B3, the new market pricing and the possible loss of monopoly

In 2013, ATS Brasil formalized a request for authorization from the Securities and Exchange Commission (CVM) to launch a stock exchange in the Brazilian market. However, the request was denied by the CVM in 2016, due to the absence of a firm clearing and central depository contract, which would need to be signed precisely with B3. In the same year, ATS Brasil filed a complaint with the Administrative Council for Economic Defense (Cade), alleging that BM&FBovespa – then the name of the current B3 – was creating barriers to the entry of competitors into the market and preventing access to certain information.
Cade's General Superintendence then opened an administrative inquiry to investigate the facts alleged by ATS Brasil.

Still in 2016, BM&F and Cetip S.A. joined together to create B3. The concentration act was authorized by Cade through the signing of a concentration control agreement (ACC), through which the two institutions committed to providing central depository services under fair, transparent and non-discriminatory conditions. In view of the celebration of the ACC, ATS Brasil and B3 began negotiations to contract central depository services. As the parties disagreed regarding the price charged by B3 for the provision of services, ATS Brasil initiated an arbitration procedure. At the end of 2019, B3 and ATS Brasil reached a consensus on the price and other conditions for the provision, by B3, of asset transfer services. With the signing of the agreement, ATS Brasil will have access to the B3 central depository.

In a recent statement to the market, B3 announced the creation of an asset transfer fee that will be applied by the entity to the transactions it processes. ATS Brasil, in turn, still needs authorization from the CVM to begin its activities.

Faced with the scenario of possible competition in the securities trading sector, the CVM proposed new regulations to ensure the smooth functioning of the market in the event of the coexistence of more than one trading environment in Brazil. The proposed new regulation is the result of reflections on the implications of the possible fragmentation of the stock market in Brazil, among which the study prepared by Oxera Consulting Ltd., the results of the public hearing SDM 5/2013 and the Report on Self-Regulation stand out. of Market Management Entities.

In 2012, Oxera prepared a study, at the request of the CVM, to evaluate the possible consequences of the introduction of competition in the securities trading and post-trading services market in Brazil. According to the study, the positive points would be the reduction in transaction costs and product prices, as well as improvements in the quality of service by exchanges already installed in the market. On the other hand, the entry of new agents into the market could generate an increase in market supervision costs, added to the fragmentation of price information and different costs in relation to the use of different trading platforms, which could generate costs for investors.

Another important source for the elaboration of the new regulations proposed by the CVM were the opinions of market participants on regulatory options related to best execution in the client's interest, identification, mitigation and management of risks arising from the fragmentation of liquidity and data , as well as market supervision and self-regulation, resulting from the public hearing SDM 5/2013.

Based on the study carried out by Oxera and the results of the public hearing SDM 5/2013, the Working Group on Competition between Exchanges, created by the CVM in 2012, prepared the Report on the Self-regulation of Market Administrative Entities. Presented in 2016, the report concluded that, in a scenario of fragmentation of the stock exchange market in Brazil, the figure of a self-regulator is necessary – an entity that carries out, cumulatively or separately, the processing and settlement of transactions, registration and deposit centralized securities system – unified for all trading environments, with broad supervisory powers, and through which all market entities are part.

The new regulations proposed by the CVM comprise three draft normative instructions: draft A, draft B and draft C. Draft A intends to replace CVM Instruction 461, which regulates the securities markets and provides for the constitution, organization, operation and the extinction of stock exchanges, commodity and futures exchanges and organized over-the-counter markets. The objective is to adapt ICVM 461 to a scenario of competition between trading environments in Brazil.

Draft B provides for the constitution, organization and operation of the unified self-regulation of organized markets and financial market infrastructures operating in the securities market. The aforementioned draft states that part of the market regulation and supervision activities will be carried out by a single self-regulatory entity.

Draft C, in turn, aims to adapt CVM Instruction 505, which provides for the standards and procedures to be observed in operations carried out with securities in regulated markets. To ensure the execution of orders in the client's interest in a context of competition between trading environments (best execution), the standard establishes criteria for measuring best execution, in addition to adapting the transparency rules to a context of competition between trading environments. negotiation.

Currently, B3 provides a high quality service and has a vast portfolio of products. In fact, it was chosen as the stock exchange of the year by the magazine Futures and Options World, edited by the Global Investor Group, from the United Kingdom. Apparently, we are heading towards the end of B3's monopoly. The new pricing policy announced by the entity and the anticipation of this scenario by the CVM are strong indications that there will soon be more than one negotiation environment in Brazil. Possible competition in the market is not a guarantee of reduced costs, nor even of improved services and products.
However, considering the international experience on the subject, the entry of a new agent into the market tends to encourage B3 to further improve its products and services, as well as reduce direct costs and those passed on to the investor, which will benefit everyone else. market agents.

*Pedro Vidigal, lawyer at Freitas Ferraz Capuruço Braichi Riccio Advogados, collaborated.