Market Innovation in Mexico

Most interested customers are by now aware of the broader relationship CME Group entered into with the Mexican Derivatives Exchange (MexDer) last year that included north-to-south order routing for derivatives products. Now, every user of Globex – more than 100,000 Globex screens – can trade MexDer products. This follows the south-to-north routing that began in April  2011 allowing every customer from Mexico to trade CME Group products.

This relationship does not only benefit the exchanges.  As David Shuler wrote here in August, Mexico holds a wealth of opportunities for global market participants, with our investor-friendly regulations and favorable tax rates. Throughout the economic downturn across much of the world in recent years, the Mexican economy has continued to grow and interest rates have remained stable.

Global participants now have many efficient options in accessing Mexico’s markets with more transparency and lower cost. For example, the Mexican Stock Exchange index futures, also called IPC Futures, present a potentially effective hedging tool for global investors. The IPC is the leading indicator of the Mexican Stock Exchange, and is made up of 35 stocks from various sectors designed to reflect activity across the entire Mexican economy. It is also highly correlated with the S&P 500.

Liquidity in these futures is deep, with approximately 5,000 contracts traded daily on MexDer, and open interest above 85,000.

IPC Futures contracts are CFTC approved and available to market participants around the globe. However, as the Mexican economy matures, customers here also have a greater need to manage risk through a diverse set of global products.

Our agreement fosters many unique spreading opportunities between exchanges that allow CME Group and MexDer customers to take full advantage of the new partnership.

For example, IPC futures, because they are so highly correlated with the S&P 500, can be spread against the S&P 500 E-mini contracts traded at CME Group.

Spreading an equity futures contract against another is an effective way for market participants to harness trading opportunities and mitigate risk. For the IPC/S&P E-mini example, we feature several scenarios in this strategy paper on how that particular spread can benefit market participants.

IPC futures are just one of the new options available to market participants to capitalize on the opportunity and deeper liquidity created by the partnership between CME Group and MexDer. We also offer bond futures and Mexican Peso / US Dollar futures contracts.

Through Globex, these too will provide the first ever access outside Latin America to the wide array of opportunities to Mexico’s stable, liquid, and growing markets.

 

Jorge Alegria is chief executive officer of the Mexican Derivatives Exchange

Jorge Alegría is chief executive officer of the Mexican Derivatives Exchange (MexDer) in Mexico City. Alegría serves as member of the Board of Directors of the International Options Markets Association and is also a professor at the Mexican Autonomous Technological Institute.

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