Brazil
30 September 2025
Brazil boasts Latin America鈥檚 biggest securities lending market, with Q1 figures up 124 per cent since 2024. Hansa Tote explores barriers to entry, innovation, and T+1 with market participants
Image: stock.adobe.com/f11photo
Situated in South America, and covering nearly half its land mass, Brazil is known for its football, the Amazon rainforest, and one of the seven wonders of the world. The country boasts Latin America鈥檚 largest securities lending market, despite certain economic challenges ranging from high inflation rates to geopolitical vulnerability, as well as multiple barriers to entry.
In a time of tariffs and technological advancements, Brazil is growing its securities lending market, reworking central counterparty models, and automating broker-dealer accounts.
With plans to move to T+1 in under three years, it is crucial for the Brazilian securities market to establish a strong set of guidelines to ensure the move to a shorter settlement cycle goes as smoothly as possible.
Unprecedented growth
The Brazilian securities lending market has experienced a significant growth in revenues throughout 2025, according to S&P Global Market Intelligence data.
Matt Chessum, director of 网爆吃瓜 Finance, ETF, and Benchmarking Services at S&P Global Market Intelligence, reveals that the country鈥檚 securities lending market has faced a 124 per cent year-on-year (YoY) surge in the first quarter of 2025, while second quarter revenues grew by 52 per cent.
The information also highlights moderate growth in the country鈥檚 economy in 2025, with gross domestic product (GDP) projected to increase by approximately 1.9 per cent, a decline from the 3.4 per cent growth in 2024. Despite early gains being supported by Brazil鈥檚 robust agricultural output, high interest rates, and reduced fiscal stimulus have caused the momentum to dampen.
The period of most significant growth in the Brazilian market occurred in April, during which lendable balances rose to nearly US$13.5 billion. The figures represent a 170 per cent month-on-month increase from March, which generated US$5 billion.
Over Q2 2025, average growth in lendable supply rose by an impressive 291 per cent also.
鈥淲hile revenue growth in 2025 has been notable, it has been primarily driven by an increase in average fees鈥�, says Chessum. 鈥淨1 average fees reached 2.43 per cent, reflecting a remarkable 188 per cent increase compared to Q1 2024. Although Q2 average fees experienced a slight decline from the first quarter, they remained at 2.07 per cent, which is still 74 per cent higher on a year-on-year basis.鈥�
For the first half of the year, the Brazilian ADR Azul led revenue generators with revenues of US$4.9 million, followed closely by Natura & Co Holding SA at US$4.9 million. Ambed SA and Azul Prf came in third and fourth, respectively earning US$2.6 million and US$2.1 million in the first half of 2025.
Together, the top 10 highest revenue generating stocks contributed US$21 million during the first half of the year, according to S&P Global Market Intelligence data.
To B3 or not to B3? That is the question鈥�
The short answer is yes.
At the moment, every transaction in Brazil has to go through the country鈥檚 stock exchange, B3.
B3 acts as a non-optional central counterparty (CCP), charging a flat rate of 25 basis points per standard transaction, with auto-borrow transactions costing double at 50bps.
While providing both borrowers and lenders with added certainty and insurance, B3 can act as a barrier for entry into the market, especially for lenders wanting control of the collateral they receive, says David Lewis, senior director of securities finance at FIS.
鈥淲hen you look at Brazil in a central counterparty, that collateral is controlled by somebody else, does it create a real risk? Arguably, not. Is it actually better? Arguably, yes.
鈥淏ut it's more problematic from some people's points of view, because it's different. You are not in control of your assets, your collateral, and that unnerves people.鈥�
The CCP works in Brazil due to the higher risks created by smaller market participants, they rely on the CCP to reduce the risk of lending and borrowing.
鈥淭here are lots and lots of advantages to the way [Brazil has] constructed their marketplace. Unfortunately, those same structures and same items are barriers to entry for people because it's difficult and expensive to be there,鈥� Lewis continues.
While Brazil has managed to create a securities finance market using a CCP, it is a rarity that it has worked. Many countries such as Hong Kong and France have tried and failed to implement a mandatory, nationwide CCP, with both lenders and borrowers wanting to be in control of their assets and collateral.
Further barriers into the market
Pedro Bustamante, associate director of securities lending at B3, discusses challenges of entry into the market, especially for non-Brazilian investors.
鈥淭he accessibility of the Brazilian lending market to foreign investors has been a topic of increasing attention. While 14 per cent of the open interest in the securities lending market is held by foreign investors, borrowers 鈥� primarily represented by high-frequency traders (HFTs), market makers, and swap houses 鈥� the scenario for foreign lenders is quite different. Why are non-residents not yet participating in the game?鈥�
According to Bustamante a critical aspect is the profile of non-residents who own Brazilian shares. He explains: 鈥淟et's examine the numbers: non-residents hold US$200 billion in Brazilian shares, with 70 per cent of this held by mutual funds and pension funds governed by the 1940s Act, ERISA, and UCITs regulations.
鈥淭hese regulations are very stringent regarding collateral perfection and quality. In the event of a borrower default, the lender or its agent takes control of the collateral, mitigating principal risk, where in the B3 model the CCP handles it. Additionally, these funds cannot face risk against a CCP as B3, only against banks and brokers, as restricted to 1940麓s act framework. That said, the Brazilian CCP model does not comply with EU and US regulations.鈥�
This being said, over the past year, B3 has been in talks with the Brazilian 网爆吃瓜 and Exchange Commission (CVM) and the central bank after concluding the only solution to this barrier is to change Brazilian regulations and allow principal risk to be collateralised outside the CCP. The proposal seeks to amend regulations to accommodate non-residents after discussions concluded there will be multiple benefits such as increased liquidity, lower fees, and decentralisation.
While discussing the proposal, Bustamante comments: 鈥淚t's important to note that Brazilian regulators are extremely cautious about systemic risk and understand the importance of maintaining market risk control within the CCP, as well as enforcing position limits.
鈥淭his has motivated us to propose a new model that would coexist with the existing CCP model. In this new model, principal risk would be managed on a bilateral basis outside B3, while market risk would be managed within the CCP, with all position limits controlled.鈥�
Additional barriers include the market being largely dominated by brokerage firms that hold the majority of retail individual investors, resulting in an over-the-counter (OTC) market with limited transparency and opaque price formations, according to Bustamante.
To combat this barrier, B3 has plans to invest more heavily in electronic trading systems to create a more efficient and transparent lending market.
Why wait for T+1?
Brazil is prioritising having enough time to thoroughly prepare for the transition to T+1, with plans to implement the faster settlement process in February 2028.
Not solely responsible for CCPs, B3 is at the forefront of T+1 in Brazil, stating the main benefit of T+1 will be increased operating efficiency, while spurring innovation.
They have identified that the adoption of new technologies and AI is fundamental and crucial in order to optimise financial services, reduce friction in operating processes, and ensure safe and efficient transition to a shorter settlement cycle.
鈥淩educed friction in processes will not only facilitate the implementation of a more agile settlement cycle but will also bring benefits in terms of costs and competitiveness for the Brazilian market,鈥� says Viviane Basso, B3鈥檚 chief operating officer 鈥� issuers, depository and OTC, in a recent statement by the company.
The transition is planned for 2028 to ensure the market has enough time to prepare, without creating risks for the market and investors. There are currently two paths being considered for the implementation: a phased migration, as was used during India鈥檚 move to the shorter settlement cycle, or change on a single date, as in the US.
鈥淭he extended timetable and the creation of specific working groups to build a migration plan that meets the specifics of the Brazilian market are fundamental to mitigate risks and build robust solutions,鈥� adds Basso.
To ensure the process is as smooth as possible, B3 has formed an industry committee, composed of representatives of major financial institutions. The committee鈥檚 role includes defining priority issues while promoting wider discussion on the guidelines and necessary decisions for the evolution of the market.
With ongoing plans to ensure the shortening of the settlement cycle is as smooth as possible, B3 highlights its commitment to the development of the Brazilian capital market, suggesting a future of becoming a key player in global markets.
A look to the future
When discussing the future outlook of the market in Brazil, Bustamante notes the efforts of B3 to improve market infrastructure and transparency. 鈥淚nitiatives aimed at electronic trading and the unification of the market will enhance operational efficiency and attract more participants, including foreign investors. As transparency improves, we can expect to see an increase in trust and confidence in the market, further driving participation.鈥�
Fran Garritt, executive director and head of business at International 网爆吃瓜 Lending Association (ISLA) Americas, agrees, stating: 鈥淥ver the next three to five years, the most important trend will be the work B3 is doing with the industry, the central bank, and the regulator to open the market further.鈥�
With barriers to entry being removed, an increasingly transparent market, and a move to T+1 in the next three years, it seems the future of the Brazilian market looks bright.
In a time of tariffs and technological advancements, Brazil is growing its securities lending market, reworking central counterparty models, and automating broker-dealer accounts.
With plans to move to T+1 in under three years, it is crucial for the Brazilian securities market to establish a strong set of guidelines to ensure the move to a shorter settlement cycle goes as smoothly as possible.
Unprecedented growth
The Brazilian securities lending market has experienced a significant growth in revenues throughout 2025, according to S&P Global Market Intelligence data.
Matt Chessum, director of 网爆吃瓜 Finance, ETF, and Benchmarking Services at S&P Global Market Intelligence, reveals that the country鈥檚 securities lending market has faced a 124 per cent year-on-year (YoY) surge in the first quarter of 2025, while second quarter revenues grew by 52 per cent.
The information also highlights moderate growth in the country鈥檚 economy in 2025, with gross domestic product (GDP) projected to increase by approximately 1.9 per cent, a decline from the 3.4 per cent growth in 2024. Despite early gains being supported by Brazil鈥檚 robust agricultural output, high interest rates, and reduced fiscal stimulus have caused the momentum to dampen.
The period of most significant growth in the Brazilian market occurred in April, during which lendable balances rose to nearly US$13.5 billion. The figures represent a 170 per cent month-on-month increase from March, which generated US$5 billion.
Over Q2 2025, average growth in lendable supply rose by an impressive 291 per cent also.
鈥淲hile revenue growth in 2025 has been notable, it has been primarily driven by an increase in average fees鈥�, says Chessum. 鈥淨1 average fees reached 2.43 per cent, reflecting a remarkable 188 per cent increase compared to Q1 2024. Although Q2 average fees experienced a slight decline from the first quarter, they remained at 2.07 per cent, which is still 74 per cent higher on a year-on-year basis.鈥�
For the first half of the year, the Brazilian ADR Azul led revenue generators with revenues of US$4.9 million, followed closely by Natura & Co Holding SA at US$4.9 million. Ambed SA and Azul Prf came in third and fourth, respectively earning US$2.6 million and US$2.1 million in the first half of 2025.
Together, the top 10 highest revenue generating stocks contributed US$21 million during the first half of the year, according to S&P Global Market Intelligence data.
To B3 or not to B3? That is the question鈥�
The short answer is yes.
At the moment, every transaction in Brazil has to go through the country鈥檚 stock exchange, B3.
B3 acts as a non-optional central counterparty (CCP), charging a flat rate of 25 basis points per standard transaction, with auto-borrow transactions costing double at 50bps.
While providing both borrowers and lenders with added certainty and insurance, B3 can act as a barrier for entry into the market, especially for lenders wanting control of the collateral they receive, says David Lewis, senior director of securities finance at FIS.
鈥淲hen you look at Brazil in a central counterparty, that collateral is controlled by somebody else, does it create a real risk? Arguably, not. Is it actually better? Arguably, yes.
鈥淏ut it's more problematic from some people's points of view, because it's different. You are not in control of your assets, your collateral, and that unnerves people.鈥�
The CCP works in Brazil due to the higher risks created by smaller market participants, they rely on the CCP to reduce the risk of lending and borrowing.
鈥淭here are lots and lots of advantages to the way [Brazil has] constructed their marketplace. Unfortunately, those same structures and same items are barriers to entry for people because it's difficult and expensive to be there,鈥� Lewis continues.
While Brazil has managed to create a securities finance market using a CCP, it is a rarity that it has worked. Many countries such as Hong Kong and France have tried and failed to implement a mandatory, nationwide CCP, with both lenders and borrowers wanting to be in control of their assets and collateral.
Further barriers into the market
Pedro Bustamante, associate director of securities lending at B3, discusses challenges of entry into the market, especially for non-Brazilian investors.
鈥淭he accessibility of the Brazilian lending market to foreign investors has been a topic of increasing attention. While 14 per cent of the open interest in the securities lending market is held by foreign investors, borrowers 鈥� primarily represented by high-frequency traders (HFTs), market makers, and swap houses 鈥� the scenario for foreign lenders is quite different. Why are non-residents not yet participating in the game?鈥�
According to Bustamante a critical aspect is the profile of non-residents who own Brazilian shares. He explains: 鈥淟et's examine the numbers: non-residents hold US$200 billion in Brazilian shares, with 70 per cent of this held by mutual funds and pension funds governed by the 1940s Act, ERISA, and UCITs regulations.
鈥淭hese regulations are very stringent regarding collateral perfection and quality. In the event of a borrower default, the lender or its agent takes control of the collateral, mitigating principal risk, where in the B3 model the CCP handles it. Additionally, these funds cannot face risk against a CCP as B3, only against banks and brokers, as restricted to 1940麓s act framework. That said, the Brazilian CCP model does not comply with EU and US regulations.鈥�
This being said, over the past year, B3 has been in talks with the Brazilian 网爆吃瓜 and Exchange Commission (CVM) and the central bank after concluding the only solution to this barrier is to change Brazilian regulations and allow principal risk to be collateralised outside the CCP. The proposal seeks to amend regulations to accommodate non-residents after discussions concluded there will be multiple benefits such as increased liquidity, lower fees, and decentralisation.
While discussing the proposal, Bustamante comments: 鈥淚t's important to note that Brazilian regulators are extremely cautious about systemic risk and understand the importance of maintaining market risk control within the CCP, as well as enforcing position limits.
鈥淭his has motivated us to propose a new model that would coexist with the existing CCP model. In this new model, principal risk would be managed on a bilateral basis outside B3, while market risk would be managed within the CCP, with all position limits controlled.鈥�
Additional barriers include the market being largely dominated by brokerage firms that hold the majority of retail individual investors, resulting in an over-the-counter (OTC) market with limited transparency and opaque price formations, according to Bustamante.
To combat this barrier, B3 has plans to invest more heavily in electronic trading systems to create a more efficient and transparent lending market.
Why wait for T+1?
Brazil is prioritising having enough time to thoroughly prepare for the transition to T+1, with plans to implement the faster settlement process in February 2028.
Not solely responsible for CCPs, B3 is at the forefront of T+1 in Brazil, stating the main benefit of T+1 will be increased operating efficiency, while spurring innovation.
They have identified that the adoption of new technologies and AI is fundamental and crucial in order to optimise financial services, reduce friction in operating processes, and ensure safe and efficient transition to a shorter settlement cycle.
鈥淩educed friction in processes will not only facilitate the implementation of a more agile settlement cycle but will also bring benefits in terms of costs and competitiveness for the Brazilian market,鈥� says Viviane Basso, B3鈥檚 chief operating officer 鈥� issuers, depository and OTC, in a recent statement by the company.
The transition is planned for 2028 to ensure the market has enough time to prepare, without creating risks for the market and investors. There are currently two paths being considered for the implementation: a phased migration, as was used during India鈥檚 move to the shorter settlement cycle, or change on a single date, as in the US.
鈥淭he extended timetable and the creation of specific working groups to build a migration plan that meets the specifics of the Brazilian market are fundamental to mitigate risks and build robust solutions,鈥� adds Basso.
To ensure the process is as smooth as possible, B3 has formed an industry committee, composed of representatives of major financial institutions. The committee鈥檚 role includes defining priority issues while promoting wider discussion on the guidelines and necessary decisions for the evolution of the market.
With ongoing plans to ensure the shortening of the settlement cycle is as smooth as possible, B3 highlights its commitment to the development of the Brazilian capital market, suggesting a future of becoming a key player in global markets.
A look to the future
When discussing the future outlook of the market in Brazil, Bustamante notes the efforts of B3 to improve market infrastructure and transparency. 鈥淚nitiatives aimed at electronic trading and the unification of the market will enhance operational efficiency and attract more participants, including foreign investors. As transparency improves, we can expect to see an increase in trust and confidence in the market, further driving participation.鈥�
Fran Garritt, executive director and head of business at International 网爆吃瓜 Lending Association (ISLA) Americas, agrees, stating: 鈥淥ver the next three to five years, the most important trend will be the work B3 is doing with the industry, the central bank, and the regulator to open the market further.鈥�
With barriers to entry being removed, an increasingly transparent market, and a move to T+1 in the next three years, it seems the future of the Brazilian market looks bright.
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