An upcoming Mexican trading venue taking on incumbent bourse BMV believes it can add supply to the country’s securities lending market.

BIVA, short for Bolsa Institucional de Valores, has been in the works four years now but is set to launch later in 2017 and operate a full fledge stock exchange, subject to regulatory approvals.

It would then leverage the assets of its holding company, Cencor, which runs an interdealer broker business, fair value price provider, institutional broker and securities lending platform, MEI.

In a note to clients last week, analysts at broker ITG pointed out that skeptics question whether a new exchange is warranted, given that 12 securities were responsible for trading more than 50% of 2016 volumes in Mexico.

However, BIVA’s executives point to that fact that four pension funds have backed the project with a 450 million pesos (US$22m) investment through a private equity firm, which demonstrates investors’ appetite for an additional, competitive venue.

The new exchange also signed a deal with Nasdaq X-Stream technology two years ago, meaning it has a technical edge to attract market participants and strengthen adjacent areas, including securities lending.

“Competition is the right way to go,” Rodrigo Velasco, BIVA’s director of operations, told Global Investor/ISF. “Although Mexico’s fixed income market is deep and liquid, our equity market continues to lag behind.”

“This spills over to securities lending, which works pretty well in Mexico,  but hasn’t seen enough development in terms of supply and demand on the equity side.”

Part of the problem, Velasco admits, is that only a handful of hedge funds are based in the country. Most are domiciled outside of Mexico and do business in the US.

“Right now we’re working with institutional investors, brokers, banks and regulators who are very open to sensible market adjustments which would create a level playing field similar to what clients are used to in the US.

“Crucially, we want to create a flexible securities lending environment, not a restrictive one."

Upon BIVA’s launch, firms will be able to trade on both existing bourse BMV - still the second largest stock exchange in Latin America with a total market capitalization of over US$530bn -  and BIVA. 

Clearing and settlement will continue to be through the Contraparte Central de Valores (CVV).

Meanwhile, firms already trading on BMV bourse have the option to change their primary listing to BIVA once the new venue is up and running.

In terms of asset classes, BIVA’s initial focus on the cash equity market, derivatives will be explored at a later date.

Velasco adds that the group  is talking to the Latin American Private Equity & Venture Capital Association to steer some of the country’s alternative assets to the public market.

“Mexican authorities have made it easier for companies to list,” he adds. “Requirements have been lowered. That’s been a positive step.”

The country now faces headwinds this year from three fronts—local politics, the economy and international trade.

“Access to the equity markets via the national exchange Bolsa de Valores has been another challenge,” analysts at ITG added in their note last week.

“While the economy and international trade are being affected by a new US administration led by Donald Trump, the BMV’s issues lie within its own infrastructure.

“Delayed market data or bandwidth during rebalances forced the BMV to close its doors to investors four times in 2016 while it dealt with the outages.

“This has highlighted the need for a new exchange for competition.”