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

ICE gets green light for Brazilian fixed income trading platform

IntercontinentalExchange (NYSE: ICE), a leading operator of global markets and clearing houses, and Cetip S.A., Latin America’s largest private fixed income depository, announced that the jointly developed fixed income trading platform Cetip | Trader is expected to launch on February 25, 2013.

This follows a successful beta test that started in August and final regulatory approval from the Brazilian securities regulator Comissao de Valores Mobiliarios (CVM) today.

“This platform reinforces Cetip’s commitment to develop an efficient and transparent secondary market, respecting and improving the practices of our local over-the-counter market,” said Cetip Managing Director Carlos Ratto.

Cetip | Trader offers market participants access to voice confirmation, electronic trading and historical data in a single platform. Over the past few months, it has been thoroughly tested in a simulated trading environment with approximately 80 institutions entering more than 100,000 mock trades. While the platform was initially developed for corporate and government bonds, its flexible architecture is adaptable for new products as driven by market demand.

“We are providing an innovative solution that brings the front office a more dynamic and intuitive language,” said Cetip Trading Solutions Manager Ricardo Vit. “Cetip | Trader is a flexible and simple tool that will help keep our customers ahead of the curve.”

“ICE was pleased to work with Cetip to build a product that is customized for the Brazilian market, available in Portuguese, and that provides a complete trading solution to the market for corporate and government bonds,” said ICE Senior Vice President and Chief Strategic Officer Dave Goone.

ICE Link, ICE’s post-trade processing service, will also be available to Cetip | Trader customers beginning February 25. ICE Link has developed straight-through-processing workflows customized for the Brazilian bond market. These workflows enable middle and back office operations to more efficiently and effectively allocate trades and submit them to Cetip for registration.

Said Vit, “In addition to easier access to liquidity and execution, the complete solution also aims for better operational risk mitigation and total cost reduction on the life of a trade. ICE Link allows standardization in the trade workflow and better data integrations with counterparties and internal systems. This provides market participants a level of automation never before experienced in the Brazilian over-the-counter market.”

Source:  IntercontinentalExchange, 08.02.2013

Filed under: Brazil, Exchanges, Latin America, Trading Technology, , , , , , ,

Latin America: Investor News Letter 17 November 2012


Slim Acquires Controlling Stake in Real Oviedo, El Pais Reports

Billionaire Carlos Slim agreed to invest 2 million euros ($2.5 million) to acquire a controlling stake in Spain’s soccer team Real Oviedo, newspaper El Pais reported today.

Mexico lawmaker introduces bill to legalize marijuana
Sherwin-Williams to buy Mexico’s Comex for $2.34 billion
Mexico Third-Quarter GDP Rose at Slowest Pace in Over Year
Cemex Latam Falls in Bogota After $1.14 Billion Initial Sale
Mexican banks invest domestically
Mexico: Investors’ New China
TransCanada to build, operate Mexican natural gas pipeline; will invest US$1B



Top names drop off list of Thyssen Americas bidders

FRANKFURT – Several top steelmakers are sitting out ThyssenKrupp’s auction of its U.S. and Brazilian mills and there appears little interest in the latter, suggesting the German firm may fall well short of its $9 billion asking price.

Eletrobras to take over bankrupt Brazil power utility
Cuba opens sugar sector to foreign management
Microsoft’s investment in Brazil to spur Rio research boom-execs
Telecom Italia looking at GVT, other opportunities
Wuhan Steel shelves plans to build Brazil mill
A new wave of Brazilian infrastructure investment
Brazil’s Itaqui port plans $3.2 billion upgrade
Rio Olympics, World Cup at risk with royalty bill, governor warns


Latin America

Paving the Way  High-­Tech Financial Infrastructure Hits LatAm

Foreign market leaders such as Fidessa, Direct Edge and Navatar are challenging local providers in the race to meet the booming region’s needs. The growth in size and sophistication of LatAm capital markets has both fueled and been fueled by the implementation of high-tech financial infrastructure in the region, as the hardware and software that have  been the foundation …

 Latin American yields fall further in a warning to bond investors
Impoverished Iberians, booming Latin America eye new relations
Africa and Latin America Still Fight Vulture Funds
More LatAm ETFs Your Broker Forgot to Mention
UN asks LatAm firms to grow with social responsibility
Private Equity Lures Pensioners as Bond Yields Sink
Argentina’s Debt Restructuring Argument Could Be Very Significant For The Global Economy
Argentina’s YPF 3rd-Quarter Profit Down 51% on Year at $159 Million
Bolivia Returns to the Global Bond Market
Chile pension fund-ordered estimate lowers Endesa Latam asset value
Chilean regulator to put new limits on pension fund investments
Germany’s Solarstrom enters Latin America with 2MW in Chile
Colombia opens criminal probe into Interbolsa collapse
Colombia’s Interbolsa brokerage to be liquidated
Public-Private Partnerships in Colombia: Scaling-up Results
Paraguay, Worst LatAm Economic Result of 2012
Peru May Invest About $5.2 Billion in Water, Wastewater Projects
Aeropuertos del Peru mulling over opportunities in Brazil and Chile
Overseeing Peru’s international appeal at ProInversión

Filed under: Argentina, Banking, Brazil, Chile, China, Colombia, Energy & Environment, Latin America, Mexico, Peru, Risk Management, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Mexico:RTS Powers Bolsa Mexicana de Valores Trading Front-End for Members

Chicago/Mexico City, June 14, 2012 – RTS Realtime Systems Group, a leading global trading solutions provider, and the Mexican Stock Exchange BMV (Bolsa Mexicana de Valores) announced today the roll-out of a new front-end for the BMV equity marketplace powered by customized RTS front-end technology. This further expansion of their relationship comes after RTS has provided next generation trading technology for more than three years to MexDer, the Mexican Derivatives Exchange owned by the BMV Group.

The launch enables members of both BMV and MexDer to access the equity and derivatives markets and their market data on one, exchange-provided trading screen. It also brings members of BMV markets the ability to utilize sophisticated RTS risk management technology to control access to all available asset classes.

  • Access equity and derivatives markets on one exchange-provided trading screen
  • Trade multiple markets across asset classes with sophiticated new capabilities and speed
  • Easily combine click and algorithmic trading to automate orders
  • Trade spreads between BMV, MexDer and CME Group

Alfredo Guillen, Chief Operating Officer for the Equity Markets at BMV Group, said:  “We are pleased to offer our members the sophisticated new capabilities and speed provided by RTD Trader, RTS’ solution for click traders.  As our members are increasingly interested in trading across asset classes, this new deployment will bring them the opportunity to easily access and participate in the equity and derivatives markets alike.”

Timo Pentner, RTS Managing Director, Americas, said:  “We’re very proud to expand on the important relationship we have established with the BMV Group and its markets. For algorithmic trading, members can easily transition to our RTD Tango Trader solution which combines click and algorithmic trading. With this we support sophisticated order execution capabilities including the ability to automate all types of orders.”

Jorge Alegria, Head of Market Operations at BMV Group, said:  “This is a great example of successful collaboration between a technology vendor and exchange staff to introduce the seamless integration of multiple trading platforms onto one screen.  Thanks to a terrific, dedicated effort in recent months – and groundwork laid in 2009 by MexDer and RTS – when we complete the final phase of adding cash bond markets execution capabilities, BMV Group will be one of the first exchanges to list all asset classes on one, exchange-provided front-end.”

Pentner said that RTD Tango Trader can enable members of BMV and MexDer to trade spreads not only between those two markets but also the markets of CME Group, as part of the South to North order routing agreement established between BMV Group and CME Group.  He said adding access to other international markets would also be an easy upgrade as RTS offers connectivity via RTD Trader to more than 135 marketplaces globally.

Source: RTS, 14.06.2012

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

Tullett Prebon to pay out over BGC data misuse

Tullett Prebon has agreed to pay $800,000 to its US rival BGC after misuse of data by some of its brokers, closing one chapter in a long-running legal battle between the two interdealer brokers.

The settlement, which was ordered by a US arbitrator, is smaller than Tullett had expected, and far lower than the sum sought by BGC, which claimed it had suffered damages of “hundreds of millions of dollars”. The arbitrator found that BGC was not the “prevailing party”, meaning it was not entitled to reclaim legal costs from Tullett.

The dispute related to trading data provided by BGC that Tullett packaged with its own data and sold to information providers such as Reuters and Bloomberg. Under the terms of the deal between the two groups, Tullett’s brokers were not allowed to use the BGC data after January 25 last year but some continued to do so.

In Tullett’s latest full-year results statement it reported a provision of £12.4m to cover the anticipated cost of settling the data misuse case and the costs of two other cases it is pursuing against BGC. Those cases relate to BGC’s alleged “poaching” of more than 50 brokers from Tullett’s US division in late 2009. Last year BGC made an out-of-court payment to settle a similar claim relating to Tullett’s UK business.

Source: FT, 22.03.2012 by Simon Mundy

Filed under: Data Vendor, Market Data, , , , , ,

Emerging Markets: Energy or Enigma? Mexico, Brazil & China – Dan Watkins

Emerging market trading strategies should remain closely aligned with inter-country trade relations, or so one would think.

A professional stock investor’s interest in a company, after all, coincides with that company’s vision and operational policies. Would such a metric be appropriate in trading an entire economy? Interestingly, popular opinion leans toward headlines rather than fundamentals as being the key determining factor.

That raises a question: Can a market investor be expected to trade a country’s equity, commodity or currency without being able to derive its true value on a balance sheet?

One would gather from the latest international finance journals that China and its markets dominate the emerging markets dialogue. Sure, China and the U.S. have strong trade programs in place but there are issues such as currency valuation headaches that must be considered.

The BRIC (Brazil, Russia, India and China) countries all have exponential growth potential both short-term and long-term and can be considered underdeveloped vs. their population participation. Capital market returns usually delineate the leader of the pack so among the “fantastic-four” BRIC countries, Brazil reigns supreme.

Brazil has had unrelenting stamina in moving high-energy, high-value energy companies’ stocks higher over the last half decade. One reason for Brazil’s success is its massive capital markets restructuring in policy, participation and innovation. Of course the first thing Brazil had to do was stabilize its currency from its inflation plague so that the Real could sustain itself against economic and political monetary fatigue.

Brazil is on top of asset manager and retirement account lists in equity, equity options, futures contracts and fixed income because of the basis of its economic stability and strong natural resources. So while Brazil has brought equilibrium to its markets, Russia, India and China deal with inflation. But trading Brazil can also be worrisome due to inter-country trade relations with the U.S. being less-than-favorable.

Those issues raise an interesting question: What market doesn’t make the news but is hot, has been hot and continues to sizzle like fajitas-picante?   MEXICO

News stories on Mexico cover drug war violence, immigration and tourism, but is that the end of the story? Washington – and therefore public discourse – has focused on the $100 billion in trade to China over the last year. What most don’t hear is that the U.S. has exported nearly $400 billion to Mexico during the same time period. Compare all BRIC countries with Mexico and Mexico tops them all collectively.

Mexico reached 4 percent annual GDP growth rate last year, helped by direct investments from the U.S. and China. On the day the U.S. Federal Reserve announced that it would maintain its low interest rate policy through 2014, the Mexican peso rose 0.6 percent, marking a 7 percent climb for the month of January. How many other markets can be traded as strongly in response to a U.S. Treasury policy announcement?

If Mexico were to equitize or make public its oil production industry as Brazil has, by publicly trading leading oil company Petroleos Mexicanos, also known as Pemex, for example, a major trade explosion in Mexico’s capital markets would quickly follow. Pemex is a Mexican state-owned company worth over $415 billion – that’s $100 billion in assets more than Brazil’s giant Petrobras.

Mexico worth more than Brazil and China long term? Mexico reaches higher ground four times that in trade over the entire BRIC countries. One of Mexico’s oil companies is four times the size in assets over Brazil’s all-star Petrobras. What’s more, Mexico’s inflation is under 5 percent while Brazil, Russia, India and China all have inflation rates closer to 7 percent.

A reflection of U.S. involvement and stabilizing influence in Mexico can be seen in the Mexican stock market with more than 1,000 symbols, many of which are high value and liquid ADRs from the New York Stock Exchange and Nasdaq OMX.

Why not follow the money? Taking a look at the presence of Wall Street on La Reforma in Mexico City, where the Bolsa Mexicana de Valores (the Mexican Stock Exchange) is, you’ll find BMV members such a Citigroup, JPMC, Credit Suisse, Barclays, Deutsche Bank, Merrill Lynch, HSBC, Scotia, ING and UBS. No small potatoes there.

The top players and astute institutional investors are solidly positioned in Mexico. They monitor and believe they can best forecast movement in the market by keeping an eye on U.S. and Chinese import/exports with Mexico. A closer eye is kept on the cash equity ADRs and the Mexican bond markets. Many investors tend to believe that Mexico is just undervalued and other emerging markets are overvalued. But one more thing to remember, the U.S./Mexico trade policy should provide Mexico with lots of energy to outlast the steam of the emerging markets chatter.

Perhaps we should start thinking about MBRICs?

By Dan  Watkins, CC-Speed (

Sourc: TABB Forum, 07.03.2012

Filed under: BM&FBOVESPA, BMV - Mexico, Brazil, China, Exchanges, Mexico, , , , , , , , , , , , , , , , , , ,

Mexico´s Exchanges take huge steps to boost High-Speed Trading.

The Mexican Exchange, which is the second largest exchange in Latin America, announced a number of strategic and technology initiatives designed to promote foreign investment in the Mexican financial markets and its position as a Latin American leader in high-frequency trading.

While Brazil continues to be the hottest emerging market in Latin America, the Mexican Exchange (BMV Group), is taking huge steps to boost its growth in the high-speed marketplace.

The Mexican Exchange, which is the second largest exchange in Latin America, announced a number of strategic and technology initiatives designed to promote foreign investment in the Mexican financial markets and its position as a Latin American leader in high-frequency trading.

Mexico now provides worldwide participants with seamless, high-speed and efficient access through low touch direct market access (DMA), high speed co-location services, and FIX standard protocol for order routing and market data Part of Mexico’s success is down to its determination to improve its operative rules to better comply with international market standards, as well as adopting new technology.

In 2012, the Mexican Exchange will announce the launch of a new trading engine, internally developed. This multi-market, multi-asset, flexible and scalable trading engine has throughput of more than 200,000 messages per second. The trading engine will be ultra low latency, executing trades in 100 microseconds roundtrip (improvement over 25 milliseconds on legacy trading system). Full deployment is planned for Q2 2012. Further in 2012, The Mexican Exchange will introduce several new initiatives including midpoint hidden order book trading, aimed at institutional investors looking to trade large blocks anonymously with reduced execution risk. Simpler cross order rules will also be implemented; all stocks, global market equity securities and debt instruments will be crossed within the best bid/ask spread with no intervention. And, VWAP executions for the day will be able to be entered from 8:00 AM CT to 2:40 PM CT.

Recently, the Mexican Exchange has established major alliances broadening investment opportunities in the Mexican market. The Mexican Derivatives Exchange (MexDer) and the Chicago Mercantile Exchange (CME) established phase one, “south-to-north,” of its strategic order routing agreement, giving Mexican investors access to CME Group’s benchmark derivatives contracts, including interest rates, foreign currencies, equity indexes, energy, metals and agricultural commodities.

Phase two of the partnership, “north-to-south,” now in place provides CME Group customers with access to MexDer benchmark products, including Mexican Stock Exchange Index futures, bond futures and MXN Peso / US dollar futures contracts.

Source: Wallstreet&Technology, Melanie Rodier, 18.11.2011

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

Mexico Credit: Beating Brazil Bonds after 2008 crisis

Mexican government and corporate bonds are outperforming securities sold by their Brazilian counterparts as investors bet Latin America’s second-largest economy is better prepared to weather a global slowdown.

The 27-basis point drop in Mexican government dollar bond yields in the past month compares with a decline of 25 for Brazilian notes, snapping five straight months of underperformance, according to JPMorgan Chase & Co. The two- basis point increase in Mexican corporate borrowing costs in the past month compares with a jump of six basis points, or 0.06 percentage point, for their Brazilian peers. Previously, Brazilian corporate securities had outperformed for two consecutive months.

President Felipe Calderon’s administration has lined up a $72 billion credit line from the International Monetary Fund, extended debt maturities and shunned capital increases embraced by Brazil, the region’s largest economy, to protect against a slowdown in the U.S., which buys 80 percent of the Latin American nation’s exports.

“They are strengthening public finances here in Mexico,” Gabriel Casillas, chief Mexico economist for JPMorgan Chase & Co. in Mexico City, said in a telephone interview. “The Mexican market has become much easier and flexible to trade as Brazil boosts capital controls.”

100-Year Bond

Mexican government bonds yield 4.65 percent, or 6 basis points less than Brazilian debt, according to JPMorgan. The gap has swelled from one basis point on July 28. Notes sold by Mexican companies yield 6.31 percent, compared with 5.93 percent for Brazilian corporate securities. The 37-basis point gap is down from 53 on July 28.

Mexico sold $1 billion of 100-year bonds overseas yesterday, taking advantage of a plunge in benchmark U.S. borrowing costs to bring back a record-long maturity it unveiled a year ago. The government issued the notes due in 2110 to yield 5.96 percent, or 242 basis points above 30-year U.S. Treasuries, according to data compiled by Bloomberg.

“Mexico financially has never been as well protected and sound as it is today,” said Alejandro Diaz de Leon, head of the finance ministry’s public debt unit in an interview yesterday. “Mexico has been able to take advantage of a privileged position because of the steps it has taken.”

Standard & Poor’s cut Mexico’s rating to BBB, the second- lowest investment grade, from BBB+ in December 2009, citing declining oil output and “diminishing” prospects for widening the tax base to replace oil revenue. Brazil is rated one level lower at BBB- by S&P.

The Brazilian finance ministry declined to comment in an e- mailed statement.

IMF Credit Line

The IMF renewed and boosted the size of Mexico’s credit line in January from $48 billion. The Washington-based fund originally approved the facility in 2009 to boost confidence in the economy. The central bank has been buying as much as $600 million monthly though options since March 2010 to bolster foreign reserves, which surged 84 percent in the past two years to a record $133.9 billion, according to the central bank. Brazil’s reserves rose 65 percent over the same period to $349.6 billion.

“All these contingency plans and credit lines are favorable factors for an investor, who may say that in the case of another crisis Mexico won’t likely be as volatile,” Eduardo Avila, an economist with Monex Casa de Bolsa SA in Mexico City, said in a telephone interview.

Currency Tumble

The peso tumbled 20 percent in 2008 as U.S. demand for the country’s exports slumped. Mexico’s gross domestic product shrank 6.1 percent the following year, the most since 1995 and the second-worst contraction of the economies tracked by Bloomberg after Russia. The U.S. economy contracted 3.5 percent in 2009.

Yields on Mexican government debt in the two months after Lehman Brothers Holding Inc. filed for bankruptcy in 2008 surged 165 basis points, compared with an increase of 142 for Brazilian securities.

“We are a lot better prepared, especially relative to other countries, for a situation that could deteriorate externally,” Deputy Finance Minister Gerardo Rodriguez said in an interview at Bloomberg’s headquarters in New York on June 2. “All this points to a broad framework of creating additional spaces for a potential adverse scenario going forward. That’s what we are here for — to prepare for negative scenarios.”

Mexico’s total net debt is 35 percent of GDP, below the 40 percent for Brazil. The government has been extending local debt maturities to a record 7.3 years in 2011, from 6.4 years in 2009.

Capital Controls

Brazil imposed a 1 percent tax on some currency derivatives on July 27, the latest government measure aimed at stemming the 42 percent appreciation of the real since the end of 2008. Since October, Brazil has also tripled to 6 percent a tax on foreigners’ purchase of bonds, raised the cost of foreign borrowing by local companies and restricted bank bets against the real. The peso has gained 9.1 percent during the same period.

The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries narrowed three basis points to 184 at 7:47 a.m. New York time, according to JPMorgan Chase & Co.

The peso weakened 0.3 percent to 12.5958 per U.S. dollar.

The cost to protect Mexican debt against non-payment for five years rose five basis points yesterday to 161, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or company fails to adhere to its debt agreements.

Growth Forecasts

Mexico’s central bank lowered its forecast for economic growth this year and next while keeping its consumer price forecasts unchanged, according to its quarterly inflation report published yesterday. It cut its 2011 growth forecast to a range of 3.8 percent to 4.8 percent and its 2012 forecast to 3.5 percent to 4.5 percent. The bank said in its May report the economy may expand as much as 5 percent this year and up to 4.8 percent in 2012 growth. It kept its 2011 and 2012 consumer price forecasts at 3 percent to 4 percent.

“The balance of risks for growth in the Mexican economy has deteriorated,” the bank said in the report, citing lower global growth prospects.

JPMorgan’s Casillas and Iker Cabiedes reduced their 2011 Mexican growth forecast yesterday to 4.2 percent from 4.5 percent.

‘Aversion to Risk’

Economists in Mexico will likely continue to cut growth forecasts this quarter after the Federal Reserve indicated that it will keep rates low through mid-2013, said Javier Belaunzaran, who helps manage about 40 billion pesos at Interacciones Casa de Bolsa SA in Mexico City.

“If the Fed is saying it’s keeping rates steady through 2013, than things aren’t going well at all,” Belaunzaran said in a telephone interview. “There may be an aversion to risk toward long-term securities if the outlook worsens.”

Mexico will wait until November 2012 to raise the benchmark lending rate from a record low 4.5 percent, according to trading in TIIE futures.

While Mexico’s annual inflation rate slowed to a five-year low in March and is within the central bank’s target range of 3 percent to 4 percent this year, Brazil has struggled to contain price increases. Inflation quickened to 6.75 percent last month, the highest in six years and almost double the 3.55 percent rate in Mexico in July.

“There are a lot of factors that make Mexico stand out from the rest of the emerging markets,” Monex’s Avila said.

Source: Bloomberg, 11.08.2011 by  Andres R. Martinez, David Papadopoulos

Filed under: Brazil, Mexico, News, , , , , , , , ,

Mexico Credit: Banorte beats Brazil´s Itau as acquisition boosts lending

Bonds sold by Grupo Financiero Banorte SAB, Mexico’s fourth-largest bank by outstanding loans, are outperforming debt from financial peers in Latin America after an acquisition helped the company boost lending by 29 percent.

The 6.1 percent rally in Banorte’s dollar bonds due in 2021 this year compares with an advance of 5.7 percent for bank debt in the region, according to data compiled by Bloomberg and Credit Suisse Group AG. Similar-maturity bonds sold by Banco Itau Unibanco SA, Latin America’s biggest bank by market value, gained 6 percent during the same period. Debt due in 2020 issued by Bancolombia SA, Colombia’s biggest bank, rose 5.5 percent.

Banorte, based in Monterrey, Mexico, is tapping into a growing demand for credit in Latin America’s second-biggest economy. Total loans for Banorte expanded 18 percent in the past year, the most since 2008, according to Mexico’s National Banking and Securities Commission. Banorte said on July 25 that its acquisition of Ixe Grupo Financiero SAB helped increase its loan portfolio to 312 billion pesos ($26.4 billion) in the second quarter from 242 billion a year earlier.

“They grew at a healthy pace in the quarter and I’m expecting it to continue,” Natalia Corfield, an ING analyst who recommends investors buy Banorte’s bonds, said in a telephone interview from New York. “The banking sector has a very good growth potential.”

The yield on Banorte’s bonds sank 47 basis points, or 0.47 percentage point, this year to 4.72 percent, according to data compiled by Bloomberg. Mexican government dollar notes that mature in 2020 yield 3.45 percent.

Credit Expansion

Pedro Rodriguez, a spokesman for Banorte, didn’t return a phone message seeking comment.

Yields on Sao Paulo-based Itau’s bonds due in 2020 fell 41 basis points during the same period to 5.39 percent. Itau declined to comment through an e-mailed statement.

Mexican banks including Banorte are benefiting from the expansion of credit to a larger share of the population, said Alonso Madero, who helps manage about $5.5 billion in debt at Corp. Actinver SAB. The country’s private credit measured as a percentage of the gross domestic product was 21.8 percent in 2009, compared with 45 percent in Brazil, according to ING.

“Banks could lend a lot more,” Madero said in a telephone interview from Mexico City, “It’s very clear that this is how they could grow. There’s a big potential growth to capitalize on because of the low banking penetration.”

Growth Outlook

Banks in Mexico are increasing lending as the economy may grow “a little bit more” than 4.3 percent this year, Finance Minister Ernesto Cordero said in an event in Mexico City yesterday. Gross domestic product expanded 5.4 percent in 2010, the most in a decade.

Slowing growth in the U.S., the destination for 80 percent of Mexico’s exports, may curb demand for credit in the Latin American country, said Araceli Espinosa, debt analyst at Scotia Capital.

A report yesterday showed that service industries in the U.S. expanded in July at the slowest pace in 17 months as orders and employment cooled, indicating the biggest part of the economy had little spark to begin the second half of the year. Economic figures in the U.S. in last two weeks have shown declining home sales, weaker factory orders, waning consumer confidence and the first decrease in household spending in two years.

“If the economy is not growing, the loan portfolio for the banks is not going to grow,” Espinosa said in a telephone interview from Mexico City.

Yield Spread

Yields on futures contracts for the 28-day TIIE interbank rate due in May were unchanged at 4.99 percent, indicating traders expect the central bank will wait until that month to raise benchmark borrowing costs from a record low 4.5 percent.

The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries was unchanged at 128, according to JPMorgan Chase & Co.

The cost to protect Mexican debt against non-payment for five years rose 1 basis point to 112, according to CMA. Credit- default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.

The peso advanced 0.2 percent to 11.8193 per dollar, extending its advance this year to 4.4 percent.

Banorte is likely to exercise a call option on its bonds in 2016, ING’s Corfield said. The yield to the 2016 call date on the company’s notes may drop 50 basis points from 6 percent yesterday, she said. A call is a contract that gives the holder the right to buy a security at a set price within a set period. The holder of the call is not obligated to buy the security.

‘Well Positioned’

Banorte has used takeovers, including the 2001 acquisition of Bancrecer SA, to grow into a national financial group from a north-Mexican regional lender since the country’s banking industry collapse in 1995.

Banorte reported a 24 percent increase in second-quarter net income to 2.05 billion pesos. Ixe added 119 million pesos to the profit.

“It’s a benign environment for Mexico now and Banorte is well positioned to benefit from it,” Corfield said.

Source: Bloomberg, 04.08.2011 by  Veronica Navarro Espinosa; Andres R. Martinz

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

BlackRock Forecast: 2011 may be a rerun of 2010 for global economy

London, December 22nd, 2010 – Richard Urwin, Head of Investment within BlackRock’s Fiduciary Mandate Team, believes 2011 is likely to be another positive year for global equities and other risk assets, despite persistent headwinds.

Expanding on this view, Richard offers the following outlook for the global economy in 2011:

  • Inflation risk remains low in developed economies, but is more pronounced in emerging markets: For the developed economies, 2011 is expected to be a year in which central banks see inflation as too low rather than accelerating. Low inflation does not imply deflation. Indeed, if deflation risk were to rise, so should the degree of monetary stimulus from central banks.  While the inflation risk in emerging economies is significant, inflation is unlikely to accelerate substantially.
  • Economic growth should continue through 2011: Global growth could be more balanced with developed markets contributing more to growth next year as the momentum built up in the second half of 2010 continues. For instance, growth in Germany, Japan and the UK in recent quarters has averaged between and 3% and 4%.
  • The demise of the euro is a very low probability event: The most significant event to affect financial markets in 2010 was arguably the European sovereign debt crisis. This is likely to have a significant influence on markets well into 2011 and beyond, given that southern Europe faces an extended period of retrenchment. However, the demise of the euro is very improbable.
  • There is no sign of irrational exuberance in equity market valuations: On the contrary, equity multiples towards the end of 2010 appear modest by historical standards. We believe the market reflects concerns about the length and strength of the global economic recovery. In these circumstances, additional returns to risk assets do not require utopian outturns, rather an environment in which challenging news is simply not quite as challenging as expected.
  • Equity returns in 2011 will be heavily dependent on the global cycle: Valuations are not so supportive that equity markets could rise on material growth disappointments, even if these stop short of recession. In addition, corporate earnings growth could slow from the strong rates of the past year or so.  Similarly, with a moderately favourable cyclical background, most forms of credit should outperform sovereign bond returns.
  • The low level of bond yields implies low returns to bonds in the medium term: However, for yields to back up significantly in 2011, one of two conditions would have to apply. Either global growth or inflation picks up enough so that central banks abandon their easy-money policy and raise interest policy rates sharply, or concerns over large and sustained budget deficits increase.
  • Policy rates in developed economies are expected to be kept low: We doubt that animal spirits will recover in 2011 even if global savings fall significantly. Hence, the catalyst for significant increases in bond yields during 2011 appears lacking. This suggests that government bond yields, excluding those in peripheral euro zone countries, will remain at stretched valuations for an extended period, delivering negative real returns.

Richard commented:  “In some respects, 2011 may feel like a re-run of this year.  Equities are likely to grind higher – with emerging market equities outperforming modestly rather than spectacularly, partly as a result of currency appreciation in these markets – while commodities could make further gains as supply/demand imbalances persist.

“The most marked difference in returns from 2010 could emerge in the sovereign debt market, with the headwind of very low yields. While diversification into corporate bonds and other non-government debt could add value, the scope for material spread narrowing is more limited. In short, 2011 could be another year where many investors find it difficult to take investment risk.  It is, however, likely to pay off.”

Notes to Editors:

Richard Urwin, Managing Director, is the head of Investments within BlackRock’s Fiduciary Mandate Investment team (FMIT). Mr. Urwin is responsible for asset allocation and manager selection within the fiduciary client base.

Source: BlackRock, 22.12.2010

Filed under: News, , , , , , , , , ,

Charles River Development Wins Buy-Side Technology’s “Best Buy-Side OMS” Award for 4th Consecutive Year

Single, consolidated platform streamlines workflows and lowers costs and risks for buy-side firms

Charles River Development (Charles River), a front- and middle-office investment software solutions provider, today announced that the Charles River Investment Management System (Charles River IMS) has won the Buy-Side Technology Award for “Best Buy-Side Order Management System” for the fourth consecutive year.

“Once again, this award validates Charles River’s commitment to empower portfolio managers, traders and compliance officers with advanced tools that improve efficiencies and reduce risk and costs,” said Peter Lambertus, President and Chief Executive Officer, Charles River Development. “Our continued investment in research and development delivers flexible, scalable solutions to support requirements of both large and small firms.”

Judges for the Buy-Side Technology Awards 2010 included leading buy-side-focused technology consultancy firms. These experts selected Charles River IMS as a multi-asset, multi-currency solution for automated decision support and portfolio management, real-time pre- and post-trade compliance and global FIX trading.

The Buy-Side Technology award follows Charles River’s recent recognition for “Best Buy-Side Technology Firm” by Asia Asset Management Best of the Best Awards and the “FinTech Top 100,” American Banker/Financial Insights 2010.

Source: Charles River Development, 08.11.2010

Filed under: Asia, Brazil, FIX Connectivity, Latin America, Mexico, Risk Management, Trading Technology, , , , , , , , , , , , , , ,

Mexico’s Scotiabank Inverlat, Automates Mutual Fund Operations with the Charles River Investment Management System

Streamlines workflows; ensures compliance for all local/international securities and debt instruments

October 21, 2010 – Charles River Development (Charles River), a front- and middle-office investment software solutions provider, today announced that Scotiabank Inverlat, S.A. (Scotiabank Mexico), one of Mexico’s largest banking groups, has implemented the Charles River Investment Management System (Charles River IMS) across its Scotia Fondos subsidiary. The multi-phased project, delivered on-time, is part of Scotia Fondos’ initiative to automate its domestic and international mutual fund (Fondos de Inversion) operation with 16 different portfolio options on a single, consolidated platform.

Scotia Fondos’ users benefit from advanced decision-making and analysis tools, automated portfolio management and trading, and real-time, pre-trade compliance monitoring for all asset classes, including equities, money market, mutual funds, as well as Mexican corporate and government fixed income instruments, such as Bonos, CETES and UDIBONOS. During the initial project, Charles River automated Scotia Fondos’ equity portfolio management and trading operations, as well as compliance monitoring. The second phase consolidated capabilities across the firm’s fixed income operations.

“We required a state-of-the-art system and a vendor with proven experience in supporting the needs of Mexico’s asset managers; Charles River delivered both,” said Ernesto Diez, Director General, Scotia Fondos. “Our portfolio managers can now stay ahead of the market by analyzing and rapidly implementing changes to portfolios. We can also validate that our portfolios comply with all mandates – at any time and for any asset class.”

Support for Mexico’s numerous local market requirements was critical to the project. Charles River IMS allows Scotia Fondos to manage and execute trades for all Mexican government and corporate debt instruments. The firm’s mutual fund traders can also execute stock lending, support repurchase agreements and rebalance against Mexican indices. In addition, Charles River’s open architecture makes it easy for Scotia Fondos to integrate with its proprietary accounting system, as well as back-office providers, such as Bloomberg for real-time pricing, and Mexican Stock Exchange-owned Valmer for risk data.

Charles River IMS supports region-specific security types and associated workflows, including Mexican corporate and government bonds. In the near future, Scotia Fondos will continue with the implementation of Charles River IMS’ advanced derivatives exposure calculations and coverage functionality helping clients comply with Mexican regulations, such as Comision Nacional Bancaria y de Valores (CNBV) rules, by monitoring and managing pre- and post-trade exposure to derivatives instruments. Charles River’s pre-built compliance libraries contain over 1,700 regulatory and general example rules across 35 regulatory bodies of 20 countries, including comprehensive rule libraries for Mexico.

“Charles River offers asset managers in Mexico sophisticated, yet easy-to-use solutions for expanding their operations into new asset classes and markets – delivering a competitive advantage that supports business growth,” said Spiros Giannaros, Vice President of Sales, Americas, Charles River Development.

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

Source: CRD, 21.10.2010

Filed under: Brazil, Chile, FIX Connectivity, Latin America, Mexico, News, Risk Management, , , , , , , , , , , , ,

Alternative Latin Investor Issue 5 July/August

Alternative Latin Investor Issue 5 July/August 2010 click here for a free issue

Issue 5 Content Index

  • Argentine Wind Power A solid investment opportunity in Argentina’s market for wind energy
  • Vanilla Investment potential of the world’s second most expensive spice
  • The Latin American Trust Patricio Abal & Gonzalo Oliva-Beltrán explore a useful tool in project finance.
  • A New Era for Investment in Argentina Javier Canosa discusses post crisis investment issues in Argentina
  • Mexico: Superstar Player of the Emerging Economies Latin America’s newest investment beacon
  • Cuba: Return to capitalism?
  • Merlin Securities’ Best Practices for Latin American Fund Managers
  • Christie’s Latin Art Sale Breaks $20 Million Dollars
  • Chinese Brazilian Trade Ties Continue to Grow
  • Fine Wine Investors Thank Latin America for a Healthy Profit
  • Nordeste Invest : Coming to terms with a new reality        
  • Mark McHugh discusses the resilience of the Brazilian Real Estate Economy
  • Lending Opportunities In Mexican Affordable Housing
  • Mexico’s sovereign debt looks more attractive at present than that of any other G-8 country
  • LatAm Real Estate Index
  • Private Equity real estate investing  in Latin America
  • Forex:  The World Cup Effect
  • Investment Analysts Try Their Luck with World Cup

Source: Alternative Latin Investor 23.07.2010

Filed under: Argentina, Brazil, Chile, Colombia, Energy & Environment, Latin America, Mexico, News, Services, Wealth Management, , , , , , , , , , , , , , , , , , , , , , ,

Mexico: Economy Continues Slowly but Surely up – June 2010- IXE BANIF – Monthly Analysis

Situation Unchanged: Growth still driven by exports
The Mexican economy has remained unchanged in terms of its main drivers. Growth relies essentially on exports, fueled mostly by a warming US economy, its main importer, but also likely to be helped by a weaker Peso after the strong devaluation in May. Local demand continues to show signs of recovery, but is currently insufficient to support economic growth by itself. This scenario is a continuation of the few past months and we believe it is likely to remain in June.
For the above reasons, we made only minor changes to our suggested portfolio for June. The only modifications were including Cemex, increasing the weight of Geo (from 5 to 10%) and withdrawing Ica and Mexchem.

Exports to the US account for roughly 80% of Mexico’s total exports. This engine, which is driving Mexico’s economic growth, is likely to continue speeding up, as the FED recently revised its estimate for GDP growth upwards. While this dependency on the North American economy might eventually pose a strategic weakness to the Mexican economy, it is a very positive feature for the moment. The eye of the world’s economic storm continues centered in Europe (more specifically in the euro zone), which accounts for only 5% of Mexican exports. Because of their minimal interaction in that region, Mexico’s economy and financial market have not suffered from the latest fears regarding the countries in the euro zone.

After an almost constant appreciation of the Mexican Peso against the USD in 2010 until April, in May the peso was very volatile, with losses of 5.7%. However, the trend toward appreciation will resume for the rest of the year, supported by inflows coming from the US, especially into the fixed income market. We expect the Peso to close at 12.00 versus the USD.  This inflow from the US has played a positive role in the recovery of the Mexican economy, as local activity has already started to pick up although, so far, only in isolated segments. Transport, commerce and media are a few examples of segments that are either strong (in the case of the first two) or never suffered at all. The rest of the internal demand may recover by the second half of the year, as recent labor figures have been positive.

Because of the improved economic activity, the OECD (Organization for Economic Cooperation and Development) has recently increased its forecast for world GDP growth, including a revised 4.5% (from 2.7%) growth for Mexico. We have also revised our own estimate upward to 4.4%, from a previous 4.1%, the same as the median figure expected by market consensus. Inflation in June was down to 3.9%, temporarily helping the course of recovery, as full year inflation expectations remain at 4.9%.

Read full report at Mexico_-_Monthly_Allocation_-_June_2010

Source: IXE Banif, 01.06.2010

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

BM&F Bovespa raises CME stake; plans new e-trading platform

BM&FBOVESPA S.A. (“BVMF”) hereby announces to its shareholders (in compliance with the provisions of article 157, paragraph 4, of Brazilian Corporate Law No. 6404/1976 and CVM Instruction No. 358/2002 of the Brazilian Securities and Exchange Commission) that on this date it has entered into a Memorandum of Understanding with the CME Group, Inc. (“CME”), which controls the Chicago Mercantile Exchange (CME), New York Mercantile Exchange (NYMEX), Board of Trade of the City of Chicago, Inc. (CBOT) and Commodity Exchange, Inc. (COMEX), for the creation of a global preferred strategic partnership with an aim to: (i) pursue strategic investments and commercial opportunities with other international exchanges, on a shared and equal basis; (ii) jointly develop a multi-asset class trading platform for the trading of equities, derivatives, fixed income securities and other exchange-traded or OTC-traded assets; (iii) increase its ownership interest in CME to 5%, equivalent on this date to approximately one billion U.S. Dollars (USD1 billion); and (iv) receive a seat on CME’s Board of Directors.

1. BVMF and CME as Global Preferred Strategic Partners

BVMF and CME will work together as “global preferred strategic partners” to jointly identify strategic investments and commercial partnerships with leading equities and derivatives exchanges. BVMF and CME will seek to make these investments and/or partnerships on a shared and equal basis, subject to legal and regulatory restrictions, as well as to the relationship history and specificities of both BVMF and CME in connection to the other exchange where the investment and/or the partnership will be made.

However, when it is not possible or appropriate for BVMF and CME to co-participate, such as when a legal or regulatory restriction applies; or when the third-party exchange of interest is not willing or is unable to partner with either BVMF or CME; or if joint participation is impracticable, the Exchange which holds the leading investment or partnership position will continue the transaction alone.

In order to operate their global preferred strategic partnership, BVMF and CME will hold joint quarterly meetings of their senior executives (Strategic Committee), in order to analyze the potential investment opportunities and commercial partnerships of BVMF and/or CME with any other exchange throughout the world, as well as the attributes, affinities and contributions each might have in connection with the third-party exchange targeted for investment and/or partnership.

2. New Unique and Integrated Multi-Asset Class Trading Platform for Equities, Derivatives, Foreign Exchange, Fixed-Income Securities, Other OTC Products and Block Trading

Based on technology derived from the CME Globex® trading system, as well as on new technology to be jointly created by the parties, BVMF and CME will jointly develop a new electronic trading platform, with capacity to process transactions in less than one millisecond. This new platform will house all of the following BVMF segments under the same infrastructure:

  • Individual equities (cash market);
  • Derivatives based on equities; equity indices, interest rates, exchange rates and commodities;
  • Spot foreign exchange currency;
  • Spot government bonds;
  • Spot private bonds; and
  • Other OTC derivatives.

The new platform will also include a trading system for large blocks of shares (block trading).

The first to be developed will be the derivatives module, which until the beginning of 2011 will replace the Global Trading System (GTS), which is the current electronic trading system utilized by BVMF for its financial and commodity derivatives segment. The second module will be implemented by year-end 2011 to replace the Mega Bolsa, SISBEX and BovespaFIX trading systems currently used by BVMF for the equities, federal government bond and private bond markets, respectively.

Both BVMF and CME will have the right to make commercial use of the new electronic trading system and will share revenues resulting from this commercialization. BVMF will be entitled to commercialize the new platform freely in South America, Central America, Mexico and China. This will apply to other countries as well, where commercial use may occur as long as it is associated with an investment transaction, subject to certain restrictions pertaining to product listing by the exchange where an investment has been made.

BVMF and CME will have co-ownership of the new multi-asset class trading platform, sharing their intellectual properties, as well as the derived enhancements, upgrades and software, as co-authors through cross, perpetual and irrevocable licenses.

As an additional reflection of their new partnership, CME will transfer to BVMF all knowledge that is needed for the operation and development of the new platform, based on the CME Globex® technology. With this transfer BVMF will become fully independent and autonomous to also commercialize the new platform in certain regions and under certain conditions.

For the complete implementation of each phase of the new platform, including the acquisition of all the related underlying technology and intellectual rights, BVMF investments, over the next 10 years, are estimated for the amount of USD175 million (one hundred and seventy five million United States Dollars) at a present value of USD100 million (one hundred million United States Dollars).

3. Increase of BVMF’s Ownership Interest in CME

BVMF will raise its equity stake in CME from the current 1.8% to 5% of CME’s equity capital, placing each company on an equal footing with respect to its equity investment in the other.

This investment by BVMF, which is equivalent to approximately USD620 million, is subject to BVMF shareholder approval, for which in due course a shareholders’ meeting will be called. Adding this amount to BVMF’s current stake in CME brings its total investment to approximately USD1 billion, subject to lockup restrictions until February 26, 2012. This is the same lockup restriction timeframe that applies to the original cross investment.

4. BVMF Representation in CME’s Board of Directors

For the full implementation of their new partnership, CME and BVMF will nominate and recommend to their respective shareholders the election of a representative from each exchange to the other Board of Directors. Therefore, during the time that their minimum reciprocal investments are held, each exchange will have a representative in the other exchange’s Board.

5. Other Joint Opportunities

i. Mutual Cooperation in Central Counterparty Services for OTC Derivatives – BVMF and CME will prospect mutual opportunities to develop the central counterparty services they provide for the OTC derivatives markets. Such opportunities may include netting agreements, collateral management, and the use of CME ClearPort ® technology and know-how for registration, settlement and risk management of OTC derivatives transactions.

ii. Multilateral Order Routing and Market Data Distribution System – BVMF and CME will jointly develop multilateral order routing and/or market data distribution systems for the equities and derivatives markets of both current and future global partner exchanges.

6. Term

The global preferred strategic partnership has an initial term of fifteen (15) years, with the relevant strategic and commercial aspects being realigned on its 5th and 10th anniversaries. During this time, it will continue in effect for as long as each party holds a two percent (2%) minimum stake in the other party’s capital.

7. Expansion and Internationalization of the Equities Segment

The current CME partnership and the development of a new state-of-the-art multi-asset class trading platform will provide BVMF with the best of conditions to support the increase in order flows resulting from the ongoing expansion and development of the Brazilian capital market, as well as the future increase in order flows that will come from the order routing system that NASDAQ OMX is currently developing. Through this system, the connected U.S. broker-dealers will be able to send buy and sell orders for individual equities traded at BM&FBOVESPA, and the connected Brazilian brokers will also be able to send buy and sell orders for individual equities traded at NASDAQ OMX. Therefore, this partnership consolidates BVMF initiatives to provide its users with a solid technological infrastructure, in order to guarantee a globally aligned connection, which is geared towards the broad development of the Brazilian capital markets.

Source:BM&FBOVESPA, 12.02.2010

Brazil’s BM&F Bovespa is increasing its stake in Chicago’s CME Group to five per cent, at a cost of $620 million as part of an agreement between the two exchanges that will also see them jointly develop a multi-asset class electronic trading platform.

The pair, who already have an alliance, say they will become “global preferred strategic partners”, with the Brazilian outfit paying $275.12 per share to increase its stake and put a representative on the CME Group board.

CME Group, which already holds a stake of about five per cent in BM&F Bovespa, will also repurchase up to 2.35 million shares of its common stock to offset the dilution from the issuance of shares to its partner.

In addition, the two will build an electronic trading platform that will be deployed by BM&F Bovespa for use in its cash equities and derivatives markets. Slated to launch early next year, it will be based on technology derived from the CME Globex trading system and able to process transactions in less than one millisecond.

BM&F Bovespa says it expects to spend around $175 million on the related underlying technology and intellectual rights for the system over the next 10 years.

The agreement will also see both given the opportunity to license the platform to other exchanges internationally and they will work together on strategic investments and commercial opportunities.

Edemir Pinto, CEO, BM&F Bovespa, says: “I have no doubt that, after this partnership and based on technology derived from the CME Globex trading system, as well as on new technology to be jointly created by the parties, this new BM&F Bovespa technological standard will produce a system to meet the high performance requirements of the world’s most demanding traders in multiple products.”

Craig Donohue, CEO, CME Group, adds: “Our proposed transaction with BM&F Bovespa will further expand the breadth of our technology and distribution capabilities into the global cash equities and options markets, while strengthening our strategic partnership and enhance our mutual opportunities to invest in and partner with the world’s leading multi-asset class exchanges.”

Source: Finextra, 12.02.2010

Filed under: BM&FBOVESPA, Brazil, Exchanges, Latin America, 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, , , , , , , , , , , , , , , , , , , , ,