Hitting Their Stride: Mexican Markets Mature

Hector Casavantes of Finamex assesses improvements in the Mexican markets, like technology upgrades, high frequency trading and regional partnerships, as well as the work yet to be done.

How has Bolsa Mexicana de Valores’ (BMV’s) exchange upgrade improved trading conditions in Mexico?
The technology update by the BMV placed us on a path toward a more standardized market, and it definitely helped to raise international investors’ awareness of the existing modern, transparent and easy to trade market. While the benefits of the upgrade are clearly apparent, there have also been collateral effects. For example, after the upgrade, new and more demanding players have moved into the picture, increasing the level of demand for system reliability, pricing models and additional features common on other markets, such as liquidity rebates.

There is still work to do, however, as the exchange platform, upgraded though it is, reserves certain access privileges for more established domestic participants. For example, purely electronic foreign brokers cannot obtain or see the Market on Close (MOC) book, the hidden midpoint peg bookmarks for IOIs, the regular full-depth order book, etc. The exchange needs to work on leveling access, and they have recently demonstrated that they are both aware of this issue and examining how to address it.

What advantages in terms of liquidity will the Mercado Integrado Latino Americano (MILA) bring to Mexican markets?
MILA is thought to provide access to new natural liquidity sources in both directions. From what we can see, Mexico may initially provide new asset classes besides equities, including global stocks, ETF’s and eventually derivatives for South American MILA countries. The domestic buy-side investor from any of those countries, like pension funds, insurance companies and corporate treasuries, may find Mexican-listed names appealing within their risk strategy objectives. For Mexican institutional investors, MILA may provide investment options independent of fluctuation from the local macroeconomic, sector-related or seasonal forces.

For all the countries involved, MILA will provide a good opportunity for sharing technology, best practices and maybe adding productive competition, thereby encouraging increasingly costeffective services. On the downside, there are a number of legal and regulatory issues that need to be resolved before the promise of the MILA integration is a reality. In the medium term, the expectations for MILA’s role in Mexico are quite high.

What is the role of High Frequency Trading (HFT) in Mexican markets?
In Mexico, HFT is found to be mostly focused on statistical and spread arbitrage strategies and includes other market making strategies to a lesser extent. These HFT strategies have contributed both liquidity and efficiency to the overall market structure, as well as facilitating the sharing of experiences and best practice about HFT strategies and technology.