Brazil, according to an old joke, is the country of the future — and always will be. Could the same point be made about the prospect of competition in the country’s equity market?

When Jersey City, New Jersey–based stock exchange operator Direct Edge announced in November 2011 that it was planning to build an equities exchange in Rio de Janeiro, it prompted the fanfare that usually accompanies such news. “Direct Edge Brazil will serve as the inspiration to re-create a new and modern financial center in the city,” said Marcelo Haddad, executive director of Rio Negócios, the local investment promotion agency.

Eighteen months later Direct Edge, the fourth-largest stock exchange in the U.S., with about 12 percent of the listed equity trading volume, finds its ambitious Brazilian project mired in the market structure equivalent of trench warfare. It needs to convince the national securities regulator, the Comissão de Valores Mobiliários, that competition will be good for the Brazilian marketplace. And Direct Edge needs to reassure BM&FBovespa, Brazil’s sole exchange operator, that competition will be good for it too, despite ending the monopoly the incumbent enjoys.

....