On the path of competition, BM&FBovespa
The Brazilian stock exchange, which is up to 27 times more expensive than the NYSE in New York, could hinder or even prevent the entry of new exchanges into the market, according to a study by Oxera Consulting commissioned by the CVM (Brazilian Securities and Exchange Commission). Investors would be the main beneficiaries of potential price drops.
247 - The Brazilian Securities and Exchange Commission (CVM) released on Monday, the 18th, the results of a competitive study on the stock market commissioned from Oxera Consulting. According to the 200-page document, the entry of new stock exchanges into the country may be hindered or even impossible without the cooperation of the Brazilian Clearing and Custody Chamber (CBLC), which belongs to BM&FBovespa.
The CVM, however, could facilitate the entry of a new trading platform and a central counterparty (CCP), although it may face "significant economic barriers," Oxera points out. "There would also be a need for cooperation between the new CCP and the existing functions of the CBLC's central securities depository," the document states.
The entry of new exchanges with access to BM&FBovespa's CCP (Centralized Trading Platform) would allow competitors to lower entry costs into the stock market, the study says. According to Oxera, this possibility could only materialize if BM&FBovespa cooperates to ensure that access to the CCP is offered on "appropriate terms".
According to the study, the CVM could also implement a new regulatory regime to support the entry of new CCPs or trading platforms into the market, which would require "considerable time and effort."
"At this time, the lack of new competitors entering the market may not cause significant harm, except for limiting the possibility of reducing trading and post-trading fees, increasing the scale of the market (or the possibility of this happening), eliminating inefficiencies in existing infrastructure (if any), or reducing monopolized profits (if any)," says Oxera.
Among those who would benefit most from the arrival of competitors to BM&FBovespa are the investors themselves, the consultancy highlights, since they would be the main beneficiaries of possible reductions in the prices of trading and post-trading services. The Brazilian Stock Exchange charges higher fees than other major exchanges in the world, including London and New York (NYSE), says the Oxera study, noting that this occurs due to a lack of competition in the market.
"Compared to the trading and post-trading costs of the NYSE, the trading and post-trading costs of the Bovespa are 13 to 27 times higher," says the study. When the fees of the Brazilian stock exchange are compared to those of financial centers such as Italy, Spain, and Singapore, the fees applied here are "very similar," Oxera found. However, compared to the Buenos Aires Stock Exchange, the trading and post-trading costs at BM&FBovespa are less than half, according to the study.
According to Oxera, fees in Brazil "are not low" compared to those in other financial centers. "This result is sustained even when considering the scale of operations on the Bovespa and the differences in the types of services provided by the Brazilian stock exchange," the consultancy explains. "This indicates the potential benefits of introducing competition, which are evaluated, along with the costs of introducing competition, as part of a cost-benefit analysis."
The CVM will still hold a meeting with market participants to discuss the results of the Oxera study with them and only then issue an official opinion on the matter.