Sin ttulo de diapositiva

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MexDer, Mexican Derivatives Exchange
March, 2006
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• MexDer in 2005

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MexDer Evolution
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MexDer Evolution
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What Happened?

• OTC trading on TIIE Swaps (offshore), increased
  by tax issues.
• Local banks moved their books offshore, more
  players.
• Higher cost to trade in both markets (cost of
  capital) affected the Local banks.

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US Dollar (MXP/USD)Futures Contract Evolution
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IPC IndexFutures Contract Evolution
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Daily Average Traded Volume
Recovering volume
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Daily Average Traded Volume
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• The Mexican Market in 2005

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Macroeconomic and financial conditions are
helping the development of the Mexican Market
28 DAY TRESASURY BILL (CETE) Monthly Average
On December 2005 the level of the 28 day CETE was
8.22. On December 2004 the same rate was 8.52.
Country Sov. spread
Country Risk level for Mexico, measured by JP
Morgans EMBI index was 166 points at the end of
2004. During 2005 this level showed a decreasing
trend, locating its lowest level at 113 points on
late November, at the end of the year the level
was 126 points.
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Mexicos Equity Market

• From 2001 to 2005, the IPC Index showed a nominal
  growth of 215 and 184 in USD.
• Just in 2005, the IPC returned 37.81 in MXP and
  44 in USD. One of the 10 most profitable markets
  worldwide.

• Compared to the GDP, the market cap indicator
  went from 19.9 in 2001, to 37 in 2005.
• From 2001 to 2005, the foreign investment in the
  Mexican Stock Exchange, as a percentage of the
  market capitalization was arround 43.

Source Banxico Mexican Stock Exchange
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Volatility Index VIMEXEquity Market
Source MexDer
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Foreign Investment MXN Government Securities
MXN Equity Market
Foreign Investment in MXP Debt Government
Securities
Foreign holdings in equities, as a percentage of
the Market Cap at the end of 2005
Foreign Holdings in Equities 106.6 Billion USD
Local Holdings in Equities 129.5 Billion USD
Source Mexican Stock Exchange
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• Recent developments

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Pension Funds Development

• The financial assets of Afores represented 7 of
  the GDP at the end of 2004.
• On 2005 the financial assets of Afores rised 27,
  and represented 8.5 of that years Gross
  Domestic Product.

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New Participants

• 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 is adding
  depth and liquidity into the Mexican Derivatives
  Market.
• The Pension Funds AUM are 54 Billion USD. They
  are allowed to invest up to 15 (net exposure)
  of their assets in Equity Indices. (Capital
  Protected Notes).

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New Investment Rules for local InstitutionsImpact

• Important news for all markets, expected flows to
  local equities and foreign securities as well.
• Opportunities for investment banks, both foreign
  and locals.
• Synthetic products, structured notes already in
  use.
• Hedging needs on Mexican securities to grow.
• Significant role for the Derivatives Industry and
  for MexDer.

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New Investment Rules Impact
Banks Broker Dealers (Members Clients)
Institutional
Percentage of the Open Interest Source Asigna
Other participants
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New Investment Rules Impact
Banks Broker Dealers (Members Clients)
Institutional
Percentage of the Open Interest Source Asigna
Other participants
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Structural Changes
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Structural Changes

• Withholding Taxes
• Omnibus Accounts
• Remote Membership
• API/FIX Access
• Capitalization Rules (Local Banks and Brokers)
• More local players to participate

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New Tax treatment for Foreigners

• New Tax Treatment for derivatives published on
  December the 23rd 2005!
• Capital gains in fixed income derivatives traded
  in MexDer are not subject to withholding taxes
  anymore!
• Includes CETES, M Bonds and TIIE Futures.
• Arbitrage opportunities.
• Futures and Options on the Mexican Stock Exchange
  Index (Equities) are now tax free.

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Omnibus Accounts

• Attracting International Players

International Investors
OTC International Market
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Omnibus Accounts

• Mexican Rules changed (jan, 2005) allowing
  foreigners to handle Omnibus Accounts.

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

Execution/clearing agreement or Similar
Foreign Intermediary
Trading Member
Clearing Member
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Remote Access to the Market

• Objective Increase the number of participants to
  add liquidity into the market.
• As a result of internal regulation changes,
  MexDer will accept now trading members that can
  be located outside Mexico.
• The first stepProprietary trading only.
• Full support from local Authorities

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We are ready to provideRemote Access to MexDer
(API / FIX)
Foreign Member A
Foreign Member B
Foreign Member C
Foreign Member D
Asigna clearing all transactions
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Remote Access to the Market

• Even though the access to the market is from
  overseas, the trades will be settled in Mexico
  through a local Clearing Member.
• Admission requirements and obligations are
  similar to the Local Participant ones. (Countries
  whose regulatory authorities are members of the
  IOSCO Technical Committee and with membership on
  a market recognized by MexDer).

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Now, MexDer is open via Fix Protocol!!
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Connecting to MexDer via FIX

• MexDer is ready to assist its clients with more
  detailed technical information, including
• General Admission requirements for Remote Members
  (legal Communications)
• Specifications of the interface
• Code charts
• Extensive examples
• Visit our web page
• www.mexder.com

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Other important changes
Capital Rules

• Recent modifications to net capital rules for
  Local Banks will facilitate derivatives trading.
  They reduce the capital usage by allowing the
  netting of OTC and listed derivatives positions.

More local Players to participate

• Insurance Companies are now allowed for the first
  time to trade Derivative Products in MexDer.
• The regulation for mutual funds regarding
  Derivatives is about to be ready.

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• How to participate?

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How to participate?

• As an Omnibus Account.
• Handling costumer accounts trough a Local Member
  or a Clearing Member.

• As a Client.
• Proprietary Trader as a costumer of a Local
  Member.

• As a Remote Member.
• Second quarter 2006, Remote Membership with
  direct access to the trading system (initially
  prop trading only).

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Final Remarks
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Final Remarks

• Foreign investors have an increasing interest to
  invest in Mexican assets as a result of
• Economic stability.
• Investment grade status and global asset
  allocation.
• Growing liquidity in MXP denominated
  securities. (Bonds and Equities)
• However, some investors also need to hedge
  inherent market risks of Mexican securities, this
  doesnt happens nowadays.

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A great opportunity!

• Foreign Investors are trading the underlying
  securities through Foreign Intermediaries, who
  arent participating now in MexDer. Big OTC
  Derivatives activity with severe credit
  limitations.
• Omnibus Accounts in place. This allows foreign
  Broker-Dealers and FCMs to put together an
  integral strategy for their clients, to offer
  MexDers products and cover their hedging needs.
• Hedge Funds are getting interested in Mexican
  Derivatives.

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A great opportunity!

• MexDer is one of the most dynamic derivatives
  market in the world.
• This trend will remain in the medium term due to
  growing participation of local institutional
  investors, as well as Foreign participants.
• In addition, Insurance Companies will be joining
  the market as important new customers and Mutual
  Funds are about to be ready.
• Due to recent changes on the Mexican Tax Code, NO
  more withholding taxes are applied to foreign
  investors.

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Its the right time

• It is the right time for foreign institutions to
  explore how to participate in MexDer.
• Most of the changes here mentioned have just
  happened!
• The best way to get started contact us!

From the US dial 1 866 MEXDER1 From the rest of
the world (5255) 57266868
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Its the right time

• Banamex CitiGroup
• Vicente Aguirre (5255) 2226-6905
• vaguirrecer_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_scotiabankinverlat.com

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Its the right time

• Contact the exchange
• Berenice Corral
• bcorral_at_mexder.com
• (5255) 5726-6829
• www.mexder.com

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MexDer, Mexican Derivatives Exchange
March, 2006
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MexDer on Vendors
To watch MexDers market information.
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MexDer on Vendors