LatAm Attracts Foreign Investors

Terry Flanagan

Latin American regulators have taken measures to help drive order flow to their markets.

Brazilian finance minister Guido Mantega announced a host of tax cuts, including the reduction of the so-called IOF tax on foreign holders of local equities from 2% to zero and also on corporate bonds with maturities of more than four years from 6% to zero.

Also part of the stimulus plan were tax reductions on home appliances, food items and consumer loans. “We won’t allow the global crisis to contaminate the Brazilian economy,” said Mantega on Thursday.

The tax cuts are a reversal on Brazil’s policies earlier in the year, when it looked to slow growth and curb inflation. The IOF tax on corporate loans and debt sales was raised to 6% earlier this year, which was an increase from the 5.38% prior. The moves were made at the time to slow the appreciation of the Brazilian Real against the dollar, which was making Brazilian exports uncompetitive.

Mexico also recently enacted regulation aimed at increasing interest from foreign investors. Certain trading withholding tax rules, which for certain countries could be as high as 35%, were abolished. This meant that investors outside of Mexico could invest in Mexican fix-income securities while avoiding this tariff.

Finamex, a Mexican agency-only broker-dealer, recently announced the launch of a new suite of algorithms aimed at trading U.S.-based securities in the Mexican market. The algorithms are designed to arbitrage any price discrepancies or inefficiencies between venues due to data latency. The move is part of a shift in the Mexican trading landscape toward more algorithmic trading. Exchange operators Bolsa Mexicana de Valores and MexDer have each entered into strategic partnerships with CME Group whereby they utilize the Chicago derivative exchange’s technology. Since the partnerships began, the markets have seen speed increase and become more efficient.

Also implemented in 2005 was remote trading, which allowed foreign traders to become official members of local exchanges without being a resident of Mexico. Remote clearing is also being considered for the future.

The Latin American market will continue to emerge next year with the launch of Direct Edge Brazil.

“We’re incredibly excited to become a Brazilian stock exchange. It has been in the works for over a year and a half,” said William O’Brien, chief executive of Direct Edge. “We’ve began to build partnerships, including with the city of Rio de Janeiro, where we believe there is opportunity to do what Direct Edge does best, high-powered technology, service and  adapting to the unique needs of the Brazilian trading community.”

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