.BR) executive said Tuesday that legal hurdles will insulate the Brazilian exchange from losing market share to a new breed of electronic rivals that have gained traction in the U.S. and Europe.

The fallout from the global financial crisis of 2008 and the May 6 "flash crash" in the U.S. will hold up any rule changes that could make it easier for smaller competitors to attack BM&FBovespa's leading position in Brazil-based stock trading, said Carlos Kawall, director of international affairs.

"We see this [competition] as unlikely within the next couple of years," said Kawall. "If not for the crises, the likelihood would be higher."

Sweeping changes in the past decade to the way company shares are dealt in the U.S. and Europe--known as Regulation NMS and the Markets in Financial Instruments Directive, respectively--opened the way for a cadre of small platforms to make inroads against major exchanges through a combination of cheap trading and fast technology.

Kawall said that Brazilian authorities remain cool to such ideas, after off-exchange trading in derivatives, which was harder for regulators to monitor, was blamed for deepening the credit crunch of 2008. The company was formed from the merger of Brazil's largest equities and derivatives platforms.

This year, he said, the flash crash that rocked U.S. markets demonstrated to local regulators how fragmentation of trading across multiple venues can magnify price swings.

Speaking to reporters in Chicago Tuesday, Kawall voiced continued concerns over the Brazilian government's move last month to implement new restrictions on foreign exchange trade, which has affected nondomestic traders on BM&FBovespa's derivatives markets.

The so-called IOF tax on foreign investment has so far had no major impact on exchange-trading volumes, Kawall said, though volatility in interest rates could be obscuring some of the effect.

Though BM&FBovespa executives view the measure as temporary, Kawall said there is no immediate sign the new presidential administration of Dilma Rousseff will shift policies of her predecessor and mentor, Luiz Inacio Lula da Silva. He said the measure is aimed at damping currency fluctuations, rather than limiting foreign investment in the country.

BM&FBovespa continues to target a role as a hub of Central and South American trading activity, seeking integration with smaller markets in the region as opposed to outright acquisitions, according to Kawall.

The aims are in line with an initiative to integrate trading and listing functions across markets in Chile, Peru and Colombia, Kawall said, with that venture set to launch later this month.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

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