January 31, 2012

As regulators in the United States and Europe weigh the merits of new regulations to govern high-frequency trading, emerging markets have been methodically paving the way for the practice to expand within their borders.

In an interview with the BBC, Progress Software's chief technology officer John Bates said the practice of rapid-fire trading is quickly expanding in the so-called BRIC nations - Brazil, Russia, India and China.

From BBC:

We've seen it grow very quickly in Brazil. It's done what happened in London and New York much more quickly. Now we're seeing the same trend in India and China and even, embryonically, in Russia." According to Dr. Bates, in the past two to three years, Brazil has already run through a cycle of development that took far longer in London and New York, with algorithm-based trading now available in equities, futures and foreign exchange markets. Brazil's Bovespa stock exchange has invested in new technology, boosting the proportion of algorithm-based equity trades from 4% to 12% in the past year. "The adaptation is faster and they can leapfrog the mistakes that have been made in other places," he says.

Brazil has cleared regulatory hurdles of its own to spur the growth of its marketplace. In December it lifted a financial transaction tax for foreign investors, a move that will undoubtedly create new opportunities for Dodd-Frank and Basel III escapees. And the recent moves by Bovespa - the nation's largest exchange - are likely to bring a dramatic lift to trading volumes and the level of liquidity it handles over the foreseeable future.

Meanwhile in India, the BBC noted that nearly a quarter of all trading is now done using algorithms, a number that's virtually assured of an exponential jump as well. The Bombay Stock Exchange, a $1.5 trillion marketplace, said it expects such trading to double over the next three years, which would put that nation on par with Europe and the U.S.

Now emerging markets aren't without their own set of serious challenges, as Advanced Trading's Kerry Massaro Bowbliss points out . But they've clearly caught HFT fever and the practice is poised for sharp growth this year, even as the old world wrestles with how to govern it.

As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced ...