FiNETIK – Asia and Latin America – Market News Network

Asia and Latin America News Network focusing on Financial Markets, Energy, Environment, Commodity and Risk, Trading and Data Management

Mexican Market Leaps Forward – FIX, Technology, Co-Location and Regulation

In the last 12 months dramatic changes have occurred at Mexico’s stock exchange and among its brokerage clients. Cross border partnerships, technology upgrades, new FIX infrastructure and business friendly regulatory changes have opened the Mexican market to high frequency trading (HFT).

While US regulators can be seen to scold HFT firms, the Mexican market has opened its arms. The Mexican Exchange (BMV) and its brokerage firms have upgraded their infrastructure and sought business opportunities north of the border. Earlier this year after the CME Group and the BMV signed their partnership, high frequency traders on the CME Globex trading system began to route orders to the Mexican Derivatives Exchange or MexDer. Today 90 percent of average daily volume on the MexDer comes from high frequency traders north of the border.

Mexico’s brokerage firms have completed significant infrastructure upgrades. Last spring only a few brokers in Mexico could handle a highfrequency hedge fund client and many Mexican brokers could process no more than one connection to the Bolsa Mexicana de Valores (BMV) at a time. The landscape has changed quickly and improvements in broker and exchange systems have ushered in a new capacity for speed in the transmission and execution of orders in Mexico.

Over the summer a major milestone occurred for the industry. Working with the BMV, Mexico’s brokers completed an industry-wide upgrade to FIX 4.4. The top 25 brokers are now certified with FIX 4.4 to the BMV. Leading the way, are brokerages like GBM, Interacciones, Actinver, UBS Mexico, IXE and others.

Now that Mexican brokers speak FIX 4.4, all of the order routing to the BMV can now be done through FIX allowing the BMV to retire the antiquated SETRIB protocol. The only way the BMV will allow Mexican brokers to continue to use SETRIB is by paying excessive fees, and even this will not be allowed by the end of 2011. Retiring SETRIB sets the stage for more positive changes in the industry and at the BMV.

Work is already underway to upgrade the BMV’s trade matching engine. The existing engine was built in the 1990s for a Tandem mainframe. Retiring the Tandem has many benefits. Faster order matching and processing is high on the list. In addition, more choices for application and software vendors and significant cost savings are expected. Retiring the mainframe will also eliminate the scheduling nightmares associated with the limited availability of the central mainframe for testing with the broker community. The new matching engine will be hosted on modern Unix based hardware. The release of the new matching engine and infrastructure is planned for the first quarter of 2012.

Another important milestone is the availability of a state-of-the-art co-location facility at KIO Santa Fe. The BMV infrastructure is located here and starting in October it will be easy for brokers and third party providers to collocate order routing and market data in this hosting facility leading to high throughput low latency services.

While all of the infrastructure and matching engine upgrades are momentous, they would bear no fruit without the simultaneous modernization of Mexican regulations. The initiative to modernize Mexico’s regulations, called RINO, began a year ago and phase two is due to rollout in the fall of 2011. The goal of RINO is to conform Mexican regulations to international standards. By converging with international standards, regulators hope to bring more international order flow and greater liquidity to the market, resulting in increased investment in the Mexican market.

While regulations in the US like Sarbanes Oxley and Dodd-Frank can be seen to drive businesses offshore, the regulatory changes in Mexico are removing handcuffs from businesses and facilitating opportunities. The first step forward occurred early this year with RINO I. RINO I allowed brokers to have multiple channels to the BMV’s electronic trading system. Previously all orders were in a single queue. Multiple access points per broker provides more flexibility in executing strategies and handling client requests, including separate BMV channels for program trading and orders called into the trading desk. RINO I also eliminated sizebased criteria from order management,  thus leveling the playing field in the processing of orders. RINO II takes effect on October 10, 2011, bringing more modernizations including pegged orders, improvements in crossing operations, average price operations, price delivery regardless of volume, and decimal bids for fixed income securities.

Crosses, in which a brokerage carries out a transaction through the stock exchange between two of its clients, were permitted previously but the rules were very arcane. Starting in October, the crossing operations will be vastly simplified allowing clients to simply choose whether to cross inside or outside the spread. With this modernization, the BMV hopes to repatriate orders that brokers would previously carry out in the US, where crossing orders was possible using ADRs in dark pools or at the NYSE.

In addition the RINO II regulations a very important new mid-point hidden book order. The orders execute at the midpoint, broker anonymity is guaranteed and the order priority is determined by volume. This is effectively a dark pool. Similar to Xetra, this new BMV order helps the market participants and simultaneously protects the BMV from  providers toying with moving into the Mexican marketplace.

As the regulations modernize and the FIX infrastructure hardens, opportunity beckons. Brokers are beginning to push for more high frequency trading algorithms, more efficient routing of international orders, and more sophisticated risk controls, all of which will attract even more international business. As the need for speed grows, co-location previously offered by the exchange may become more strategic, particularly to brokers wanting to attract high frequency traders.

All of this progress was made possible in large part because of the exchange’s demutualization and subsequent listing in 2008. The demutualization coincided with rule changes allowing Mexico’s pension funds or AFORES to invest. Before the rule changes, the AFORES were forced to invest almost entirely in short-term government paper. Today, Mexico’s pension funds are allowed to invest up to 25 percent, in individual stocks and shares and 12 percent in a hybrid of corporate debt and equity capital to allow companies to raise funds to expand businesses.

Considered together, regulatory improvements and infrastructure updates have morphed the BMV and the Mexican brokerage community into a thriving and modern marketplace. The BMV reported a 22 percent jump in earnings last year, with operating income increasing 70 percent in the last three months. A record six initial public offerings made it to market last year and overall trading volumes rose 50 percent in 2010. This year Mexico’s IPC index has tested and hovered near record highs.

In 2011 there are fewer IPOs, but trading volume remains strong. The order-routing agreement signed with Chicago’s CME Group has opened Mexico’s derivatives market to the world. Now, electronic trading infrastructure and investor friendly regulations have set the stage for act two.

Latin America has enjoyed a strong recovery for the most part it has sailed through the recession without lasting damage. Boosted by capital inflows, by record prices for commodity exports, by sound policies and by a heady expansion in domestic credit, the region saw economic growth of 6% last year and is on course to notch close to 5% this year. The region faces slower growth but not disaster. To up the pace, now is the time for reforms to boost productivity.

The main engines for growth in Latin America are China’s demand for minerals, food stuffs and raw materials – this looks set to continue – and consumption as tens of millions edge out of poverty and benefit from newly available credit.

Source: FIX Global Trading, 15.09.2011

Free Subscription of FIX Global Trading Magazin at http://fixglobal.com/subscription

Filed under: BMV - Mexico, FIX Connectivity, Latin America, Market Data, Mexico, News, Risk Management, Trading Technology, , , , , , , , , , , , , , , , , , , , , , , , , ,

Principal Financial Mexico Completes Roll-out of Charles River IMS

Multi-phased project automates pension and mutual fund operations; supports all asset classes .

Boston – February 22, 2011 – Charles River Development (Charles River), a front- and middle-office investment software solutions provider, today announced that Principal Financial Group Mexico, one of Mexico’s largest banking groups, has completed a multi-phased rollout of the Charles River Investment Management System (Charles River IMS) across its Principal AFORE (pensions) and Principal Fondos de Inversion (mutual fund and asset management) divisions in Monterrey and Mexico City. Principal was the first Charles River client in Mexico to implement Charles River IMS. The project is part of Principal’s initiative to ensure business growth by automating manual processes and offering more sophisticated investment strategies for investors and retirees.

Phase One of the project, completed in 2008, automated Principal’s compliance monitoring of domestic equity and fixed income instruments. This final phase provides Principal AFORE and Principal Fondos de Inversion users with automated portfolio management, trading and compliance monitoring for local and international asset classes on a single-consolidated platform. Charles River’s implementation experts also built seamless interfaces with Principal’s proprietary mutual fund accounting system and third-party pension accounting system, Soluciones. In the near future, Principal plans to support more derivative instruments, including credit and interest rate swaps.

During the rollout, Principal was instrumental in advising Charles River on Mexico’s unique requirements and workflows. Charles River IMS supports Mexican fixed income instruments, including corporate and government Bonos, CETES and UDIBONOS. Users can also manage collateral for Mexican repo transactions, including interest rate calculations.

“To stay ahead of Mexico’s evolving regulations for mutual fund and pension portfolios, we required an integrated platform that could streamline workflows and support complex investment instruments,” said Alejandro Echegorri, chief financial officer, Principal Financial Group. “With Charles River IMS, we have a truly global system that enhances our competitiveness in the region. Our traders, portfolio managers and compliance officers can now trade and monitor all asset classes, including specialized debt for local, global and emerging markets. Further, we have eliminated our dependence on spreadsheets and reduced our risk throughout the trade process.”

“Charles River provides asset managers in Mexico and worldwide with the technical infrastructure to support new asset classes and increased trade volumes for future growth,” said Spiros Giannaros, vice president-sales, Americas, Charles River Development. “The system makes it easy to analyze portfolios and implement changes in real-time. Users also have an end-to-end audit trail to validate compliance throughout the trade lifecycle.”

Charles River IMS’ advanced functionality helps Principal comply with Mexican regulations. For example, Principal AFORES can meet CONSAR (Comision Nacional del Sistema de Ahoro para el Retiro) pre-trade reporting requirements for derivatives. Principal Fondos de Inversion can adhere to CNBV (Comision Nacional Bancaria y de Valores) asset allocation rules limiting mutual fund exposure to issuers. Charles River IMS has pre-built compliance libraries containing over 1,700 regulatory and general example rules across 35 regulatory bodies of 20 countries.

Charles River supports five buy-side client firms in Mexico, and serves over a dozen firms across Brazil, Chile, and Panama.

About Principal Mexico

The Principal operates in Mexico through five separate entities: Principal AFORE (pensions), Principal Pensiones (annuities), Principal Fondos de Inversión (mutual funds and asset management), and Principal Seguros (life insurance and accumulation) and Principal Asset Management, our division focusing on large companies, Governments and Institutions.

Headquartered in Monterrey, Mexico, Principal AFORE is a private pension company that manages and administers individual employee retirement plans through the state mandatory retirement system Administradoras de Fondos de Retiro (AFORE). Since our inception in 1997, Principal AFORE has earned a top-five market position in the pre-retirement accumulation market.

Also headquartered in Monterrey, Principal Fondos de Inversión has generated impressive growth in the retail mutual funds segment and has shown market leadership in the creation of specialty products catering to high net worth clients. In addition, the company has begun important distribution agreements that will permit us to develop brand recognition and increase our assets under management.

Source: CRD, 22.02.2011

Filed under: Latin America, Mexico, News, , , , , , , , , , ,

Follow

Get every new post delivered to your Inbox.

Join 83 other followers