BM&FBovespa to Launch Derivatives Trading via Co-location

— will offer beginning June 15th, a new technology for the derivatives segment, Direct Market Access via Co-location. The technology offering is meant to attract more investors and promote liquidity and further development of the Brazilian market, according to the exchange’s release.

Co-location is a form of direct market access or DMA that allows brokerage houses and investors to install their own computer servers in the exchanges’ data processing center.

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. Co-location will expand to include the Bovespa market segment, with access to the electronic equities trading platform Mega Bolsa, scheduled to begin during the third quarter of 2009, after approval from the Comissai de Valores Mobiliarios, the Brazilian Securities and Exchange Commission.

Trading via co-location will be available to national and international clients that utilize algorithmic trading. Clients who conduct computer generated programs using an automated trading system to evaluate scenarios and generate buy and sell orders, will send them directly to BM&FBovespa’s electronic trading system.

The new model is designed to provide greater trading efficiency and product liquidity. For example, a large investment fund can establish several arbitrage strategies by automatically buying an selling different assets, at the same time, like currency, interest rates, indexes and even commodities futures contracts, according to the exchange. The arbitrage can involved both BM&FBovespa and CME products (available on Globex, CME Group's electronic trading platform).

Participants must be registered with one of the exchange’s brokerage houses in order to be authorized to trade BM&FBovespa markets. These brokerage houses will be responsible for risk management and order monitoring. At the same time, the new model will allow these brokerage houses to broaden their range of products and services through complete automation in the order routing process, noted the release.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio