GLOBAL ECONOMY
Brazil: Going global
Arthur Pinheiro Machado, founder and Director of Operations, Americas Trading
Group, believes that in order to guarantee growth, Brazil’s markets must think big
I
t is common for some Brazilians
to attribute part of our country’s
problems to our geographic
isolationism, our insular character,
which, in theory, would inhibit a
greater integration with major northern
hemisphere economic and cultural
centres. However, this is an absolutely
incorrect analysis.
I echo the words of Brazilian historian
João Antônio de Paula: “Brazil has
never been left out of the process of
capitalist expansion, which was marked
by a significant dissemination of
values, ideas, institutions, goods, and
by the modernisation of transport and
communications means, as the telegraph,
telephone, railway and modern vessels.
The country has also experienced such
changes, but in a fragmented and selective
manner... it is how late we welcome the
new realities of capitalism that explains
Brazil’s weak capitalist development. In
fact, Brazilian dominant classes have been
making all efforts to impose a form of
capitalism that, based on a restricted and
precarious domestic market, has resulted
in a dependent capitalism, whose essential
characteristic is concentration of income
and wealth.”
This analysis best explains the weakness
and inefficiency of Brazilian capitalism,
which is derived from the undeniable
cultural isolationism of our corporate elite.
History has shown that Brazil suffers from
a populist government that restricts the
influence of the private sector, with tax
rules and operating costs that completely
erode our productivity.
First, Brazil is a fundamentally
agricultural country. Our economy depends
on the services and commodities industry.
Second, our industry productivity has
been based on cheap labour supply and a
high exchange rate. Too little is invested in
innovation because of a low savings rate.
This could be related to the public sector
except for one thing: our financial and
64 l www.the-european.eu
Assets in US$M: Global rankings
Ranking
1
2
3
4
5
6
7
8
9
10
Country
Assets in US$m
USA
Luxembourg
Australia
France
Ireland
Brazil
United Kingdom
Canada
Japan
China
12,456.983
2,489.170
1,526.808
1,512.396
1,162.938
1,110.912
902,865
814,088
750,512
336,108
Global mutual funds ranking
Ranking
1
2
3
4
5
6
7
8
9
10
Country
Mutual Funds
Luxembourg
South Korea
USA
France
Brazil
Japan
Ireland
Canada
Spain
Chile
9,452
9,106
7,707
7,701
6,805
4,247
3,101
2,808
2,424
2,220
“
History has shown that Brazil suffers from a
populist government that restricts the influence of the
private sector, with tax rules and operating costs that
completely erode our productivity”
capital markets are also extremely closed
and protected. Brazil has one of the biggest
fund industries in the world, but it is almost
impossible for the largest Brazilian investors
and pension funds to invest abroad.
This creates a captive, dependent
audience that poorly stimulates the
professionalisation of local institutions
(managers or other market institutions),
creating a barrier for access to these funds
for managers into international funds.
This isolation has consequences. We have
a stock exchange which is about 27 times
more expensive than other stock exchanges
of the world, where only four derivative
contracts account for more than 90 per
cent of the volume traded, and 15 securities account for more than 50 per cent of
GLOBAL ECONOMY
the volume in stocks. Our stock exchange
is equivalent to Mongolia and Vietnam’s
markets, when comparing GDP figures.
The next step
If Brazil wants to take the productivity leap
and open its capital markets to the outside
world by using a strategy of long-term
growth and development, it must face the
problem head on.
Our regulators are already part of
international bodies, such as IOSCO and
BIS. However, they monitor developments
in the international markets from a
distance. But, as noted above, by taking a
partial, selective and fragmented approach
to adopting such developments, this
does not necessarily foster development.
On the one hand, if practices such as
electronification were adopted and caused
HFTs and DMA orders to be deployed on
the local stock exchange with major impact
on liquidity, the concerns about equity
among participants and market integrity
are still rhetoric and lack real grounds.
The derivatives market in Brazil still has
a wide over-the-counter (OTC) market,
and the excessive volatility in assets traded
on Cetip led to the bankruptcy of one of
the largest pulp companies in the country
(Votorantim vs. Aracruz), which was
rescued by the state in 2009. The lack of
a central counterparty or, at least, risk
controls, inhibits the development of the
derivatives market, as well as the market
for public and private securities. These are
“
The good news is
that indications of a new
culture are beginning to
be seen. The country is
showing signs of early
senility in its markets,
and claims for a
comprehensive reform
are now being heard”
DMA share of the Total Volume Traded - Bovespa (%)
70,0%
60,0%
50,0%
40,0%
30,0%
20,0%
10,0%
0,0%
2011
■ Desk Brokers
2012
■ Brokers 2013
■ High Frequency Traders 2014
■ Providers DMA
traded without the transparency required
by investors and without real action from
the regulatory agency, which still prefers
to discuss incremental reforms rather than
structural ones. Another factor that prevents
market evolution is the two stock exchanges
with no actual development plans, as market
size is not an issue for them.
This is a cultural aspect that inhibits a
more sustainable structural growth. The
market and the regulatory agencies still
believe that innovating is reforming.
The good news is that indications of a
new culture are beginning to be seen. The
country is showing signs of early senility in
its markets, and claims for a comprehensive
reform are now being heard.
CVM has already made a call for
evidence to understand the market vision
on items already established worldwide,
such as best execution, self-regulation, and
investor protection in a multiple exchange
scenario. DMA orders are deemed strategic,
and algorithms are already widely used by
local managers. The DMA orders market
already accounts for 43 per cent of the stock
exchange orders. This convergence among
markets represents a very important symptom. The country will move forward in the
direction of the European and American
markets, perhaps even reactively and
without a designed strategy. With that, huge
opportunities will arise for those who are
willing to take part in this convergence.
The fact is that the country is preparing
its market infrastructure to start seeking
competition from other stock exchanges.
In June of last year, ATS Brasil filed an
application for registration as the second
stock exchange in the country, and its
Clearing is supposed to have its application
filed in the first half of 2014.
However, with a financial sector
that currently protects its market from
competition, the leap is challenging. In this
sense, Brazil’s financial elites are not only
silent with respect to their responsibility for
development, but they are also liable for,
and benefit from it.
It is time to think bigger for the
Brazilian markets, otherwise the markets
will continue to falter and investors will
continue to suffer.
About the author & ATG
Please turn the page for more on
Arthur Pinheiro Machado and ATG
www.the-european.eu l 65
GLOBAL ECONOMY
Americas Trading Group
Americas Trading Group (ATG) is a company
specialising in electronic trading which offers a multibroker platform for order execution in the key markets
of the Americas, including Brazil, USA, Mexico,
Chile, Colombia, Peru and Argentina. The company
is a broker-neutral, high-performance liquidity
centre, which consolidates and manages connections
between brokers, end-users and stock exchanges in
Latin America. ATG offers the buy-and sell-side full
support in electronic trading, including Algos and a
diverse array of products and services to ensure best
order execution and control. ATG is the New York
Stock Exchange’s exclusive partner in Latin America
“
Arthur Pinheiro Machado
Arthur Pinheiro Machado is a
member of the board of directors
and Chief Executive Officer of
Americas Trading Group (ATG).
At ATG he is responsible for the
implementation of the company’s
business strategy. In January, Mr
Pinheiro Machado received the
World Finance 100 Award in the
Financial Services category on
behalf of ATG. The award is given
to companies in finance who
have advanced their industries
and proven themselves as
leaders in their respective fields.
Previously, he was a partner
and member of the executive
committee of Agora Brokerage,
responsible for the company’s
restructuring which culminated
in its sale to Banco Bradesco.
At Agora he was responsible for
the Middle Office, which included
the following areas: Electronic
Trading Desk, Products, Web
Broker, Customer Service, CRM
and Research. As a pioneer in
Electronic Trading, Mr Pinheiro
Machado was responsible
for structuring the first team
of algorithms for local and
international customers, creating
one of the first quantitative teams
in the local market. He graduated
in Mechanical Engineering and
has an MBA in Finance and an
MSC in Mathematical Methods
for Finance.
ATG is the New York
Stock Exchange’s exclusive
partner in Latin America through
a partnership that started with
the creation of a Liquidity Hub
which provided unique access
to exchanges in Latin America”
through a partnership that started with the creation
of a Liquidity Hub, which provided unique access to
exchanges in Latin America. Through this relationship,
ATG created a joint-venture with NYSE Euronext
to start a new Brazilian exchange, Americas Trading
System Brasil (ATS Brasil), to launch in 2015. ATS
Brasil will be the first competitor to Brazil’s sole stockexchange operator, BM&FBovespa. Operating in one
of the world’s most significant growth economies, ATS
Brasil’s goal is to offer a viable option for international
investors to access the entire Brazilian market and open
up the country to the rest of the world.
Further information
To find out more please visit: www.americastg.com
66 l www.the-european.eu