Building in Brazil: Solid Trading Platforms
Banco Fator’s Rodrigo Campos chats with FIXGlobal about the current condition of high frequency trading in Brazil and the improvement to the exchange’s trading system.
When you speak to international clients, what are their top two priorities when establishing Direct Market Access (DMA) connections to Brazil?
The top priority for international buy-sides is, in fact, the account opening procedures, which are not dependent on DMA and/or traditional voice accounts. They are mandatory to all accounts. The second priority is the stability of the trading and settlement system, combined with the taxation regime.
How has BM&FBOVESPA’s exchange upgrades improved trading conditions in Brazil?
Now that the exchange has launched the new PUMA trading environment, we have seen more stability in the trading systems which has also added more velocity to the trades. As a result of this upgrade, Brazil has cultivated an environment capable of attracting sophisticated new trading houses.
What advantages will Mercado Integrado Latinoamericano (MILA) bring to Latin American trading? Will it take liquidity from Brazilian markets?
MILA is the first step towards the creation of a regional DMA environment and also the first step towards regional integration for Brazil. Currently, MILA is too small and trades at ten times lower volumes than on an average trading day in Brazil. Liquidity, however, is not an issue at all; in fact, liquidity could increase for all markets if we had full integration and regional arbitrage.
What is the role of DMA in Brazilian markets? Is it widespread or only for a few firms?
Brazil is still a relatively ‘green field’ for high frequency trading (HFT) firms, but regular DMA is widespread in the country. From the largest pension fund to the smallest firms, everybody wants to trade via DMA. On the other hand, major international HFT houses are discovering Brazil every day, but transaction costs are still high in comparison with other emerging markets and this is a barrier to entry for some of them.
How have market data speeds kept up with trading speeds? Is the latency consistent between matching engines and ticker plants, or does one lag behind?
The information exchanged between matching engines and market data servers is a crucial factor to the development of the market in Brazil. The market data receives a higher speed signal that is processed faster by the exchange matching engine which then replicates that to the wider market. This, in turn, is incorporated directly into automated trading as market reactions and interactions. With the new trading system, stock exchange latency became significantly more stable, the equities platform is being implemented and we look forward to the efficient convergence of futures and equities.
As international brokers increase their presence in Brazil, how are Brazilian brokers differentiating themselves?
The main international players have been in Brazil for many years, but competition is increasing judging by the number of mergers and alliances we are seeing. Local houses are using their full corporate access with listed companies and are also reducing prices to add value and be competitive against the global brokers. Besides that, locals like Fator are increasing their presence off-shore, adding international clients to their portfolios and also making regional operational alliances to increase flow and distribution in places that we have not previously had access.
FPL Latin America Electronic Trading Conference
FIX Protocol is organizing the 4th Latin America Electronic Trading Conference in Sao Paulo in August. Under the direction of the FPL Latin America Subcommittee, the event will feature senior representatives from the trading world in an interactive format with separate business, technical and strategic streams, as well as FIX training sessions prepared by industry professionals. This event builds on the success of past FPL Latin America Electronic Trading Conferences and is expected to attract more than 300 local market participants. For more information, contact Tracy Shumpert at +1 212 655-2936 or [email protected].