Executives and former executives from the financial market have united to launch a new venture: a derivatives exchange named A5X. The initiative, starting with an investment of R$200 million, aims to challenge the dominance of B3 in this crucial market segment.

Leading this ambitious project are Carlos Ferreira Filho and Karel Luketic, former executives and partners at XP, along with Nilson Monteiro, CEO and founder of the brokerage Ideal—now under Itaú’s control—and Julian Chediak of Chediak Advogados. This group forms the founding quartet of the new exchange, Valor found, with the details confirmed by the partners.

The initial funding round, referred to as Series A, has attracted two significant entities as partners, one of which is associated with a financial institution. Recently acquired by Itaú, the broker Ideal is involved, according to sources, though the firm has not issued any comments on the matter.

A second round of funding, referred to as Series B, is underway, aiming to attract five to six new investors. This group includes additional entities from the financial sector. Carlos Ferreira Filho, now CEO of A5X, revealed in an interview with Valor that the total funds raised between Series A and B are projected to reach around R$200 million. This sum is expected to adequately support the launch and operation of the new exchange.

Furthermore, the involvement extends beyond these corporate participants to include individual investors, with XP holding a call option to potentially acquire a stake in A5X in the future.

“We’ve [him and Luketic] spent several years at XP and have always been committed to fostering an innovative and competitive market,” Mr. Filho says. “It’s completely logical for XP to be involved in our project, which promises to introduce significant innovation to the sector,” he adds. XP, however, has chosen not to comment on this matter.

The concept of a new stock exchange had been brewing for about a year when Carlos Ferreira Filho and Karel Luketic officially exited XP, relinquishing all roles and shares.

To bring their vision to life, they enlisted a reputable international consultancy known for setting up exchanges across Europe and the United States. “The collaboration with this consultancy opened our eyes to the incredible advances in technology, which now fully supports a market more open and accessible to new entrants than ever before,” shares Mr. Luketic.

Nilson Monteiro, another A5X founder and the CEO of Ideal, explained their focus on the derivatives market was due to the extensive range of existing products and the potential for new developments within this segment.

“Derivatives contracts alone account for about 45% of B3’s revenue,” notes Mr. Monteiro, who brings a wealth of experience from this market sector. He co-founded the brokerage firm Ideal in 2019, which swiftly captured a significant portion of B3’s derivatives trading volume, placing it among the top three brokers by participation.

Whoever thinks they intend to stop there is mistaken. “There’s nothing to stop us from entering the stock market as well. We’re open to exploring any avenues that will enhance our service to investors and the overall capital market,” Mr. Monteiro adds.

With the emergence of new exchanges, questions persist about the processes of settling and clearing transactions. These tasks fall to the settlement chambers, or “clearings,” which, as financial institutions, require more substantial structures and incur higher costs.

Precisely for this reason, some of these new competitors are considering utilizing B3’s own clearing services. However, this does not appear to be the path for A5X. Without committing firmly, Mr. Filho hints that the goal is to establish a completely proprietary structure.

“If we use B3’s clearinghouse, we won’t be able to be competitive in terms of pricing in the way we intend, as one of the highest costs for investors currently trading on B3 stems from the fees charged by the exchange’s clearinghouse service,” states the executive.

Continuing on the topic of pricing, the CEO of A5X notes that their deep dive into understanding and learning from international markets has also uncovered a “price distortion” within the Brazilian market.

“We found that the Brazilian stock exchange is among the most expensive in the world, which obviously contributed to the export of business volumes to other markets, such as the U.S.,” explains Mr. Filho.

Although it has only recently been established, Mr. Luketic outlines that the initial plan is for the new exchange to commence operations sometime between the next 18 and 24 months, targeting a launch window from late 2025 to the first half of 2026.

The forthcoming steps involve setting up the entire infrastructure of the new company, including hiring staff, signing contracts with a broad array of suppliers, and concurrently initiating regulatory discussions with the Brazilian Securities and Exchange Commission (CVM). The CVM is the regulatory authority responsible for overseeing and granting all necessary approvals for a new stock exchange to function in the country.

“We are already in talks with several prominent market professionals, who should be joining us soon. We aim to form a cohesive team dedicated to innovating in the Brazilian capital market, enhancing efficiency and offering competitive prices,” adds Mr. Filho.

This isn’t the first attempt to establish an exchange to rival B3. The first was CSD BR, backed by partners including the Chicago Board Options Exchange (CBOE), Santander, and BTG Pactual. More recently, there has been news about American Trading Service (ATS), a subsidiary of Americas Trading Group (ATG), which was acquired by the Abu Dhabi fund Mubadala.

In a recent interview with Valor, B3’s president, Gilson Finkelsztain, expressed readiness for this competitive landscape and emphasized his greater concern over the competition for Brazilian investors with international stock exchanges.