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Brazil Considers Rule Change to Allow Fixed-Income Exchange-Traded Funds

Brazil may change regulations to allow banks and bourses to create exchange-traded funds that will invest in government or corporate bonds.

The securities regulator, known locally as CVM, plans to start a public consultation on the proposal in the first half of 2012, said Flavia Mouta Fernandes, head of the CVM’s markets development division. The fixed-income ETFs were requested by the National Association of Investment Banks and Capital Markets, or Anbima, she said yesterday by telephone from Rio de Janeiro.

Fixed-income ETFs, which are funds that trade on exchanges like stocks, may help develop local capital markets by increasing trading volumes. U.S. fixed-income ETFs had raised a total of $3.8 billion in October, down from $5.7 billion in September, according to Deutsche Bank.

CVM also plans to start consultations on a proposal to allow local trading of ETFs composed of the S&P 500 stocks or other foreign equity indexes, Fernandes said. Currently, ETFs in Brazil can only replicate Brazilian-listed stocks or indices.

In October, ETFs represented only 1 percent of trading on the Bovespa, according to data from the exchange. On the New York Stock Exchange, they account for about 25 percent of trading.

Global ETF assets reached $1.3 trillion in October, according to Deutsche Bank.

To contact the reporter on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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