It reduced trading fees in the cash equities market by 28.5 percent to 0.005 percent, or 0.5 basis point, from 0.007 percent, Chief Executive Edemir Pinto said at an event. Assuming no additional volume stemming from the fee reduction, revenue could fall as much as 20 million reais ($10 million,) he said.
Apart from that, BM&FBovespa will offer discounts for day trades and progressive fee reductions based on market average volumes - moves that should be welcomed by clients, especially those with above-average turnover velocity, analysts said.
The announcement signals the exchange, which says it is the world's third-largest by market capitalization, is ready to play hardball with any new rival planning to enter the local market.
In practical terms, the moves "reduce slightly the costs for some investors and increase dramatically the challenges for potential new players, mainly for those not relying on a vertically integrated platform but only on trading," Credit Suisse Group analyst Victor Schabbel said in a client note.
The aim of the new policy is to "divide the gains in scale with all market participants" and not to discourage potential competition, Pinto said. Direct Edge Holdings LLC, the fourth-largest U.S. stock exchange operator, has announced plans to request a license to operate a Brazilian bourse.
Shares of BM&FBovespa posted their biggest intraday gain in more than a month, adding 2.7 percent at 13.68 reais. The increase helped erase some of the 3.8 percent decline so far this year.
The bourse is analyzing a thorough revision of fees in the BM&F derivatives segment, including contracts for interest rates and currency futures, as well as for agricultural commodities, Pinto added. The BM&F segment makes up 41 percent of its net revenue, while the Bovespa equities segment contributes 48 percent.
In the case of day trades, which account for 35 percent of equities trading volume, clients will have access to the same pool of discounts available to investors in the high-frequency trading segment, executives said.
"Our main goal is to increase market liquidity," Marcelo Maziero, head of products at the bourse, said at the same event.
Retail and non-resident investors, as well as banks, will be beneficiaries of a full reduction in fees, while institutional investors will see the cost of post-trading fees move up to 2 basis points from 1.8 basis points. Between April 1 and December 1, the fee cuts will be booked as a discount, while they will be effective from December 2 onward.
'RAISING THE BAR'
Starting on December 2, BM&FBovespa will offer a reduction of 57 percent in fees, to 3 basis points, if average daily trading volumes are between 11 billion reais and 13 billion reais. If ADTVs top 13 billion reais, the discount could come at 2 basis points, the executives added.
With ADTVs between 9 billion reais and 11 billion reais, the fee would decline to 4 basis points. If trading volumes are up to 9 billion, the 5-basis-point fee will apply. Implementation of these specific cuts is pending determination of some details.
"In our view, this should be seen as the most important measure to be soon implemented by the exchange," Schabbel said. "While the impact on revenues is also fairly limited ... we note that it raises the bar for any new potential player to come in."
Under current rules, BM&FBovespa enjoys a near monopoly on all trading, clearing and settlement services for most locally traded shares. While depositary receipts in New York or other global financial hubs provide a possible alternative to trading on BM&FBovespa, many investors cannot trade them due to legal or tax restrictions.
BM&FBovespa is unlikely to share clearing, custody and settlement facilities with potential rivals until at least 2015, Pinto said. Direct Edge does not rule out working with other so-called post-trading platforms in case talks with BM&FBovespa over sharing clearing services fail.
There are no legal rules currently in place requiring BM&FBovespa to sell or rent clearing services, a strategic part of any trading business that requires a major investment.
Given Brazil's market structure, competitors would only rival BM&FBovespa's leading position by investing substantially in a post-trading platform or renting BM&FBovespa's. In both cases, newcomers may see a payback only after many years.
Pinto said a revision in pricing of custody and post-trading services for retail investors would soon be announced, without offering details.
He also said that, as of now, there are more than 40 plans for initial public offerings in the exchange in the pipeline.
($1 = 1.97 Brazilian reais)
(Reporting by Danielle Assalve and Guillermo Parra-Bernal; Editing by Gerald E. McCormick, Jeffrey Benkoe, Dan Grebler and Dale Hudson)
By Danielle Assalve and Guillermo Parra-Bernal