US exchange operator Direct Edge expects to lodge a formal application to launch an equity trading venue in Brazil in the coming weeks, but admits its success will depend on clearing interoperability.
William O’Brien, CEO at Direct Edge, told theTRADEnews.com that the launch of a competitor to domestic stock exchange BM&F Bovespa would form the core of his firm’s strategy this year.
“Brazil is where our big push for diversification will come this year and we are very close to filing an application with [Brazilian securities regulator] Comissão de Valores Mobiliários,” he said. “We want to take advantage of the growth of investment into Brazil and the thirst for competition in this market.”
In November 2011 Direct Edge announced plans to launch a Brazilian exchange in Rio.
But given the cost and complexity associated with building separate post-trade services in the country, the launch of the new platform will depend on the willingness of BM&F Bovespa to let Direct Edge use the domestic clearing house that the incumbent exchange owns.
Shortly after Direct Edge announced its Brazil plans, BM&F Bovespa CEO Edemir Pinto indicated he would be unwilling to open up the clearing house to third-parties.
A June 2012 study commissioned by CVM and conducted by Oxera concluded equity trading competition in Brazil would likely benefit end-investors, but only if the primary exchange allowed competing venues to use its clearing house.
According to O’Brien, Direct Edge’s application offers a viable framework for open access to clearing.
“We want to bring the benefits of competition to Brazil in a way that doesn’t increase operational or systemic risk,” said O’Brien. “The only way to do this is to use the existing clearing infrastructure, a point we will make in our application.”