Bolsa Mexicana de Valores SAB, operator of Mexico’s main stock and derivatives exchanges, has changed rules to make it easier for foreign trading firms to buy and sell from outside the nation.
The exchange operator is introducing market access services to attract more firms such as U.S. high-frequency traders, who already facilitate more than 20 percent of equities volume in Mexico, Chairman and Chief Executive Officer Luis Tellez said today in an interview at Bloomberg’s headquarters in New York. Tellez said he sees the proportion of trading handled by those firms rising to about 50 percent in the next two years.
Computer-driven traders such as Getco LLC have supplanted human market makers in the U.S., the world’s biggest equity market, as the dominant providers of liquidity. Luring those companies is a necessary step for any modern equity market looking to attract listings, said Tellez, who added that he didn’t know which American high-frequency trading firms have started doing business via brokers in Mexico.
“We do welcome them,” Tellez said. “They provide liquidity. We’re making their lives simpler.”
The traders are also helpful to pension funds, who are trading more frequently, Tellez said. Mexico privatized its social security system in 1997. Pension funds were allowed to invest in initial public offerings and individual stocks for the first time last year.
Mexico’s Biggest IPO
Tellez’s exchange just handled Mexico’s biggest IPO. OHL Mexico SAB, a unit of Madrid-based construction company Obrascon Huarte Lain SA, raised 9.7 billion pesos ($797 million) yesterday.
In September the exchange altered the systems Mexican brokers use to grant market access to high-frequency traders, enabling them to manage risks associated with each client’s activity, said Jorge Alegria, senior vice president for markets and information. His company expects colocation, or the placement of traders’ computers near the exchange’s systems, to proliferate in the next year, he said. The Mexican venue began offering the service in 2009.
The exchange has also added a type of order that allows firms to peg their buy or sell interest to the prevailing price, eliminating the need for them to update their trading requests. Alegria said this type of order is used by firms seeking to trade electronically in fast-moving markets.
The Mexican exchange has also adopted standardized message formats common in the U.S. to increase trading in its stock market. The use of so-called FIX messaging allows users to simplify the computer code they write for specific markets and permits orders to be processed more easily. The FIX, or financial information exchange, protocol is a language designed in 1992 to facilitate automated trading of financial products.
Rules for trading blocks of shares on the exchange were also recently altered to satisfy institutions’ desires to trade larger orders immediately, said Javier Artigas, senior vice president for strategic planning. The trades will no longer be delayed for 20 seconds while brokers at the exchange decide if they want to participate in the transaction.
The Mexican exchange is developing a new trading platform and computer matching engine to execute buy and sell requests, Tellez said. The system should be completed by the end of 2011. When it’s available, the exchange expects to allow non-displayed or dark orders so investors can seek trades without disclosing their intentions in advance. In Mexico all trades must take place on an exchange.
An order routing arrangement with Chicago-based CME Group Inc., the operator of the world’s largest futures exchange, is expected to boost derivatives volume on Bolsa Mexicana’s MexDer by giving investors new products to trade starting in the first quarter of next year.
The deal made CME the exclusive provider of derivatives order routing services to Bolsa Mexicana outside Latin America while the Mexican exchange will be the country’s only venue offering the services to the Chicago-based company. CME took a 1.9 percent stake in March as part of the deal.
“We want to increase activity for Mexican products,” Tellez said. “The biggest business challenge we have is to have more activity within our market, which we have the potential to do.”