MEXICO CITY Mexico's stock exchange is pulling out the stops to keep up with regional star Brazil, but the bourse is failing to attract new listings in an economy dominated by family-controlled giants.
Authorities are overhauling trading rules and expect brokerages to start services next year to tempt algorithmic traders and other sophisticated investors to do more transactions in Mexico.
"With the internationalization of markets, investors from Europe to Asia are looking to invest in emerging markets. We're competing with New York, with Brazil, to attract those funds," said Carlos Quevedo, the head of market supervision at the National Bank and Securities Commission.
Mexico's plan to launch direct market access and expand high-frequency trading follows Brazilian exchange operator BM&FBovespa (BVMF3.SA), which in recent years has become one of the world's largest stock markets.
Brazil allowed algorithmic derivatives trading this year and BM&FBovespa is awaiting approval to offer the same for equities.
Despite strong gains in Mexican stocks, with the IPC index .MXX up about 45 percent in 2009, and optimism about returns in 2010, Mexico struggles to entice privately held companies to go public.
There have been no initial public share offerings since mid-2008, when personal care company Genomma Lab (LABB.MX) and the stock market operator Bolsa Mexicana de Valores (BOLSAA.MX), went public.
By comparison, two of the world's biggest IPOs in 2009 were from Brazil, Banco Santander Brasil (BSBR.N) and credit-card processor VisaNet, which has since been renamed Cielo (CIEL3.SA).
Pedro Zorrilla, chief operating officer of Bolsa Mexicana de Valores, or BMV, told Reuters he expects more stock listings next year. No companies have revealed plans to do so soon.
The scarcity of Mexican IPOs springs partly from an economy dominated by industry giants and a tradition of guarded family ownership.
"Because the Mexican economy in many sectors is so highly concentrated and because it is so difficult to gain market share as a small company, it's almost impossible to think about entrepreneurs building successful businesses, with or without venture capital financing, private equity and the IPO market," said Matthew Cole of Miami-based North Bay Equity Partners.
Even when big firms list, most remain tightly controlled by insiders, limiting their attractiveness to investors.
Emblematic billionaire Carlos Slim's companies account for more than a third of the capitalization of Mexico's stock market.
His Telmex TELMEXL.MXTMX.N and America Movil (AMXL.MX)(AMX.N) dominate the telecommunications industry. Other major sectors like television, cement, bread and beer are also controlled by one or two massive, family-controlled businesses.
The entire energy sector is locked in government hands.
Brazil is home to corporate giants like mining company Vale (VALE5.SA) and the government is present in many industries, but it has no equivalent to Slim.
The country's Bovespa .BVSP stock index has racked up a gain of close to 80 percent in 2009 and exchange officials expect strong IPO activity in the first half of 2010 as companies revive plans shelved during the global credit crisis.
Mexico's stock exchange saw a 63 percent jump in average daily trading operations this year as it rebounded from the turmoil in world financial markets.
Zorrilla said the bourse's new infrastructure will make room for similar growth rates over the next few years.
"Capacity administration and planning are critical today for all stock exchanges," Zorrilla said. "The bourse's goal is to attract local or international activity, new or existing, and do that through very efficient transactional systems."
Part of Brazil's surge of stock listings in recent years comes from efforts to promote medium-sized companies and broaden access to long-term financing.
In 2009, Mexico unveiled a new way to let private pension funds to invest in medium-sized unlisted companies and infrastructure projects, two areas where growth has been held back by a lack of financing.
In October, Mexican construction company ICA (ICA.MX) and partner Goldman Sachs (GS.N) used the new securities, known as development capital certificates, to place a package of toll highways on Mexico's market, raising $477 million.
If the government is successful in wooing private pension funds to invest in small companies through the newly created development capital certificates, some of those businesses could one day go public, bankers say.
(Reporting by Noel Randewich, Additional reporting by Guillermo Parra-Bernal in Sao Paulo. Editing by Robert MacMillan)