Not-for-profit business Plato Partnership and Brazilian regulated fintech SL Tools have jointly announced a plan to bring block trading opportunities to Brazil’s securities marketplace, The TRADE can reveal.
The plan is subject to official approval from regulators which last year approved block trading in Brazil, a move commended by both Plato and SL Tools.
Speaking to The TRADE, Andre Duvivier, chief executive of SL Tools, highlighted the significant opportunity the approval from the Brazilian Securities Commission presents, effectively opening a door for innovation in Brazil.
“In Brazil, institutions have been trading with the same rules which were implemented in 1991, so it’s been over 30 years that the market for institutional investors has not developed any new protocol […] I believe that the fact that we are changing the regulations here in Brazil will allow for efficiency gains to be unlocked.
“Putting development in perspective, in the Brazilian local market the funds industry AUM, went from $40 billion to $1.5 trillion and was still operating under the same rules so there’s a need for market reform.”
Plato’s experience deploying block trading in European markets is set to be leveraged in this new venture as the business looks to Brazil as a prime opportunity thanks to its significant growth over the last six years.
“If you look at the Brazilian market dynamics it’s the perfect place to bring a block trading venue,” Mike Bellaro, chief executive of Plato Partnership, told The TRADE, highlighting that the market dynamics are a critical factor.
“In terms of the current investor makeup that is actually transacting in Brazil around 27% of the marketplace is represented by local Brazilian institutions and 50% (latest figure) are represented by foreign investors – overall just under 80% of the marketplace from Brazil is made-up of institutional investors.
“[…] We think this has the potential to be a pretty powerful partnership and bring a much-needed, really creative, solution to the marketplace.”
The businesses are focused on building and deploying the new block trading facility which will be made public in the coming months following regulatory approval. The product is set to be up and running in Q1 2024, with all the licenses expected to be in place, The TRADE can reveal.
In Brazil, when trying to execute a large position in the marketplace, historically local regulations have triggered open auction processes – in many cases resulting in traders being shut out of their own auctions.
Andre Duvivier, chief executive of SL Tools, explained: “There is no sustainable way to trade around these market conditions yet, and some traders resort to trading in smaller pieces or using broker algos, which take a long time to fill and dislocate prices. A block trading facility will provide a viable way for institutions to trade around these market inefficiencies, with pricing at the mid-point and minimal market leakage or price impact.”
These recent developments in the Brazilian securities market have been likened to those of Europe around 15 years ago, wherein outdated trading systems had begun to have a negative effect on execution and performance.
The opportunity for institutional investors in Brazil to access new liquidity is significant, Duvivier told The TRADE, highlighting that the initiative is not aiming to export volume, but rather adapt the local market in order to import volume.
“Currently, Europe is ahead of us and we’ll be able to inherit part of their discoveries and changes that are being proposed. We may not adopt 100%, but the block trade regulation was based on the large-scale European model, so the Brazil regulators are open to learn. We’re just taking something that works in major markets and bringing them to Brazil [and] there’s a lot of synergies that we could extract from this product and apply in the market as it develops.”
Bellaro asserted that the partnership will allow for a general levelling-up of capital markets in the region and make the Brazilian marketplace more attractive for investors.
“Creating a large-in-scale venue in Brazil will enable end clients to benefit, both from an alpha capture and preservation perspective […] which would reduce the implementation cost involved in trading. That ultimately then goes back to the end investor.
“From our perspective we are helping to bring strategic liquidity, reduce market impact, potentially reduce leakage and help improve the results for the end investors.”