Yesterday (March 8), CME Group announced that it had signed a strategic partnership agreement with MexDer’s parent, Bolsa Mexicana de Valores, which includes an order routing agreement for derivatives. Order routing between the exchanges is due to begin next year.
CME has acquired a 1.9% equity stake in BMV, valued at $17m, as well as a seat on its board. Barclays Capital is acting as financial adviser to CME on the deal. The Chicago-based group will become the exclusive provider of order routing to BMV outside Latin America.
The two exchange groups first held talks “of a preliminary nature” in September of last year.
For BMV, the deal offers the opportunity to list products on CME’s Globex trading network, opening up access to the North American market. In addition, its burgeoning domestic investor base, which is benefiting from increasingly active participation from Mexican pension funds, will gain access to CME Group’s benchmark products.
The two exchanges have also agreed to pursue joint initiatives for product development, CME Group said, as well as marketing, customer education and clearing opportunities. CME has also said it is in discussion with BM&F regarding commercial opportunities resulting from the transaction.
In 2007, CME struck a deal with BM&F that eventually led to CME taking what is now a 5% stake in the Brazilian bourse, followed by a mutual order routing deal that came into practice a year ago.
That deal culminated in last month’s announcement of a new, jointly developed multi-asset trading platform, to be launched by the end of 2011. BM&F has become CME’s global preferred strategic partner, taking a 5% stake in CME Group in return.
Alegría said he hoped BMV’s deal could one day match the scale of BM&F’s. He also argued that a successful international exchange tie-up would complement the development of Mexico’s economy and capital markets, saying: “There are different levels of development. Brazil is clearly the leader, but in Mexico… we are building the institutions.”
“The missing Bric”
Alegría also praised Mexico’s export-led recovery from the financial crisis, saying: “We are recovering fast. Many banks at the end of last year raised their [domestic] growth projection to 3% or 3.5%. This may even be revised upwards to 4%-5%.”
The Latin American nation is cited in some circles as the missing Bric, enjoying a large population, close proximity to the US and rich natural resources.
In November 2009, BMV announced the introduction of co-location facilities for its equity and derivatives exchanges, allowing members to co-locate trading equipment and proprietary algorithms alongside the exchange’s Bolsa central trading engine.
The bourse hopes this will allow high frequency and algorithmic traders to execute transactions at latencies below 1 millisecond.
Speaking at FOW’s Derivatives World Latin America conference last week, Alegría told listeners that the Mexican bourse was planning to broaden its investor base, with the launch of several new products aimed at the OTC market.
The products included plans for a centrally cleared volatility swap, based on its Vimex index, as well as a short term interest rate swap set to launch next month.
Commenting on the deal, BMV executive chairman and CEO, Luis Tellez, said in a statement: “With this operation BMV increases its presence in the international markets. Greater distribution capabilities are a key part of our strategy to attract more investors to Mexico.”
“Allowing international investors an easier access into MexDer will improve liquidity and develop the local market. At the same time this agreement will provide Mexican investors with more tools to manage their portfolios.”
CME Group CEO Craig Donohue commented: “With Mexico’s standing as the 13th largest economy and one of our country’s most significant trading partners, we are pleased to work with BMV to facilitate global hedging and risk management activity in our respective markets.”
Tom Osborn +44 207 779 8361 tosborn@fow.com