RIO DE JANEIRO/SAO PAULO (Reuters) - NYSE Euronext NYX.N and Americas Trading Group will invest $100 million to create a new over-the-counter trading platform for Brazilian stocks, a venture that may boost trading volumes in Latin America’s biggest equity market by 15 percent within its first year of operation.
The new company, which was unveiled on Monday under the name ATS Brasil, will be 80-percent owned by Americas Trading Group, a Rio de Janeiro-based trading systems operator known as ATG. NYSE will own 20 percent of the venture and provide technology.
The deal comes nearly one year after exchange operator DirectEdge announced plans to open a new bourse in Brazil to challenge incumbent BM&FBovespa SA (BVMF3.SA), which enjoys a near-monopoly on all trading, clearing and settlement services for most locally traded shares.
ATS Brasil, however, will not seek to compete with BM&FBovespa, NYSE Euronext Deputy Chief Executive Dominique Cerruti said in a news conference in Rio de Janeiro.
“It is not about introducing competition just for the sake of competition. We think it is about attracting liquidity,” he said.
Still, common shares of BM&FBovespa shed 2.2 percent to 13.20 reais, their steepest decline in almost two weeks. The stock is up 42 percent this year as worries ease that potential competition could erode the company’s leading position.
The platform will improve pricing of Brazilian assets by attracting high-frequency traders who require a system prepared to receive an enormous amount of trading orders in ultra-high speed, ATG Chief Executive Fernando Cohen said at the same news conference.
Cohen added that, in principle, ATS Brasil would rent BM&FBovespa’s clearinghouse, even though the Sao Paulo-based exchange has said it is unlikely to share its facilities until at least 2014, when the integration of its post-trading structure should be ready.
ATS will likely add pressure on Brazilian regulators to open BM&FBovespa’s clearinghouse to competitors.
“If Brazil wants to increase its international presence, it needs to consider developing an alternative exchange,” said Cohen. “In the entire world, there is no economy the size of Brazil’s with only one exchange.”
In Brazil, trading transactions are settled through a central counterparty clearinghouse, a complex and capital-intensive venture. Unlike in the United States, exchanges in Brazil have to identify final buyers and sellers, not brokers, on a given deal and cannot execute cross-country orders.
While some details of the functioning of the platform are still subject to regulatory approval, ATS Brasil will allow NYSE Euronext clients and other investors to place cross orders, Arthur Machado, an executive director at ATG, said at the same news conference. ATS Brasil wants to become “a liquidity maker,” he added.
The venture comes after BATS Trading gave up on plans to set up an exchange in Brazil. Currently Direct Edge is considering such plans too, but has fallen short of saying whether it plans to build up a clearinghouse structure.
Editing by Gerald E. McCormick, Tim Dobbyn and Phil Berlowitz