The Brazilian Securities, Futures and Commodities Exchange - BM&FBOVESPA will offer, beginning on June 15, a new trading technology for the derivatives segment: Direct Market Access via Co-location. The objective of this new technology is to attract more investors and to promote liquidity and the further development of the Brazilian market. Co-location is a form of Direct Market Access (DMA) that allows brokerage houses and investors to install their own computer servers in the Exchange’s data processing center.
Trading via co-location facilitates the trading of both national and international clients known as algorithmic traders. This type of trading uses computer generated programs (Automated Trading System – ATS) that are able to evaluate scenarios, generate buy and sell orders, and send them directly to BM&FBOVESPA’s electronic trading system.
The new model will contribute to greater trading efficiency and product liquidity. For example, a large investment fund can establish several arbitrage strategies, by automatically buying and selling different assets, at the same time, like currency, interest rates, indexes, and even commodities futures contracts. The arbitrage can involve both BM&FBOVESPA and CME products (available on Globex, CMEGroup electronic trading platform).
Initially, co-location will be available for the BM&F market segment with access to the Global Trading System (GTS), the Exchange’s electronic derivatives trading platform. Trading via co-location for the Bovespa market segment, with access to the electronic equities trading platform Mega Bolsa, is scheduled to begin during the third quarter of 2009, after the approval of the Comissão de Valores Mobiliários, the Brazilian Securities and Exchange Commission.
In order to be authorized to trade BM&FBOVESPA markets via co-location, the participant must be registered with one of the Exchange’s brokerage houses. These brokerage houses will be responsible for risk management and the monitoring of orders. This new trading model will also allow the brokerage houses to widen their range of products and services by offering a complete automation in the order routing process. Thus, allowing economies of scale, cost reduction, and better customer service, in line with the latest international market tendencies.
