Wednesday, April 21, 2010

Brazil to Expand Stock ETFs and Options, To Add BDRs (not ADRs!)

Bovespa. Sao Paulo's stock exchange and the world's third largest exchange operator, will be adding add more stock options and ETFs.

Bovespa is searching for money managers to structure an ETF that mimics the performance of a recently-launched index on Brazilian bank shares. In addition, Bovespa will seek to have more stock options traded on the exchange, beyond those negotiated on VALE and PBR.

By broadening the supply of financial products, the exchange is trying to attract more sophisticated investors abroad, while allowing local players to improve their portfolios from so-called plain vanilla investments. The options and the ETF should start trading by year-end.

Currently six of Brazil's seven listed ETFs are run by IShares, the world's biggest provider of the product, and one by Itau Unibanco (ITUB in the NYSE). The value of ETFs under management in Brazil is $1.7B, compared with $7.7B for the the 198 ETFs listed on Mexico's stock exchange.

Bovespa is also recruiting market makers for the options, which could include contracts on the benchmark Bovespa stock index. BVSP as well as the 10 main stocks of the index.

Brazil is the fourth-largest market in the world for stock options. Options on state-controlled oil company Petrobras and Vale, the world's biggest iron ore mining company, are the world's two most-heavily traded.

ADRs? No, BDRs!

Bovespa also plans to list depositary receipts of U.S. companies in Brazil, probably during the second half of 2010.

The BDRs, or Brazilian Depositary Receipts, will trade through financial institutions, with individuals able to invest indirectly by buying into funds that invest in the securities.

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