Traders Look to LatAm

Terry Flanagan

With macroeconomic uncertainty continuing to weigh on investors, Latin America continues to be an attractive option.

“We are seeing a variety of clients trading markets in Latin America electronically, particularly in Brazil,” said Jose Marques, Global Head of Electronic Equity Trading as Deutsche Bank. “Some are simply trying to automate and improve the efficiency of a market in which they are already active using voice orders. Others are looking to take advantage of next generation trading algorithms to improve execution performance. And then there are some clients that are completely new to Brazil but have been attracted by the growing size and importance of the market.”

The Brazilian capital markets currently make up about 80% of all of Latin America’s markets as a whole. Because of its size, it can easily absorb flows from the large institutional investors looking for growth opportunities in the region. Foreign trading activity in Brazil as of late 2011 was approaching 40%.

Latin American regulators have also 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.

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 fixed-income securities while avoiding this tariff.

The Latin American market will continue to grow with the launch of Direct Edge Brazil. Bats Global Markets has also announced its intentions to start a new trading venue in Brazil, in partnership with Brazilian asset manager Claritas Investments.

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