Latin America: Update From the Industry


By Alice Botis, Sebastian Rey Ortega

1. Where is electronic trading in Mexico/Brazil/Chile now? Do you see a role for increased use of electronic trading in Mexico/Brazil/Chile?

Increasing political stability, greater levels of consumer affluence and international interest in the potential value of its natural resources and commodities are placing the countries of Latin America (LATAM) on the trading map. As a result of this, electronic trading is rapidly establishing itself in the LATAM region. Brazil is currently leading the way, followed by Mexico and then Chile. In Brazil, it is possible to route orders directly to the exchange using FIX, and algo trading and High frequency trading (HFT) are already extensively used. Buy-side firms are also able to make use of Direct Market Access (DMA). In Mexico many brokers as well as the exchange make use of FIX and algo use is prevalent too. DMA is also available but this goes via member brokers rather than directly to the market. In Chile it is still early days, but the recent launch of FIX access by the exchange is expected to act as a catalyst for growth. Also, as part of an alliance that is expected to come in to force later this year, people will be able to route between the Chilean, Peruvian and Colombian markets from any individual connection.

With all this investment in technology and the rapid uptake of the services that have become available, it is clear that as far as electronic trading in the region goes, the only way is up. We can expect to see volumes from this style of trading access continue to increase going forward.

2. What is the general attitude towards electronic trading/FIX?

Since technology takes such a central role in the development of wholesale markets, the attitude to electronic trading in this emerging region is understandably extremely positive. The benefits of electronic trading services and techniques are clear to see in many of the world’s other regions, and in particular in the US. As a result of this, firms involved in trading the LATAM markets, as well as the markets/exchanges themselves, are keen to embrace what electronic access has to offer and the corresponding take up is expected to only increase.

3. What would be the major hurdles to implementation/ growth of electronic trading capability in the Mexican/Brazilian/Chilean market?

Technology itself can be a limiting factor, as it takes significant time and investment to get he right infrastructure in place. However, as can be seen from the answers above, this process is rapidly underway. Education is another potential hurdle, as understanding how to make use of this new technology and the access and services it offers takes time and effort. Until people get comfortable with operating in this new electronic trading world, it is inevitable that many will move forward more slowly and cautiously. Network infrastructure is another hurdle to overcome, as although the outside world may well have extensive electronic access to the major brokers and markets within the region, local buysides and smaller brokers are not so well connected yet and it will take time for this local network connectivity to evolve.

4. What benefits have you seen or would you like to see from electronic trading?

The benefits that can be expected from electronic trading will basically be the same as those seen already in other parts of the world.

These include – a greater range of trading services that are on offer, more efficient and flexible trading practices, faster access to the markets, an enlarged pool of investment firms able to access the markets, and many more.

In summary this is likely to lead to more competitive pricing and increased volumes, which is all great news for the region as a whole.

1. Where is electronic trading in Mexico now? Do you see a role for increased use of electronic trading in Mexico?
GBM began using FIX technology over 8 years ago. We were the first to arrive, and for a long time, we were the only ones who offered this service. Currently, there are around 32 brokerage houses in Mexico but only a few of them use this technology. This will soon change since the Stock Exchange has project plans to implement FIX as a communication protocol. So it is only a matter of time before all brokerage houses migrate to this technology.
2. What is the general attitude towards electronic trading/FIX?
In the beginning, it was a matter of innovation and being ahead of the curve. A decade ago it was like placing a bet, on the assumption that trading would evolve. Nowadays, it is a MUST; brokers cannot run the risk of staying away from this technology.
3. What would be the major hurdles to implementation/growth of electronic trading capability in the Mexican market?
For the Bolsa as a whole, the main challenge continues to be market depth. For various reasons like the lack of a financial culture, competitiveness, and risk aversion, the number of listed companies in the Mexican Equity Market during the last decade has been very low. In turn this has hurt liquidity and market size which, in our view, is essential for electronic trading to thrive.
4. What benefits have you seen or would you like to see from electronic trading?
A higher trading volume, new market participants, the ability to implement different strategies, mainly oriented towards highly dynamic statistical models.