Brazilian stock exchange BM&F Bovespa and US derivatives bourse the Chicago Mercantile Exchange (CME) have agreed to build a low-latency multi-asset class trading platform for BM&F that will have the capacity to process transactions in less than one millisecond.
The two exchanges signed a memorandum of understanding, which includes an increase of BM&F Bovespa’s stake in the CME and collaboration for over-the-counter (OTC) derivatives clearing.
The new trading platform will be based on CME’s Globex system as well as technology created jointly by the two firms. The system will serve all of BM&F Bovespa’s trading segments including equities, derivatives, spot FX and bonds and OTC derivatives, and will feature a block trading facility.
BM&F will replace its existing derivatives trading platform with the new system at the beginning of next year and migrate equities and bond trading at the end of 2011.
Both BM&F Bovespa and CME will be able to make commercial use of the new electronic trading system and will share any resulting revenues. The cost of the trading platform is expected to be around US$175 million, spread over the next ten years.
Under the agreement, the Brazilian exchange will also increase the equity stake it has in the CME to 5% from 1.8%, mirroring the investment the CME has in BM&F Bovespa. The purchase is subject to shareholder approval and will cost BM&F Bovespa US$620 million.
The exchanges will also look to co-operate on developing central counterparty services for the OTC derivatives markets, which could include leveraging CME’s ClearPort, an existing OTC clearing mechanism, and to develop multilateral order routing and market data distribution functionality.
BM&F Bovespa is already developing an equities order routing service between itself and global exchange group Nasdaq OMX’s US operations, which is expected to benefit from the installation of the new trading platform.
This Nasdaq OMX deal will complement the existing derivatives order routing agreement BM&F has with the CME.
BM&F BOVESPA was formed in 2008 from the merger of the Brazilian Mercantile and Futures Exchange and the Sao Paulo Stock Exchange (Bovespa), creating the second-largest exchange in the Americas.