Faster Than Ever

As the second largest stock exchange in Latin America, how has the BMV contributed to the overall development of the Mexican economy in recent years?

In recent years, the stock exchange has been a major source of finance for the Mexican economy, and in the last three years there has been Ps160 billion financed through the exchange. The BMV has been a source of equity for the major players in many different sectors of the economy. We not only issue equity, but also debt; over Ps2 trillion has been raised in debt on the exchange over the past three years. It is a fully integrated exchange system with clearing houses for both the equity and derivatives markets. We hold the depositary institution of Mexico, where all Mexican securities, except for government debt issued in US dollars, are held. We are not as large as the Brazilian stock exchange, but the BMV is growing. With the new source of savings that was created through the 1997 reform of the pension funds system, we now have around $130 billion of institutional money that can be channeled through the exchange for productive purposes.

What industries do you believe have the most growth potential in Mexico?

Heavy manufacturing has been something that Mexico has become very competitive in—specifically auto parts, automotive production, glass, and domestic appliances. We are huge exporters of industrial service goods that form part of the global supply chain. Some companies within that sector are already public, such as ALFA. I believe that more companies will go public in the future. Mexico has definitely become competitive, even as the country still faces several challenges. One is the delivery of natural gas, which is very cheap in North America, but there are not enough pipelines in Mexico for the transportation of this resource. Pemex is confident that by the end of 2013 the problem will be solved and we will have access to affordable gas in the future. This will increase the competitiveness of Mexico’s industry.

What are the main activities the BMV is currently focusing on?

We recently renewed our trading system. The new system has the speed and capacity to process 500 times what we were doing previously. This new system was launched in September 2012, and it has been very successful thus far. We are at the forefront of technology, even though we are a small exchange. With Mexican companies growing in line with predictions, the demand for capital is growing and must be met by expanding the exchange. Even international companies have been using the BMV, including Spanish developer OHL and Santander, which has been the largest listing ever on the BMV. We are very positive that new companies will come and look for growth, equity, and debt on the BMV.

Despite the relative strength of the market, IPO levels have been constrained. What challenges do further listings face?

The number of listings depends very heavily on the economy; as the economy grows, we will see more listings. Medium-sized firms reach a certain level where they simply cannot grow further without financing—they need capital and they come to the exchange. We have seen several SMEs tap into the exchange, as well as larger ones such as petrochemical company ALPEK from Monterrey. In addition, Sports World recently used the exchange to expand its operations. Following this trend, I firmly believe that the exchange will grow substantially in the coming years.

How has the launching of a faster trading engine helped to manage overloads in the system?

The faster trading engine has improved efficiency substantially. The number of trades we have seen since it was established has doubled. These transactions will continue to rise as time goes by and more people become aware of our offerings. We altered our trading rules, which was very favorable for the market. The changes in the trading system make it even more favorable.

The Sustainability Index was launched at the end of 2011. What factors spurred the launch of the index and what is its significance for the BMV?

The idea is that sustainability should be a part of doing business. The index is not only a green index, but it also has to do with corporate governance and community relations. If a company has very good corporate governance, maintains a positive relationship with the community, and follows more than the basic rules by going that extra mile in terms of the environment, it can be listed on the index. One of the nice things about the index is that we don’t decide who gets listed—the matter is decided by UK firm IRIS and a host of Mexican universities. Therefore, the index very neutral.

In what ways would the proposed Volcker Rule, which bans proprietary trading, impact the BMV and other exchanges around the region?

I think the Volcker Rule will impact exchanges globally in terms of less trading, but at the same time the Dodd-Frank legislation regarding the regulation of the OTC markets will imply more trading in established derivatives markets. We have a clearing house for derivatives, so that will undoubtedly have a positive impact on the exchange. We have huge fixed income and interest rate swap markets in Mexico.

What new instruments and platforms are being developed to drive the evolution of the stock exchange?

One new instrument is the Development Capital Certificate (CKD), which is an open-ended equity vehicle. Investors are able to invest in private equity funds or open infrastructure projects that are not yielding a certain return yet, but will yield a return in the future. We have also developed real estate investment trusts (REITs) in Mexico for the first time. So far, they have been very successful and have shown excellent returns—in 2011, we saw 20%. There are now several REITs in the pipeline.

What is your outlook for 2013?

I am very bullish about the economy, because for the last 15 years Mexico has experienced very stable public finances and monetary policies, as well as a solid and coherent trade policy. We have been successful in terms of fundamentals, and I firmly believe that Mexico will be increasingly seen by international analysts as having a very strong economy. There was a depreciation of the exchange rate and a change in relative prices. We have a very good workforce, with highly trained engineers and professionals. Once the issue with the gas pipelines is resolved, we will have access to more affordable natural gas. In general, the economy is looking very strong.

© The Business Year – October 2012