By Luciana Magalhaes
SAO PAULO (Reuters) - A Rio de Janeiro based stock exchange is expected to start testing early next year, signalling a shift in Brazil's financial landscape.
Base Exchange is set to start operating more than two decades after the country's second-largest bourse merged with Sao Paulo's Bovespa, which is now known as B3.
The new bourse, controlled by Abu Dhabi's Mubadala, will undergo a testing period of up to six months before its anticipated launch in the second half of 2025, Base CEO Claudio Pracownik said.
Base will initially trade equities, real estate funds and exchange-traded funds (ETFs), using its own clearing and settlement structure. It will likely later expand its services to include futures and derivatives trading, Pracownik said.
While also planning to offer listing services, Base will initially focus on companies already traded on Sao Paulo's B3.
"There is clearly space for competition," said Pracownik, adding: "Competition enhances safety".
Sao Paulo-based B3, with a history spanning more than a century, offers both on-exchange and over-the-counter trading.
"We compete for the listing of Brazilian companies, for the allocation of foreign investments, and for offering services in fixed income products," B3 said in a statement.
But it said a new exchange "may also fragment liquidity and consequently impact total cost of transactions".
Base's launch is backed by Rio de Janeiro Mayor Eduardo Paes, who earlier this year signed into law a bill reducing the service tax on stock exchange activities from 5% to 2%.
But the sustainability of two exchanges in Brazil is hotly debated among market analysts.
"Given the current state of the Brazilian market, creating a second stock exchange doesn't seem to make sense," said Vladimir Fernandes Maciel, head of the Economic Freedom Center at Sao Paulo-based Mackenzie University.
"We are facing an uncertain future with fiscal challenges and the likelihood of even higher key interest rates," he added.
B3, with less than 500 listed companies, has not seen an initial public offering (IPO) in three years.
Liquidity is concentrated in large-cap stocks, and a significant portion of capital that would typically flow into equities is in fixed income due to Brazil's high interest rates.
Marco Saravalle, chief strategist at independent investment firm MSX Invest, said the advent of a new exchange, expected to primarily attract high-frequency investors, would lead to faster transaction speeds, more trading activity and lower costs.
"Initially, we may observe a rise in volume, with benefits for both exchanges," Saravalle said.