BRICS Futures Exchange Draws Light Traffic on First Day

Exchange executives see future products driving more interest

Stock traders in Brazil. (Photo: AP) Stock traders in Brazil. (Photo: AP)

Futures trades based on cross-lists of BRICS exchanges began trading on Friday, but interest in the new opportunity was light on its first day.

Bloomberg reported that the five BRICS countries—Brazil, Russia, India, China and South Africa—all members of the BRICS Exchanges Alliance, launched cross-trading of futures on one another’s exchanges on Friday. According to BSE, based in Mumbai, traders who engage in arbitrage can now buy and sell futures based on the same index in multiple venues, boosting liquidity.

Futures are cross-listed on Brazil’s Bovespa Index, Russia’s Micex Index, the BSE India Sensitive Index, Hong Kong’s Hang Seng Index, the Hang Seng China Enterprises Index and South Africa’s JSE Top40 Index. Developing countries are expected to triple their financial assets by 2020 from their 2010 level, according to a December report by the McKinsey Global Institute. And investors in the BRICS currently have an average of only 16% of their assets in equities, said McKinsey; in the U.S. that level is 42%, and in western Europe 29%.

Bluford Putnam, chief economist at CME Group, which operates the world’s largest futures exchange and owns a stake in Sao Paulo-based BM&FBovespa, was quoted saying, “From a portfolio diversification point of view, it’s certainly a nice strategy. Growth rates in Europe and the U.S. are going to be lower.”

Wealthy investors in those countries are eager for new opportunities in foreign markets—although based on the first day’s results, that eagerness may take time to spill over.

Hong Kong saw too few bids and offers to trade the new futures contracts by the time the morning session had concluded. On Brazil’s Bovespa, the last bid, at 65,000, was barely over the gauge’s close of 64,871.99. Russia’s Micex saw a single bid of 1,493.75, below the index close at 1,494.86.

Still, such a debut was not entirely unexpected. Charles Li, the chief executive officer of Hong Kong Exchanges & Clearing Ltd., had said on March 13 that initial trading could be “quite light.” Marta Alves, a senior adviser to BM&FBovespa, said around the same time that the next focus for the joint venture would be development of an index representing the member countries. She added that such products as ETFs based on that index would likely generate more liquidity and interest from investors.

Of course, not everyone thinks the new venture is a good idea. Allan Conway, who oversees about $24 billion as the head of emerging market equities at Schroders Plc in London, was quoted saying, “That could actually be counterproductive.” He explained that new futures products could push investors toward caring more about short-term gains and thus boost volatility in the markets.

Futures trades based on cross-lists of BRICS exchanges began trading on Friday, but interest in the new opportunity was light on its first day.

Bloomberg reported that the five BRICS countries—Brazil, Russia, India, China and South Africa—all members of the BRICS Exchanges Alliance, launched cross-trading of futures on each other’s exchanges on Friday. According to Mumbai-based BSE Ltd., traders who engage in arbitrage can now buy and sell futures based on the same index on multiple venues, boosting liquidity.

Futures are cross-listed on Brazil’s Bovespa Index, Russia’s Micex Index, the BSE India Sensitive Index, Hong Kong’s Hang Seng Index, the Hang Seng China Enterprises Index and South Africa’s JSE Top40 Index. Developing countries are expected to triple their financial assets by 2020 from their 2010 level, according to a December report by the McKinsey Global Institute. And investors in the BRICS currently have an average of only 16% of their assets in equities, said McKinsey; in the U.S. that level is 42%, and in western Europe 29%.

Bluford Putnam, chief economist at CME Group Inc., which operates the world’s largest futures exchange and owns a stake in Sao Paulo-based BM&FBovespa SA, was quoted saying, “From a portfolio diversification point of view, it’s certainly a nice strategy. Growth rates in Europe and the U.S. are going to be lower.”

Wealthy investors in those countries are eager for new opportunities in foreign markets—although based on the first day’s results, that eagerness may take time to spill over.

Hong Kong saw too few bids and offers to trade the new futures contracts by the time the morning session had concluded. On Brazil’s Bovespa, the last bid, at 65,000, was barely over the gauge’s close of 64,871.99. Russia’s Micex saw a single bid of 1,493.75, below the index close at 1,494.86.

Still, such a debut was not entirely unexpected. Charles Li, the chief executive officer of Hong Kong Exchanges & Clearing Ltd., had said on March 13 that initial trading could be “quite light.” Marta Alves, a senior adviser to BM&FBovespa, said around the same time that the next focus for the joint venture would be development of an index representing the member countries. She added that such products as ETFs based on that index would likely generate more liquidity and interest from investors.

Of course, not everyone thinks the new venture is a good idea. Allan Conway, who oversees about $24 billion as the head of emerging market equities at Schroders Plc in London, was quoted saying, “That could actually be counterproductive.” He explained that new futures products could push investors toward caring more about short-term gains and thus boost volatility in the markets.

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