Mexico's stock exchange set for DMA, eyes IPOs

MEXICO CITY (Reuters) - Mexico's stock exchange operator is on track to unveil high-speed trading later this year and is betting that new financing from pension funds will convince more company owners to list their shares.

Mexico wants to raise the profile of its stock market, which has not shepherded a single company to a listing since mid-2008, when personal care company Genomma Lab (LABB.MX) and the stock exchange operator itself, Bolsa Mexicana de Valores, went public.

BMV (BOLSAA.MX) Chairman Luis Tellez told the Reuters Global Exchanges and Trading Summit on Monday that looser pension fund regulation, higher stock prices and increased liquidity were making initial public offerings more attractive.

"Once a few companies list successfully, that's going to create a virtuous cycle," Tellez said. "We have some companies in the pipeline that are going to go public."

Tellez declined to name the companies considering IPOs or whether any particular sector was most promising.

The scarcity of listings in Mexico springs partly from an economy dominated by industry giants and a tradition of guarded family ownership.

Companies controlled by Carlos Slim, the world's richest man, account for more than a third of the market capitalization of Mexico's bourse.

"For the size of the economy, the market capitalization of our stock exchange is relatively low," Tellez said.

But new rules allowing Mexico's pension funds to invest part of their $85 billion directly in individual stocks should mean more demand for companies that list their shares, Tellez said.

Winning the interest of more foreign investors is another way of making the exchange more attractive to Mexican companies in search of financing.

To do that, BMV, which also operates Mexico's derivatives exchange, is modernizing its trading platform so that by the second half of the year it will let brokers offer direct market access to algorithmic traders.

Five or six brokerages have already set up their servers in data centers run by BMV to shave milliseconds from their trade executions and activity is increasing, Tellez said.

In recent weeks, BMV has also implemented FIX protocol, the international standard for settling stock orders that is necessary for high-speed traders.

"The main advantage is to provide liquidity to the market, give liquidity to Mexico's big companies," Tellez said.

High-frequency trading accounts for an estimated 50 percent to 70 percent of all U.S. equity volume and is growing fast in other regions and asset classes. Tellez declined to say how much he expects volume to increase in Mexico.

Banks, hedge funds, and independent shops use ultra-quick algorithms to capitalize on tiny spreads and market imbalances.

Amid concerns in the United States that unfettered access to exchanges could worsen future financial crises, Mexican brokerages that offer high-speed trading to their clients will closely monitor their activity, Tellez said.

FEW CHOICES

Mexico's exchange has long struggled with low trading volume compared with Brazil and more developed countries. About 130 companies are listed on the exchange but most shares are closely held and are extremely illiquid.

Actinver, a Mexico City-based brokerage, recently announced that it would go public, but no other companies have disclosed plans to list.

Tellez said more companies were in discussions with BMV to list their shares as banks hold back on loan financing in the wake of the global credit crisis.

He was optimistic that record-high stock prices hit on Monday in Mexico would win over more entrepreneurs who are mulling share listings.

(Additional reporting by Tomas Sarmiento, Lizbeth Salazar)