Cetip Bets Brazil Bond Trading System to Tap Growing Demand

Cetip SA-Mercados Organizados, Brazil’s largest securities clearing house, is starting a new electronic bond-trading platform to tap into surging demand for corporate debt as interest rates tumble to record lows.

Cetip developed the system, called Cetip Trader, with Atlanta-based IntercontinentalExchange Inc., operator of the second-largest U.S. futures market. The platform is the first in Brazil to combine electronic trading, price data, and settlement of trades in a single tool, according to Cetip.

The Brazilian company is betting that a surge in bond sales as policy makers cut the benchmark borrowing rate to a record low and the government boosts efforts to stimulate local long-term borrowing will increase demand to trade corporate securities. Corporate debt outstanding rose to 452 billion reais ($224 billion) in July, a 20 percent jump from a year ago, according to the nation’s capital markets association.

“We’re trying to anticipate this need in the market,” Luiz Fernando Fleury, Cetip’s president, said at an event in Sao Paulo today. “If we don’t, transactions won’t have anywhere to go.”

Average daily trading volume of non-government debt in Brazil’s local market was 1.1 billion reais ($544 million) in July, according to Brazil’s bond market association, known as Anbima. Trading volume in investment-grade dollar bonds in the U.S. market on July 31 totaled $12.7 billion, according to Trace, the bond price-reporting system of the Financial Industry Regulatory Authority.

Fixed-Income Competition

BM&FBovespa SA, Brazil’s stock exchange, also offers an electronic trading platform for corporate securities that integrates trading, settlement, and custody.

It’s unlikely that Bovespa will try to step up competition with Cetip in fixed income because it is more focused on stocks and commodities, according to Pedro Galdi, the chief strategist at Sao Paulo-based brokerage SLW Corretora.

“The financial sector in Brazil is going through a huge change because of the changes in the interest rate,” Galdi said in a telephone interview. “Money is going to flow to the financial markets, be it fixed-income with Cetip or stocks on the Bovespa.”

Cetip shares were little changed at 25.51 reais as of 3:34 p.m. in Sao Paulo. They have declined 5.3 percent this year, compared with a 4.5 percent increase in the benchmark Bovespa index.