Brazil To Merge Clearing Systems

Terry Flanagan

Brazil’s BM&FBOVESPA is migrating to a single clearing platform from which it plans to offer real-time clearing services allowing members to monitor risk and make collateral adjustments instantly.

The exchange has launched the first phase of its post-trade integration project, which will see the migration of the exchange’s four existing clearinghouses onto a single platform provided by Cinnober Financial Technology.

Following the series of mergers that led to the formation of BM&FBOVESPA, the exchange was stuck with four clearing systems and four different clearing models.

“They decided then to build a new clearing system for all their asset classes, and that is when they went out to look at technology,” Veronica Augusston, CEO of Cinnober Financial Technology, told Markets Media. “Cinnober was the first one to offer real time clearing, which was an initiative that we made after the Lehman crash, when we felt it was obvious that clearing technology was 10-15 years behind trading technology.”

BM&FBOVESPA will integrate all post-trade activity across its units and markets — equities and corporate bonds, derivatives, spot FX, and government bonds.
The clearing system, which is based on Cinnober’s TRADExpress RealTime Clearing, has initially been scaled to process over 10 million transactions a day across more than 12 million accounts, with real-time risk calculations. Collateral management will be available through collateral pools, as well as netting of positions and settlement instructions across all asset classes.

“Traditionally, many clearing houses had this batch-oriented system where they calculated risks twice or three times a day,” said Augusstson. “Real-time clearing means that the clearing members can monitor their collateral and can withdraw or increase collateral during the day. They can free up collateral that is not necessarily used at the moment.”

In addition to the new clearing system, BM&FBOVESPA has also launched a new risk calculation system, called CORE – Closeout Risk Evaluation. CORE is a system for multimarket and multiproduct portfolio margin calculation that integrates market, liquidity and funding risks in an innovative and robust approach. The new risk calculation system works for both listed and OTC derivatives, as well as for equities, bonds, FX.

The second stage of BM&FBOVESPA’s project, for the equities market, is now underway, with a planned launch in 2015.

“It will not only allow faster rollout of new products, but will revolutionize the Brazilian post-trade landscape,” Cicero Vieira, chief operating officer at BM&FBOVESPA, said in a release. “It strengthens risk management, reduces costs and delivers better capital efficiency to customers. When all units are installed the system will handle all asset classes, and when the market is ready, all CCPs will be integrated in a single collateral pool.”

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