Brazil Builds Out OTC Infrastructure

Terry Flanagan

BM&F Bovespa licenses Calypso software to register and manage OTC derivatives.

Latin America is building out its future market structure for OTC derivatives, in response to regulatory pressures to manage systemic risk, increase financial stability and improve transparency.

BM&F BOVESPA, the largest financial exchange in Latin America, has selected a technology platform from Calypso Technology to register and manage OTC derivatives operations, part of a multiyear project to boost OTC clearing for the region.

The Brazilian exchange licensed the Calypso platform for the registration, pricing, risk assessment and lifecycle management of OTC derivatives and cash products.

“Calypso is partnering with BVMF to offer a new trade registration service for Brazilian OTC products,” Sanela Hodzic, managing director for strategy and business development at Calypso Technology, an OTC derivatives technology supplier.

“This new trade repository service on Calypso will cover all bi-laterally traded products in Brazil and will offer enhanced risk management capabilities on registered transactions, thus providing BVMF with more transparency and better oversight of the OTC markets in Brazil,” said Hodzic.

In Brazil, OTC trades are required to be officially registered so that the national securities regulator and financial system have absolute transparency into overall derivatives exposure on a market-wide basis and the ability to track the intraday mark-to-market value of each OTC trade.

The Calypso system will be implemented to provide valuation for a wide array of OTC derivatives to ensure that each trade meets the predefined parameters set by BM&FBOVESPA.

With the Calypso platform, BM&FBOVESPA intends to modernize, enhance and expand its OTC operations registration service, offering quality and agility to its customers, and complete analysis instruments for self-regulation and regulatory activities.

“In the future, the OTC trade registration service will evolve into a full OTC clearing solution,” said Hodzic.

BM&FBOVESPA and Calypso Technology will conclude implementation of Phase One of the platform in 2012, which will allow for the registration of contracts from banks with their non-financial customers as counterparties.

The implementation of Phase Two – for registration of contracts from the other counterparties and OTC derivatives clearing – is forecast to be completed in the first quarter of 2013. Phase Three will provide collateral management services for bilateral risk mitigation with an implementation date to be announced in the future.

Calypso provides similar OTC clearing and risk management solutions to six major global exchanges and clearing houses, said Hodzic.

The technology enables exchanges to support OTC derivative clearing, consolidate systems onto a single platform for clearing across assets for derivatives, shorten time to market for the new business and reduce technology risk, according to Calypso.

Related articles

  1. ISDA survey shows variety of views on whether increased clearing would improve resilience and efficiency.

  2. Crypto derivatives need central clearing to become a major asset class.

  3. New Collateral Transformers To Emerge

    Clients can agree collateral on a real-time basis and increase efficiencies.

  4. Margin and collateral are a new use case for bond ETFs.

  5. Additional volatility due to unforeseen macro events, particularly the conflict in Ukraine, were contribers.