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

Mexico, The Emerging Latin American Powerhouse

TABB Forum:  For the past few years, coverage of Mexico in the U.S. media has largely been dominated by stories of violence stemming from the country’s drug cartels. Lately though, the media have increasingly been turning their attention to the story of Mexico’s booming economy, and new president Enrique Peña Nieto’s bold moves to radically reshape it. This robust growth in Mexico looks set to continue for some time, which has led the Financial Times to label Mexico as the “Aztec Tiger.”1

MexDer, the nation’s only futures exchange, has been taking steps to ensure that it grows apace with the nation’s economy by making substantial upgrades to its matching engine, while continuing to make it easier for foreign investors to access the market. As a result of these changes, as of yesterday, April 14, north-to-south routing to MexDer via CME Group’s Globex® platform is available on Trading Technologies. You can read the details in the news release that we published today and on  TradingTechnology website.

The Aztec Tiger 

A perfect storm of positive influences is coming together to make Mexico one of the world’s emerging economic powerhouses. Mexico has a young and growing population, low levels of government debt and low inflation. The country is developing into a leading exporter due in part to widespread implementation of new manufacturing processes, but also due to the fact that Mexico has free trade pacts with 44 countries—more than any other nation on earth.These forces have combined to make Mexico’s economy one of the few bright spots in a global economy still working off the hangover resulting from the credit bubble. Mexico’s economy grew at around four percent in 2012, quadruple the growth rate of Latin America’s largest economy, Brazil.2 The Mexican peso hit a 19-month high against the U.S. dollar in March, and has outpaced 16 other major world currencies over the last month.3

With its growth track record and favorable conditions for growth to continue, a Nomura Equity Research report in July 2012 predicted that Mexico would overtake Brazil to become the largest Latin American economy within the next decade.4 In addition, Standard & Poor’s and Fitch have indicated that in the near future, they are likely to upgrade Mexico’s debt, which is already investment grade.5

A Pact for Mexico, An Open Door for Growth

Much of the optimism for Mexico’s future can be traced back to its new president, Enrique Peña Nieto. He hails from the Institutional Revolutionary Party (PRI), which ruled Mexico uninterrupted for 71 years and was identified with corruption and inefficient bureaucracy. That being said, President Nieto is quickly making himself known as a risk taker, willing to take on fights in which none of his predecessors seemed willing to engage.

Within two days of his swearing-in last December, Nieto’s PRI signed a “Pact for Mexico”6 with the opposition National Action Party (PAN). This pact outlines 95 proposals to modernize and liberalize Mexico’s economy. Nieto began by taking on the richest man in the world, Carlos Slim, by announcing plans to foster competition in the telecommunication and television industries, which are currently dominated by monopolies. Later this year, Nieto is expected to propose his most significant change, opening up Mexico’s energy market and allowing the state-run oil concern Pemex to work with the world’s largest oil companies. It’s expected that these reforms, once enacted, will increase Mexico’s GDP growth from four percent to six percent a year.7

Making MoNeT

In parallel, MexDer and the Mexican government have done quite a bit to attract foreign investors, and to make it easy for them to access the market. Perhaps one of the most significant changes has been the development of the MoNeT matching engine, which went live on Bolsa Mexicana de Valores (BMV), the equities segment, last fall.

The MoNeT matching engine was designed to attract high-frequency traders, mainly from the U.S. and Europe. It boasts internal latencies of 90 microseconds, which is faster than the 110 microseconds of NASDAQ or 125 microseconds at the London Stock Exchange.8 BMV volumes have increased 30 percent to 40 percent since the launch of the new matching engine.9For international traders and investors, accessing MexDer is straightforward. The north-to-south routing available via CME Globex allows any TT customer with an existing CME infrastructure to route orders to MexDer’s matching engine. MexDer is also accessible now in TT’s MultiBroker environment, which is currently available in beta. Additional information regarding how CME users can access MexDer is posted on the CME website.There are a number of other reasons why doing business in Mexico is easier than most other Latin American countries. Unlike Brazil, there is no withholding tax of any kind on foreign investment. The Mexican peso is a freely traded and easily convertible currency, and MexDer’s clearing house, Asigna, accepts U.S. dollar-denominated collateral.

La Oportunidad Está En Todas Partes

Owing to the fact that the U.S. does $1.5 billion per day in trade with Mexico,10 the Mexican markets are, predictably, highly correlated with America’s. North-to-south customers trading MexDer via Globex have access to a number of financial futures that allow for arbitrage opportunities against their American counterparts.

MexDer lists the IPC index of the BMV, which in general tracks closely to the S&P 500. The full Mexican yield curve is available on MexDer, from one-month bills to 30-year bonds, and it converges with the U.S. yield curve. Finally, MexDer lists a Mexican peso/U.S. dollar FX future, one of the 20 biggest FX futures contracts in the world by volume, which sets up arbitrage opportunities with the CME’s equally liquid peso/U.S. dollar future. In a recent MarketsWiki interview, MexDer CEO Jorge Alegria indicated that going forward, the exchange would likely look to list commodity futures linked to similar contracts listed on CME Group.

BMV IPC vs. S&P 500
Chart obtained from Yahoo! Finance

The ascent of the Aztec Tiger is no sure thing. There is always the danger of President Nieto’s PRI party losing its appetite for reform and returning to its old ways. There’s the chance that the hiccups in the U.S. economic recovery may impact Mexico, given that 30 percent of the Mexican economy is tied to U.S. exports. There may even be signs that Mexico’s economy is stalling already, which led the central bank to reduce interest rates for the first time since March 2009. Either way, TT users now have the ability to participate in one of today’s most interesting markets.

1 Thomson, Adam. “Mexico: Aztec tiger.” Financial Times. January 30, 2013.
2 Rathbone, John-Paul. “Mexico’s reform plan lifts hopes for greater prosperity.” Financial Times. March 20, 2013
3 Kwan Yuk, Pan. “Mexican peso hits 19 month high”. Financial Times. March 14, 2013.

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, Trading Technology, , , , , , , , , , , , , , , , , , ,

Mexico: BMV Mexican Stock Exchange Aims to Attract High Frequency Traders with Platform Upgrade

Mexican stock exchange operator Bolsa Mexicana de Valores detailed its investment in a new trading platform that the bourse hopes will reduce execution time for trades while also boosting trading activity.

The platform will enable the bourse to complete a trade in 90 microseconds, or to facilitate around 100,000 transactions per second, putting it on par with the Singapore Stock Exchange and besting the New York Stock Exchange’s completion rate of 150 microseconds per trade, the Mexican exchange said. The platform, which began handling stock transactions on Sept. 3 and will handle derivatives trades starting in December, cost the bourse 150 million pesos ($11.5 million.)

The Mexican exchange hopes the updated platform will attract a greater number of sophisticated international market participants who are interested in executing algorithmic trades. Currently, such high-frequency trades account for 17% of the volume operated on the bourse, versus 70% of the volume in the U.S., the exchange said. In August the exchange averaged 1.9 million stock transactions a day.

The new platform also incorporates filters to prevent erroneous trades, for example by detecting price action that is out of sync with the market or unusually high volumes. In April the local brokerage house of Bulltick Capital Markets triggered a mini “flash crash” by entering an erroneous trade, knocking Mexico’s benchmark IPC stock index down about 2 percentage points.

Source: FIF Financial Information Forum, 17.09.2012

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, Trading Technology, , , , , , , , , , , , , , , ,

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, , , , , , , , , , , , , , , , , , , , , , , , , ,

BMV Mexican Stock Exchange Rebalancing of IPC and adustment of MSCI Country Index

The BMV Mexican Stock Exchange – IPC index will be rebalancing go into effect as of today’s ( Tuesday 31.08.2010) close.

The IPC names that will be added to the index are: ICHB, CHDRAUIB, LABB and ARCA. The names that will leave the index are: GFAMSA,AUTLAN and ASUR.

MSCI country Index will also rebalance and go into effect as of today’s ( Tuesday 31.08.2010) close.

Mexico is expected to be the market with the largest recipient of inflows. Among the names that will have the largest positive impact are: AMX and WALMEX, while ALFA is expected to have the largest negative impact (albeit marginal).

Source: IXE 31.08.2010

Filed under: BM&FBOVESPA, Exchanges, Latin America, Mexico, News, , , , , , , , ,

ETF: BlackRock ETF Industry Review Latin America Industry Review – Year End 2009

BlackRock has just published its Latin America Industry Review Year End 2009 report. This report is a review of the Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs) listed globally.

At the end of 2009 the Latin American ETF industry had 17 locally domiciled ETFs, 211 exchange listings, and assets of US$9.84 Bn from three providers on two exchanges.

There are 169 ETFs cross listed in Mexico at the end of December 2009 from eight providers, while there are 340 ETFs registered for sale in Chile from 10 providers, and 277 ETFs registered for sale in Peru from 12 providers.

Read full report of BlackRock_ETF_Latin_America_Review_2009

Source:MondoVisione, 05.03.2010

Filed under: Argentina, BM&FBOVESPA, BMV - Mexico, Brazil, Central America, Chile, Colombia, Exchanges, Latin America, Mexico, News, Peru, Services, , , , , , , , , , , , , , , , , ,

Mexico: Economic recovery, but cautious stance – March 2010- IXE-BANIF Monthly Analysis

Risk aversion at international level should be the tone of the market, as seen last month. Investors should maintain their conservative stance, carefully cherry picking. While Mexico last month presented better than expected GDP figures for 2009 (down 6.5% YoY), inflation keeps trending up and interest rate should move higher, but we do not believe until 2H10 in a prudent and gradual pace.

We set our strategy for the suggested portfolio in March based on specific stock catalysts rather than on sector or top down view. We maintained a high weight on America Movil (AMXL) and GMexico (20% each) and included Autlan and Mexichem. AMXL is still underperforming the IPC and it has been showing a weak performance since it announced the corporate restructuring process involving CGT and TII. We believe the key short term catalyst is the disclosure of details and amount of synergies with this deal. GMexico was strong last month and we expect the uptrend to continue this month. We expect Autlan to present very good sales performance and prices should pick up, given the steel sector recovery worldwide. As for Mexichem, we expect margins to improve as it is entering the chlorine market. See more details of each stock catalyst and risks on pages 02 and 03.

Revising our GDP growth estimate to 4.1%, from 2.9%

After the release of better than expected GDP figures for 2009, despite a contraction of 6.5% YoY, we revised our estimates for 2010 upwards. We now project a GDP growth of 4.1% for Mexico in 2010, versus our previous forecast of 2.9%. We expect improvement from exports, especially services and we highlight the stronger than expected recovery in 4Q09, on a quarterly basis.

Inflation & interest rates to trend up

While annual inflation already suggests it is time to start implementing a more severe monetary policy, we believe the Central Bank will only change interest rates if there are concrete signs that the output gap is closing and idle capacity is close to historical highs. Inflation has been affected by local prices of fuel, electricity and public transportation; hence higher interest rates would not be efficient to bring it down towards the yearend goal. While the market consensus point to a hike already in July/10, we see a more gradual and prudent pace starting at a later time.  We do not anticipate higher interest rates on the meeting on March 19. We believe it should remain at 4.50% this time, but increase to 5.50% until yearend.

Read full report Mexico – Monthly Allocation – March10

Source: IXE, Banif, 01.03.2010

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, Risk Management, , , , , , , , , , , ,

BMV Mexican Stock Exchange’s Market Performance Report January 2010

Click here to download  SE_BMV Mexican Stock Exchange’s market performance report for January 2010

Source: BMV , 26.02.2010

FiNETIK recommends:

BMV- Bolsa Mexicana de Valores – December 2009 Performance Report

BMV- Bolsa Mexicana de Valores – November 2009 Performance Report

BMV- Bolsa Mexicana de Valores – October 2009 Performance Report

BMV- Bolsa Mexicana de Valores – September 2009 Performance Report

BMV- Bolsa Mexicana de Valores – August 2009 Performance Report

BMV- Bolsa Mexicana de Valores – July 2009 Performance Report

BMV – Bolsa Mexicana de Valores – June 2009 Performance Report

BMV – Bolsa Mexicana de Valores – May 2009 Performance Report

BMV – Bolsa Mexicana de Valores – April 2009 Performance Report

BMV – Bolsa Mexicana de Valores – March 2009 Performance Report

BMV – Bolsa Mexicana de Valores – February 2009 Performance Report

BMV – Bolsa Mexicana de Valores – January 2009 Performance Report

BMV – Bolsa Mexicana de Valores – December 2008 Performance Report

BMV -  Bolsa Mexicana de Valores – November 2008 Performance Report

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, , , , , , , , , , , , , ,

BMV Mexican Stock Exchange’s Market Performance Report December 2009

Click here to download BMV Mexican Stock Exchange’s market performance report for December 2009

Source: BMV , 05.02.2010

FiNETIK recommends:

BMV_Mexican_Stock Exchange’s market performance report for November_2009

BMV- Bolsa Mexicana de Valores – October 2009 Performance Report

BMV- Bolsa Mexicana de Valores – September 2009 Performance Report

BMV- Bolsa Mexicana de Valores – August 2009 Performance Report

BMV- Bolsa Mexicana de Valores – July 2009 Performance Report

BMV – Bolsa Mexicana de Valores – June 2009 Performance Report

BMV – Bolsa Mexicana de Valores – May 2009 Performance Report

BMV – Bolsa Mexicana de Valores – April 2009 Performance Report

BMV – Bolsa Mexicana de Valores – March 2009 Performance Report

BMV – Bolsa Mexicana de Valores – February 2009 Performance Report

BMV – Bolsa Mexicana de Valores – January 2009 Performance Report

BMV – Bolsa Mexicana de Valores – December 2008 Performance Report

BMV -  Bolsa Mexicana de Valores – November 2008 Performance Report

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, , , , ,

BMV Mexican Stock Exchange Rebalancing of IPC,INMEX and IMC30 index

The Mexican Stock Exchange BMV announced their semi-annual IPC, INMEX and IMC30 index rebalancing. The changes will go into effect as of February 2, 2010.

The three stock that will join the IPC index are: ASURB, GFAMSAA and GRUMAB.
The three names that will leave the IPC index are: ICHB, OMAB and SIMECB.

For the new constituent list of  IPC and IRT please click here
For the new constituent list of  INMEX and IMC30 please click here

Source: BMV-Bolsa Mexicana de Valores, 07.01.2010

Filed under: BMV - Mexico, Exchanges, Latin America, Market Data, Mexico, News, , , , , , ,

Mexico:After the Storm – January 2010 IXE-BANIF Market Analysis

We believe stock selection will be key in January and throughout 2010. The stock market partial rebound in 2009, reflecting better than expected economic figures, is over and although we expect another wave of optimism, we just cannot ignore risks. We focused our strategy for the first month of the year based on each stock catalysts rather than sector or top down approach (see pages 02 to 04 for stock catalysts). Read full Market Analysia Mexico – January 2010

On a broad view, after the peak of the crisis and stock market partial rebound last year, we believe investors will continue searching for investment opportunities in emerging markets. More recently the tone has changed to risk aversion, given Dubai’s debt negotiation process and following debt downgrades from Greece to Mexico. Thus, we expect stocks to perform based on individual investment thesis and investors to also focus on risk management in the short term. We are bullish for the year 2010, given: (i) the easy comparison with 2009. Hence the news flow should be positive; (ii) Positive macroeconomic environment. After an expected GDP contraction of 7.1% in 2009, we expect growth of 2.9% YoY in 2010. We do not forecast a strong hike in interest rates this year. We expect rates to move from 4.5% to 5% until yearend, starting only in 2H10, versus consensus of a hike already in April. We forecast inflation at 4.85%, below consensus of 5% and relatively stable FX (below the MX $13/USD); (iii) No major politics disruption – presidential election will only take place by 2012. As for politics, reforms could be an upside; (iv) the debt downgrade, swine flu, strong contraction from remittances, oil prices at USD40 at the beginning of the year, what else could be wrong in 2009? We believe 2010 starts in a positive mood, although we do not foresee strong Christmas sales in 2009 to act as a catalyst in January; and (v) despite the turmoil Mexico maintained its credibility towards economic stability and its international reserves should end 2010 above USD 92bn, while 2009 above 2008’s level. This positive outlook should call attention from LT investors to Mexico.

Linked to US for the bad and for the good

While many turned their heads to investing in Mexico during the crisis, given its proximity and link to the US economy, we might see the opposite in the coming months. Some could argue, why invest in Mexico if US should also display improvement? The answer lies on specific stock details – not all will benefit with the same intensity from the recovery in either US or Mexico. However, it is easier to find an investment angle not covered in Mexico, compared with the US stocks. Moreover, the country was severely penalized during the crisis and now has plenty of room to just recover and improve.

Risk: Volatility before rally

We would not be surprised by some volatility in the middle of this recovery. Although this is a suggested portfolio for Jan/10, we recommend investors to look at the medium term, as companies will be more profitable in 2010 and stock prices will reflect this improvement.

Source: IXE-BANIF, 04.01.2010

Filed under: BMV - Mexico, Exchanges, Mexico, Risk Management, Wealth Management, , , , , , , , , , , ,

Mexican IPC Index ETF “iSHARES NAFTRAC” listed on Spain’s LATIBEX

BGI IShares listed it’s Mexican ETF (TRAC) NAFTRAC on the Spanish LATIBEX exchange on November 19th, 2009.

This is the first time a Mexican traded TRAC is listed abroad. It marks a significant recognition of the Mexican financial markets and in particular for BMV – Bolsa Mexicana de Valores (BMV) the Mexican Stock Exchange in it’s international expansion.

The NAFTRAC tracks the top 35 traded Mexican stocks according to the BMV IPC index. The TRAC was listed on April 16th, 2002 and was the first such instrument to be listed in Mexico and Latin America, and has become one of the most traded instruments in Mexico’s Stock Exchange.

Barclays Global Investors (BGI) Mexico, is underwriting and listing the TRAC on LATIBEX in Madrid, Spain.

Note: TRAC (Títulos Referenciados a Acciones) are the Mexican equivalent for ETF’s traded on the stock exchange and issued by BGI IShare Mexico

Note: BMV IPC tracks companies of global influence like WalMex, FEMSA (CocaCola), Telmex, Modelo, CEMEX, Bimbo, AMX, Bolsa and others with global operations and revenues. See latest performance of IPC here.

Source: BMV, 19.11.2009
Summarized translation by FiNETIK from BMV press release 19.11.2009

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, Services, , , , , , , , , , , , , , , ,

BMV – Bolsa Mexicana de Valores October 2009 Performance Report

Click here to download Mexico’s Stock Exchange market performance report for October 2009.

Source: BMV , 18.11.2009

FiNETIK recommends:

BMV- Bola Mexicana de Valores – September 2009 Performance Report

BMV- Bolsa Mexicana de Valores – August 2009 Performance Report

BMV- Bolsa Mexicana de Valores – July 2009 Performance Report

BMV – Bolsa Mexicana de Valores – June 2009 Performance Report

BMV – Bolsa Mexicana de Valores – May 2009 Performance Report

BMV – Bolsa Mexicana de Valores – April 2009 Performance Report

BMV – Bolsa Mexicana de Valores – March 2009 Performance Report

BMV – Bolsa Mexicana de Valores – February 2009 Performance Report

BMV – Bolsa Mexicana de Valores – January 2009 Performance Report

BMV – Bolsa Mexicana de Valores – December 2008 Performance Report

BMV -  Bolsa Mexicana de Valores – November 2008 Performance Report

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, , , , , , , , ,

Mexico’s MexDer seeks high class global partners

The financial crisis has slowed trading at Mexico City’s derivatives exchange MexDer, and led to some nasty smells in the OTC market. But participants are sure this is a temporary dip. Mexico’s market, led by MexDer, is full of drive. The exchange has up-to-date technology, is easily accessible to foreign traders, and could be on the verge of attracting a wave of new interest. FOW’s Agnieszka Troszkiewicz reports.

Jorge Alegría Formoso, chief executive of Mercado Mexicano de Derivados, is heading for Huatulco, a tourist resort in southern Mexico. But instead of taking some time off, he is attending the annual convention of Mexican pension funds.

As Alegría explained when FOW caught up with him, he is relentlessly working to attract new market participants to MexDer, and pension funds, known as Afores (Administradoras de Fondos de Retiro), are the country’s largest institutional investors.

They are increasingly given permission to use a wider range of financial products, presenting a big opportunity for MexDer.

On October 1, President Felipe Calderón proposed allowing Afores to invest freely in stocks, which would involve using single stock options. The reforms, which also include allowing Afores to invest in infrastructure and IPOs, have yet to be approved by the National Commission for the Pension System (Consar) and by Banco de Mexico, the country’s central bank.

“This is very good news for MexDer,” Alegría says. “Because of the changes in the regulation, we are very bullish on individual stock options, and potentially individual stock futures.”

Big ambitions

For an 11 year old exchange, MexDer has come a long way. “We took, and we are taking, the necessary measures to be the market of choice for the conduct of heavy activity in Mexico and Latin America,” Alegría says.

MexDer’s “dual strategy” for the next few years involves attracting both domestic and international investors.

On the local front, the main challenge is on the training side, Alegría explains: “Teaching funds; teaching the local investor base about the advantages of using derivatives and how to use them.”

He also wants the local banks to start favouring exchange-traded derivatives above the over-the-counter market.

Internationally, MexDer wants to attract high frequency traders and global players. “We’re actively promoting the very easy access to the exchange,” Alegría says. “We have big advantages on the regulatory and the clearing side to attract international players to our market.”

Seeking out customers

Others have noticed Alegría’s eagerness. “He’s been pounding the streets in North America, Europe and Asia about his exchange,” says Gerald Perez, managing director of Interactive Brokers UK, an online broker in London that provides direct market access (DMA) to MexDer.

“He’s been very receptive to hearing about needs from remote members, as well as customers and independent software vendors. The exchange has come up with solutions relatively quickly, compared to other exchanges in the same categories,” Perez says.

Interactive Brokers’ customers include individuals, hedge funds, brokers and proprietary trading firms. Those trading on MexDer mainly come from Europe and the Americas. “As we become more global, they want to diversify their portfolios; they want to take advantage of more opportunities; they want to go into emerging markets,” Perez says.

“It’s easy to connect to MexDer through brokers like us, which creates arbitrage opportunities,” he adds. Mexico’s location also makes MexDer an attractive marketplace for both north and south Americans.

Ryan Keough, managing director at SunGard Global Trading in New York, is in charge of business development in Latin America. He says that SunGard’s clients typically opt to trade more than one market in a region. “In Latin America, we have clients who are Spanish banks; but also some of the American banks, being full service providers, need to have a Mexican presence,” Keough says.

MexDer has been vigorous in its quest to reach out to remote members and increase its volumes. With support from the local authorities, the exchange took the first steps to modify local regulations to create an omnibus account scheme, allowing foreign financial firms to trade through MexDer members. In 2005, the exchange authorised remote trading.

MexDer was helped by the US Commodity Futures Trading Commission, which in 2006 allowed its IPC equity index futures to be used by traders in the US. And the abolition of withholding tax for foreign participants boosted foreign interest in the Mexican exchange.

MexDer accepts collateral in dollars without requiring that it be converted into pesos or transferred to a Mexican-based account. It also allows the use of US Treasury notes, bonds and bills as margin.

The exchange has also worked to improve its technology. “Communication, communication, communication,” says Gloria Roa Béjar, head of BBVA Bancomer Derivados in Mexico City.

She points to connectivity as an area of progress for the exchange. The Fix Protocol has allowed fast direct access to the exchange, encouraging independent software vendors to write to the exchange.

ISVs have used Fix to build gateways and interfaces and add MexDer to the list of exchanges they offer, further increasing participation from overseas. “That’s an indication that the exchange is moving forward and meeting the needs of technology partners,” Perez says.

Technical upgrades

The exchange has chosen software vendor RTS Realtime Systems Group to supply its new front end trading platform. John Dempsey, vice-president for business development at RTS in Chicago, says the platform helped put local players on a more level playing field with the rest of the derivatives markets.

“It gave them a new set of tools to be able to manage their risk and get their trading done, perhaps in a more efficient and faster way,” he says, adding that the front end solution has brought a lot of interest from abroad.

“They really needed to get a single solution into the hands of the options market makers as well as into the traders and their customers, and to have a consistent, current capability to attract traders and so on from the outside and keep in line with the rest of the world. And it’s working!” Dempsey says.

To increase algorithmic trading, MexDer plans to introduce co-location in November. Keough at SunGard is convinced that co-location is an excellent service for MexDer to provide to its members and that it will improve the technical aspects of electronic trading, such as matching engines and the ability to handle big volumes.

With co-location, volumes should increase. But to be really attractive to algorithmic traders, the exchange needs more liquidity.

Falling volume

Although MexDer has taken several important steps to facilitate foreign participation in the past few years, its winning streak has been broken by the global financial crisis. As in most parts of the world, interest rate derivatives, which are at the heart of MexDer’s product suite, were hit worst by the financial crisis.

Alegría admits this. “The deleveraging process outside and inside Mexico affected the activity of the banks and their risk positions, and we were hit by that,” he says.

But he emphasises that the situation was the same everywhere, especially in the interest rate market.

MexDer’s total trading volume fell from nearly 229m contracts in 2007 to 70.2m in 2008, but that figure gives a misleadingly bad impression.

Almost all of the decline was due to a technical reconfiguration of one contract – the exchange’s benchmark future on the main interbank interest rate, the 28 day Tasa de Interés Interbancaria de Equilibrio, or TIIE 28.

A change to the product in September 2007 meant that market participants needed to trade much less often. Annual volume plunged from 220.6m contracts in 2007 to 57.9m in 2008. So far, 28.9m contracts have been traded in the January-August period this year, a monthly average of 3.61m, down from last year’s average of 4.83m.

Roa points out that in times of turmoil, market participants shifted from the TIIE 28 to peso/dollar futures and longer term interest rate swap futures of three and 10 years.

Fight for liquidity

“We were once among the 12 largest derivatives exchanges. We would like to regain our place,” Roa says.

The challenge for the market, she argues, is to raise volumes and liquidity without compromising financial strength. The obstacles to bringing in more traders include the heavy paperwork needed to open an account and the language barrier. But Mexico can compete on speed, Roa claims, and MexDer is changing its servers to be fast enough.

Above all, liquidity remains the main challenge and precondition for winning new customers. But falling volumes have been discouraging, especially to algorithmic and proprietary traders who take large positions.

Due to the financial crisis, several brokers and prop traders, which before the crisis had wanted to get involved in the exchange, delayed their plans to start trading.

One source at an international bank says the bank put its plans to trade on MexDer on hold due to the decline in volume and high connectivity costs.

“Our customers that desire access are high volume, algorithmic proprietary trading groups. They would either need co-location or expensive high bandwidth data lines,” the source says. “So with the lower volumes and high cost of access, we have put MexDer on hold.”

Instead, the bank is now focused on accessing Brazil’s BM&F Bovespa, which even though it has a far more cumbersome process for opening third party omnibus accounts, benefits from an order routing agreement with CME Group. All the bank’s customers have access to the Globex order routing system, through which BM&F’s contracts can be traded.

And although MexDer allows remote non-clearing membership, the cost of accessing the exchange was “the next biggest issue” after the drop in liquidity, the source says.

Alegría disagrees with the notion that connecting to MexDer is costly, arguing that execution and clearing costs are comparable with similar products on other emerging market exchanges. But he admits that connectivity costs may vary, depending on the location of the member.

The exchange has been “adding a lot of efficiencies in terms of access, no taxes and on clearing, that makes our market more easy to access and trade, thus reducing all-in costs as well,” he says. “We are of course exploring some reduced fee schedules for liquidity providers, for certain market making programmes that we will publish in the future.”

On the bright side

Though the crisis has affected the exchange’s activities, market participants believe it has passed the test. “Although our volumes decreased, it was a very solid market,” Roa says, pointing to the fact that there was no default in the clearing house and margin calls were honoured. “The September 2008 crisis was one of these big tests of the market and we survived without problems. A solid clearing house and solid clearing members,” she says.

“The exchange did pretty well from the risk management point of view,” Alegría says. “I guess all the exchanges have demonstrated that the model works well… This is the model that should be used in the future for regulation and preferred use of derivatives.”

Trouble over the counter

Alegría’s confidence about the benefits of exchange-traded derivatives is in sharp contrast with the sour mood in the OTC market.

Last year, as in many emerging markets from Poland to Brazil, some Mexican companies suffered mark-to-market losses from positions in currency derivatives, which totalled about $15bn.

The losses almost led to the collapse of several Mexican household names. Brewer Grupo Modelo, conglomerate Alfa, cement maker Cemex and tortilla maker Gruma were among companies that took heavy losses on the contracts. Comercial Mexicana, the country’s major food retailer, sought bankruptcy protection last year after losing up to $1.1bn on non-deliverable forward contracts it had made with international banks.

In 2007 and 2008, the companies bet against the depreciation of the currency by selling foreign exchange options in the offshore market, due to the strengthening of the peso before August 2008.

The contracts allowed the companies to sell dollars at low cost when the peso rose in value. But, at the same time, they forced them to sell dollars at a loss if the Mexican currency fell beyond a set limit.

A month after the collapse of Lehman Brothers, the peso dropped by more than 30% and the companies were forced to sell double the amount of US dollars at the higher price.

Pablo Perezalonso Eguía, partner at Ritch Mueller law firm in Mexico City, says banks are now more careful about the type of products they offer clients, and about how they document their transactions. “Especially, they are more careful about requesting collateral, because in many of the instances there was no collateral requested in these transactions, which complicated things for banks and broker-dealers,” he says.

There are now discussions about changing a standard local master agreement to make things more clear, Perezalonso says.

Evan Koster, partner at Dewey & LeBoeuf in New York, adds that “From a banker-dealer perspective, there is a lot of hesitancy to do derivatives with Mexican counterparties as a result of that experience.”

The obstacles, he says, are now more than regulatory – they are related to perception and credit.

Smart state

This bad experience of derivatives in Mexico contrasts sharply with the clever use of OTC options by the Mexican government, which successfully hedged its revenue from oil taxes during one of the most turbulent periods for the oil price (see FOW Awards on page 22).

“Here we have an interesting contrast of prudent use of financial products for financial planning and risk management, and not so prudent use of this type of products,” says Gerardo Rodriguez Regordosa, director of public credit at the Mexican Ministry of Finance and Public Credit.

“The fact that some people did not make responsible use of financial products does not imply that the product itself is not something good. I think that people understand that difference very well in the market,” Rodriguez says.

Nevertheless, the Treasury’s success has failed to reverse the poor public image of derivatives in Mexico. Participation in general has been restrained. “When there is turmoil in such hard times, people abstain from derivatives at all,” Roa observes. “They don’t make distinction between the OTC and organised markets. We have seen, as a market as a whole, a decrease in volume in 2009.”

But she asserts that people should differentiate between the organised and OTC markets: “Derivatives got a bad name after the crisis, but the organised markets are transparent, solid and efficient.”

MexDer’s OTC plans

Alegría has a “three-layered” plan that would help MexDer capitalise on market participants’ loss of appetite for OTC products and lure trading to the exchange.

In December, MexDer will list deliverable versions of its two and 10 year interest rate swap futures contract. “You will be able to trade interest rate swaps in MexDer with a central clearing counterparty, which is Asigna,” Alegría says.

Market participants will be able to close open positions before the expiration of the contract, which will be settled by the clearing house.

“This is the first step – to move one step closer to OTC trading [coming] on to exchange trading and clearing,” Alegría says.

The second phase is to develop an OTC clearing service next year. Finally, Alegría wants to see a registry of OTC trades, to serve as a database for the authorities – similar to the way the Depository Trust and Clearing Corp works in the US.

CME on the horizon

Changes might happen soon with a potential alliance with CME Group. In September, Bolsa Mexicana de Valores, the owner of MexDer, announced it had entered talks “of a preliminary nature” with CME Group, which could involve selling a minority stake in the BMV Group to the Chicago exchange. The talks centre, of course, on MexDer.

Bernardo Mariano, an analyst at the Equity Research Desk, an investment advisory firm in Greenwich, Connecticut, says a relationship between the two exchanges could mean an order routing agreement.

“CME has about 150,000 terminals around the world and that will provide MexDer with an audience. For them to achieve 150,000 terminals can take many years, if not even decades,” Mariano says.

For CME the deal could mean being able to offer more products to its clients, as well as reaching new customers in Mexico.

The source at an international bank reckons that MexDer would benefit from partnering with a major global exchange. He says it has been approached by the likes of CME, NYSE, Nasdaq OMX, International Securities Exchange and Eurex. “They just need to choose one and move on or they will miss the party. I believe the MexDer representatives that I have met are smart, conscientious and enthusiastic and they believe a partnership is inevitable,” he says.

Alegría is silent about the potential alliance, saying it is too early to talk about it. But it is widely hoped that the potential deal will bring an increase in volume thanks to CME’s expertise and network. SunGard’s Keough believes MexDer might also gain “additional credibility” owing to CME’s reputation.

The next stage

The exchange might enjoy a similar experience to BM&F Bovespa’s. In October 2007, CME Group acquired a 10% stake in BM&F, which later became a 5% stake in the merged BM&F Bovespa. The Brazilian exchange received 1.7% of CME Group.

The deal has resulted in a mutual order routing agreement, and the two groups have also jointly developed new products.

“We saw the BM&F go through a whole revamp in Brazil and I think [MexDer] would see a similar renaissance occur,” Keough says. “These partnerships help drive innovation within the markets and that will continue especially if this CME partnership goes through.”

The partnership with CME helped the Brazilian exchange push its technology forward. “This partnership means firms trading on the CME can have access to these markets as well. That way the exchange will need to make sure that all the infrastructure is in place to then support the additional users and more electronic trading,” Keough says.

Guillermo Camou Hernandez, director at Scotia Capital, which clears futures and options on MexDer, reckons: “Once Mexico makes some structural changes, as other emerging countries have, it will be a target of many foreign investors, and with the synergy with the CME, MexDer will increase the participants, customers and then the volume.”

Source: FOW, 06.11.2009

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, Risk Management, Trading Technology, , , , , , , , , , , , , , , , , , , , ,

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