LOOKING TO MAKE ITS FIRST EXPANSION OUTSIDE the U.S., Direct Edge, an upstart electronic stock exchange, decided in November to launch a bourse in Brazil to take advantage of the country’s fast-growing equity market. But rather than open in São Paulo, the Brazilian business capital that’s home to the incumbent BM&FBovespa stock exchange, Direct Edge will set up shop in Rio de Janeiro. The city’s booming asset management industry was a key factor in the decision, as was the fact that the Comissão de Valores Mobiliários, the Brazilian securities regulator, is based there, says Anthony Barchetto, head of strategy at the Jersey City, New Jersey–based firm.

“The city government is very keen to bring a proper exchange back to Rio,” Barchetto explains. “For us that is one of the key reasons we opted for Rio. That political support is very beneficial, in particular when we have to talk to officials of the CVM.”

Rio de Janeiro is known as the cidade maravilhosa — “the marvelous city.” Today more than ever, there is a great deal to marvel at.

Brazil’s second city, which has languished for decades in the shadow of its larger rival to the southwest, is enjoying an unprecedented economic boom. The local asset management industry is thriving, especially hedge fund managers who find that Rio’s financial heritage, natural beauty and easygoing lifestyle make an attractive environment for doing business. The discovery in the past decade of vast oil reserves some 250 kilometers (155 miles) off the Rio....