The Busy "B" in BRICS

Here in the United States algorithmic and high frequency trading have been under fire lately, blamed for everything from the May 6th flash crash to ruining small investors' profit margins. In the rest of the world, however, algorithmic trading is being recognized as both an opportunity and a way to attract liquidity and it is starting to blossom.

Exchanges in several emerging nations are getting with the electronic trading program - many by doing cross-listing (and even cross-ownership) deals with some of the larger, more automated exchanges. As Jeremy Grant put it in an article for the FT: "You scratch my back, and I’ll scratch yours." (see link here: http://www.ft.com/cms/s/0/123ece18-99ad-11df-a852-00144feab49a.html). Eurex and the CME have done many such deals recently, spanning Brazil, Malaysia, India, South Korea and Mexico. It makes sense for both parties - the big exchanges get exposure to new markets, and the smaller ones get to take advantage of the electronic expertise of the larger ones.

Brazil was one of the first to get on board when Brazilian Securities, Commodities and Futures Exchange (BM&FBovespa) was created by the merger of Brazil’s derivatives and stock exchanges in May 2008. Of all the BRICs (Brazil, Russia, India and China) Brazil is the real busy bee. In June 2009 the BM&F closed its “open outcry” pits in favor of an all-electronic GTS trading system (already introduced by Bovespa in 2004). The same month, the exchange joined the global trend to “co-location”, allowing customers to install servers inside the exchange’s data centers, ensuring low-latency for high-speed automated trades. These two moves set up BM&FBovespa as a destination that attracted algorithmic trading like bees to honey. The big banks are flocking in - UBS, Goldman Sachs and others have already announced the availability of algorithmic trading in Brazil. And an avalanche of brokerages have geared up with technology to enable algorithmic trading for their customers.

Brazil’s appetite for automated trading – particularly high-speed, low-latency algorithmic trading – remains very keen. Progress Software is excited to be part of this growth story. In February 2009, Ágora Corretora, one of Brazil’s largest brokerages, offered custom algorithmic trading strategies to its buy-side clients, through Progress Software’s Apama algorithmic trading platform. Around the same time another Brazilian brokerage, Alpes Corretora, deployed the same Apama algorithmic trading to develop and deploy execution arbitrage strategies for futures and equities.

Since mid 2008, over twenty Brazilian banks and brokerages rushed to make the switch from manual to electronic trading using Progress Apama’s algorithmic trading platform. These also include FinaBank Corretora, Banco Fator and most recently Link Investmentos, which bought in Apama’s algorithmic trading platform in March 2010. And many of these large banks are now offering their buy-side clients the chance to fine-tune their already customized algorithmic trading strategies, as per in Europe and the US. (It’s worth noting Apama also has direct buy-side clients.) Our Brazil success story has much to do with the fact that Progress is still the only capital markets-focused technology provider with an established local presence in São Paulo, Brazil, offering customizable technology.

BM&FBovespa will doubtlessly continue to incentivize both local institutions and international investors. The exchange’s tie-ups with CME and Nasdaq OMX Group will continue to drive new business growth in Brazil this year and into 2011. And the introduction of co-location at the Bovespa will further boost algorithmic trading both locally and internationally.

Brazil has been an incredibly exciting success story for Progress and our customers over the last 2 years. Now other firms are beginning to sit up and take notice of the region! But Progress was there first; we’ve gathered huge experience in the region and we remain ready and willing to provide more new customers with the ability to deploy and customize algorithmic trading solutions.

So Brazil is busy ‘B’! I’m looking forward to reporting more on the RICs in BRICs soon.