Brazil HFT flow surges

The equities segment of the Brazilian stock and derivatives exchange, BM&F Bovespa, saw trading via its co-location service double in December.
By None

The equities segment of the Brazilian stock and derivatives exchange, BM&F Bovespa, saw trading via its co-location service double in December. In the last month of 2010, turnover reached B$1.511 billion (US$897 million) from 228,273 trades, up from November's B$785 million (US$470 million) across 97,144 trades.

The co-location service, established to attract high-frequency trading (HFT) firms to participate on the exchange, has been available since 1 October when Brazil's securities regulator, Comissão de Valores Mobiliários, also gave permission for market access via direct connection or through an authorised access provider such as Bloomberg or Fidessa. DMA access via broker was the only route previously permitted. In its first month 42,000 trades worth B$367 million were conducted via co-location.

The exchange also launched pricing initiatives on 1 November 2010 and 1 January 2011 to make trading high volumes more cost effective, thereby encouraging HFT.

Overall, HFT still accounts for a very small percentage of Brazilian equity trading. Total equities trading volume increased from B$126.38 billion (US$75 billion) across 9,260,660 trades in November to B$132.48 billion volume and 9,091,400 trades in December, while DMA trading through all routes fell overall from B$92 billion and 9,069,486 in November to B$90 billion and 8,996,944 trades in December.

Separately, Euroclear Bank announced it will launch settlement, custody and related post-trade services for all Brazilian equities and domestic fixed-income securities on 31 January.

Transactions in these securities will be sent to Euroclear Bank's local agent for processing in one of the three Brazilian central securities depositories (CSDs). The three CSDs are Câmara de Custódia e Liquidação (CETIP) for corporate bonds, Companhia Brasileira de Liquidação e Custódia (CBLC BM&F Bovespa) for equities and Sistema Especial de Liquidação e de Custódia for government bonds.

Euroclear Bank previously signed memoranda of understanding with CETIP and CBLC in 2007 and 2008, respectively. Frédéric Hannequart, chairman of the board of Euroclear Bank, said: “Brazil's capital markets are attracting growing international investor interest. Our clients will now be able to settle transactions in Brazilian domestic securities through our agent, Citibank, in the Brazilian market. This is a very important development in reinforcing our commitment to the Latin American region and in extending the scope of our services to clients. We will continue to work with the Brazilian authorities and market infrastructures on the development of useful services to Euroclear Bank clients involving Brazilian domestic securities.”

Brazil is the third Latin American market in which Euroclear Bank offers services for domestic securities.

According to Euroclear, the total foreign holdings in Brazilian securities amounted to €240 billion (US$324 billion) in September 2010, of which €65 billion are fixed income and €175 billion are equities. In addition, there are €120 billion of American depositary receipts and €15 billion in eurobonds denominated in the Brazilian real.