Brazilian Mercantile & Futures Exchange (BM&F) Ends 2006 With Exceptional Growth And Focuses On Globalization In 2007

The Brazilian Mercantile & Futures Exchange (BM&F) ended 2006 with an annual growth of 42.17% in traded contracts totaling 283.57 million contracts against 199.45 million traded in 2005. The average volume of contracts traded daily at the Exchange in 2006 was 1.152 million, including mini futures contracts. The news was announced at a press conference held yesterday by the chairman of BM&F’s Board of Governors, Manoel Felix Cintra Neto, reelected for another one-year term as BM&F president. Open interest contracts recorded a 30.6% growth in 2006, with a year-end stock of 14.3 million contracts.

Agricultural commodities contracts, including futures, options and ex-pit transactions, also exhibited a significant growth in 2006 recording a 24.37% increase compared to 2005. A record-breaking 1.354 million agricultural contracts were traded in 2006.  Coffee was the agricultural commodity with the largest number of contracts traded during the year totaling 561,434, a 10.1% increase over 2005. The agricultural commodity with the highest increase in traded contracts was soybean, which rose by 110% reaching 99,525 contracts in 2006. “The go-ahead given by the Central Bank of Brazil in 2006 for banks to use parcels of their rural loan portfolio for hedging transactions has provided farmers with another mechanism to secure favorable pricing terms at BM&F”, said Manoel Felix.    

According to the president, BM&F’s significant growth in 2006 is owed to its ongoing marketing efforts to promote its hedging instruments with customers such as non-financial companies, producers and companies carried out through partnerships.   In 2006, joint protocols were signed with the São Paulo State Federation of Industries (FIESP), São Paulo State Industries Center (CIESP) and the American Chamber of Commerce (AMCHAM). Another major milestone reached by BM&F during 2006 was the active participation of foreign investors, whose investments accounted for 20% of the Exchange’s transactions. The upgrade in ratings of Brazil’s sovereign debt and the possibility of the country becoming Investment Grade, whereby markets can anticipate their future performance, have also contributed to attract foreign investors like Hedge Funds. “BM&F’s greatest challenge for 2007 will be its insertion in this globalized world.  The Exchange has reached its present volumes virtually by working with local players only, since its direct settlement of transactions abroad is still quite limited,” said Manoel Felix. 

The president stated that demutualization studies proposed by Rothschild were approved in 2006 and the Board of Governors was authorized to adopt the necessary measures to implement the demutualization process for BM&F to become an S.A. corporation. Manoel Felix emphasized the efforts undertaken by the Exchange and its member brokerage houses to enforce the Program for Operational Qualification (PQO) over the years so as to strengthen BM&F’s brokerage sector and prepare it for an increasingly stiff competition in international markets. The PQO is set to continue in 2007.    


Non-ferrous forward market

Forward contracts for non-ferrous metals (aluminum, lead, copper, pewter, nickel, silver and zinc) are the latest new product to be launched by BM&F in 2007 on the Rio de Janeiro and São Paulo markets.   Non-ferrous metals production in Brazil accounts for 4.5% of the country’s GDP and 3.5% of its trade balance.  According to information announced at a press conference held yesterday, non-ferrous contracts have been targeted by the Exchange for the “considerable volatility lately exhibited by these commodities.” BM&F plans to develop a product that is comfortable both for non-ferrous manufacturers and consumers. Through non-ferrous forward contracts, non-financial manufacturing and consuming companies can hedge against price changes for these commodities by using BM&F’s hedging facilities. 


Spot US Dollar on BM&F electronic trading system

The BM&F Foreign Exchange Clearinghouse, which accounts for 97% of interbank US Dollar transactions, recorded an average daily gross trading volume of US$ 2 billion in 2006.   BM&F’s US Dollar spot market had a floor-traded daily average of US$400 million, 20% of the interbank FX market.   

To enhance this volume even further, BM&F’s president, Manoel Felix Cintra Neto, announced that the Exchange may adopt an electronic trading system in 2007. The new system will spearhead structured FX transactions – spot x forward US Dollar – which today accounts for 85% of spot US Dollar transactions.