Interview : Santiago Urquiza Luna-Parra
Given Mexico’s low market cap relative to the size of its economy, is there room for a second exchange?
SANTIAGO URQUIZA: Although many argue that the market should be reformed, rather than introducing another exchange, increased service provision is always healthy. All 14 countries with economies larger than Mexico’s have at least two stock exchanges, except for Brazil, which has one. The US, meanwhile, has 13. It is disappointing that Mexico, the world’s 15th-largest economy, is 25th in the global ranking of capital markets activity.
Some countries, such as the US or the UK, have their economies structurally geared towards capital markets-based financing, while others, such as Mexico, are geared towards credit. There is very little movement in capital, but since it creates risk and therefore innovation, it boosts dynamism, fostering wider growth opportunities for companies. Due to its structured nature, credit does not demonstrate this behaviour. Therefore, by reorienting the economy towards capital rather than credit, and adopting new operating technologies, we can boost the volume traded in our capital markets by up to 40% within three years.
How can Mexico encourage greater market participation, and what progress is there in this regard?
URQUIZA: We still have challenges to overcome to enhance Mexican companies’ involvement in capital markets. Companies that base their expansion on access to capital rather than credit grow faster than the average, and therefore it is a shared duty of those active in the sector to encourage more medium-sized companies to participate. This comes under the wider umbrella of promoting greater financial education for all Mexicans, not just businesses.
Thanks to these efforts, the general population is more aware of the stock market and the benefits it can bring to financing hospitals, airports and energy projects. We are also slowly seeing a shift in mindset from a new generation of business leaders. They tend to be more globally connected, educated, financially aware and, crucially, more ambitious about their companies’ long-term growth trajectory. In addition, they understand the need to open up companies to more formal corporate governance, which in turn improves professionalism, transparency and efficiency.
On a more macro scale, savings are growing in Mexico, and the country’s pension funds (administradoras de fondos para el retiro, AFORES) collectively hold the savings of over 50m people, which are being poured into a number of market instruments that directly and indirectly boost liquidity in various other sectors. In addition, in terms of government bonds, derivatives and over-the-counter products and services, Mexico is considered number one in global emerging markets. The boost in liquidity from AFORES and solid transactional activity in bonds and derivatives, combined with an open economy, provide a sound base for the long-term growth of capital markets into the next decade.
What role are international partnerships playing in efforts to develop the exchange?
URQUIZA: Nasdaq, one of the most advanced financial technology platforms, was chosen for the new exchange to help bring the operation of Mexico’s capital markets in line with the world’s top financial centres. The X-stream Trading and Nasdaq-SMARTS platforms specialise in the automation of stock surveillance, trade, risk control and data management. This will make nearly every process simpler, faster, more transparent and – more importantly than ever – more secure.
Other international alliances have also been forged, such as with London-based FTSE Russell, which will help to develop the FTSE BIVA Index, aimed at providing the most accurate way to track the movement of liquid Mexican companies. We have 52 companies listed on the FTSE BIVA: 21 large firms, 19 medium-sized companies and 12 small businesses. This makes the index more representative and inclusive than many others.