* Clearing to third-parties "unfeasible" before 2014
* Exchange currently focused on platform integration
* CFO foresees strong gains in volumes this year
* Company seeks partnerships instead of acquisitions
(Adds details throughout)
By Guillermo Parra-Bernal and Aluisio Alves
SAO PAULO, March 1 (Reuters) - Brazil's sole financial exchange BM&FBovespa (BVMF3.SA) is unlikely to share clearing, custody and settlement facilities with potential rivals until at least 2014, Chief Financial Officer Eduardo Guardia told Reuters, a decision that will make life difficult for new aspirants in the sector.
The São Paulo-based exchange is currently engaged in a drive to merge its four clearinghouses for stocks, currencies, bonds and derivatives into a single platform. That effort makes it "unfeasible for us to work on a post-trading solution for third parties," Guardia said in an interview late on Tuesday.
Guardia said an integrated clearinghouse may help investors free up more capital by setting aside collateral for their trades more efficiently. Sharing post-trading services "is not under discussion in this company" at the moment, he said.
"It doesn't make any sense to stop what we are doing halfway through to connect other bourses," Guardia said.
Guardia's stance highlights the challenges facing potential entrants to Brazil's burgeoning exchange market. Last year, U.S.-based exchanges BATS Trading and Direct Edge announced plans to enter Brazil's cash equities market.
There is no legal mechanism in Brazil in place requiring BM&FBovespa to sell or rent clearing services - a strategic part of any trading business although a money- and time-consuming enterprise.
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 only see a payback after many years.
Guardia said BM&FBovespa's recent actions, which also include changes in trading and post-trading fees and the launch of the Puma trading platform, are not being undertaken out of "fear of competition."
Nevertheless, analysts have warned that BM&FBovespa's dominance could suffer over time with competition and tighter government oversight.
Regulators may suggest ways to share post-trading facilities to boost competition, without changing premises to safeguard liquidity and transparency, as part of an ongoing revision of rules in the industry that could be unveiled later this year.
Concerns over increased competition have helped drive BM&FBovespa shares down 14 percent since October 2010, when speculation over the emergence of new rivals began to arise. The stock is up 21 percent this year - an indication that investors are beginning to judge those fears as overdone.
In Brazil, trading transactions are settled through a central counterparty clearinghouse, a complex and capital-intensive venture. Unlike in the United States, exchanges in Brazil have to identify final buyers and sellers, not brokers, on a given deal and cannot execute cross-country orders.
BM&FBovespa will invest up to 1.1 billion reais ($640 million) by 2013 merging the clearinghouses and launching a new risk-assessment system. Such steps may allow investors to put up to 25 percent less in collateral for some trades, Guardia said.
New exchanges such as BATS, whose U.S. market share doubled over the past five years, have managed to capture some market share from incumbents.
As competition among exchanges intensifies globally, BM&FBovespa and Cetip CTIP3.SA, Brazil's largest bond clearinghouse, operate without attacking their respective niches. Ninety-seven percent of all corporate debt transactions in Brazil took place across Cetip's platforms last year.
A recent move by European regulators to bar an association between NYSE Euronext NYX.N and Deutsche Boerse AG (DB1Gn.DE) will slow mergers and acquisitions activity in the industry, said Guardia, a former treasury secretary of Brazil.
BM&FBovespa is not considering the purchase of any rival at the moment, and will focus on forging commercial partnerships with other exchanges, he said, without elaborating.
Despite the impact of Europe's debt crisis, which has extended for two years and crimped demand for Brazilian local bonds and stocks heavily last year, trading volumes in the Bovespa equities segment should rise in 2012, Guardia said.
Guardia, who did not give estimates, said average daily volumes in January and February gave "encouraging signs."
The government, however, is considering reinstating a 2 percent financial transactions tax on foreign stock purchases, after eliminating it in December. Investors partially blamed such tax for last year's 18 percent drop in Brazil's benchmark Bovespa stock index .BVSP. [ID:nL2E8DTBPU]
The central bank's pledge to cut borrowing costs to kickstart economic growth may lead more companies to list shares, he added. The bank has trimmed the benchmark overnight Selic lending rate four times since August and analysts say it might keep slashing the rate a few more months.
Even with the more predictable path of rates in coming months, higher demand for derivatives contracts linked to fixed-rate debt should propel trading volumes at the exchange's BM&F derivatives and commodities segment, Guardia said.
(Editing by Brian Winter and Todd Benson, editing by Gerald McCormic, Dave Zimmerman)
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