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BM&FBovespa’s Shares Slump on Revenue, Competition Outlook

BM&FBovespa SA, the operator of the Brazilian exchange, slumped in Sao Paulo after the company said it expects a drop in trading volume.

The shares declined 3.4 percent to 11.69 reais at the close of trading. It was the worst performance on the Ibovespa equity benchmark, which gained 1.9 percent.

The average value of daily stock trades rose 8.5 percent to a record 8.3 billion reais ($3.6 billion) during the three months ended in June, BM&FBovespa said in its second-quarter financial report yesterday. The company expects volume to decline in the third quarter, Eduardo Guardia, the investment relations director, told reporters in Sao Paulo today.

“Bovespa is in a very challenging situation,” Sandra Peres, an analyst at the brokerage firm Coinvalores, said in a phone interview from Sao Paulo. “Indicators already show a decline in stock trading volume in the second half, and more players are coming to Brazil to compete for market share.”

Americas Trading System Brasil, a joint venture between Americas Trading Group and NYSE Euronext, filed a formal request in June to open an exchange that would break BM&FBovespa SA’s monopoly in stock trading in Brazil. The company expects to start operating in the first half of 2014, depending on regulatory approval, Chief Executive Officer Alan Gandelman said in a June 19 telephone interview from Sao Paulo.

Average daily trading volume of stocks so far this month is 6.2 billion reais, down 13 percent from the average in August 2012, according to data compiled by the exchange.

Second-Quarter Volume

Second-quarter trading was boosted by an increase in initial public offerings and market volatility. Brazil has had seven IPOs this year, compared with three in 2012, according to data compiled by Bloomberg. Three-month historical volatility for the Ibovespa peaked at 21.5 percent on June 27, up from 17 percent at the start of the three-month period.

A drop in IPOs and a slowing Brazilian economy that could crimp corporate earnings growth will probably lead to a drop in stock trading and weigh on BM&FBovespa’s revenue, Peres said.

Twenty-one of the 33 companies on the Ibovespa that have already reported second-quarter earnings trailed analysts’ estimates. Votorantim Cimentos SA, the Sao Paulo-based cement maker, suspended an initial public offering of as much as $3.7 billion of shares planned for June because of the market selloff.

Economists covering Brazil expect gross domestic product to expand 2.24 percent this year, according to a central bank survey of about 100 analysts released Aug. 5. That’s down from a forecast of 2.4 percent growth five weeks earlier.

BM&FBovespa is considering changes to the Ibovespa as the sell-off in Eike Batista’s companies fuels volatility on the index, Chief Executive Officer Edemir Pinto told reporters today in Sao Paulo. Any changes to the number of stocks on the index or their weighting will be announced by the end of September, Pinto said.

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