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

Trading Technologies and BM&FBOVESPA Agree to Expand TT’s Presence in Brazil

Trading Technologies International, Inc. (TT), the leading provider of order-entry software and solutions for professional derivatives traders, and BM&FBOVESPA, Latin America’s largest exchange, announced on 12 April 2010 that they have entered into a partnership to provide direct access to BM&FBOVESPA’s new multi-asset class platform via TT’s X_TRADER® platform.

TT’s direct connection to BM&FBOVESPA will provide traders from anywhere in the world with access to the exchange through TT’s X_TRADER® platform. The new connection will provide TT’s customers with access to the main derivatives contracts listed on the exchange, including:

  • Interest Rates – One-Day Interbank Deposit, Long Term Interbank Deposit and ID x US Dollar Swap with Reset contracts
  • Equity Index Futures – Ibovespa, Mini-Ibovespa, Brazil Index-50 and General Market Price Index
  • Currency – USD Futures, Mini-USD and Euro Futures
  • Agricultural – Arabica Coffee, Real-Denominated Corn, Soybeans, Crystal Sugar,  Live Cattle and USD Denominated Ethanol
  • Sovereign Debt Instrument (Bonds) – A-Bond Futures, Three-, Five- and Seven-Year Brazilian Sovereign Credit Default Swaps and Ten-Year US Treasury Notes
  • Metals – Gold Futures and Spot contracts

“BM&FBOVESPA is very pleased with this partnership that will contribute for the growth of our market. This partnership is aligned with our goal to offer advanced technological solutions for our customers”, said Cicero Augusto Vieira, BM&FBOVESPA Chief Operating Officer.

“We believe this agreement with BM&FBOVESPA will provide a superior ultra-low-latency connection to the exchange. We expect the co-location and proximity-based computing solutions planned for our new TTNET hub in Sao Paulo will provide our global customer base with a critical edge,” said Harris Brumfield, CEO of TT.

Source: TTNET, 12.04.2010

Filed under: BM&FBOVESPA, Brazil, Exchanges, Latin America, News, Trading Technology, , , , , , ,

TT links to Brazilian Stock, Mercantile & Futures Exchange

Trading Technologies International (TT) today announced that TT has linked its X_Trader derivatives trading platform to Latin America’s largest futures exchange, BM&FBOVESPA, via the CME Group’s Globex platform.

The new link to BM&FBOVESPA allows X_TRADER users to trade the main derivatives contracts listed on the exchange. These products include:

  • Interest Rates — One-Day Interbank Deposit, Long Term Interbank Deposit and ID x US Dollar Swap with Reset contracts
  • Equity Index Futures — Ibovespa, Mini-Ibovespa, Brazil Index-50, General Market Price Index and Mini General Market Price Index (pending regulatory approval)
  • Currency — USD Futures, Mini-USD and Euro Futures
  • Agricultural — Arabica Coffee, Robusta, Cotton, Real-Denominated Corn, Soybeans, Crystal Sugar, Feeder Cattle, USD Denominated Ethanol and Anhydrous Fuel Alcohol
  • Sovereign Debt Instrument (Bonds) — A-Bond Futures, Three-, Five- and Seven-Year Brazilian Sovereign Credit Default Swaps and Ten-Year US Treasury Notes
  • Metals — Gold Futures and Spot contracts

“By means of this connection, global investors can trade a complete and diversified range of Brazilian products and hedge their risks across the two Exchanges. The GTS order book will be transmitted in real time to the CME Globex users, and liquidity will be increased,” says Cicero Augusto Vieira Neto, Chief Operating Officer of the BM&FBOVESPA.

“Trading Technologies’ customers have expressed a strong desire to access the Latin American markets, so we are very pleased to be working with BM&FBOVESPA. Our BM&FBOVESPA connection has been thoroughly tested and is available to our customers,” said Harris Brumfield, CEO of TT.

TT clients have the option to host BM&FBOVESPA gateways internally or outsource connectivity to TTNET(TM), TT’s fully managed hosting solution.

BM&FBOVESPA is the world’s third largest exchange by market capitalization. The Exchange ranked as the world’s seventh largest derivatives exchange in 2007, with total volume of 426,363,492 contracts. This represented an increase of more than 50% over 2006 volume. The BM&FBOVESPA’s One-day Interbank Deposit futures contract ranked fifth among all exchange traded derivatives contracts globally in 2007.

BM&FBOVESPA and CME Group signed an agreement earlier this year that incorporates cross-investment, order routing arrangements and future business opportunities. As part of this agreement, CME Globex customers will have access to the order book of BM&FBOVESPA’s Global Trading System (GTS) platform via the Globex platform.

Source: TT International 06.10.2008

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