MexDer, Mexican Derivatives Exchange

1
MexDer, Mexican Derivatives Exchange
March, 2005
2
MexDer, Mexican Derivatives Exchange

• Products Statistics
• Development of a Successful Market
• A new investment framework for Pension Funds
• New Products
• Why Mexico?
• Access for international players
• Global Accounts
• Mechanisms to Provide Real Time Data
• Final Remarks

3
Listed InstrumentsFutures Contracts

• Currencies
• Mexican Peso / U.S. Dollar
• Indices
• IPC (Mexican Stock Exchange Index)
• Fixed Income
• 91 days Cetes (MXP Treasury Bill)
• 28 days TIIE (Interbank Interest Rate)
• 3 year Fixed Rate Bond in MXP (M3)
• 10 year Fixed Rate Bond in MXP (M10)
• Inflation Index (UDI)
• Individual Stocks
• Cemex CPO, Femsa UBD, Gcarso, Telmex L, Amx L.

4
Listed InstrumentsOptions Contracts

• Indices
• IPC (Mexican Stock Exchange Index)
• Individual Stocks
• Amx L, Naftrac 02
• ETFs
• NASDAQ 100-Index Tracking StockSM QQQSM
• iShares SP500 Index?" IVV (April, 2005)

5
MexDer Evolution
6
Data Highlights
Million Dollars
7
Monthly Average Traded Volume (Thousands of
contracts)
TIIE
8
Monthly Average Traded Volume (Thousands of
Contracts)
CETE
M10
DEUA
9
US Dollar (MXP/USD)Futures Contract Evolution
10
10 Year Fixed Rate Bond Futures Evolution
11
Options Market
With Information from March the 22nd to February
the 28th.
12

• Development of a
• Successful Market

13
Development of a Successful Market

• Liquidity in the cash Markets and a new large
  Institutional Investors base (Demand).
• A solid Clearing House (AAA) and well designed
  contracts. (Products, supply).
• Complete support from the Authorities to the
  proposals submitted.
• Commitment from the local Intermediaries for
  Promotion, Growth and Trading Activity.

14
Growth Factors(Favorable International Outlook)

• Moodys assigned the investment grade to Mexico
  in 2000.
• Standard Poors assigned the investment grade
  in february, 2002.
• Throughout 2001, the Federal Government carried
  out several operations involving Brady Bonds,
  issuing debt in the international Markets.

15
Growth Factors(Internal Savings Orientation)

• Pension Funds-SIEFORES (Mandatory Specialized
  Retirement Funds) Initiated operations in 1998,
  and have since represented an important source of
  financing for both the public and private
  sectors.
• By 2001, SIEFORES holdings already accounted for
• 30 of all public sector securities
• 20 of all private sector securities
• Long Term Investment Needs
• Resulting from the long term liabilities in the
  Pension System.
• Longer Maturity debt placed by the public sector.

16
Growth Factors

• Long Term Investment
• 2000, Central Bank Issues 3 and 5 yrs Fixed Rate
  Bonds in MXP placed locally
• 2001, Central Bank Issues 10 yrs debt
• 2003, Central Bank Issues 20 yrs debt

Mexican Yield Curve ( Local Debt 1999 - Q3 2004 )
17
Growth Factors(Mexican Market Trend)

• Higher participation from Institutional
  Investors
• AFORES (Retirement Funds Administrators)
• Mutual Funds
• Insurance Companies
• All of these have been fundamental to maintain
  the growth of the Debt Market in Mexico.
• Active participation from Foreign institutions is
  expected, due to recent changes in the AFORES
  Investment Rules.

18
Growth Factors(Mexican Market Development)

• The financial assets of Afores represented 7 of
  the GDP at the end of 2004

19
The institutional investors contributed to the
growth of savings through Exchange Listed
Instruments.

• The Pension Funds (SIEFORES) and Mutual Funds
  value at the end of 2004 exceeded 80 billion USD.
• An important proportion of these resources are
  government securities. Private Bonds and
  municipals have also grown substantially. These
  represent nowadays near 16 of the total holdings.

Mutual Funds SIEFORES Assets Million Dollars
MUTUAL FUNDS
SIEFORES
20

• A new
• Investment Framework
• for Pension Funds

21
New Participants Big Players(Pension Funds)

• In January 2004 Pension Funds started using Fixed
  Income Derivatives. Last January 18th, 2005
  Pension Funds began trading in Equities Equity
  Derivatives.
• The entrance of these new participants will bring
  as a consequence greater depth and liquidity to
  the Mexican Derivatives Market.
• The Pension Funds AUM are 44 Billion USD. They
  are allowed to invest up to 15 (net exposure)
  of their assets in Equity Indices. (Capital
  Protected Notes).

22
Investment Rules for Pension Funds

• May 3, 04 -New Investment Rules.
• Investments to be allowed in additional
  Securities (15 Net exposure).

• Derivatives

Equity exposure should be always capital
protected!
23
Investment RulesImpact.

• Important News for all Markets, expected flows to
  Local Equities and Foreign Securities as well.
• Enormous Opportunities for Investment banks, both
  foreign and locals.
• Synthetic products, Structured Notes to be
  created.
• Hedging needs on Mexican Securities to grow.
• Significant role for the Derivatives Industry and
  for MexDer.

24
The other Big Players(Mutual Funds and
Insurance Companies)

• MexDer has been negotiating with the Mexican
  Financial Authorities on behalf of Insurance
  Companies and Mutual Funds, to develop their
  derivatives legal framework.
• We are expecting the arrival from the insurance
  sector in the Derivatives scene in the second
  half of 2005.
• The Investment regime to regulate the use of
  Derivatives in the mutual funds should be ready
  by year end.

25
New Products
26
Current Plans and developments

• Futures
• Currencies
• Mexican Peso / Euro
• Options
• Fixed Income
• On the 10 year Bond Futures (M10)
• MXP/USD Futures
• Equity
• Single Stock contracts
• International Indices

27

• Why Mexico?

28
Macroeconomic and financial conditions are
helping the development of the Mexican Market
28 DAY TRESASURY BILL (CETE) Monthly Average
On February 2005 the level for 28 Day CETE was at
9.2. On February 2004 the same rate was at 5.9.
Country Sov. spread
Country Risk level for Mexico, measured by JP
Morgans EMBI index was at 152 points level at
the end of February. During year 2004 these
levels showed a decreasing trend, locating its
lowest level at 151 points.
29
Peso Debt Market (medium and long term)

• From 2001 to 2004, medium and long term debt
  placements went from 3,435 millon to 12,357
  million USD, this represents an increase of
  359.74 .

• At the end of 2001, 65.0 of medium and long term
  debt placements were Corporate Bonds.
• By the end of December, 2004 the comparison
  reflects new and important issuers Non Bank
  Banks (Sofoles), Public Sector Cos. and Local
  Governments.

Source Mexican Stock Exchange
30
Peso Debt Market (medium and long term)

• Medium and long term debt instruments outstanding
  amounts rise up to 28,230 million Dollars by
  December the 31st 2004, which means an increase
  of 235.74 from 2001

Source Mexican Stock Exchange
31
Mexicos Equity Market

• From 2001 to 2004, The IPC Index showed a nominal
  growth of 128.5 and 94.2 in USD.
• During that period, the Mexican Market was one of
  the 10 most profitable markets.

• In relation with the GDP, the market cap
  indicator went from 19.9 on 2001, to 26.3 on
  2004.
• The foreign investment in the Mexican Stock
  Exchange, as a perecentage of the market cap went
  from 41.3 in 2001 to 46.1 in 2004.

Source Mexican Stock Exchange
32
Foreign Investment MXN Government Securities
MXN Equity Market
Foreign Investment in Mexican Debt Government
Securities
Foreign holdings in equities, as a percentage of
the Market Cap in 2004
Foreign Holdings in Equities 78.8 Billion USD
Local Holdings in Equities 104 Billion USD
Source Banxico Mexican Stock Exchange
33

• Access for
• International players

34
Access for investors and foreign Intermediaries

• We have the participation of almost all local
  intermediaries.
• It is necessary to have more final users (clients
  of our clients).
• Important participation in trading of foreign
  Broker dealers on OTC trades / Mexican interest
  rates.
• Counterparty limits increasing.

35
Strategy

• Attract international Players

International Investors
OTC International Market
36
Global Accounts
37
Global Account

• Mexican Rules changed (jan, 2005) to allow
  foreigners to handle Global (Clients) Accounts

Actual execution/clearing agreement or Similar

• The Foreign intermediary is the client
  counterparty. He faces the local Clearing Member.

Foreign Intermediary
Trading Member
Clearing Member
38

• Mechanisms to Provide Real Time Data

39
Real Time Data

• SIVA TCP/IP
• The Automated Securities Consulting System (SIVA)
  -TCP/IP Protocol- Provides on-line information
  through terminals connected to our mainframe
  (Tandem) to connect all MexDers participants
  (Customers, Vendors, Clearing Members, etc.)

• VPN
• Virtual Private Network (VPN) is another way to
  provide MexDers data in real time basis to
  foreign customers.

40
Final Remarks
41
Final Remarks

• Foreign investors have an increasing interest to
  invest in Mexican assets as a result of
• Economic stability.
• Investment grade status.
• Growing liquidity in peso denominated
  securities. (Bonds and Equities)
• However, this type of investors also need to
  hedge inherent market risks of mexican
  securities, this does not happen nowadays.

42
A great opportunity!

• Foreign Investors are trading through foreign
  intermediaries, who until now, do not participate
  in MexDer.
• Recently, the Global Accounts scheme was
  approved by the Mexican Authorities. This allows
  foreign intermediaries to put together an
  integral strategy for their clients, being able
  to offer MexDers products and to cover their
  hedging needs.

43
A great opportunity!

• MexDer is one of the most dynamic derivatives
  market in the world.
• We consider that this trend will remain in the
  medium term due to the participation of local
  institutional investors like Pension Funds, as
  well as Foreign Investors.
• Additionally, Mutual Funds and Insurance
  Companies will join the market as important new
  customers.

44
Its the right time

• It is the right time for foreign intermediaries
  to explore how to participate in MexDer.
• Most of the changes here mentioned are just
  happening!
• The best way to start
• Contact one of MexDers Clearing Members

45
Its the right time

• Banamex CitiGroup
• Britt Skerianz (5255) 2226-69005
• bskerianz_at_banamex.com
• BBVA Bancomer
• Gloria Roa (5255) 5621-9229
• g.roa_at_bbva.bancomer.com

• Santander Serfin
• Rebeca Kuri (5255) 5261-5059
• rkuri_at_santander.com
• Scotia Inverlat
• Jaime Ledesma (5255) 5728-1451
• sledesmar_at_inverlat.com.mx

46
Its the right time

• Or contact the exchange
• Rodolfo Liaño Gabilondo
• rliano_at_mexder.com
• (5255) 5726-6929
• www.mexder.com

We will help you
47
MexDer, Mexican Derivatives Exchange
March, 2005