In an effort to boost its presence in the underpenetrated Brazilian market, NYSE Euronext Inc. is seeking approval from the Securities and Exchange Commission (CVM) in Brazil to build a new exchange in the country. The enterprise may commence by the first half of 2014, subject to regulatory approval.
The equity exchange will be launched under the JV with Rio de Janeiro-based Americas Trading Group (ATG) – Americas Trading System Brasil (ATS Brasil), which is 20% owned by NYSE and 80% by ATG.
Currently, ATS Brasil is in the testing phase and is being operated on the Universal Trading Platform (UTP), which is globally used by most of the leading exchange operators, including NYSE. The UTP trading engine will not only optimize the trading experience through its risk-averse technology and increased efficiency, but will also be enable cost discipline in transactions.
Initially, ATS Brasil has slated the launch of cash equities and exchange traded funds (ETFs) on the Brazil platform. Gradually, the list will be expanded to cover derivative and other securities.
The formation of ATS Brasil is also aimed to break an almost monopolistic model of the stock exchange in Brazil. The second largest exchange operator in the US – BM&FBovespa has been the leader in trading, settlement and clearing services in the vast Latin American market thus far.
Meanwhile, ATS Brasil even plans to set up its own clearinghouse as BM&Fbovespa refused to share its clearinghouse. Hence, ATS Brasil aims to pool in more investors, in order to raise funds and minimize the cost of the project. Regarding this, ATS Brasil is mulling over the sale of 24% of its stake to about 6–8 investors, which include a diverse group of global bank and asset management firms.
In 2011, New Jersey-based stock exchange DirectEdge had announced its plans to expand its operations in Brazil. Therefore, the approval from CVM should offer immense growth opportunities in the Latin American exchange industry.
Moreover, higher competition among the market players will allow stable pricing and legal discipline, particularly now when no definite set of rules are being adhered to in the Brazilian market. These factors will not only boost liquidity but also amplify margins, which we believe could turn out to be a valued proposition for NYSE as well.
While NYSE carries a Zacks Rank #3 (Hold), other outperformers of the financial sector include Vantiv Inc. (VNTV - Snapshot Report), Hilltop Holdings Inc. (HTH - Analyst Report) and Gamco Investors Inc. (GBL - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).