Electronic Trading Outlook for Brazil: Trading Faster, Trading Smarter

Author(s):
Alexander Tabb, Marlon Weems
Date:
November 10, 2014
Research Type:
Vision Note
Executive Summary

Of all of the emerging markets, perhaps none is more of a study in contradiction than Brazil. During the financial crisis of 2007-2008, developed markets in the US and Europe struggled to recover from one banking crisis after another. However, Brazil’s structural reforms, resulting from its own banking collapse more than a decade earlier, served to minimize the market’s exposure to systematic risk, and it consequently weathered the crisis well.
Many market participants contend that Brazil’s single-exchange structure is to blame for trading costs that are more than 20 times as expensive as trading in the US market, according to a 2012 study. Furthermore, while in aggregate volumes are up in the Brazilian equity market, roughly 10 stocks account for more than 50 percent of total market volume; within the derivatives market, five contracts account for more than 90 percent of total market volume.

It is against this backdrop that TABB Group explores the prospects for electronic trading in Brazil. The emergence of new technologies and methodologies and new players within the market is changing the way Brazil trades electronically. The days of relying on speed alone have come to an end. While trading “fast” is fine, trading “smart” is imperative. No longer can market participants rely on crude, outdated algorithms developed by outside vendors to carry the day. Likewise, the days of pouring an unlimited amount of money into one’s trading infrastructure also are gone. Today’s trader is looking to be leaner, meaner, faster and smarter than the competition.

In this report, TABB Group looks at Brazil’s electronic trading environment from the perspective of buy-side and sell-side participants. We examine the renewed interest from a “new wave” of local players that are leveraging Brazil’s third-party vendors, as well as the effects of potential changes to Brazil’s market structure on the pursuit of alpha. From algorithms, to DMA, to TCA, we look at how local participants are reacting to changes in the market to improve their performance and stay ahead of the curve.

Areas of Interest
  • Equities
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