Sunday, May 11, 2014

Mexico's Bond Market

 
Mexico's New Regulatory Envorinment

Beginning in 1997, the Mexican Ministry of finance (SHCP) created reforms to open its access to buy and sell government securities. These reforms included the improving of regulatory bodies within finical systems through the creation of the National Banking and Securities commission (CNBV ), the National Financial Services (CNSF) and the National Savings System for Retirement (Consar), through the umbrella agency, the Federal regulatory Improvement Commission (Cofemer).   These regulatory bodies helped to create a solid foundation for Mexico’s internal municipal bond market, which became operational in 2001.  

These structural considerations encouraged the use of credit ratings and structured finance in order to leverage retirement accounts (AFORES) to be used as guarantees for financing infrastructure within states and municipalities. The traditional method for issuing government debt was only operational through the auctions that big investors, who only had access.  Now retail debt through a system call CETES Direct gives small investors the opportunity to buy government securities without intermediaries.  

Bond issuers

Bond issuers are generally, the offices that  process the bonds for issuing through a process of underwriting.   When a bond issue is underwritten, one or more securities firms or banks, forming a syndicate, buy the entire issue of bonds from the issuer and re-sell them to investors. The security firm takes the risk of being unable to sell on the issue to end investors.  Issuers help to identify the type of loan a subnational government needs, adjusts their public finances, and helps to find the type of guarantee that will be provided and negotiates with the appropriate banks to syndicate the loan. Therefore ordinary investors can  invest in the bond within the Mexican “wall street” as any other type of low risk investment government security investment.

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