BRICS Exchanges Alliance Announced

October 12, 2011 at 9:49 AM EDT

JOHANNESBURG, 12 October 2011 – The exchanges of the BRICS emerging market bloc have announced a joint initiative to expose investors to these dynamic economies. Initially the exchanges, which accounted for over 18%1 of all exchange-listed derivative contractstraded by volume worldwide as of June this year, will cross-list benchmark equity index derivatives on the boards of each of the other alliance members. Following that, the alliance will develop innovative products to track the BRICS exchanges. The initiative was announced at the 51st AGM of the World Federation of Exchanges (WFE) in Johannesburg.

The initiative brings together the BM&FBOVESPA from Brazil, MICEX from Russia (currently merging with RTS Exchange), Hong Kong Exchanges and Clearing Limited (HKEx) as the initial China representative and the Johannesburg Stock Exchange (JSE) from South Africa. The National Stock Exchange of India (NSE) and the BSE Ltd (formerly known as Bombay Stock Exchange) have signed letters of support and will join the alliance after finalizing outstanding requirements. These seven exchanges represent a combined listed market capitalisation of US$ 9.02 trillion2, equity market trading value/month of US$ 422 billion3 and 9,481 companies listed.

“Global investors are increasingly seeking exposure to leading developing markets,” says Ronald Arculli, chairman of HKEx and of the WFE. “The close relationship of the BRICS stock exchanges is behind this initiative, through which investors worldwide will gain easier access to benchmark equity index derivatives which will now be offered in local currency on these exchanges. These cross-listings are planned to take place by June 2012.”

This is an important moment in the history of developing countries, continues Mr Arculli. “The alliance enables more investors to gain exposure to the BRICS bloc of emerging economies, with its increasing economic power. From a global perspective this alliance points to the growing relevance of the BRICS economies and financial markets in the coming decade and further underlines the reason for the BRICS relationship.”

As well as being barometers of market performance, indices also form the basis of other tradable products including exchange traded funds. “As a logical second phase in the alliance, the exchanges have agreed to work together todevelop new products for cross-listing on the respective exchanges,” says Russell Loubser, CEO of the JSE.

The second phase will also include the development of products combining exposures to equity indices of all alliance partner exchanges. “These products would then be cross listed and traded in local currencies,” says Edemir Pinto, CEO of BM&F BOVESPA. “They will also allow investors to gain exposure to other emerging markets through a locally listed product.”

“Apart from cross-listing products, there are other opportunities which can be exploredwhich have great potential and will promote greater development and understanding of the respective markets,” says Ruben Aganbegyan, President of MICEX.

“The BRICS exchanges alliance holds great promise, as it will create avenues for Indian investors to diversify and expand into other emerging markets. It will also provide unique opportunities to investors in other BRICS nations to participate and contribute in India’s growth. BSE will actively work towards bringing world-class products to India as well as developing new products for other BRICS markets,” says Madhu Kannan, CEO of BSE Ltd.

Interest in the BRICS economies is prompted by above-average growth predicted for these regions, as well as the rising consumer power generated by growing middle classes in each nation. “The growth of this consumer class implies that demand will accelerate within these countries,” says Ravi Narain, MD of the National Stock Exchange of India.

The third phase may include product developments and cooperation in additional asset classes and services.

1 As of June 30, 2011 Total, (Source: Futures Industry Association)
2 As at end-August 2011 (Source: World Federation of Exchanges and RTS websites)
3 Monthly total for August 2011 (Source: World Federation of Exchanges statistics and RTS websites)