Arvai, Zsofia and Geoffrey Heenam, 2005, “A Framework for Developing Secondary Markets for Government Securities,” IMF, MFD Operational Paper.
Banco de Mexico, 2002, “Implications of Financial Liberalization for the Promotion and Allocation of Domestic Saving: the Case of Mexico,” 9th APEC Finance Ministers’ Process.
Herring, R.J. and Chatusripitak, N., 2000, “The Case of the Missing Market: The Bond Market and Why It Matters for Financial Development,” ADB Institute Working Paper 11.
Ilyina, Anna, 2005, “The Mexican Corporate Bond Market,” Background Note for Global Financial Stability Report, International Monetary Fund, forthcoming.
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Prepared by Mazen Soueid (ICM). The author is indebted to the Mexican authorities at the Bank of Mexico and Ministry of Finance for valuable suggestions on an earlier draft of this paper.
Various episodes in financial history attest to this. The United States bond market helped substitute for bank intermediation in the credit crunch of the late 1980s. Also, the banking system played the back-up role when the bond market weakened in the wake of the LTCM crisis of 1998. Another example is the Korean bond market, which played a vital role in carrying on financial intermediation after the 1997 financial crisis, which had impaired the banks. In contrast, the less developed bond markets in other countries in East Asia failed to provide this backup function.
This is evident for instance in the increasing role of venture capital in developed capital markets, notably the United States.
A significant action taken by the authorities during this period was the adoption in 1977 of a single reserve requirement ratio for the liabilities in domestic currency of banks. The introduction of Treasury Certificates (CETES) in 1978 complemented measures adopted on legal reserve requirements.
Foreign investors who are residents of countries with which Mexico has double taxation agreements are exempted from any withholding tax on their investment in government securities.
Prior bankruptcy laws required market participants to first settle their obligations and then collect their rights out of bankruptcy proceeds.
As opposed to Brazil, for instance, where there are requirements to appoint a legal and tax representative in the country to conduct transactions, to register with the Brazilian Securities and Exchange Commission, to pay 15 percent income tax on capital gains and other income, to pay a tax of investments unwound less than 30 days after inception (at the rate of 1 percent per day less than 30 days), and a financial transaction tax of 0.38 percent on entering and exiting the country.
AFORES reportedly shared among themselves their own investment allocations plans.
Mobility of contributors across AFORES remains low, with only 1 million contributors recording any move since the system began.
This factor is significantly less important given that most AFORES are operating at VAR levels way below their limits.
The augmented fiscal deficit has declined since the late 1990s, and moreover has been adequate to contain the level of public debt (in relation to GDP).
A volatile inflation rate would restrict the government’s ability to extend the yield curve beyond very short maturities and render the nominal yield curve uninformative about the real cost of borrowing. While these difficulties could be partly overcome by the development of the market for inflation-linked bonds, few countries have used these instruments, for various reasons. In fact, inflation volatility in Brazil in 1999 and in Argentina in 2000/2001 was a major impediment to yield curve extension and the further development of local financial markets (del Valle (2002)).
The 1975 a Securities Market Act established the legal framework for the expansion of securities operations. It also substantially strengthened the regulatory role of the National Securities Commission (CNV).
Mtns are an instrument that can be issued in tenors from 1 to 7 years, in nominal pesos or inflation-linked. The main inconvenience of Mtns is that they can only be repaid at maturity (bullet payment) and cannot include covenants.
The exact nominal amount and other technical characteristics of the instrument to be tendered are normally announced two working days prior to the auction.
FARAC is a government trust fund which was created to rescue private toll road operating companies after the 1994–95 financial crisis. As a result of the rescue operation, the trust fund acquired both the assets and the liabilities of the toll road operating companies.
Recent securitization took advantage of the flexible trustee structure of the CB’s, which have a trustee structure in which a bank (typically) acts as the fiduciary on behalf of bondholders. Fiduciary requirements include making interest and amortization payments to bondholders and organizing meetings to decide on indenture modifications or other types of restructuring. CB’s can be modified relatively easily, with two-thirds votes needed to modify indenture initially, and a 50 percent vote the second time an issue comes before bondholders.
The standard floating peso reference rate is TIIE, “Tasa de Interes Interbancaria de Equilibrio,” which is the average inter-bank rate.
Financing through bank loans tends to be cost effective for short-term, small-scale, and recurring financing, while financing by issuing bonds is cost effective for long-term, large-scale, and opportunistic financing by companies, particularly those with a high credit rating.