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Categorized | Currencies

Paraguay to establish first futures market

Posted on May 31, 2012

Paraguay is establishing its first futures market and expects to begin trading a foreign exchange contract within eight months, according to the Argentine clearing house which is helping establish the exchange.

Argentina Clearing SA, the clearing house for Rofex, Argentina’s main market for trading dollar futures, and Primary, a leading service provider for exchanges and brokerages, have been working with BVPASA, Paraguay’s stock market, since 2006 and provide the electronic trading platform and settlement and clearing services.

    Under the new deal, which has been in preparation for two years, the two Argentine companies will help BVPASA launch a futures contract trading the dollar against the guaraní, the local currency.

    A forex futures contract was chosen as the first product because “foreign exchange volatility is very high [in Paraguay]”, Ignacio Miles, president of Argentina Clearing and a board member of Primary, told Trading Room. “In eight months we think we’ll start operating.”

    The contract will be similar to that traded on Rofex, but adapted to meet Paraguayan regulations, he said.

    Argentina Clearing will also help BVPASA establish a clearing house for clearing and settlement within the Paraguayan bourse, he added.

    Success with the dollar futures contract is expected to spawn other products, possibly in soya, of which Paraguay is the world’s fourth-largest exporter, or “some cattle product” as Paraguay is also the world’s 10th largest beef producer.

    However, those are likely to need more time since Paraguay has been hit by a brutal drought, which has slashed soya harvest expectations this year to around 4m tonnes, one of its lowest levels ever, from a historic high of 8.6m in the 2010-11 season. The country has also suffered an outbreak of foot-and-mouth disease which has paralysed exports.

    Though Paraguay remains one of the poorest countries in South America, its economy has had some spurts of fast growth. It expanded by 15.3 per cent in 2010, slowed to 3.8 per cent in 2011, and is expected to contract by 1.5 per cent this year in part because of the drought, but the International Monetary Fund forecasts a rebound to 8.5 per cent growth in 2013.

    The dollar-guaraní contract will initially be limited to residents and only traded through brokerages, but Mr Miles said “there is plenty of appetite”.

    “We expect to trade $200m a year, or 200,000 contracts, in the first two years. We’re being cautious. Hopefully we’ll exceed that,” he said. Rofex, by contrast, trades $60bn a year, or some 250,000 contracts a day, he said.

    MATBa, Argentina’s other futures market, in March signed a deal with the Montevideo stock exchange to launch Uruguay’s first stock market.

    Brazil’s Bovespa in April announced a partnership with Chile to launch a fully fledged derivatives market there, which would just leave Bolivia in the south of the continent with no futures trading.

    “Bolivia is, of course, a market that interests us, in commodities,” said Mr Miles.