BM&FBovespa highlighted the growth of high-frequency trading as the Brazilian exchange’s moves to attract the new breed of automated traders helped offset declines in revenues amid flat markets.

The exchange also announced it would implement a new fee structure in the coming quarter that would lower its share of the charges levied to investors for trading.

The exchange, one of the world’s largest by market capitalisation, has been investing heavily to attract high-frequency and other automated traders by cutting fees and offering specialist services such as co-location to its matching engine, where trades are conducted, in an effort to raise volumes.

Last November it unveiled price cuts of up to 70 per cent and progressive discounts based on trading volume bands.

The moves helped the exchange report an 11 per cent increase in high-frequency flow in the second quarter to June 30, with high-speed traders increasingly active in both its cash equities and derivatives businesses.

However the growth came at a cost. The discounted fees for HFT customers squeezed margins in its cash equities business, and combined with increasing IT costs, meant total group income before taxes fell 3.4 per cent year-on-year to R$393.8m ($247.7m).

Total operating revenues on the exchange for the period fell 1.5 per cent to R$521.3m ($327.9m) as flat global markets meant lower trading volumes on its Bovespa cash equities business.

Turnover from trading and settlement on Bovespa fell 7.2 per cent to R$240.6m ($151.4m) as average daily turnover fell 7.1 per cent while margins, affected by the HFT discounts, fell to 5.9 basis points from 6.1 basis points. However, HFT volume in the subsidiary rose to 7.4 per cent of the overall volume traded in the period, with an average daily volume of R$899m.

Like many exchanges, the group saw weak second quarter trading in its cash equities business offset by gains in derivatives trading. Revenues from BM&F, its derivatives subsidiary, rose 3.8 per cent to R191.1m ($120.2m), driven by a 5.8 per cent jump in average daily turnover for derivatives contracts.

“Our core BM&F business grew in a very challenging market and high-frequency trading in equities is enjoying positive momentum, providing clear evidence that we have a robust and diversified business model,” said Edemir Pinto, BM&FBovespa chief executive.

However group operating expenses rose 16 per cent to R$166.8m ($104.9m) year-on-year as it hired in IT and business development to cope with ambitious projects to transform the exchange into the region’s prime hub for trading.

The group will launch the first part of new multi-asset class electronic trading platform, developed jointly with CME Group, the US exchanges operator, in the third quarter.

It is also developing a multi-asset clearing house that will combine its four existing clearing houses, equities, derivatives, forex and bonds. The move will allow collateral to cover risk exposure in post-trade transactions.

The new BM&FBovespa fee structure would eliminate cross subsidies in fee rates across the trading and post-trade businesses. BM&FBovespa said the structure would have no effect on the cost-per-trade for market participants and end customers but cut the exchange’s share of the overall cost-by-trade to 30 per cent from around 70 per cent.

“The fee structure will provide improved comparability with the standards of other international exchanges without impacting [our] margins or bottom line,” BM&FBovespa said.

Get alerts on Latin America when a new story is published

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Comments have not been enabled for this article.

Follow the topics in this article