Brazilian bankers are migrating back from New York to Sao Paulo because the bonuses are better. Proprietary trading shops of local banks co-located at the exchanges are battling it out with traders who have just flown in from Chicago. Brokerage firms are rushing to deploy new algorithms to their buyside clients. Exchanges are playing “hard to get” with global exchanges eager to bolster their emerging market credentials. Local technology vendors with relationships are trying to keep out foreign vendors with advanced technology. And everyone’s trying to arbitrage local stocks against American Depository Receipts. Martin Koopman, a veteran of the securities trading industry, shares his thoughts on Latin America’s trading arena.
Latin America (LATAM), dominated by Brazil and Mexico, is growing faster than fortune seekers from the global exchanges, banks and vendors can fly south. The major stock markets are up 400% over the last decade, and the Brazilian derivatives market, BM&F, is now the sixth largest derivatives market in the world with growth of 67% in Q1 2010.
Earlier, Brazil and the rest of Latin America did not receive the same adulation as other emerging market ‘rock stars’, but this changed in 2009 as Brazil emerged early and unscathed from the worldwide financial crisis. Latin America’s time has now come! In the last two years, major exchanges have gone public, trading volumes have soared, brokers have rushed to deploy electronic trading services, early mover technology vendors have racked up impressive sales, and high frequency trading has begun.
Exchanges
Brazil dominates Latin American securities trading with BOVESPA being the largest equity exchange in Latin America. The fully electronic BOVESPA offers low latency market data and connectivity, co-location services, and a FIX Protocol interface. It was in 2007 that Bovespa IPO’ed and in 2008 it merged with the derivatives exchange BM&F, the sixth largest derivatives market in the world with strong volume and growth in interest rate and currency futures.
CME and BM&FBovespa have a cross-shareholding of 5% each and have strong order routing and technology co-operation. Todate, regulators have not allowed
any competitors to Bovespa or BM&F and nor are any new exchanges expected to launch.
Broker/Dealers
Local brokerage firms are dominant in Brazil with some being acquired by local banks and out of the 86 Brazilian brokers, 16 are dominant in trading. The largest equity brokers in Brazil are Itau, Brandesco/Agora Senior, BTG Pactual Bank, Citigroup-Intra, Credit Suisse and Socopa, while the largest derivative brokers are Link, Liquidex, CM Capital, Interflow and Arhke. Some local brokerage firms have been acquired by international banks such as Citigroup acquiring Intra in 2008, UBS buying Pactual Bank in 2006 and selling it back to management in 2009, and ICAP buying Arkhe DTVM brokerage in 2008.
