New Clearinghouse Paves Way for Second Brazilian Exchange

Americas Trading Group (ATG) has partnered with Risk Office to create a new clearinghouse in Brazil, which brings the nation one step closer to receiving its second stock exchange.

Over the last few years, ATG has been purchasing technology from the NYSE Euronext, and in November 2012, the two companies formed Americas Trading System Brasil (ATS Brasil) to create a competitor to Brazil’s only stock exchange, BM&FBOVESPA.

“The reason why the regulators have been looking seriously at the need for competition is, quite frankly, that the current exchange doesn’t represent the size of the economy,” says Alan Gandelman, CEO of ATS Brasil. He says that not enough companies are publicly listed in Brazil, and having another exchange could remedy that.

In June 2013, ATS Brasil filed to become an exchange but needed access to a clearinghouse before they could launch.

“When we first started to move ahead with the idea of becoming an exchange in Brazil, the first idea was that we need clearing,” says Gandelman. Yet BM&FBOVESPA owned Brazil’s only clearinghouse and until recently would not allow third-party use. (The company now plans to allow third parties to clear equities in 2015.) Thus, “we decided to go ahead and build our own clearinghouse,” says Gandelman.

Gandelman explains that the three obstacles to creating a clearinghouse are money, technology and risk. ATG had a handle on the first two issues but needed help with the third.

“Of course, when you do clearing you have to understand risk and to do this well so you get the confidence of the parties that will be using it for clearing,” says Gandelman. “So we signed [with] Risk Office—the perfect partner.”

Pending regulatory approval, the new clearinghouse will operate separately from ATG and Risk Office and be open to third-party use. ATG also says that a third investor is in “advanced negotiations” to partner on the clearinghouse.

Gandelman expects that in the first quarter of 2014, regulators will approve both the clearinghouse and ATS Brasil’s application to run an exchange. About six months after that, the new exchange should be fully operational.