BM&F has created a fund that will allow the reduction of margin requirements for the agricultural markets participants. This measure may also ensure a cutback, which could be significant, in the trading costs of these products. This was the objective behind the creation of the Agricultural Market Trading Fund (Fundo de Operações do Mercado Agropecuário), approved yesterday by the Brazilian Central Bank. The aim is to use resources from this fund to cover part of the risks of the agricultural derivatives markets, which were up to now covered exclusively by margin requirements. The Exchange’s Chairman, Manoel Felix Cintra Neto, believes that the reduction in margin costs could be from 30% to 50%. “We also think this could increase the liquidity of agricultural markets, avoiding the transference of transactions to external markets”, stated Cintra Neto.
Destined exclusively to guarantee BM&F against any eventual default by Clearing Members involving transactions with agricultural derivatives settled by the Exchange’s Derivatives Clearinghouse, FOMA will be valued at R$ 50 million.
BM&F’s decision comes as a response to a market demand and was taken from a study made by the Exchange, comparing its margin requirements to those required by international exchanges, particularly those which have similar products as BM&F. The conclusion of the study was divulged yesterday by the Exchange – Circular Letter 107/2006.
The reduction of agricultural contracts’ margin requirements, due to FOMA, will begin on 09/29/2006, impacting margin requirements on 10/2/2006.
