Mexico’s largest brokerage firms won the first round against a government plan to funnel more bids to the country’s new stock exchange, a move they said would increase costs and undermine best execution requirements.
Barely a month after proposing a rule that would have forced local brokers to send at least 30% of passive offers to every exchange operating in the country, the government withdrew the draft rules from public consultation at the end of the week. last.
The decision came afterGrupo Bursatil Mexicano, Mexico’s most active trading house, as well as the brokerage houses ofGrupo Financiero Banorte SAB andCitigroup Inc.’s local unit, Banamex, has filed complaints, according to records on the government website. The country’s brokerage association, AMIB, filed its own comment, asking finance officials to withdraw the project and take other steps to promote competition.
The proposed rule would have sent more orders to the upstart Biva exchange, which started operating in 2018 in a challenge to theBolsa Mexicana de Valores SAB, previously the only stock exchange in the country. So far, Biva has struggled to win more than 20% of total bids in any one session and averaged just over 6% of trades per day in March, according to its website.
Regulator CNBV defended the proposal, saying the existence of two exchanges has helped reduce fees for market participants, cut listing costs for companies by more than 40% and provide a safeguard in the event of a loss. ‘exchange.failures. He also said the proposed rules did not guarantee Biva a 30% market share, but would instead require efforts to reach 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 transactions,” AMIB said in a statement signed by Director Efren del Rosal Calzada.
The CNBV withdrew the draft proposal on Wednesday ahead of the two-day holiday of Holy Week in Mexico. The regulator said in a statement it would seek to continue dialogue on the proposal over the next month and release another plan to increase trade while protecting investors.
Regulators around the world are trying to figure out how to create competition in monopoly-dominated stock markets, said Larry Tabb, head of market structure research at Bloomberg Intelligence.
The proposed rule has rekindled debate in Mexico over whether the country’s government markets are large enough for two exchanges. The stock market is trading below the 2017 high amid a shortage of new listings. Brazil, with 690 locally listed companies compared to 184 in Mexico, has only one stock exchange despite a multi-year effort by one unit ofAmericas Trading Group SA Will Obtain Approval To CompeteB3 SA, the operator of the Sao Paulo stock exchange.
Read more: Drought in Mexico worsens under Lopez Obrador’s watch
Last week, Biva said he was closely monitoring 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 did not immediately respond to a request for comment on Monday on the government’s decision to withdraw the draft rule.
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