Bolsa Mexicana de Valores, S.A. de C.V.

views updated

Bolsa Mexicana de Valores, S.A. de C.V.

Avenida Paseo de La Reforma 255
Mexico City, D.F.
Mexico
Telephone: (52) 55 5726-6600
Fax: (52) 55 5726-6805
Web site: http://www.bmv.com.mx

Private Company
Incorporated: 1894 as La Bolsa Nacional, S.A.
Employees: 307
Sales: $1.11 billion (2002 est.)
NAIC: 523210 Securities and Commodity Exchanges

La Bolsa Mexicana de Valores, S.A. de C.V., or BMV, is Mexico's stock exchange and is also the place where fixed-income securities are bought and sold. These transactions are effected by registered brokerage houses, which collectively are the owners of the BMV. There is no trading floor; buy and sell orders are transmitted and fulfilled by means of an electronic system. Norms for the operation of the exchange are set down by law, and it functions by concession from the Mexican government.

STRUGGLING EXCHANGES: 1894–1975

The BMV traces its beginning to the establishment in 1894 of La Bolsa Nacional, S.A., in the commercial heart of Mexico City. Another exchange was established the following year under the name Bolsa de México, S.A., and when the two exchanges merged later in the year, it took the name of the latter. Although previous ad hoc efforts—even including trading on the street—had been marked by lack of regulation, the Bolsa suffered from too many rules. Brokers had to pay a fee on their operations, and share prices were in practice higher than those charged by "coyotes" outside the exchange's doors. When the Bolsa de México closed its doors in 1896 or 1897, share prices were being quoted for only 11 companies, among them three banks, a mortgage lender, a brewery, and a paper manufacturer.

The next stock exchange, Bolsa Privada de México, S.A., was founded in 1907. Like the Bolsa de México, it mostly presided over the buying and selling of shares of mineral companies and charged brokers a fee. This exchange became the Bolsa de Valores de México, S.C.L., in 1908. Activity was stilled by the ensuing revolution and civil war, picked up in 1918 with monetary stabilization, and slowed in the early 1920s. A boom in mineral stocks followed, especially for enterprise engaged in oil exploration, but some of these ventures proved to be fraudulent. The 1929 Wall Street crash had a chilling effect on business, and in 1931 the exchange closed in March and April. It was reorganized in 1933 as the Bolsa de Valores de México, S.A., with 60 shareholders. It became the Bolsa de Valores de México, S.A. de C.V., in 1936.

The Bolsa's growth was inhibited by a lack of guarantees of suitable operation of the market or of a wider legal framework in its operation. A 1946 law established a registry for companies quoted on the exchange, obligating each one to present basic information about its juridical personality and financial situation. The number of issuers of securities increased greatly during the next decade. At the end of 1959, two years after the Bolsa moved to a new building, it had 61 trading members and was dealing in 757 securities. Fixed-rate investments, not stocks, formed the great majority of the trades. Indeed, only about 5 percent of all securities transactions in Mexico were taking place on the official exchanges. The majority of these transactions were being conducted by the central bank and the development bank—government institutions that bought and sold equities and bonds on their own. The capital of all corporations listed on the Bolsa may have totaled no more than 5 percent of the total capital of all corporations.

In the mid-1960s it was estimated that more than 80 percent of all transactions in listed stocks were still being conducted directly through banks and other financial institutions. However, prices were established by quotes on the Bolsa. A member broker could deal off the exchange if he believed he could get a better price than on the trading floor, but he had to charge the customer the commission prescribed by the Bolsa. This commission varied from 0.5 percent to 1 percent, depending on the size of the transaction, and was paid by both buyer and seller. The going rate for membership on the exchange was about $5,000.

More than 95 percent of total transactions in this period involved fixed-income securities. Among these were debt obligations of Nacional Financiera S.A., the federal government industrial-development bank; mortgage certificates; bonds of privately owned financial institutions; corporate mortgage bonds; debt obligations of the federal government or the states; and corporate debenture bonds. A large number of these securities traded at par at all times.

An affiliate of Mexico's largest private bank, Banco Nacional de México S.A. (Banamex), was the largest brokerage house on the exchange. In second place, by 1966, was Promociones y Corretajes S.A. (Procorsa), which was handling about one-fifth of the Bolsa's stock transactions. Its growth came largely from an aggressive pursuit of small investors, including the formation of some 80 investment clubs in which members usually contributed 400 pesos ($32) per month. There were about 10,000 investors in the market, of which about 6,000 were foreigners, mostly Americans and Swiss.

BOOM-AND-BUST CYCLES: 1975–2000

The next big change came in 1975, when the exchange became the Bolsa Mexicana de Valores and absorbed the smaller ones in Monterrey (established 1950) and Guadalajara (established 1957). The BMV was now a concessionaire of the Secretaria de Hacienda y Crédito Público (SHCP). A government commission already in place continued to oversee and regulate its operations, but new regulations were introduced to protect investors, and the number of brokerage houses given access to the exchange was reduced to 22. The estimated 10,000 investors in 1970 had grown to nearly 25,000 in 1975.

Another government agency, the Instituto Nacional de Depósito de Valores (INDEVAL), was established in 1978 with functions that included overseeing administration, compensation, liquidation, and transfer of securities. Two other major changes occurred at this time: the introduction of 28-day Cetes treasury bonds—short-term government financing—by the central bank, and of petrobonds, also introduced by the federal government, with payment at maturity based on the price of a stated quantity of petroleum. Also, short-term commercial paper entered the market. The years 1977 to 1979 saw a boom fueled by rising oil prices. The debt crisis that followed the fall of oil prices in the early 1980s resulted in the government nationalizing the banks in 1982, when the volume of shares traded on the BMV fell 35 percent and their value fell 57 percent. The market value of all the companies quoted on the exchange dropped to $850 million, compared to $20 billion in 1979.

The BMV introduced trading in futures in 1983. With the loss of confidence in stock values, trading in shares on the market fell from 8.6 percent of total transactions (in value) in 1981 to only 2.2 percent in 1983. Commercial paper accounted for 9 percent, and the buying and selling of Cetes bonds for 85 percent. The BMV's revenues chiefly came from annual fees imposed on the companies quoted on the exchange, fees from agents and brokerage houses, and a fee charged on Cetes transactions.

Two years later, a destructive earthquake struck Mexico City, but trading was suspended for only two days, resuming in another location until the exchange was able to return to his own quarters. By 1986 another bull market had emerged. The BMV was, in June 1987, described as the world's hottest market, with a 50-stock index that had climbed 320 percent in 1986 and another 109 percent in the first quarter of 1987. However, these paper gains were being made in the face of a no-growth economy, triple-digit inflation, and a huge foreign debt. In the fall—on the heels of panic selling on the New York Stock Exchange—the BMV's stock index fell 75 percent in value during a five-week period, illustrating the perils of participating in what remained a thinly traded market for shares. Many tapped-out investors left for good; their number fell from 403,083 in November 1987 to about 120,000 in 1991. The number of accounts fell from 800,000 in 1987 to 110,000 in 2000.

The BMV moved, in 1990, to its own new 22-story building, attached to a domed annex, on Mexico City's main boulevard, the Paseo de la Reforma. The automatization of the trading floor began in 1991 with the purchase of a system from the Vancouver stock exchange. This was adopted to its needs and put in operation but found to lack sufficient flexibility and replaced by a new platform bought in 1995. Floor trading ended in 1999.

At the end of 1994 197 companies with combined market value of $196 billion were listed on the BMV. Its annual sales were larger than that of the stock exchanges of Italy, Spain, or Belgium. That year foreign companies were allowed to list their securities on the exchange, and it received approval to trade index-linked derivatives. Once again, however, the stock market collapsed, this time because of the debt crisis and flight of capital that resulted in the devaluation of the peso in December 1994 and a subsequent deep recession. To meet the new conditions created by the so-called tequila crisis, the BMV introduced another trading instrument—this time in debt shares. The volume of transactions on the BMV fell 60 percent between 1995 and 1999, and the exchange sold its building, remaining there as a tenant.

THE BMV IN THE 21ST CENTURY

As the 20th century ended, there were 190 publicly traded Mexican enterprises, but only a fraction of their shares were being bought and sold on the BMV. More than 70 percent of the activity in these stocks was taking place on the New York Stock Exchange, where these shares were being traded in the form of American Depositary Receipts. Most Mexican corporate bonds were also being traded abroad rather than on the BMV. Globalization had allowed the owners and officers of major Mexican companies to find the financing they needed in U.S. and European markets. Medium-sized firms were still waiting, in early 2004, for the investing climate to improve before offering stock to the public.

The BMV suffered a blow that year when the Spanish owner of Grupo Financiero BBVA Bancomer S.A., one of Mexico's two biggest financial groups, delisted its stock on the exchange. Citigroup Inc., owner of the other one, Grupo Financiero Banamex S.A., had delisted this stock in 2001. The departure of Banamex and Ban-comer left only one major financial group, Grupo Fin-anciero Banorte, S.A. de C.V., on the Mexican stock exchange. Also in 2004, the Swiss owner of the major cement company Apasco S.A. de C.V. withdrew this stock from the market. These actions left ten companies accounting for more than 60 percent of the BMV's market capitalization. Liquidity was even more concentrated, with five stocks—one of them Bancomer—accounting for half of all stock trading in the first half of 2004. Telefónos de México S.A. de C.V. (Telmex), and América Móvil, S.A. de C.V., both controlled by Carlos Slim Helú, the richest man in Latin America, accounted for 27 percent of the volume. These were the first two stocks on which traded options had become available through the BMV's derivatives market.

By the end of 2005, the BMV was doing much better, supported by Mexico's lower rate of inflation, record foreign-currency reserves, and investment-grade rating for its public debt. The exchange's principal index, a basket of 35 stocks, almost tripled in value between 2003 and 2005, a period during which, in 2004–05, it reached new daily highs more than 100 times. However, these gains masked a familiar shortcoming—the narrow base of trading on the exchange. Five companies controlled by Slim—Telmex, América Móvil, Grupo Carso S.A. de C.V., Grupo Financiero Inbursa, S.A. de C.V. and Impulsora del Desarrollo Económico de América Latina, S.A. de C.V.—accounted for 47 percent of the share volume in 2005. Three other companies—Wal-Mart de México, S.A. de C.V., Cemex S.A. de C.V., and Grupo Televisa S.A.—accounted for another 25 percent. Almost 45 percent of the shares of Mexican companies were owned by foreigners. The BMV's total market capitalization of $141 billion in mid-2004 was still below the peak of $215.3 billion just before the tequila crisis of late 1994.

Guillermo Prieto, president of the BMV since 2001, was seeking to make the exchange a financial supermarket offering investors an array of products. One of those proposed was the Fibra, the Spanish acronym for the asset class known in the United States as the Real Estate Investment Trust, or REIT. Another hopeful sign was the entry into the market of Afores—private pension funds that, beginning in 2005, were allowed to invest indirectly in equities.

In addition to trading in shares of stock, the BMV was trading in warrants; fixed-income debt securities; a variety of government securities, including treasury certificates and development bonds; and corporate securities, such as commercial paper and promissory notes. The BMV was owned by 27 registered brokerage firms in 2004.