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ATS Brasil has partners lined up, eyes Nov. 2014 opening

John McCrank
Thursday, 14 Nov 2013 | 6:34 PM ET

NEW YORK, Nov 14 (Reuters) - Americas Trading System Brasil (ATS Brasil) plans to open as a stock exchange in Brazil next November with partner firms to be announced within weeks, the CEO of the upstart said on Thursday.

ATS Brasil will be the first competitor to Brazil's sole stock-exchange operator, BM&F Bovespa, and aims to secure a 15 percent market share in Brazilian equities trading within two years of operating, said Alan Gandelman, ATS Brasil's chief executive. Within three years, the exchange aims to enter the corporate listings business and may even go public itself, he said.

The joint-venture between Rio de Janeiro-based trading systems operator Americas Trading Group (ATG) and NYSE Euronext, now owned by IntercontinentalExchange (ICE), filed to become an exchange with Brazilian regulator CVM in June. It expects regulatory approval to be granted in February.

The launch of the exchange is planned for November 2014, and will coincide with the opening of a new Brazil-based clearing house being formed by ATG. ATG has an 80 percent stake in ATS Brasil.

ATS Brasil may move into derivatives trading in the future, but right now it is solely focused on cash equities, where it plans to be "very aggressive" on lowering trading costs, which are on average 15 times higher in Brazil than in other major markets, Gandelman said.

Within weeks, ATS Brasil will announce deals it has signed with five partner firms that will give the new exchange trading business in return for equity stakes of up to 6 percent each. Gandelman said the partner firms are made up of two global banks, one Brazilian bank, one European asset manager, and one U.S.-based broker that specializes in technology.

CLEARING HOUSE

One of the things that has prevented new exchanges from entering Brazil has been a lack of access to central counterparty clearing, which is a capital-intensive venture that ensures trades go ahead even if one of the parties defaults.

BM&F Bovespa has said it would allow other firms to rent out its post-trading facilities - the only current clearing option available - once the bourse has finished integrating its four clearing houses. That could be as late as 2015, Gandelman said.

ATS Brasil had initially planned on using BM&F Bovespa's services, Gandelman said, but after doing its homework, ATG saw an opportunity to create a plain vanilla facility that only clears cash equities and exchange-traded products.

With no margining involved, the clearing house will cost just 150 million Brazilian reals ($65 million), including mandatory capital, spending on systems, and the starting of the business, Gandelman said.

ATG expects to file the application for the new clearinghouse, and to announce a consortium of backers for the project, before Dec. 15, Gandelman said.

The consortium will include ATG, Brazilian risk consultant Risk Office, as well as one major Brazilian commercial bank, and one clearing house operator - either ICE, LCH.Clearnet, which is majority-owned by the London Stock Exchange Group, or Clearstream, owned by Deutsche Boerse.

ATS Brasil will not be a direct owner of the clearinghouse, which aims to attract other customers, such as U.S.-based Direct Edge, which has said it would like to set up shop in Brazil, but has been faced with lengthy delays in gaining access to BM&F Bovespa's clearinghouse.

NEW STAKEHOLDER

NYSE Euronext, which has a 20 percent stake in ATS Brasil, is providing technology for the new exchange. The New York Stock Exchange parent was bought by Atlanta-based ICE for $11 billion in a deal that closed on Wednesday. ICE's CEO, Jeff Sprecher, said he will announce which parts of NYSE will be integrated into ICE next week.

Gandelman said that while he has not yet met Sprecher, he is confident that ICE, which owns a stake of around 12 percent in Cetip S.A., a Brazil-based over-the-counter fixed income depository, will make a good partner for ATS Brasil.

"The new owner is known for being aggressive, he is known for investing a lot in what he believes, and he wants to be global. And Brazil, because of Cetip, has been on his radar screen. So for us, that sounds great," he said.