The BRICS Securities and Derivatives Markets - Hong Kong ...

The BRICS Securities and Derivatives Markets2.1 Market segmentsBM&FBOVESPA operates two major market segments — BOVESPA and BM&F — forsecurities and derivatives trading. Products traded on BOVESPA comprise: (1) equities —including shares, Brazilian Depository Receipts (BDRs) representing shares of domestic andforeign issuers, exchange-traded funds (ETFs) and warrants; (2) equity derivatives — mainlystock options and index options; and (3) corporate debt securities. The BM&F segmentprovides trading for commodity derivatives (agricultural, gold and energy), financialderivatives (currency, interest rate and equity indices), spot foreign exchange (forex) andpublic debt securities.Besides exchange-traded products, BM&FBOVESPA runs the Organised OTC Market (theonly one in Brazil) for the trading of equities and derivatives. Derivatives products includeflexible options, forwards and swaps on equity indices, commodities, forex and interest rates.For equities, there is a special trading segment of the Organised OTC Market, BOVESPAMais (meaning “BOVESPA Plus”), which provides a stepping stone for companies registeredwith CVM to move to the listing segment. In addition, unsponsored BDRs 4 , which do notinvolve the foreign companies that issue the shares underlying the BDRs, are available fortrading on the Organised OTC Market.In Brazil, there is a Brazilian Commodities Exchange (BBM) which centralises the trading ofagricultural commodities and OTC agribusiness securities. It is a private mutualised entityin which BM&FBOVESPA holds a majority membership interest.The clearing and settlement of securities and derivatives are handled by BM&FBOVESPA’sfour clearing houses for different product types, which are in the process of integration, bothentity-wise and technology-wise. The post-trade process is integrated with BM&FSettlement Bank (a wholly-owned subsidiary of BM&FBOVESPA), which providessettlement, depository, registration and custody services to clearing houses and participants.The existing four trading systems for the different securities and derivatives products are alsoto be integrated. The trading system for BM&F derivatives and spot forex — PUMATrading System, which is jointly developed by BM&FBOVESPA and CME Group — willreplace the other three trading systems for securities and other derivatives products.2.2 Securities marketBOVESPA has three special listing segments in addition to the traditional market — NovoMercado (meaning “New Market”), Corporate Governance (CG) Level 1 and CG Level 2.These segments were launched in 2000 and adopt additional and more stringent corporategovernance requirements. BM&FBOVESPA itself is listed in Novo Mercado, which adoptsthe highest corporate governance standards among all listing segments.Brazil has the largest stock market in Latin America by market value, with 373 listedcompanies and a total market capitalisation of US$1,223 billion at the end of 2011.Currently, more than 80 BDRs are available for trading and 70 of them are unsponsoredBDRs on foreign stocks which include big names such as Coca-Cola, Exxon Mobil, General4BDRs can be classified into sponsored and unsponsored BDRs. Sponsored BDRs involve the issuer ofunderlying shares which has an agreement with the depository bank.- 4 - Research & Corporate Development, HKEx31 December 2012