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### Viewing cable 07SAOPAULO551, BRAZILIAN MERCANTILE AND FUTURES EXCHANGE GROWTH AND

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07SAOPAULO551 | 2007-06-21 15:17 | 2011-07-11 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Consulate Sao Paulo

`

    VZCZCXRO2084
    RR RUEHRG
    DE RUEHSO #0551/01 1721517
    ZNR UUUUU ZZH
    R 211517Z JUN 07
    FM AMCONSUL SAO PAULO
    TO RUEHC/SECSTATE WASHDC 7156
    INFO RUEHBR/AMEMBASSY BRASILIA 8258
    RHEHNSC/NSC WASHDC
    RUCPDOC/USDOC WASHDC 2816
    RUEHMN/AMEMBASSY MONTEVIDEO 2372
    RUEHBU/AMEMBASSY BUENOS AIRES 2785
    RUEHSG/AMEMBASSY SANTIAGO 2078
    RUEHLP/AMEMBASSY LA PAZ 3387
    RUEHPE/AMEMBASSY LIMA 1160
    RUEHCV/AMEMBASSY CARACAS 0514
    RUEHRG/AMCONSUL RECIFE 3648
    RUEHRI/AMCONSUL RIO DE JANEIRO 8170
    RUEHAC/AMEMBASSY ASUNCION 3041
    RUEATRS/DEPT OF TREASURY WASHDC
    RUEHFR/AMEMBASSY PARIS 0291

` `

    UNCLAS SECTION 01 OF 02 SAO PAULO 000551

    SIPDIS

    SENSITIVE
    SIPDIS

    DEPT FOR WHA/BSC, WHA/EPSC, AND EB/OFD/OMA
    STATE PASS TO USTR FOR SCRONIN
    STATE PASS EXIMBANK
    STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE
    NSC FOR TOMASULO
    USDOC FOR 4332/ITA/MAC/OLAC
    USDOC FOR 3134/USFCS/OIO
    TREASURY FOR JHOEK
    AID/W FOR LAC/AA
    PARIS FOR ECON - TOM WHITE

    E.O. 12958:  N/A
    TAGS: EFIN ETRD EAGR SENV ECON BR
    SUBJECT:  BRAZILIAN MERCANTILE AND FUTURES EXCHANGE GROWTH AND
    ETHANOL TRADING

    SENSITIVE BUT UNCLASSIFIED; PLEASE PROTECT ACCORDINGLY

    SUMMARY
    -------

    ¶1.  (SBU) In a June 15 meeting with the Ambassador, Brazilian
    Mercantile and Futures Exchange (BM and F) President Manoel Felix
    Cintra Neto and Government Relations Director Joao Lauro Amaral gave
    an overview of the institution and presented an optimistic outlook
    of derivatives and commodity trading in Brazil.  With its volume
    doubling in the last two years and its position as the largest
    derivatives market in South America, the BM and F is set to become
    an increasingly important commodity trader in the international
    arena as a whole.  Noting that the exchange recently began trading
    ethanol, Cintra laid out steps for making the product an
    "international fuel."  End Summary.

    BM&F Overview
    -------------

    ¶2.  (SBU) In a June 15 meeting with the Ambassador, Brazilian
    Mercantile and Futures Exchange (BM and F) President Cintra stated
    that the BM&F is the primary derivatives market in Brazil and the
    largest derivatives market in South America.  With the average daily
    trading volume doubling in the past 24 months, trading peaked on
    June 8 with 3.9 million contracts, worth USD 167 billion.  Although
    interest rate futures represent the largest share of traded
    contracts, roughly 75 percent, spot market contracts are also traded
    on several instruments (e.g., gold, FX).  Trading occurs
    electronically (e.g., interest rates) or in open pits (e.g.,
    agricultural commodities) depending on the contract, Cintra said.
    The BM and F is regulated by the CVM (Comisao de Valores Mobiliares,
    the Brazilian equivalent of the Securities and Exchange Commission).
     The BM and F has nearly 100 members authorized to trade.  The most
    recent set of financial statements (June 30, 2006) indicate that the
    BM and F had total assets worth USD 750 million and a net income (H1
    2006) of approximately USD 52 million.

    ¶3.  (SBU) According to Cintra, the BM and F began operations in
    January of 1986.  A significant expansion in activity occurred in
    2002-03 when the Brazilian Central Bank authorized inter-bank
    foreign exchange transactions to be made through the BM and F.
    Additional fixed income contracts began to be traded and foreign
    investor interest in Brazil began to increase.  Foreign investor
    participation has now risen from less than 5 percent to
    approximately 20 percent.

    ¶4.  (SBU) Cintra added that the BM and F is currently a trading
    platform for a wide range of derivative contracts, including
    currencies, fixed income, equity indexes, and commodities (cattle,
    coffee, corn, gold, soybean, sugar).  Swaps, options and futures are
    available.  In September 2005, carbon emissions contract trading
    began.

    Ethanol is the Future
    ---------------------

    ¶5.  (SBU) Cintra noted that on April 24 of this year the BM&F began
    to trade ethanol.  The BM&F expects ethanol contracts to become a
    key source of future growth, he commented.  While trading volume
    thus far is light, public interest is substantial.  BM and F
    management has already scheduled road shows in Europe, Asia and
    North America to promote ethanol contracts.  Cintra views the
    development of a derivatives market as essential for promoting the
    future global use of ethanol.  A derivatives market will assist

    SAO PAULO 00000551  002 OF 002

    suppliers and purchasers in managing their risks, reducing
    transaction costs through increased liquidity and providing a means
    for price discovery at regular intervals, he stated.  He presented
    increasing liquidity as a major challenge for ethanol trading.

    ¶6.  (SBU) When the Ambassador noted the growth of interest in
    ethanol and biofuels in general, Cintra stated that ethanol trading
    must be internationalized.  Cintra called for technology transfer,
    new facilities to produce ethanol and increasing trade as the next
    steps.  He said ethanol will become an "international fuel" only
    when more countries begin to produce.

    ¶7.  (U) This cable was coordinated with Embassy Brasilia and
    approved by Ambassador Sobel.

    SOBEL

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