June 30, 2009

CME Group Inc. (CME) is starting to gain more business from an alliance with Brazil's dominant financial exchange and is also eyeing a revamp of its South American soy contract.

 

The Chicago-based exchange operator has handled nearly 2 million trades in derivatives listed by BM&F Bovespa SA since a new electronic link was established in February.

 

Rick Redding, CME's head of products and services, said the volume of BM&F business doubled in April and again in May, and he was optimistic about Latin American investors using the link to trade CME products.

 

"Now that these [Brazilian] firms are connected to Globex, they'll begin routing trade to the north," said Redding.

 

BM&F currency derivatives command the heaviest trade, with proprietary trading groups behind most of the ramp-up in activity, Redding said in an interview.

 

The two exchange operators partnered in October 2007, with CME distributing the Brazilian Mercantile & Futures Exchange's derivatives products through Globex, while BM&F hooked up its distribution network to the electronic trading platform.

 

The deal also included a cross-equity swap; following the 2008 merger of BM&F with Brazil's cash equity platform Bovespa, CME became the biggest shareholder in the combined entity with a 5 percent stake. BM&F Bovespa holds 1.19 million CME shares, about 1.7 percent of the company.

 

CME's Redding attributed the recent takeoff in BM&F trade to the adoption of direct market access for Brazil's derivatives markets, which came into effect in February and has allowed investors to directly tie into BM&F Bovespa, a move Redding saw drawing new customers in Brazil and elsewhere.

 

BM&F Bovespa plans to open a London office in July and already has set up shop in New York and Shanghai, as it expands co-location services to attract more high-speed traders.

 

CME's deal with BM&F Bovespa also covers product development, beginning with a CME-listed equity index contract built on the Bovespa Stock Index. That product awaits approval from the Commodity Futures Trading Commission, which has approved similar CME futures on FTSE and Nikkei equity indexes.

 

Redding said CME could launch a new Brazilian soy contract, after a previous attempt to create a market around the world's second-biggest soy-producing nation languished; other agriculture and financial products are also on the table.

 

Beyond its BM&F Bovespa alliance, CME has sought to draw Latin American traders with a telecommunications hub set up in Brazil for faster access, and a new incentive scheme introduced this month that's aimed at Latin American commercial agricultural hedgers.