Sao Paulo Equities And Derivatives Exchange Partners With CME
Thursday, February 18, 2010

Brazil's Sao Paulo-based equities and derivatives exchange, BM&FBovespa, has announced that it has entered into a landmark Memorandum of Understanding (MoU) with Chicago-based exchange group CME, that will establish a new joint multi-asset electronic trading platform using CME’s expertise.

BM&FBovespa, the world's third-biggest exchange group by market capitalization, announced that it would increase its stake in the CME group, which controls the Chicago Mercantile Exchange, the New York Mercentile Exchange, and the Commodity Exchange, to 5% from 1.8%, to bring its shareholding in line with the CME’s holding in BM&FBovespa.

According to the text of the new MoU, published on February 11, "a global preferred strategic partnership" will be established between the two groups. “Under the agreement, [BM&FBovespa] and CME will work together as to jointly identify strategic investments and commercial partnerships with leading equities and derivatives exchanges. [BM&FBovespa] and CME will seek to make these investments and/or partnerships on a shared and equal basis,” the MoU states.

“In order to operate their global preferred strategic partnership, [BM&FBovespa] and CME will hold joint quarterly meetings of their senior executives (Strategic Committee), in order to analyze the potential investment opportunities and commercial partnerships.”

Based on technology derived from the CME Globex® trading system, as well as on new technology to be jointly created by the parties, BM&FBovespa and CME will jointly develop a new electronic trading platform, with capacity to process transactions in less than one millisecond.

The new platform will house all the following BM&FBovespa segments under the same infrastructure:

• Individual equities (cash market);
• Derivatives based on equities, equity indices, interest rates, exchange rates and commodities;
• Spot foreign exchange currency;
• Spot government bonds;
• Spot private bonds; and
• Other OTC derivatives.

The platform will also include a trading system for large blocks of shares.

The first to be developed will be the derivatives module, which until the beginning of 2011 will replace the Global Trading System (GTS), which is the current electronic trading system utilized by BM&FBovespa for its financial and commodity derivatives segment. The second module will be implemented by year-end 2011 to replace the Mega Bolsa, SISBEX and BovespaFIX trading systems currently used by BM&FBovespa for the equities, federal government bond and private bond markets, respectively.

Both BM&FBovespa and CME will have the right to make commercial use of the new electronic trading system and will share revenues resulting from this commercialization.

As an additional reflection of their new partnership, CME will transfer to BM&FBovespa all knowledge that is needed for the operation and development of the new platform, based on the CME Globex technology. With this transfer, BM&FBovespa will become fully independent and autonomous to also commercialize the new platform in certain regions and under certain conditions.

This investment by BM&FBovespa, which is equivalent to approximately USD620m, is subject to BM&FBovespa shareholder approval, for which in due course a shareholders’ meeting will be called. Adding this amount to BM&FBovespa’s current stake in CME brings its total investment to approximately USD1bn. The global preferred strategic partnership has an initial term of 15 years and will continue in effect for as long as each party holds a 2% minimum stake in the other party’s capital.