Consistency Across Regions
Despite nuances unique to each individual market, investors trading in several different markets are able to employ similar strategies regardless of the region.
“Traders want the algorithms to have the same objective function and names to be the same,” said one New York-based electronic trader. “When they use an algorithm in Brazil they want to have the same expectations for what will happen when they push the button as they do in the U.S. and Europe. But they also expect the algorithm to be engineered for the local market structure. It needs to be embedded into the strategies. There is a very strong desire for consistency.”
Interest in trading in Brazil and Latin America over the past several years has been on the rise. As clients in the U.S. and Europe further look to trade in Brazil, whether it’s equities or derivatives, they desire to use the same tools, including having direct market access and the same suite of algorithms.
“There’s been a lot of interest in for allowing our customers to electronically access markets in Latin America,” said the trader. “The market has its own unique microstructure which needs to be taken into account as you build algorithms. We have a whole suite of algorithms available in Brazil that our clients can use, engineered to behave appropriately for the market structure there.”
Of particular interest as of late from overseas traders are not the big-name liquid stocks, but rather the less liquid smaller-cap offerings. Traders are beginning to trade in Latin America and other foreign markets exactly as they would trade their own domestic market, as they become more comfortable with the region.
Latin America remains one of the most attractive regions for many market participants looking for global expansion. However, local regulation and government may continue to be the toughest hurdles for new competition.
New exchanges entering Brazil, such as Direct Edge, may face some challenges given the complex nature of the Brazilian system. Incumbent BM&FBovespa, which owns the CLBC clearinghouse, is reluctant to open its infrastructure to competitors. The government will also have a substantial influence.