BM&FBovespa clearinghouse plan to throw lifeline for brokerages

Reuters

SAO PAULO, Oct 7 (Reuters) - Brazilian bourse BM&FBovespaSA's integration of fixed-income instruments,derivatives, equities and commodities clearinghouses willprovide a lifeline to local brokerages by helping them targetnew niches and cut operating costs, a fund manager said onMonday.

The project, which will be concluded by the end of nextyear, will save investors in Brazil 500 million reais ($226million) a day by freeing up collateral and reducing transactioncosts. Brokerages will be able to capture part of the savings,said Luiz Fernando Figueiredo, a former central bank directorwho oversees BM&FBovespa's risk management committee.

Brokerages are grappling with years of increased competitionand aggressive technology investments by banks that are forcingsmaller shops out of business. As fees decline too, many smallbrokerages that remain afloat are surviving with the proceedsfrom the 2007 initial public offerings of the firms that theyear after merged to create BM&FBovespa.

"The brokerage business has suffered for a long time, andthat's why I'm sure the new rules are key to help them find abusiness niche," Figueiredo, who also oversees 2.5 billion reaisin assets for Mauã Sekular Investimentos, said at an eventsponsored by Brazil's banking federation Febraban.

Although some brokerages expect fees to remain stable thisyear, and trading volumes have risen to a record, banks'brokerages units are seen as the ones that will reap most of thegains from such improved environment.

Apart from helping investors allocate their capital in amore efficient way in capital market transactions, the singleclearinghouse plan will also create a more balanced market forstock lending - the mechanism that paves the way forshort-selling strategies, Figueiredo said.

Short-selling is a strategy in which investors borrow sharesfrom others to profit from their decline.

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