The custody division of Citibank has been appointed to issue unsponsored level 1 Brazilian depository receipts on the Brazilian equities and derivatives exchange BM&F Bovepsa, from 29 November.
BDRs are certificates representing securities issued by a publicly-held company or equivalent headquartered overseas, issued by a depositary institution in Brazil without an agreement with the company issuer of the securities backing the BDRs. The issuer assumes liability for the legitimacy and integrity of the underlying asset of the BDR held by a custodian overseas.
Citibank is issuing receipts for shares in Cisco, Citigroup, Freeport-McMoran Copper & Gold, General Electric, Intel, Merck & Co, Microsoft, Procter & Gamble and Wells Fargo & Co.
This issuance is the latest offering by finance houses seeking to increase liquidity on the Brazilian market, while fulfilling the demands of local Brazilian retail and institutional investors that are increasingly look to diversify their portfolios – Rio de Janeiro's asset management firms were among the first in Latin America to trade overseas.
“The fight is between the sponsor houses, i.e. the custodians,” says Salvador Palma, founder of Alyar, a firm that specialises in helping international investors to access execution services in Latin America.
Deutsche Bank S.A. – Banco AlemÃ£o, the SÃ£o Paolo-based subsidiary of global custodian Deutsche Bank was selected to issue the programmes for the BDRs of ten other US companies on 5 October.
Brazilian regulator the ComissÃ£o de Valores MobiliÃ¡rios (CVM) only permits financial institutions, mutual funds, and portfolio managers and securities consultants to trade BDRs with relation to their own funds, meaning that individual investors can only participate through investment via funds. CVM has limited the BDRs of Procter & Gamble and Wells Fargo & Co to proprietary trading investment only.
BDRs are considered to be an overseas investment by CVM and will be traded on the Bovespa OTC Market Segment.
BM&F Bovespa has an agreement with Nasdaq OMX, under which broker-dealers from Brazil and North America can send orders for cash equities traded in the other country on either BM&F Bovespa or Nasdaq OMX via a broker local to the appropriate exchange.