The cost of trading electronically in Brazil’s nascent equities market is getting cheaper for the buyside.
How?
According to recent Tabb Group research, institutions are using the breadth of technology vendors prevalent in the region. The consultancy also noted that as the country’s low-touch trading capabilities increase, the buyside will continue to employ and use with greater frequency algorithms, trade cost analysis, direct market access methodologies and high speed transmission networks.
Brazil is facing a decision in how it approaches the future of its capital markets, said TABB Group in its new research, specifically the uncertainty of its market structure. But according to TABB, there is good news, in that its improved financial infrastructure is bringing lower latency and more efficient throughput to the local electronic marketplace, where the $5,000 cost of connectivity per buy-side trading desk can be ten times higher than in the U.S.
Recent technology upgrades along with the Brazilian securities regulator Commissao de Valores Mobiliarios easing regulations, such as rules governing IPOs, has sparked interest from global technology providers.
The research, “Electronic Trading Outlook for Brazil: Trading Faster, Trading Smarter,” was written by Alex Tabb, partner and COO, and contributing analyst Marlon Weems, noted that a new wave of local buyside players in the last 12 to 18 months has shown an increasing appetite for electronic trading tools, including algorithms, transaction cost analysis (TCA) and the switching of direct market access (DMA) methodologies from DMA type 1 to DMA type 4, with derivatives and cash equities comprising the bulk of local electronic flow.
“Thanks to the importation of outside innovations and new methodologies,” says Tabb, “Brazilian institutional investors are becoming more nuanced in their approach to speed, understanding that it’s no longer good enough to just be fast, that to survive and thrive in Brazil’s marketplace, you have to be leaner, meaner, faster and smarter than the competition.”
As more of Brazil’s local participants gain an understanding of the efficiency of these products, TABB expects to see more converts to electronic trading but to accommodate these new adopters, Tabb explains, the sell side will need to right-size their internal infrastructure costs by becoming more familiar with less expensive hosted-technology options.
“We believe there is a tremendous opportunity for Brazil’s brokers to gain market share,” Tabb added, “by creating strategic partnerships with third-party providers and other technology players because, slowly but surely, buy-side traders there are putting down their phones and beginning to use their keyboard and mouse to trade electronically.”
