New Exchanges Look To Crack Brazil

Terry Flanagan

Broker-dealers and traders are welcoming new competition entering Brazil’s exchange and trading venue space.

With the potential for two new trading venues entering the Brazilian capital markets, market participants are looking forward to the possibility of increased competition and efficiency.

“The local brokers in Brazil really understood the need for a competing exchange,” said Anthony Barchetto, head of strategy for Direct Edge, the U.S.’ fourth largest equities exchange operator by market share. “They always thought it was a good idea, although, in the beginning, they thought it would be very difficult. They quickly turned and saw how it would benefit the markets. There was a little hesitation at first but that quickly turned around.”

Latin America remains one of the most attractive regions for many market participants looking for global expansion. Direct Edge announced plans to enter the Brazilian market with Direct Edge Brazil, an all-electronic platform for the trading of Brazilian equities. The exchange is expected to go live in the fourth quarter of this year, pending regulatory approval from Brazil’s capital markets regulator, the Comissao de Valores Mobiliarios. It would be the first stock exchange to be based in Rio de Janeiro since 2002, when BM&FBovespa, Brazil’s sole financial exchange operator based in São Paulo, acquired the now-defunct Rio de Janeiro Stock Exchange, or Bolsa de Valores do Rio de Janeiro.

“We didn’t approach U.S. and European broker-dealers early in the process, but we have since spoken to all of the top firms, which are used to competition in other areas,” said Barchetto. “Of course they are receptive of the new exchange, because it improves business on their end.”

Direct Edge’s announcement to enter Brazil came several months after its closest rival by U.S. market share, Bats Global Markets, made public its own plans to enter the region. Lenexa, Kansas-based Bats in February 2011 announced a partnership with Brazilian asset manager Claritas Investments to launch a new equities exchange.

Chi-X Australia launched in Australia in late October and quickly reached over 2% of market share within its first month in operation, showing the local markets’ demand for new competition. More trading venues generally means more efficiency for the markets, as fees are lowered and technology improves. The Australian Securities Exchange bolstered its own technology and infrastructure, as well as lowering its fees, prior to the launch of Chi-X Australia. BM&FBovespa, Latin America’s leading exchange, has taken similar steps, investing in its own operations and lowering fees.

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