Brazil’s derivatives markets

Derivatives can help discover the price of underlying assets, commodities, events or certain types of risk. .  In Brazil, the futures traded on the BMF exchange are the point of price discovery for the real-dollar exchange rate. Brazil’s history of high inflation and high nominal interest rates has left its credit markets with a concentration of short-term loans and debt instruments and the derivatives markets have served to hedge the fluctuations in these short-term interest rates.

Brazil’s Bovespa derivatives markets

Derivatives known as futures and options are traded on exchanges where centralized trading allows for everyone in the market to make quotes, observe all other participants’ quotes and execute trades in full view of all other participants. 

Trading volume at the BMF  is already 1,392% of GDP and that does not include OTC trading reported to CETIP, options trading at BOVESPA and OTC trades with overseas entities that are not reported in Brazil

Derivatives trading in Brazil can be traced back to 1917 when derivatives on agricultural products – mostly coffee and cotton – were traded on the Bolsa de Mercadoria de São Paulo (BMSP).[1]  During the 1970s a number of new agricultural contracts were added to the exchange’s trading floor.  Gold futures, and other derivatives contracts, were later added in 1980. 

Derivatives Dealers

There are reported to be 15 to 20 dealers in Brazil’s OTC derivatives markets.  Major dealers include Bradesco, Santander, ABN Amro, Etao, Unibanco, Citigroup, Deutsche Bank, HSBC, CSFB (whose claims to have 15% of customer market), USB – Pactual, BNP Paribas, JP Morgan, BBM, and Banco de Brazil

Bovespa, which mostly trades options on stock indices and single stocks, is authorized under current law to trade forwards, futures, call and put options on single stocks and stock indices, stock future contracts, stock forward contracts, and warrants

Brazil’s derivatives markets are both large and growing rapidly.  The BMF derivatives exchange in Sao Paolo is the 5th largest futures exchange in the world. Trading volume in the futures on overnight interest rates is one of the fastest growing in the world – 162 million in 2006 compared to 121 million in 2005 – and ranks 12th overall worldwide.  The BMF maintains open-outcry or “pit” trading arrangements for many of its contracts.


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