Surging stock prices boosted the financial volume of
securities lending trades in Brazil in 2016, despite fewer
stock loan transactions taking place.
São Paulo-based bourse BM&F Bovespa reported BRL
692.74bn ($217bn) worth of stock loan trades last year, up from
BRL 665.73bn in 2015. The increase came despite a 9% drop in
the amount of trades - 1.38 million compared with 1.51
"The Brazilian equities market has rallied significantly
over 2016 which would explain the higher value for securities
lending trades even though lesser trades took place,"
Sunil Daswani, Northern Trust’s
international head of securities lending, told Global
The Ibovespa, Brazil’s benchmark stock index,
has climbed by 38.9% over the past twelve months, its first
year in the black since 2012. Similarly, the real (BRL)
Brazil’s currency soared in 2016.
According to Claudio Jacob, BM&F Bovespa's client and
business development and international relations managing
director, securities on loan (open interest), rather than the
registered volume (trading), is a better measure of market size
An average of $21bn of securities were out on loan
throughout August - the highest monthly figure in 2016.
February was the weakest month with $11.4bn. December's open
interest figure totalled $17.9bn.
Brazil’s securities lending market operates
around central clearing model, with BM&F Bovespa the only
clearinghouse operating in Brazil. The group is currently
awaiting regulatory clearing to merge its operations with those
of Cetip, Brazil’s largest fixed income clearing
Northern Trust is one of the few agent lenders to operate in
Brazil and Daswani says the firm has managed to overcome some
of the challenges in the market of dealing with a
non-traditional form of lending that this market has
"Some of the key issues are the credit risk being against a
central counterparty (Bovespa) and not the borrower of the
securities, collateral being held by the central counterparty
and not being able to view the specific collateral you have in
return for your loaned securities," Daswani said.
In addition, he noted a mismatch in the settlement cycle to
recall securities versus selling them, various local tax issues
and a non-standard calendar system of using a 252 versus 360
days system to calculate fees. "These issues whilst they exist
will create a barrier for entry to this market for the large
part," Daswani added.
Addressing some of the market issues, BM&F Bovespa's
Jacob said that the mismatch between recalling the securities
and selling them will soon be eliminated depending on the time
the recall is done (until 09:30 am - SP time). "This change
will occur after the second phase of BM&F Bovespa's
clearinghouse integration project which is planned to be
completed in 2017," he told Global Investor/ISF.
Jacob added that there are attractive fees available for the
lender in the Brazilian Market, on average 140bps in 2016 and
that clearing via a CCP brings some advantages. "The lender is
fully indemnified by the CCP, in case of borrower's default,
during the contract lifecycle. There is also possibility of
reduced capital charges according to Basel III regulations as
well as centralized collateral and billing management."