Six of the world’s largest emerging markets exchanges on Wednesday unveiled an alliance in an unprecedented arrangement that aims to capture investor interest in leading emerging markets in each other’s markets at a time when exchanges globally have been consolidating.
Under the alliance Hong Kong Exchanges and Clearing, BM&FBovespa of Brazil, the National Stock Exchange of India, the Bombay Stock Exchange, Johannesburg Stock Exchange and the two Russian exchanges that are in the process of merging – Micex and RTS – will cross-list each other’s stock index futures and index options contracts. They will be listed on each exchange in the local currency of each exchange, the exchanges said at the annual meeting of the World Federation of Exchanges in South Africa.
The arrangement means that, for example, a Brazilian investor would be able to buy or sell a Hang Seng index futures contract – currently only available on HKEx – and denominated in the Real currency, on the BM&FBovespa exchange.
The six bourses will also work towards devising a “Brics” index that traders could use to gain broad exposure to emerging market indices.
The development is a sign that exchanges in the Brics countries see an opportunity to expand globally at a time when their older rivals in the US and Europe are battling pressure on profit margins from competition in cash equities trading from other platforms and “dark pools”. Edemir Pinto, chief executive of BM&FBovespa said the growth of trading on emerging market exchanges was “exactly the opposite of the developed market exchanges”.
Last year the volume of futures traded on exchanges in Asia exceeded that in North America for the first time, according to the Futures Industry Association.
Ronald Arculli, chairman of HKEx and of the WFE, said: “The alliance enables more investors to gain exposure to the emerging economies of the Brics group whose economic power is on the rise. From a global perspective [it] highlights the growing significance of the Brics economies and financial markets for the coming decade, and further underlines the importance of enhancing co-operation between the Brics members.”
The idea for the alliance was devised by HKEx, which first approached the other exchanges in June. Romnesh Lamba, head of the market development division at HKEx, said: “From a revenue and investor perspective, we don’t expect there will be cannibalisation of each others’ markets.”
The arrangement is also a sign that some exchanges believe that forging alliances is a more effective way to grow their business after the failure of a series of big-ticket mergers. Singapore’s SGX exchange was earlier this year blocked by Canberra in its attempt to take over ASX, the Australian exchange; the London Stock Exchange abandoned an attempted merger with TMX Group; while a joint attempt by Nasdaq OMX and IntercontinentalExchange to break up the planned combination of Deutsche Börse and NYSE Euronext was scuppered by US antitrust regulators.
CME Group has been forging similar alliances involving cross-listing and distribution of its products with BM&FBovespa, the BMV exchange in Mexico, the JSE and Osaka Securities Exchange. Eurex, the futures arm of the Börse, last year started offering futures contracts based on the Korean exchange’s Kospi stock index.
Asked what effect CME’s alliances would have on the new emerging market alliance, Mr Pinto said: “Our agreement with CME does not conflict in any way with what we are doing here.”
The first stage of the project will lead to the exchanges beginning cross-listing of financial derivatives on their benchmark equity indices by June 2012.
Charles Li, HKEx chief executive, said: “At the beginning it’s not necessarily going to be a ‘big bang’ for any of us but over time we’re very confident that this will bring a lot of interest and we may be able to create a new asset class.”
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