Crisis Saps Brazil Trading Volume

Brazilian derivatives trading growth has been set back years by the global financial crisis, BM&FBovespa CFO Carlos Kawall tells LatinFinance. “What we were expecting to happen this year [in terms of volume growth] may now take another 2-3 years,” says Kawall. He declines to provide old or updated year-end projections for derivatives trade, which is predominantly in rates and FX futures. Prior to Lehman’s collapse in September, the BM&F was gearing up for a major surge in turnover driven by a linkup with the CME and its global network of trading terminals. Nonetheless, a recent revival in global appetite for risk has benefitted Brazil, and volumes are rebounding. The trend is supported by the fact that BM&FBovespa has mostly finished integrating with the CME’s derivatives platform. The Brazil exchange commemorated May 19 a new record of 42,100 daily trades routed through the CME-BM&F integrated service. That included 32,259 direct market access (DMA) trades, says the exchange. Most DMA volume is derived from 3 US-based algorithmic trading shops, says Kawall, without naming them. In addition, US and European algorithmic traders are preparing to install their own proprietary servers at the BM&FBovespa in coming months, he adds. This would enable them to execute large volumes of derivatives trades at substantially higher speed. Co-location, a variant on DMA, has been authorized by the BM&FBovespa to start June 15. The move should further boost volume, say experts, who see foreign shops setting up program-run strategies to carve inefficiencies out of the Brazil market, which has seen little algorithmic business. Less than 1% of BM&FBovespa turnover is algorithmic, whereas at CME or Deutsche Bourse, it is around 30%-40%, says Kawall. By far the most popular Brazil contract is USD-BRL futures, he adds. Among the large US quants using CME are Citadel, Newedge, Tudor, Drawbridge Global, Susquehanna, Wolverine and Moore Capital.