Chile beefs up connectivity for greater flow

Technology vendor Fidessa has teamed up with Chilean brokerage IM Trust to help the firm enhance its electronic trading offering for international clients.
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Technology vendor Fidessa has teamed up with Chilean brokerage IM Trust to help the firm enhance its electronic trading offering for international clients.

IM Trust will use a version of Fidessa’s software-as-a-service (SaaS) trading platform that has been specifically tailored for Chile. This includes an order management system that will include direct market access capabilities, cross-currency trading, order inception and trade routing services. Fidessa will also support algorithmic and basket trading functionality for IM Trust.

According to Hernán Arellano, partner and head of equities at IM Trust, the selection of Fidessa stems from the need to efficiently handle order flow from foreign clients, which comprise the majority of the firm’s customers.

In Chile, most brokers connect to the exchange using a solution supplied by local market Bolsa de Commercio de Santiago (BCS), which does not offer the electronic trading functionality desired by international clients. Foreign investors account for around 20% of total equity trading volumes.

“Most of our foreign clients have relatively small exposure to Chile and are therefore keen to ensure their access to the market is as streamlined and efficient as possible,” Arellano told

Arellano said the use of algorithms was growing in Chile but he added that in contrast to developed markets in Europe and the US, comparatively unpredictable equity trading volumes meant such strategies were only workable in around 15 or 20 of the most liquid stocks in the country’s IPSA blue-chip index.

He added that participants using algorithms tended to favour “classic” strategies such as VWAP, TWAP or percentage of volume.

“We think the trend in Chile will follow a similar path to Brazil, which has grown the level of liquidity in its stock markets tremendously over the last ten years,” he said. “In addition, as more local brokers start using algorithms, this will also grow liquidity in the market.”

Fidessa has also been selected by IM Trust to support the broker’s expansion in Peru next year and in Colombia in 2013.

Chile is also part of the Mercado Integrado Latino Americano (MILA), a trading alliance that links it with domestic exchanges in Peru and Colombia, allowing members to trade all three markets via a single link. However, Arellano notes trading had been slow, with volumes reaching a paltry US$5 million per month.

“Executions on MILA are regarded as foreign investments and are therefore subject to a 30% capital gains tax,” he said. “The removal of this tax will have an immediate impact on volumes traded through MILA, but this is likely to come from retail clients, as foreign and institutional traders prefer to have relationships with local brokers in these markets, given the low level of research coverage in the region.”

Meanwhile, trading technology provider SunGard has established a hub in Chile for its SunGard Global Network (SGN). The hub provides global order routing, market data and associated services on 120 markets worldwide, linking 2,000 asset managers and 500 broker dealers. It is SunGard’s third hub in Latin America after Mexico City and Sao Paulo, Brazil, and will provide international investors with access to BCS.

SunGard will also offer its Valdi Market Access solution to Chile – a SaaS based connectivity solution which provides a direct market access service, that gives exchange members and their clients the ability to trade on electronic markets from any application connected to SGN.

“Chile continues to grow, and the region is focused on being an important player in the global economy,” said Andres Araya Falcone, chief information officer of the Bolsa de Comercio de Santiago. “In facilitating exchange connectivity, this should also help attract new firms to the Bolsa de Comercio de Santiago.”

“Opening a new hub in Santiago is a very strategic placement for SunGard,” said Danielle Tierney, analyst at consultancy Aite Group. “Santiago is the third-largest individual exchange in Latin America by market capital and volume. By establishing this additional point of connectivity, SunGard has essentially made its SGN hub into a pan-LatAm offering.”