UPDATE 2-Brazil's Cetip prepared to become exchange-CEO

Wed Dec 5, 2012 4:05pm EST

* Move depends on regulators' decision, Fleury says

* Board inclined to use cash to cut debt than to buy shares

* Platform for OTC derivatives at "very advanced stage"-CFO

By Guillermo Parra-Bernal and Silvio Cascione

SAO PAULO, Dec 5 (Reuters) - Latin America's largest clearing house, Cetip SA Mercados Organizados, is prepared to become an exchange if regulators decide derivatives must be traded in such an environment, its chief excutive said on Wednesday.

Cetip's chief financial officer, Francisco Carlos Gomes, said the expenses necessary to create a central counterparty for derivatives, which could be the first step in creating a bourse, would not surpass the equivalent of 10 percent of net revenue.

Even as Cetip has reiterated that it doesn't want to compete directly with stock exchange operator BM&FBovespa SA, the comments underpin the benefits of trying to tap into a market where an average of more than $6 billion in stock and derivatives are traded daily.

BM&FBovespa has said that it wants to enter segments such as the registration of bond instruments, a market Cetip has long dominated.

Meanwhile, Cetip' platform for settlement of transactions with over-the-counter derivatives is in a "very advanced stage," added Gomes.

The executives also said they are more inclined to use cash to cut debt, which seems high relative to the company's profile, than to buy back shares and bolster stocks prices.

"Paying CDI (Brazil's benchmark interbank rate) plus two percentage points looks high to me, given that the company is a strong creditor, has a strong name," said Luiz Fernando Fleury, who will step down next year as CEO.

Cetip's shares are down more than 12 percent so far this year amid a rough period for Brazil's bond and credit markets. Banks are scaling back automobile financing this year after defaults in the segment hit a record high, hurting Cetip's profit in the third quarter.

Cetip is making progress on developing a product to sell mortgage liens and data on collateral for mortgages, Gomes said, without elaborating. The recent partnership signed with U.S. technology provider FNC, based in Mississippi, was the stepping stone for the company's mortgage liens program, he added.

Cetip shares were up 1.29 percent at 23.48 reais on Wednesday.

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