Cross border trading bric by bric

Accessing global markets across various jurisdictions has always been a tricky proposition especially when talking about emerging economies that are at varying levels of sophistication and development.

However, a group of exchanges from so called “Bric” nations are attempting to makes that easier by, at least initially, bypassing the sloppy and difficult task of normalizing regulatory protocols.

The Hong Kong Stock Exchange (HKEX), BM&F Bovespa (BVMF), Bombay Stock Exchange (BME), Open Joint Stock Company of Russia (MICEX-RTS) and Johannesburg Stock Exchange (JSE) announced this week that they would list each of the four other participants’ benchmark stock indexes on each home country’s exchange denominated in the home currency and traded during the local trading hours.

The first phase of what is being dubbed “BRICSmart” will launch on March 30 and includes exchanges from Brazil, Russia (Micex), India (BSE), Hong Kong (representing China) and South Africa (JSE).

HKEx Chief Executive Charles Li, who other BRICSmart members credited with the idea, said, this would “Give investors easier access to BRIC economies. We share the commonality of tremendous growth. The key feature of the alliance is that we can trade each others’ benchmark indexes in our own currency, in our own time zone.”

The exchange leaders all cautioned that they don’t expect volumes to grow “very big very fast” but they expect to build a foundation for growth. They also hope to expand by inviting other exchanges representing emerging markets into the alliance.

The second phase of the alliance will involve the creation of a composite index of the combined underlying indexes that could be traded across all exchanges. The first phase has the advantage of not having to coordinate the various regulations. “The reason we were able to make progress is that we don’t have to coordinate regulatory policy,” Li said. “We have enough problems with our own regulators. To coordinate five [regulatory regimes] would be mission impossible.”

BM&F Senior Advisors Marta Alves added, “We are not changing [anything], every pool of liquidity will be under local rules.”

Li said, “The next step has the chance to be more transformative.”

It will also be more complex because at the point the home regulators will need to play a role but as brought up in the press conference, there are already several exchange trade fund products that attempt to offer exposure to the unique growth characteristics of the Bric economies.

The indexes to be cross-listed include: Brazil’s IBOVESPA futures, Russia's MICEX Index futures, India’s Sensex Index futures, Hong Kong’s Hang Seng Index futures and Hang Seng China Enterprises Index futures and South Africa’s FTSE/JSE Top40 futures. JSE will also list options on the benchmark futures of the other four member exchanges.

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