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BM&FBovespa Says It’s Done With Big Fee Cuts

(Corrects penultimate paragraph of story published April 18 to say companies not regulated by the government performed well.)

BM&FBovespa SA (BVMF3), the operator of Latin America’s biggest securities exchange, plans to hold fees steady after cutting levies on equities trading by 82 percent since 2011, Chief Financial Officer Eduardo Guardia said.

The Sao Paulo-based exchange this month lowered by 28.5 percent fees charged on equities trading, the second reduction in two years, after a study commissioned by Brazil’s securities regulator said increasing competition in the industry would likely reduce trading costs. BM&FBovespa now charges trading fees for equities that average 0.005 percent, down from 0.0285 percent in 2011.

BM&FBovespa is lowering fees in anticipation of increased competition from foreign rivals seeking to take market share. Direct Edge Holdings LLC and Bats Global Markets Inc. last year showed interest in starting a trading platform in the world’s second-largest emerging market.

“We’re in no hurry to change our fee policy, don’t expect any big change,” Guardia said. “We have a series of fine tuning to do going forward. We’re still evaluating the impact that the changes put in place this month is having on the market.”

Trading volume of stocks and derivatives contracts combined increased 10 percent to 1.78 trillion in 2012 from a year before after remaining unchanged in 2011, when the Bovespa index posted an 18 percent decline, according to data from the exchange. BM&FBovespa plans to create market-makers for certain assets after doing so for 10 of the most-traded stocks in Sao Paulo, which boosted volume for those contracts by 150 percent in eight months, Guardia said.

‘More Competition’

While a decision about opening its clearing house to other operators hasn’t yet been reached, to do so could boost BM&FBovespa’s revenue by possibly increasing trading volumes, Guardia said.

“It all depends on what exactly more competition means,” he said. “There could be a negative impact on our revenue from trading fees, but we could gain more with post-trade fees.”

BM&FBovespa plans to expand its business with over-the- counter trading, as lower interest rates will probably drive investors toward higher-yielding fixed-income securities usually negotiated in that segment, Guardia said. The initiative will turn the BM&FBovespa into a competitor for Cetip SA-Mercados Organizados, Brazil’s biggest securities depositary.

BM&FBovespa currently offers registry services for securities backed by farm loans that are known in Brazil as LCA. It has a 60 percent market share in this area and plans to expand. The exchange is working with Calypso Technology Inc. to develop a registry system that would work with other securities, he said, without giving a time-frame for the project.

Brazil Underperformance

Shares of BM&FBovespa gained 18 percent in the 12 months through yesterday, which compares with a 4.8 percent gain for CME Group (CME) Inc. in New York. CME is the world’s most-valuable exchange operator and owns a minority stake in BM&FBovespa. Brazil’s benchmark Bovespa stock index has declined 16 percent in the same period, the seventh-worst performer among 94 equity gauges.

The Bovespa index’s underperformance reflects a “very bad” business environment in Brazil, spurred by the government’s poor communication skills, Guardia said.

Foreign Outflows

Foreign investors pulled 989.6 million reais ($490.7 million) out of the Brazilian stock market this month through April 16, according to data compiled by Bloomberg. April is poised to be the first month since October when foreign investors took money out of Brazil’s equity market.

“Brazil’s economic fundamentals don’t justify the Bovespa index being at current levels,” he said. “Shares of companies that are not regulated by the government actually performed quite well, but in industries such as energy and utilities, it was a very different scenario.”

Shares of retailer B2W Cia. Global do Varejo have jumped 53 percent in the past 12 months, the most on the Bovespa index, while oil company OGX Petroleo & Gas Participacoes SA (OGXP3) and power utility Eletropaulo Metropolitana SA were among the worst performers.

To contact the reporters on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net; Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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