From the growth of Brazil, to upgrades to Mexico’s trading infrastructure as well as the Andean region’s efforts to boost liquidity, Latin America is becoming increasingly attractive to institutional investors, says Fidessa.
Brazil, owning 80% of the market share in Latin America, is set to become a key, global trading destination, according to a white paper from the technology vendor.
But despite this growth, the paper points out that Brazil’s regulatory requirements have proved difficult to navigate since it can take between three and eight months to open an account and obtain approval to trade in the country which, for foreign institutions hoping to participate, can be expensive and time consuming.
The Andean exchanges have focused on regional co-operation, in an attempt to stimulate trading and exploit economies of scale, though the Mercado Integrado Latinoamericano (MILA), a link between the stock exchanges of Chile, Columbia and Peru.
The past 12 months have seen the launch of the S&P MILA 40 index, tracking the initiative’s 40 most liquid companies; the Global X FTSE Andean 40 exchange-traded fund (ETF), the first targeting the region to be traded on NYSE Euronext; and the creation of Blackrock’s ETFs in Colombia and Chile that can be traded locally.
Brokers participating in MILA require specific technology functionality. Support for multi-regional, multi-currency and FX functionality is required and, since securities are held in custody in local currency, investors actively need to decide on currency exposure and take necessary precautions to hedge FX risk.
Bolsa Mexicana de Valores (BMV), Mexico's main stock market, holds 11% of the Latin American market and will upgrade to a proprietary built matching engine called Monet in September 2012. The new technology will seek to provide global investors with more efficient trading and connectivity to Mexico. The upgrade follows the exchange’s recent move to version 4.4 of the FIX messaging standard.
RINO II, the second phase of Mexico’s plan to modernise its regulations, has introduced pegged orders, improvements in crossing and average price operations, price delivery regardless of volume, and decimal bids for fixed income to Mexico. The purpose of RINO II is to attract more liquidity to the market and to bring the country’s regulations up to international standards.
Sell-side firms are upgrading their capabilities to help buy-side clients take advantage of trading opportunities across the region.
Alice Botis, Fidessa’s head of business development in Latin America, said: “Brokers are looking at the unique benefits each country has to offer and are taking the necessary steps to gain a presence in multiple locations across the region, in financial centers such as Brazil, Chile, Colombia, Mexico and Peru. Each country retains its unique style of trading, so it is important for buy-side and sell-side firms to understand how the marketplace is evolving in each region within Latin America and how those developments fit in with their local and global trading strategies.”
Reporting by Sophie Pallier