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Brazilian Brokers to Change Exchange?

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Sensitive to the challenging conditions faced by brokerage houses and issuers, the BM&FBovespa is studying a plan to restructure the Brazilian brokerage industry. The rules require intensive changes, says Edemir Pinto, CEO of the BM&FBovespa. “The time has come to review this whole system we have here in Brazil.,” he said.

The stock exchange has formed a working group with Anbima, the association of capital and financial  markets companies, and Ancord, the national association of brokerage houses and distributors.

The group will analyse the market and propose changes to the federal government. The Banco Central and the Brazilian SEC-equivalent CVM) support the study and dispatched personnel to follow the process as auditors.

For a September 2012 interview with Pinto by the CME Group — in PT-Br — see here.

The two discussed a buzz-making remark by  Bill Clinton, «I would bet on Brazil first,” and outlined a partnership with the CME Group to offer S&P 500 e Ibovespa futures through the Globex and PUMA order routing platform.

The global preferred strategic partnership between BM&FBOVESPA and CME Group allows their customers to trade contracts of both exchanges in real time.

The basic idea is to evaluate possible changes in the activities of five types of market participants: stock broker, commodities brokers, currency traders, fixed income distributors and autonomous agents.  Edemir Pinto recalls that the legislation in these areas is decades old — all except the regulatory scheme for autonomous agents, that is.

In the case of brokers and distributors, for example, their respective work is practically the same, although rules and capital requirements are different.   One possibility is to merge the two job functions.

Edemir says the group was formed two month ago and expects to wind up its business in 180 to 360 days. Upon conlusion, the Central Bank and SEC-equivalent will review the proposal and indicate acceptance or inadequacy. “The fact that they have sent observers is a good sign,” says Pinto. “I believe our market willl change completely because of this study. ”

In the case of freelance traders,, the discussion raises extremely controversial points: salary and labor relations. In the latter area, the exchange means to release a market communiqué with new guideliness for the hiring of autonomous agents.

Brokerage execs interviewed by Valor say that one problem is a quiet dispute by brokers for the services of outstanding traders — including glove payments [?] and bonuses that in some cases reach 50%.  This model also stimulates speculative dealings and mismanagement of customer funds.  Broker have faced many employment headaches because they hire outside agents. Hierarchy and the keeping of fixed hours might be considered indicative of full-time employment.

In a year when brokers made less money, many houses reformed their operations and will re-evaluate this line of business, inviting independent brokers to become permanent employees under the CLT. In mid-2011, the CVM published Instruction 497, replacing Instruction 434 of 2006, and establishing which agents would no longer be considered a part of the brokerage firm.

In the message to be sent shortly to the market, BM&FBovespa will say that with freelancers working inside their physical space, the broker wiill find it difficult to obtain the seal of approval for operational qualifications. … this measure could  mean loss of institutional clients, who requirethe seal before working with the broker.

Edimir Pinto said the brokerages would have up to two years to work on compliance …

According to the market’s CEO, the autonomous agents represents a major leap forward for the Brazilian markets. “The market will not grow and volumes will not double unless they pass through these autonomous agents.” Nevertheless, he ways, the question is a source of fierce disagreement, with many details to be settled, including the name of the professional category”Autonomous investment agent..What does that name tell you?”he asked..

The CVM had the following to say in a 6-3-2011 note to the market.

The aim of this change is to make the role of the autonomous investment agent more transparent, in light of the expansion of Brazil’s capital markets and of certain distortions discovered in recent years, in the practices of some market participants. To that end the CVM has run a broad spectrum diagnostic on the distribution of financial products and — taking into account the experiment carried out in  CVM Instruction 434/06 — realizing comparative studies on the handling of such agents by exchanges around the world. .

This Instruction introduces some new elements based on the categorization of practices permitted to autonomous agents, sharply defining the solutions considered most appropriate, related to areas in which they make not function, and defining a clear-cut structure related to rights and responsibilities of contract participants.All these changes are intended to reduce the atmosphere of uncertainty that may overwhelm the customer, principally by reinforcing the liability of intermediaries for the actions of the autonomous agents and by placing more emphasis on control mechanism.

Ancorda says that as a autoregulator it will be in charge of continuing education and certification for the “autonomous” market operator. See