There is a sense of markets on the move in Sao Paulo these days. A slew of sellsiders are lining up to dive into derivatives from the teeming financial capital, mostly by way of new hires on the ground. But, as one local dealer put it, the market also needs to shake off its history of being “hyper-regulated.” Perhaps a Caipirinha or two will do the trick.
It’ll be easier said than done in some asset classes, though. The 2008 crisis hit local fx dealers especially hard, as important Brazilian corporates chalked up massive losses due to over hedging in fx options. The p.r. hit has left many wary of the fx market, and officials expect slower growth —a stark contrast to equity derivatives. Structurers and salespeople on that side of the fence are giddy at the prospect of issuing structured products and, on top of that, making markets in listed options at a premium through the Bovespa Exchange on at least 10 new companies.
Last week, at the Futures and Options World Derivatives Latin America Conference in the city, market participants unabashedly jostled with each other for position in this increasingly attractive market. Firms reported they were hiring Latin American specialists to negotiate with Brazilian regulators regarding the implementation of a new law allowing the issuance of structured products.
An official at Société Générale said, “We’re hiring here and we’re going to aim our efforts at selling structured products to corporates and, some day, pension funds.” There was even a regulatory stamp of approval from Otavio Yazbek, commissioner at the Comissao de Valores Mobiliarios, who called for more innovation and creativity in his keynote speech. All the while, though, Brazil’s history seemed to loom large over the proceedings....and of course the circa 12% interest rates.
