UPDATE 3-BM&FBovespa, Cetip discuss merging as Brazil outlook deteriorates
(Adds share performance, background about ownership in paragraphs 6, 11)
By Guillermo Parra-Bernal
SAO PAULO Nov 3 (Reuters) - BM&FBovespa SA, Latin America's largest bourse, and rival clearinghouse Cetip SA Mercados Organizados have discussed merging, seeking to bolster their strength amid eroding confidence in Brazil's capital markets and a potential ratings downgrade of the country.
The companies, which are based in São Paulo, are working on a plan that could be presented to their respective boards and then put to vote among shareholders, BM&FBovespa said on Tuesday, adding the talks may not necessarily result in a deal.
The announcement comes after years of speculation that BM&FBovespa could bid for Cetip to grow in registration and custody of fixed-income and credit market instruments - segments in which the bourse has failed to gain market share. Cetip is Latin America's largest securities clearinghouse.
A tie-up would make it harder for foreign rivals to expand in Brazil, which is the world's No. 2 emerging market economy, while helping the combined firm cope better with deteriorating perceptions about market risks in Brazil. The country's economy could shrink the most in a quarter century this year.
In September, Standard & Poor's stripped Brazil of its investment-grade credit rating, increasing concern a second such move could soon follow as the country wrestles with a swelling budget gap and political turmoil.
Shares in Cetip rose the most since the company went public in 2009, while those in BM&FBovespa had their largest gain in 5 1/2 years.
A deal could seek to replicate recent industry tie-ups in which growing trading volumes inorganically helped boost the profitability and value of so-called market structure firms, said Domingos Falavina, an analyst at JPMorgan Securities. Rival exchanges usually combine operations to trim fixed costs, although revenue synergies can be harder to extract. Continuación...