Down Mexico Way: Will State-of-the-Art Tech Lure Liquidity?

Brazil’s Eike Batista once boasted that he would overtake Mexico’s Carlos Slim as the richest man in the world. That was before he lost $19.4 billion, two-thirds of his asset valuation, last year. For the fourth year in a row, telecoms mogul Slim remains the big kahuna, pocketing $4 billion in 2012 for a total of $73 billion. Batista, a mining and oil magnate, dropped from seventh place to 100th, with $10.6 billion.  

Mexicans holding their own against Brazilians in the world of finance are always symbolic. The two nations can’t help but compare themselves. Mexico has the second largest economy in Latin America and, correspondingly, the second-largest stock exchange. Though Brazil—the “B” of the BRICS members that include Russia, India, China, and South Africa—has been the darling of the emerging markets for its impressive growth since the 2008 financial crisis, its gross domestic product (GDP) grew by less than 1 percent in 2012. Mexico’s, by contrast, was up 3.9 percent. Mexico’s was higher than Brazil’s in 2011, too. A sunny macroeconomic picture includes a new, reformist president, Enrique Peña Nieto, and an agenda, Revisión Integral de la Norma Operativa (RINO II), which will modernize trading regulation.

“We’re itching for more business in Mexico,” says Carlos Hernandez, head of trading technology at Interacciones, a Mexican bank. “We see the success in Brazil and compare ourselves. We have a way better macroeconomic picture. We have a more friendly regulatory framework for traders. We’re a country that doesn’t change directions very easily on regulatory policy or monetary policy. We’re saying, ‘What are we doing wrong?’”

The national stock exchange, Bolsa Mexicana de Valores (BMV), took a proactive step by installing a new matching engine, Monet, in September. Monet was designed to bring BMV into the modern era when it comes to latency and throughput. It is supposed to translate investment in the broader economy into investment in equities and derivatives. And BMV officials wouldn’t mind if it lured some Latin American investment dollars away from Brazil’s BM&FBovespa, which has made a series of technology upgrades over the last few years, including a new matching engine of its own, Puma.

Máquina Rápida: Fast Machine
Monet advertised the ability to process orders in 90 microseconds—300 times faster than Sentra, the system it replaced. Users have not seen quite that level of improvement, instead testifying that latency is consistently one order of magnitude better, at around 10 to 20 milliseconds. Throughput has improved to 100,000 orders per second. Hector Casavantes, director of electronic trading at broker-dealer Finamex, says he is sending eight times as many messages as before. Finamex is processing millions of orders per day, hundreds of times what it processed three years ago.

“We Mexicans always like to have a close watch on the Brazilian markets as a source of product inspiration, but on the technology side, BMV seems to have a natural tendency to have both eyes on the US.” —Héctor Casavantes, Finamex

The new engine also scales much better, while clusters of machines can be added to improve throughput even further. The exchange has also adopted FIX 4.4 as its order routing protocol.