The Brazilian Government predicts annual growth to continue at an average rate of 4.9% between 2011 and 2015.
This is the second paper in our series that focuses on the particular opportunities and challenges that face global asset managers entering the Brazilian market.
Where the first paper examined the overall investment climate, this paper sets out the key features and structures of Brazil's unique clearing and settlement framework. It also identifies some other key considerations that foreign investors need to be aware of before investing or setting up operations in the world's seventh-largest economy.
International investors looking to spice up their returns are developing an increasing appetite for exposure to Brazil's rapidly growing economy.
National output expanded by 6.9% in 2010, and the Brazilian Government predicts annual growth to continue at an average rate of 4.9% between 2011 and 2015. Brazil has an expanding middle class, growing consumer demand, booming commodity exports and a vast program of public and private sector investment.1
As Brazil's economy has grown so has its financial markets. The volume of equities traded on the main market, BM&F BOVESPA, has increased five-fold over the past five years, and the exchange's derivatives platform was the world's sixth-largest in terms of contracts traded in 2010.2
In these circumstances, it is no surprise that traditional and alternative investment managers based in the US, Europe and Asia are joining the tide of banks, trading firms and infrastructure providers flocking to the Brazilian markets. Nonetheless, potential new entrants to the Brazilian financial markets should be aware that some of its features which are unique.
Range of regulatory and legal requirements
The country is renowned for its range of regulatory and legal requirements, although some of these protectionist features have helped to insulate Brazil from the worst effects of the global financial crisis. As a result, foreign firms often choose to form partnerships with established local players as the best way to achieve compliance and have a presence in this emerging market.
We explore further across the following topics:
1”Trading firms flock to Brazil,” Financial News, 28 March 2011.
2”Issues Related to Central Counterparty Clearing,” Speaking at the European Central Bank (ECB) and theFederal Reserve Bank of Chicago (FRBC) conference 04 April 2006.