NYSE Euronext and Americas Trading Group announced early this month that they will team up to create a liquidity pool for Brazilian stocks in the over-the-counter (OTC) markets. The venture, which will be named ATS Brasil, will be controlled by ATG, as the Brazilian trading systems provider is known, and will not seek to compete with Brazilian exchange operator BM&FBovespa SA.
Alice Botis is the head of Latin American business development and the senior vice president of new sales enterprise services for Fidessa. The new Latin American venture is in the professional wheelhouse for Botis, as she has responsibility for expanding Fidessa’s presence across the Americas and growing new business. In a conversation with JLN Managing Editor Christine Nielsen, she discussed her concerns about the creation of a liquidity pool for Brazilian stocks in OTC markets and an anticipation that Latin America will continue to become more of a focus for U.S. investors.
Q: Your press person said you have some misgivings about the clearing logistics with the liquidity pool that is being created?
A: ATS Brasil will either have to clear through the BM&FBOVESPA facility, or they would have to find an alternative clearing facility, which clearly the regulators have a little bit more concern about from a risk standpoint. If a second clearing facility was formed, it would have to integrate with the BM&F facility, and that presents more challenges than using a central facility.
The exchange has been very clear over the last year or so, since BATS and Direct Edge announced their entry into the market, that it will take quite some time for them to accommodate clearing for a third party.
They’ve got a lot of things going on in their market – the new matching engine PUMA, their new market data feed UMDF and their post-trade initiative.
(**Editor’s note: BM&FBOVESPA (BVMF) provides matching via their Platform Unified Multi Asset-class (PUMA) matching engine located in Sao Palo and based on the CME Globex platform. Futures and options on all derivatives products available at the exchange are supported.)
They need to sort their own house, complete the implementation of the new technology and systems before they start changing their systems to clear third parties. It’s going to be at least 2014 before they can start doing that. Also ATS Brasil will need CVM – Brazilian Securities and Exchanges Commission (Comissão de Valores Mobiliários) approval to enter the market.
They are smart though. They are making an announcement that they have intentions to move into the market. What they will be doing over the next several months is continuing to talk to regulators about their approval and talk to the community to gain their support. The most important thing about starting another exchange or trading facility is having the local community support and liquidity when you start.
They are announcing their intention. They are saying to people that they have money behind them, and with a big name like the New York Stock Exchange associated with them, it brings a lot of clout.
I don’t think ATS Brasil will get to market any quicker than any of the other venues who have announced their intentions.
Q: What do you think about the current environment? Firms are starting to prepare for regulation, and certainly it seems like confidence has taken a hit.
A: The CVM has a new president, and it’s going to take time for that person to get up to speed. They are going to be cautious. Brazil is very smart. They are very protective of the economy, of their market and take calculated steps to make sure things go right.
The market is very concerned about risk controls, and I think they will go very slowly with approvals and rule changes. If a new clearing facility is introduced, the environment would be a very cautious one.
There will be the introduction of other trading facilities in Brazil over the next few years, but it’s going to be slow.
Q: What about American participation there? How difficult will it be for U.S. participants to get involved?
A: That’s always been one of the things with Brazil. It does take a bit of time. The brokers there are very accommodative though. They do help you to navigate the process.
I don’t see it getting that much easier. People are just getting better at it. I think they are better at understanding the process … what paperwork needs to be filed. They managed investors’ expectations from the beginning, so that people are not that antsy. The process is now more streamlined.
A: My focus is on Latin America. I see a very strong continued interest in investing in the region. You can see that with investments in the bigger brokerage houses. In the past, a lot of the (Brazil) participants were getting by on older technology, etc. They are now making significant investments into technology and the future of the market I don’t think it’s a fad in Latin America, I think it’s going to continue going forward. Firms would not be making long-term investments for a short-term initiative.
Q: What other exciting things might we see coming out of the Latin American region?
A: One thing that’s coming up in the very near future is Peru. In the past, Peru did not allow electronic DMA access to the market. It’s something new, and I know people are looking forward to this new access to the exchange. I think it will bring more activity and interest to the region, and I think you are going to continue to see more growth in the MILA region.
Q: Anything else our readers need to know right now about investing in this area of the world?
A: The Chilean Stock Exchange has received consultancy from the BM&F Bovespa to launch a derivatives market and will be offering futures for the IPSA index before the end of the year. That is something that is new for the region.
I think it will be received very well. This is something for which they thought there was a strong demand.