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Mexican Stock Exchange

Manuel Robleda, President of Bolsa Mexican De Valores, on incentives for investors and the impact of NAFTA

Why go to a Latin American Stock Exchange when you could go to New York or London?

In dealing with Mexican securities in particular, the Bolsa Mexicana de Valores is a world class institution, ruled by the highest standards. Additionally, the Mexican Central Securities Depository has been acknowledged by many as one of the best in the world. Therefore, foreign investors are sure that their investments and trading of securities in Mexico are carried out as orderly and transparently as it would be in any of the international financial centres in which Mexican securities are traded.

Are there any sectors that have been performing strongly recently, and why are any strong sectors performing well?

Almost every sectors index has risen in 1997. The most dramatic increases as of June are those of the Communications and Transportation sector that has gained 45.11 per cent, the Retail sector with a 39.99 per cent gain, and the Holding company's sector with an increase of 38.56 per cent. Every index has reflected the positive behaviour or the market, supported by the favourable indicators of the economy. For instance, our main stock index the Indice de Precios y Cotizaciones or IPC, increased 30.91 per cent in dollar terms, 1,096.94 points in the first semester of 1997. Last June, the IPC closed at 4,457.97 points.

How greatly influenced are you by the activities in the large US markets?

Since Mexican equities are quoted abroad, prices in the Mexican securities market cannot avoid being affected by what happens in other markets. American economic indicators influence the Mexican ones as well as those from the rest of the world, and of course since the US is Mexico's main commercial partner, we cannot detach from what happens there.

Nevertheless, the last few years have taught us that even when the American markets definitively set trends, every securities market should find its own balance. The Mexican securities market itself has set trends for Latin American markets in the past. Things are gradually changing. Nowadays the Bolsa is looking into improving and strengthening its market by updating regulation, creating new instruments and hedging mechanisms to be able to shake off any adverse tendency.

What will be the impact on your stock exchange of increasing globalisation of the capital markets?

It will be a positive boost. The Bolsa Mexicana de Valores has prepared itself for globalisation. We have updated our trading systems, developed keener surveillance and regulatory schemes, as well as designed an International Quotations System that will enable foreign securities to be listed on the exchange. Such a system, which begins operations next July, will drive the Bolsa to become a regional financial centre for Latin America.

On the other hand, the implementation of a derivatives market in Mexico is to take place next October. The new market (MEXDER) will list options and futures on indices, interest rates, stocks and foreign currency.

Foreign investment in the stock market has been increasing, even during the crisis years. The fact that foreign investment in the Mexican Securities Market has not decreased, as many may have thought is quite relevant. It has rather increased its presence in the Bolsa's market capitalisation, proving that the great potential of Mexican companies is recognised abroad.

What incentives are there for foreign investors to place investments through your brokers instead of going through larger international exchanges? And if there is a lack of sufficient direct investment, what plans are there to rectify the problem?

Only brokerage firms established in Mexico and members of the exchange are allowed to trade on the exchange. Nowadays there are 33 member firms, five of which are affiliates of foreign institutions.

In order to reach foreign investors, Mexican brokers have established subsidiaries abroad furnishing all kinds of services.

To increase direct foreign investment the exchange has implemented a Promotional Campaign that includes promotional brochures on every aspect of the exchange's activities, new publications, advertising, a website, and co-operation with the exchange's members so as to increase awareness of the securities market.

Five years ago the Bolsa also implemented, with great success, a strategic plan aimed at diminishing trading costs and becoming really competitive.

Are there any incentives regarding taxation and regulation for foreign investors?

Capital gains and interest from the equities market and warrants are tax free. Income from debt instruments issued by the Government are tax free as well. Interest from the promissory notes, banking acceptances, bank bonds, commercial paper and debentures have a 4.9 per cent tax if the investor is resident of an OECD country. Otherwise, a 15 per cent tax is applicable.

What benefits has NAFTA brought to your market?

Due to NAFTA, foreign financial institutions have been able to establish affiliates in Mexico. Such affiliates are incorporated as Mexican companies that, once authorised by the National Banking and Securities Commission, can apply for membership of the Bolsa. For the time being, the exchange has received 5 affiliates of foreign institutions as members. Their presence has certainly triggered more competition in the Mexican market, brought new ideas, as well as more participants. All very favourable effects.

By being able to increase their exports to North America, companies listed on the Bolsa have gained significantly, stimulating the securities market accordingly.

Has the establishment of MERCOSUR by your neighbouring countries had a detrimental effect on your markets, and do you hope to join their trading area?

The establishment of MERCOSUR had, as far as I can see, no relevant effect on the Mexican securities market - even though the exchange has foreseen more interaction with those countries since we are planning to incorporate many Latin-American stocks to the International Quotations System of the Bolsa.

In the long run, everything points towards a free trade continent. Mexico supports such and initiative.

What plans are there for any future privatisations? Will foreign investment play a part in any privatisation and, if so, how much of one?

The Mexican Government is looking into the privatisation of several companies: ports, airports, trains and petrochemical plants, among others. Foreign investment will certainly play a leading role in such a process, just as it has in the recent past.

How is the stock market regulated? What powers does any supervisory body have, and do you think greater regulation is necessary?

As foreseen in the Securities Market Act, the National Banking and Securities Commission is the entity responsible for the securities market's surveillance. The Commission grants authorisation for exchange members, floor brokers, keeps the national registry of securities and intermediaries, foresees solutions to controversies, investigates irregularities and imposes sanctions on violators.

On the other hand, the Bolsa has developed its by-laws that cover admission, suspension and exclusion of members, listing and suspension of securities, rights and obligations of issuers, trading means, registry and trading suspensions, self-regulatory rules for members and the corresponding sanctions.

I do not believe in greater regulation, but in self-regulation. Self-regulatory practices, compulsory to all market participants, are essential. There cannot be better regulation than that put forward by those who shall abide to it.

Mexican authorities have acknowledged that what the Mexican securities market needs is more self-regulation, and they have agreed to grant more self-regulatory powers to the Bolsa. For the time being, a group of experts are reviewing the code of ethics of the securities industry as well as the by-laws of the exchange, in order to make the necessary adaptations.

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©Kensington Publications 1997