Mexico Brokerages Beat Back Rule to Force Bids to New Exchange

Mexico’s largest brokerages won the first round against a government plan to channel more bids to the country’s new stock exchange, a move they said would raise costs and undermine best-execution requirements.

Just a month after proposing a rule that would have forced local brokers to send at least 30% of passive bids to each stock exchange operating in the country, the government pulled draft rules from public consultation late last week.

The decision came after Grupo Bursatil Mexicano, Mexico’s most active trading house, as well as the brokerages at Grupo Financiero Banorte SAB and Citigroup Inc.’s local unit Banamex filed complaints, according to records on the government website. The country’s association of brokerages, AMIB, filed its own comment, asking for financial officials to withdraw the draft and pursue other measures to promote competition.

The proposed rule would have sent more orders to upstart exchange Biva, which began operating in 2018 in a challenge to the Bolsa Mexicana de Valores SAB, previously the country’s only bourse. So far, Biva has struggled to gain more than 20% of total bids in any session and averaged just over 6% of trades per day in March, according to its website.

The regulator CNBV defended the proposal, saying the existence of two exchanges has helped cut fees for market players, reduced listing costs for companies by more than 40% and provided a backup in the case of exchange failures. It also said the proposed rules did not guarantee Biva a 30% market share but would rather require efforts to get to that level without violating best execution rules.

Brokers warned the rules could have unintended consequences and lead to market fragmentation. “They do not promote the growth of the Mexican stock market and generate uncertainty in the execution of the trades,” AMIB said in a statement signed by director Efren del Rosal Calzada.

The CNBV withdrew the draft proposal on Wednesday before Mexico’s two-day Holy Week bank holiday. The regulator said in a statement that it would seek further dialog on the proposal over the next month and issue another plan that would seek to increase trading while protecting investors.

Big Enough?

Regulators around the world are trying to figure out how to create competition in stock markets that have been dominated by monopolies, said Larry Tabb, the head of market structure research at Bloomberg Intelligence.

The proposed rule has rekindled debate in Mexico about whether the country’s public markets are big enough for two stock exchanges. The stock market is trading below a 2017 high amid a dearth of new listings. Brazil, with 690 locally listed companies compared to Mexico’s 184, only has one stock exchange despite a years-long effort by a unit of Americas Trading Group SA to gain approval to compete with B3 SA, the operator of the Sao Paulo exchange.

Last week, Biva said it was closely watching the evolution of the rule. “Rest assured that at Biva we will continue to promote the development of the stock market in Mexico,” the exchange said in a statement. Biva didn’t immediately respond to a request for comment Monday on the government’s decision to pull the draft rule.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.