(Bloomberg) -- Credit Suisse Group AG is losing ground in Brazil equities trading after Morgan Stanley and local brokerage XP Investimentos pushed the European bank out of second place, riding the stock exchange’s first volume increase in three years.

UBS Group AG, the No. 1 stock trader since 2014, expanded its lead in the first three quarters of 2016 and posted the biggest market-share gains among Brazil’s top financial firms, according to data compiled by the companies.

Brazilian equities entered a bull market this year on speculation President Michel Temer’s new government would win approval for reforms needed to cut spending. Daily average stock trading rose 3 percent through September compared with the first nine months of last year, to 6.98 billion reais ($2.16 billion), according to BM&FBovespa SA, the country’s only stock exchange. Those gains could accelerate if interest rates start to drop this quarter as forecasts compiled by Bloomberg predict.

“When the central bank begins to cut rates, individuals will probably take more risk, and that will be fuel for the stock exchange,” Daniel Mendonca de Barros, head of Latin American equities at UBS, said in an interview in Sao Paulo. “Foreign investors are still skeptical the spending-cap bill will be approved -- it’s not priced in. If the government succeeds, we’ll see even more flow.”

Credit Suisse once dominated stock trading in Brazil, but that was before UBS’s purchase of Sao Paulo-based Link Investimentos in 2013, a purchase that gave the company the country’s fastest-growing brokerage, which has been growing mostly by servicing quantitative investors. Zurich-based Credit Suisse has also been reining in some international trading businesses as it shifts its focus to Asia and wealth management. The firm’s head of equities and fixed income for Latin America, Marcelo Kayath, left earlier this year.

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Credit Suisse’s strategy shift echoes developments at other large European financial companies. Frankfurt-based Deutsche Bank AG said earlier this year it was moving trading outside Brazil and London’s Barclays Plc said it was closing its Brazilian unit.

Credit Suisse ranked fourth in the first three quarters of 2016 after posting the biggest market-share loss. A spokesman for the bank declined to comment on Brazil’s equity-trading market.

Morgan Stanley’s rise to second place, with 10.9 percent of the market, is a result of the New York-based company’s “continued exposure and commitment to Brazil while many competitors retreated,” Tiago Pessoa, co-head of equity trading for Latin America, said in an interview.

The firm has one of the biggest equity-analyst teams in Latin America, with 40 professionals covering 160 companies in the region. Morgan Stanley dominates the market for total-return swaps, a derivative that gives international investors the same payoff they would get by owning shares or investing in an index without having to open a local account or deal with other Brazilian investing regulations.

Global Scale

“We are a global player and have scale in this business,” said Eduardo Mendez, Morgan Stanley’s other Latin America equity-trading co-head. For a hedge fund that participates in dozens of different markets, for instance, the bank can provide access to multiple regions while consolidating clients’ collateral requirements.

XP, backed by Greenwich, Connecticut-based private equity firm General Atlantic, accounted for 10.8 percent of the market for the first three quarters, up from 9.9 percent in the same period of 2015.

“About 95 percent of our trading flow is from local investors, and 35 percent is retail,” said Carlos Ferreira, a partner at XP responsible for the Brazilian brokerage. “We’ve been investing in education for retail customers, and also providing new technology and trading platforms, such as mobile phones.”

The number of retail clients at XP climbed to about 50,000 from 40,000 at the beginning of the year, Ferreira said, adding that customers’ equity holdings more than doubled to 8 billion reais from 3.8 billion reais.

Market share at Banco Bradesco SA, Latin America’s second-biggest bank by market value, rose to 4.2 percent from 3.2 percent. Including the bank’s other brokerage firm, Agora, and figures from HSBC Holdings Plc’s Brazilian unit, which Bradesco took over in July, the bank accounted for 8.3 percent of the market, approaching Credit Suisse’s 8.8 percent.

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“The HSBC acquisition complements and reinforces our efforts over the past three years to improve the quality of our management, products and research, and we have a lot of room to grow,” said Juan Briano, global head of markets at Osasco-based Bradesco. “Over the next few years we hope to establish Bradesco’s brokerage firm among the top four if not among the top three.”

Briano said his bank plans to use its corporate access, balance sheet and processing ability to increase trading, adding that Bradesco is also well-positioned to take a leading role in the equity-clearing business. That’s now handled by the stock exchange, but will be transferred to market participants next year.

Prospects for the market are looking bright again after a steep downturn in recent years that included a contraction in gross domestic product, according to Briano.

“I do expect the recovery in Brazil to continue, as hopefully we will hit an inflection point on the curve of economic growth toward the end of the year,” he said. Brazil “will start to see that translate in real GDP expansion and better company earnings results in 2017.”

To contact the reporter on this story: Cristiane Lucchesi in Sao Paulo at

To contact the editors responsible for this story: Peter Eichenbaum at, Steve Dickson

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