Direct Edge to Launch Exchange in Brazil

Direct Edge plans to launch an all-electronic platform for the trading of Brazilian equities. 

The exchange will be headquartered in Rio de Janeiro and launch, if all goes according to plan, by the end of 2012.

The launch requires approval from the Comissao de Valores Mobiliarios. Direct Edge Brazil would introduce competition to Brazil, where trading is dominated by  BM&FBovespa. That firm is the result of a merger between the São Paulo Stock Exchange and the Brazilian Mercantile & Futures Exchange.

"The Brazilian economy is among the fastest growing in the world and we believe that a second stock exchange in the country will spur even greater investor participation through competition that drives innovation and price improvement," said William O'Brien, Chief Executive Officer of Direct Edge. Direct Edge is based in Jersey City, N.J., but will be opening a headquarters in Rio de Janeiro.

O’Brien said Direct Edge’s trading systems will be “customized to the unique needs of the Brazilian market."

BM&FBOVESPA describes itself as “the most important Brazilian institution to intermediate equity market transactions and the only securities, commodities and futures exchange in Brazil.”

And its chief executive, Edemir Pinto, recently indicated his firm would give no assistance, even in clearing trades, to any potential rivals. BATS Global Markets, based in Lenexa, Kansas, also has been eyeing the Brazilian market.

Pinto said BM&FBovespa will not allow anyone to use its clearing services if they decide to set up in Brazil.

His comment: “If someone comes to me and asks to use our services, I won’t be able to help.”

Direct Edge Brazil will operate as an independent, local company majority owned by Direct Edge, the company said.

A Brazil-based CEO will be appointed to lead a team in Rio de Janeiro to develop Direct Edge Brazil.

Direct Edge Brazil, if approved, will be the first stock exchange headquartered in Rio de Janeiro since 2002, the company noted.

Having one of the largest stock exchanges in the United States operating here will provide added incentive for other global financial market participants and will likely attract broker services and financial technology firms," said Eduardo Paes, the mayor of Rio de Janeiro.

Direct Edge operates the EDGA and EDGX all-electronic exchanges in the United States. Those exchanges currently account for 10 percent of equity trading in this country.

Direct Edge is owned by a consortium that includes the International Securities Exchange, Knight Capital Group, Inc., Citadel Derivatives Group, The Goldman Sachs Group, and J.P. Morgan.

Download this FIELD REPORT on Direct Edge operations in United States.

-- This article first appeared on Securities Technology Monitor.