February 06, 2013

As Brazil is positioning itself as the regional hub, and MILA — an integration of the exchanges in Chile, Colombia and Peru — pushes the Andean region forward, it’s understandable that some see Mexico as the middle ground between its neighbors. But the country is undergoing rapid change and is becoming a driving force in its own right within Latin America.

One of the main developments in Mexico is the launch of the Bolsa Mexicana de Valores’ (BMV) Monet matching engine, which was developed in-house and went live in September 2012. With the goal of providing global investors with more efficient trading and connectivity to Mexico, Monet is designed to deliver 100-microsecond message latency, an improvement of more than 25 milliseconds on the current equities platform, and to increase the number of messages capable of being supported to 200,000 per second.

At the same time, the Mexican Derivatives Exchange (MexDer) has entered into an agreement similar to that between BM&FBovespa and CME Group to enable bi-directional order routing. This partnership will allow participants of the CME Globex trading system to route orders to MexDer, opening up the market further.

[Enclave Capital Aims to Boost International Desk with New Trading Head]

As elsewhere, HFT is proving a dominant force in Mexico with about 90 percent of the MexDer average daily volume deriving from American high frequency traders, and 20 percent of all trades in Mexico now being attributed to the HFT community. However, the arrival of HFT in Mexico is not a natural consequence of fragmented trading centers and liquidity as it was in the US. Instead, it is the result of a deliberate policy by regulators to bring rules in line with international market standards, and the exchange’s move to FIX 4.4 and the Monet matching engine. The availability of a state-of-the-art co-location facility has also made it easier for both brokers and third-party providers to co-locate strategies, risk and order routing solutions, further encouraging high-throughput, low-latency services.

The upgrades to Mexican infrastructure are accompanied by updated regulation. Since February 2012, RINO II, the second phase of Mexico’s initiative to modernize its regulations, has brought pegged orders, improvements in crossing and average price operations, price delivery regardless of volume, and decimal bids for fixed income to Mexico – bringing the country’s regulations up to international standards. The aim has been to bring more international flow and greater liquidity to the market. In addition, the RINO II regulations have introduced a new mid-point hidden book order – in effect, a dark pool.

Mexico is clearly undergoing a period of rapid change, which is being played out across its technology infrastructure and market regulations and continues to increase its appeal to the international audience. Domestic brokers will need the right technology to capitalize on this attention. Many are seeking high-frequency trading algorithms, efficient routing of international orders through low-latency connectivity networks and more sophisticated risk controls. By leveraging world-class technology designed to cater for local nuances, market players will be well-placed to compete on the global stage.

Alice Botis is Head of Latin American Business Development at Fidessa.