BRICS Exchanges To Join Forces
Wednesday, October 19, 2011

The exchanges of the BRICS emerging market bloc (Brazil, Russia, India, China, South Africa) have announced a joint initiative to meet growing demand from global investors for instruments that will allow greater exposure to the markets of these developing economies.

Under the first phase of the initiative, the exchanges will cross-list benchmark equity index derivatives on the boards of each of the other alliance members. Following that, the alliance will develop new products to track the BRICS exchanges.

The initiative was announced at the 51st AGM of the World Federation of Exchanges (WFE) in Johannesburg and brings together the Brazilian exchange BM&FBOVESPA, Russia's MICEX (which is currently merging with the RTS Exchange), Hong Kong Exchanges and Clearing Limited as the initial China representative, and the Johannesburg Stock Exchange from South Africa. The National Stock Exchange of India and the Bombay Stock Exchange have signed letters of support and will join the alliance after finalizing outstanding requirements.

The seven exchanges accounted for over 18% of all exchange-listed derivative contracts traded by volume worldwide as of June this year. There are currently almost 9,500 companies listed on these exchanges and combined listed market capitalization of the bourses stands at USD9.02 trillion. Equity market trading stands at USD422bn per month.

The cross-listings are planned to take place by June 2012.

"Global investors are increasingly seeking exposure to leading developing markets," says Ronald Arculli, chairman of HKEx and of the WFE. "The close relationship of the BRICS stock exchanges is behind this initiative, through which investors worldwide will gain easier access to benchmark equity index derivatives which will now be offered in local currency on these exchanges."

"The alliance enables more investors to gain exposure to the BRICS bloc of emerging economies, with its increasing economic power," Arculli added. "From a global perspective this alliance points to the growing relevance of the BRICS economies and financial markets in the coming decade and further underlines the reason for the BRICS relationship."

Russell Loubser, CEO of the JSE, comments that as well as being barometers of market performance, indices also form the basis of other tradable products including exchange traded funds. "As a logical second phase in the alliance, the exchanges have agreed to work together to develop new products for cross-listing on the respective exchanges," he explains.

Edemir Pinto, CEO of BM&FBOVESPA says that the second phase will also include the development of products combining exposures to equity indices of all alliance partner exchanges. "These products would then be cross-listed and traded in local currencies," he comments "They will also allow investors to gain exposure to other emerging markets through a locally listed product."

"Apart from cross-listing products, there are other opportunities which can be explored which have great potential and will promote greater development and understanding of the respective markets," adds Ruben Aganbegyan, President of MICEX.

"The BRICS exchanges alliance holds great promise, as it will create avenues for Indian investors to diversify and expand into other emerging markets. It will also provide unique opportunities to investors in other BRICS nations to participate and contribute in India’s growth. BSE will actively work towards bringing world-class products to India as well as developing new products for other BRICS markets." says Madhu Kannan, CEO of BSE Ltd.

Noting that interest in the BRICS economies is prompted by above-average growth predicted for these regions, as well as the rising consumer power generated by growing middle classes in each nation, Ravi Narain, MD of the National Stock Exchange of India, observes that: "The growth of this consumer class implies that demand will accelerate within these countries."

The third phase of the project may include product developments and cooperation in additional asset classes and services.