April 23, 2012

It's a very exciting time in Latin America. While markets are suffering around the world, Latin America is seeing considerable growth. Electronic trading has already found a stronghold in Brazil, Mexico and Chile, and continues to become more prevalent in the region. Peru and Columbia have taken the necessary first steps to adopt FIX order routing for the Integrated Latin American Market (MILA) initiative, and the potential addition of Mexico to MILA will undoubtedly spur continued development. That also means additional connectivity solutions and trading systems will be required to manage higher volumes and provide multi-regional order and execution capabilities.

While buy-side firms in Latin America have been slow to adopt electronic order routing, international investors are looking more closely at the region than ever before. Brokers are aggressively seeking to implement the necessary FIX expertise, network connectivity and order management capabilities to attract those international clients seeking electronic execution services in the region.

To cope with the increased interest, Brazil, Mexico and Chile have all made significant investments in their exchange technology to provide lower latency and higher throughput execution for their participants, setting the stage for participation in algorithmic and high-frequency trading in the market. For starters, Brazil is leveraging the experience and expertise of the Chicago Mercantile Exchange (CME) by partnering with them for the implementation of their new multi-asset trading engine called PUMA. Chile has extended its proprietary technology as well as partnerships with technology providers like IBM for its low-latency messaging, and Mexico is enhancing its proprietary technology to provide significant improvements to latency and throughput.

As trading demand increases and the technology infrastructure is built to support the additional order flow to the region, unquestionably, Latin America can expect other changes to follow -- mainly market fragmentation and changes in regulatory oversight. Up until this point, Latin America has not experienced much fragmentation, and each country has its own regulations to oversee order flow and assure quality execution for all market participants. In Chile, for example, there are three exchanges that are not electronically linked and the brokers are not obligated to provide best price. As long as they demonstrate they are trading on the primary exchange and provide the best price along with the executed price on the confirmation, they are in compliance with the local rules.

As more fragmentation is likely entering the region, it can be expected that local regulators will augment their current rules to protect their market participants. This natural evolution of electronic trading, fragmentation and regulatory change will ultimately introduce increased requirements for trading infrastructure to support it.

Alice Botis is Fidessa's head of Latin American Business Development.