Cetip SA - Mercados Organizados, Brazil’s biggest securities clearinghouse, plans to open a new trading platform for local corporate bonds by the end of the year in a bet that efforts by investors and the government to develop a secondary market will succeed.
The platform will replace existing CetipNET, said Marcelo Fleury, head of institutional relations, in an interview in London. Separately, Cetip plans to ask the government to cut taxes on foreign investment in local corporate bonds, Fleury said. Foreign investors pay a 15 percent withholding tax on earnings from the securities, as well as a 6 percent so-called IOF tax, he said.
A better trading platform and more overseas investment could help boost volume on the secondary market to as much as 10 percent of 420 billion reais ($243 billion) of Brazilian local bonds outstanding from less than 1 percent, Fleury said.
“There is no existent secondary market so everyone would benefit from that and the liquidity that comes with it will allow for more companies to tap those markets,” Fleury said in a Feb. 9 interview.
Cetip is working with Brazil’s banking association, known as Febraban, and capital markets association, known as Anbima, to develop the country’s local bond markets, Fleury said. Anbima last year proposed regulations to expand trading and reduce borrowing costs in Brazil’s local corporate debt markets under the structure of Brazil’s Novo Mercado. These included broadening the distribution of securities and creating equal tax benefits for public and private debt.
Separately the government said it’s working on initiatives to foster the creation of long-term financing sources locally.
Daily average trading volume of local corporate bonds in Brazil, the world’s second-largest developing economy, rose to 108.6 million reais in January from 23.8 million reais a year earlier, according to Anbima. That’s still a fraction of the $18.1 billion of corporate bonds traded daily in the U.S., which had $7.7 trillion of corporate bonds outstanding at Sept. 30, according to the Securities Industry and Financial Markets Association, known as Sifma.
“There is a legacy of buy and hold culture among portfolio managers” in Brazil, Fleury said. “With foreign investors coming in you’re definitely going to see more liquidity.”