By Luciana Magalhaes

SAO PAULO (Reuters) – A Rio de Janeiro-based stock exchange is expected to start testing early next year, signaling 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, 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, according to Base CEO Claudio Pracownik.

Base will initially trade equities, real estate funds, and exchange-traded funds (ETFs), utilizing its own clearing and settlement structure. Later, it may expand to futures and derivatives trading, Pracownik noted.

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 over a century of history, 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.

However, B3 also remarked that a new exchange "may also fragment liquidity and consequently impact the total cost of transactions."

Base's launch is backed by Rio de Janeiro Mayor Eduardo Paes, who earlier this year signed a law reducing the service tax on stock exchange activities from 5% to 2%.

The sustainability of two exchanges in Brazil is a hot topic 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's Mackenzie University.

> "We are facing an uncertain future with fiscal challenges and the likelihood of even higher key interest rates," he added.

B3 has less than 500 listed companies and has not seen an initial public offering (IPO) in three years. Liquidity is heavily focused on large-cap stocks, and much capital typical for equities is instead in fixed income due to Brazil's high interest rates.

Marco Saravalle, chief strategist at independent investment firm MSX Invest, noted that the new exchange, expected to attract high-frequency investors, could 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.