As high frequency traders continue to seek to expand into emerging markets, Direct Edge, the NJ-based stock exchange, announced plans to open a new electronic platform in Brazil, arguably the hottest emerging market for algorithmic trading in the world.
Direct Edge Brazil will operate an independent local company and will be headquartered in Rio de Janeiro. It is expected to launch in the fourth quarter of 2012 pending regulatory approval from Brazil's Comissao de Valores Mobiliarios (CVM), the country's equivalent to the SEC.
Brazil, home to BM&F Bovespa, Latin America's largest bourse, has been actively increasing its capacity in terms of lower latency and throughput over the last couple of years.
At the same time, regulators in Brazil have been easing their rules to boost electronic trading and their competitiveness in the global marketplace. Last year, CVM approved sponsored access to BM&F Bovespa, allowing high-frequency traders to access low-latency markets without pre-execution controls. Other new regulations for the equities market allow colocation and the connecting of networks.
BATS and local partner Claritas also recently announced plans to open an exchange in Brazil.
They will thus be in direct competition with Bovespa for a share of the algo trading market, which has seen both locals - including Brazilian institutions as well as hedge funds and sophisticated broker-dealers - and European and U.S. traders, tap into low latency opportunities in Brazil.
In an interview with WS&T last year, Marcio Castro, now CTO of BM&F Bovespa, noted that the Brazilian market was reaching a stage of great maturity after working more than three years to promote electronic trading.
"As a result of this maturity level, we see more and more CEP tools ready to connect to our markets," he said.
In the meantime, BM&FBOVESPA has been modernizing its clearinghouses. In October, the exchange sealed a deal with Swedish technology company Cinnober to license TRADExpress RealTime Clearing, a flexible multimarket clearing system with real time data processing and risk calculation capacities. BOVESPA continues to grow rapidly. In October 2011, 13,645,172 equities were traded on the exchange.
Foreign investors were responsible for 35.9 % of the total volume of trades at BOVESPA that month, compared to 33.78% in September. Institutional investors came next, with 33.80%, followed by individual investors with 20.40%, and financial institutions, with 9.40.
BOVESPA says the net flow of foreign investment into the Brazilian stock market in 2011 through October reached BRL 9.62 billion (USD 5.32 bln), which is the combined result of acquisitions carried out by foreign investors in stock offerings and the positive balance of BRL 38.9 million (USD 21.51 million) in direct trading at BM&FBOVESPA.
As HFT traders seek more untapped markets, they are also eyeing Mexico, which has the second largest exchange in Latin America, and has been taking strides to catch up with Brazil as a leading global marketplace for electronic trading. As such last week the Mexican Exchange announced a number of strategic and technology initiatives designed to boost its status.