Citi to Mix Retail and Institutional Flow in Mexico

Citi says the program, which it calls Rπ, is the first bulge bracket offering in Latin America that allows institutional clients to interact with retail clients, thereby increasing liquidity and price improvement. A quarter of all liquidity in Mexico is retail, which has frustrated institutional investors who've seen their trading partners limited, according to Citi's head of international execution sales, Mani Singh.

"In Mexico, all execution has to happen at penny increments in the regular bolsa book," explains Young Kang, global head of algorithmic products. "So when we talk about giving penny price improvement, it can only happen when the spread is two pennies wide. When it's penny wide, you can't put up a print within a half penny unless it's 5,000 shares or more. So when we give a full penny price improvement, we're also giving institutional clients a full penny price improvement. At two pennies wide, both sides are getting a penny price improvement. Any stock that's wider, institutional clients will have an opportunity to grab the lion's share of a price improvement as well."

Rπ is based in part on Citi's Automated Trading Desk, an amalgamation of 250 retail broker dealers that allows Citi's institutional clients the first opportunity to interact with that retail flow.

BMV installed a faster matching engine in Sept. 2012 in an effort to lure more liquidity through foreign high-frequency traders. High-frequency trading (HFT) makes up about a quarter of all volume in Mexico, but that number is expected to rise. With it comes a series of well-documented problems. Non-HFT institutional investors will be driven to interact with flow, like retail, that are not threats for quote stuffing, flickering, etc. Therefore Citi believes Rπ will only have greater appeal as time goes on.

Citi already has a major presence in Mexico via its Accival bank subsidiary, which has the leading share of the market and operates a third of all retail flow.