Assessing the stage of financial market development in CEMLA countries TBC, Monetary and Capital Markets Department IMF September, 2019 Developing capital markets – key aspects  Developed and deep capital markets play a key role in:  Financing economic growth  Influencing financial stability  Transmission of monetary policy

 Enabling environment:  Macroeconomic stability  Market autonomy  Strong legal frameworks  Effective regulatory regime  Other drivers may include • (Better disclosure standards; investor diversity; internationalization; hedging markets; efficient and robust market infrastructures)

Evolution and Outlook for the Mexican Economy 1 Size of securities markets As a percentage of GDP

Source: BIS CGFS document “Establishing viable capital markets”

Evolution and Outlook for the Mexican Economy 2 CEMLA Associate Members

Market Development Index Index

Note: Market Development Index evaluates the financial market development; assigning one if the country has 10 year local bond , 10 year foreign currency bond, Corporate Market, Fixed Income Derivatives, Equity Market, Not Dollarized Currency, Free Floating Currency or FX Derivatives; and zero in other case . A dollarized currency is defined as economy with American dollars as currency and a currency with a peg. Source: International Monetary Fund, Central Banks, Exchanges, and Bloomberg. 3 South America Markets: Foreign Exchange

Foreign Exchange Index Foreign Exchange Information Percentage Free Capital 24/7 trading Market 1600% Flag Country Free floating CLS member convertibility control activity Bolivia Argentina       1400% Bolivia       Ecuador Guyana 1200% Brazil       Chile       Suriname 1000%       Venezuela Colombia 800% Ecuador      

600% Guyana      

Paraguay       400% Peru      

200% Suriname      

Uruguay       0% Venezuela       Jul-01 Jul-12 Jan-00 Jan-07 Jan-18 Jun-05 Jun-16 Oct-00 Oct-11 Oct-18 Apr-06 Apr-13 Feb-03 Sep-04 Feb-14 Sep-15 Dec-03 Dec-10 Aug-08 Aug-19 Nov-07 Nov-14 Mar-10 Mar-17 May-02 May-09 Mexico      

Note: Argentina’s last index is 5,700%, while Venezuela’s is 7,027,022,450%. Source: Bloomberg.

4 South America Markets: Fixed Income • In South America, Bolivia and Argentina are countries with longest maturities in local and foreign currency bonds, respectively. While Brazilian outstanding debt is the highest in the region.

Longest maturity date in local and foreign currency South America Markets Outstanding Debt Debt Trading Volume Survey bonds Millions of Dollars Millions of dollar Years Foreign Venezuela 450,000 Local Uruguay 1,653,113 md 400,000 Suriname Goverment (Local Currency) 350,000 Peru Goverment (Foreign Currency) Corporate (Foreign Currency) Paraguay 300,000 Corporate (Local Currency) Guyana 250,000 Ecuador 200,000 Colombia 150,000 Chile

Brazil 100,000

Bolivia 50,000 Argentina

Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru Suriname Uruguay Venezela 0 Jan-47 Jan-88 Jun-15 Oct-01 Apr-33 Sep-60 Feb-29 Aug-19 May-74 Note: Data from first quarter 2019. Guyana and Suriname did not give information in the survey. Source: Bloomberg. Source: Bloomberg. Source: Trade Association for the Emerging Markets (EMTA) 5 South America Markets: Equity • Considering the market capitalizations as a measure of size for a , Chilean and Brazilian stock exchange are the biggest in the region.

Stock Exchange Index Exchange as Percentage of GDP Daily Average of Volume Traded in Stock Exchanges Percentage Percentage Millions of dollars

9000% Argentina Brazil 8000% Chile 7000% Colombia Ecuador 6000% Peru 5000% Venezuela Uruguay 4000%

3000%

2000%

1000%

0% Jul-01 Jul-14 Jan-00 Jan-08 Jun-04 Jun-09 Jun-17 Oct-00 Oct-08 Oct-13 Apr-02 Apr-07 Apr-15 Sep-03 Feb-05 Feb-13 Sep-16 Feb-18 Dec-02 Dec-10 Dec-15 Aug-06 Aug-11 Aug-19 Nov-05 Nov-18 Mar-10 May-12

Note: Venezuela’s last index is 4396584%. Source: World Bank. Note: 2018 daily average . Source: Bloomberg. Source: Stock Exchanges and Bloomberg.

6 Central America Markets: Foreign Exchange

Foreign Exchange Index Percentage

Belize 280% Costa Rica El Salvador 260% Honduras 240% Nicaragua Free Capital 24/7 trading Market 220% Flag Country Free floating CLS member convertibility control activity derivative 200% Belize      

180% Costa Rica      

160% El Salvador      

140% Guatemala       Honduras       120% Nicaragua       100%

80% Jul-01 Jul-12 Jan-00 Jan-07 Jan-18 Jun-05 Jun-16 Oct-00 Oct-11 Oct-18 Apr-06 Apr-13 Feb-03 Sep-04 Feb-14 Sep-15 Dec-03 Dec-10 Aug-08 Aug-19 Nov-07 Nov-14 Mar-10 Mar-17 May-02 May-09

Source: Bloomberg.

7 Central America Markets: Fixed Income • In Central America, Costa Rica and Guatemala are countries with longest maturities in local and foreign currency bonds, respectively. While Costa Rica outstanding debt is the highest in the region. Longest maturity date in local and foreign currency Central America Markets Outstanding Debt Debt Trading Volume Survey bonds Millions of Dollars Millions of dollar Years 40,000 Foreign Nicaragua 42,924 md Local 35,000

Honduras 30,000 Goverment (Local Currency) Corporate (Foreign Currency) 25,000 Guatemala Goverment (Foreign Currency) Corporate (Local Currency) 20,000

El Salvador 15,000

10,000 Costa Rica

5,000 Belize 0 Belize Rica Costa Salvador El Guatemala Honduras Nicaragua Jul-41 Jun-52 Jun-63 Aug-19 Aug-30 May-74 Note: Data from first quarter 2019. Source: Trade Association for the Emerging Markets (EMTA) Source: Bloomberg. Source: Bloomberg.

8 Central America Markets: Equity • Considering the market capitalizations as a measure of size for a stock exchange, El Salvador and Honduras stock exchange are the biggest in the region.

Exchange Market Capitalization as Percentage of GDP Number of listed companies by country Stock Exchange Index Percentage Companies Percentage 800% Costa Rica 700%

Mexico 600%

500%

400%

300%

200%

100%

0% Jul-01 Jul-12 Jan-00 Jan-07 Jan-18 Jun-05 Jun-16 Oct-00 Oct-11 Oct-18 Apr-06 Apr-13 Feb-03 Sep-04 Feb-14 Sep-15 Dec-03 Dec-10 Aug-08 Aug-19 Nov-07 Nov-14 Mar-10 Mar-17 May-02 May-09

Source: Bloomberg. Source: World Bank. Source: Stock Exchanges and Bloomberg.

9 Caribbean Markets: Foreign Exchange

Foreign Exchange Index Foreign Exchange Information Percentage

Aruba 600% Bahamas Barbados Free 24/7 trading Market Flag Country Free floating Capital control CLS member Cayman Islands convertibility activity derivative Cuba 500% Curacao Aruba       Eastern Caribbean Bahamas       400%       Barbados Cayman Islands      

300% Cuba      

Curacao      

200% Eastern Caribbean      

Haiti      

      100% Jamaica Dominican Republic      

Trinidad and Tobago       0% Jul-01 Jul-12 Jan-00 Jan-07 Jan-18 Jun-05 Jun-16 Oct-00 Oct-11 Oct-18 Apr-06 Apr-13 Feb-03 Sep-04 Feb-14 Sep-15 Dec-03 Dec-10 Aug-08 Aug-19 Nov-07 Nov-14 Mar-10 Mar-17 May-02 May-09

Source: Bloomberg.

10 Caribbean Markets: Fixed Income • In Caribe, Jamaica and Dominican Republic are countries with longest maturities in local and foreign currency bonds, respectively. While Cayman Islands outstanding debt is the highest in the region. Longest maturity date in local and foreign currency Caribbean Markets Outstanding Debt bonds Debt Trading Volume Survey Millions of Dollars Millions of dollar Years 40,000

Aruba Foreign 404,066 md Local 35,000 Trinidad and Tobago 30,000 Dominican Republic Corporate (Local Currency) Jamaica Goverment (Foreign Currency) 25,000 Goverment (Local Currency) Corporate (Foreign Currency) Haiti 20,000

Eastern Caribbean 15,000 Curacao 10,000 Cuba

Cayman Islands 5,000

Barbados 0 Aruba Bahamas Barbados Islands Cayman Curacao Caribbean Eastern maica Ja Trinidad andTobago

Bahamas

Note: Data from 2019 first quarter. Aruba, Cayman Islands, Curacao, Eastern Caribbean, Jul-41 Jun-52 Aug-19 Aug-30 Haiti and Cuba did not give information in the survey. Source: Trade Association for the Emerging Markets (EMTA) Source: Bloomberg. Source: Bloomberg.

11 Caribbean Markets: Equity • Jamaican and Trinidad and Tobago stock markets are those with highest listed companies in Caribbean region. Number of listed companies by country Historical Stock Exchange Index Companies Percentage 16 Bahamas Cayman Islands Barbados Cayman Islands 14 Cuba Curacao Barbados Eastern Caribbean 12 Haiti Jamaica Dominican Republic 10 Bahamas

8 Eastern Caribbean 6

4 Trinidad and Tobago

2 Jamaica 0

Jul-06 Jul-14 0 10 20 30 40 50 60 Jan-00 Jan-05 Jan-13 Jun-01 Jun-09 Oct-05 Oct-13 Apr-07 Sep-00 Sep-08 Feb-10 Sep-16 Feb-18 Dec-07 Dec-15 Aug-03 Aug-11 Aug-19 Nov-18 Nov-02 Nov-10 Mar-02 Mar-15 May-04 May-12 May-17

Source: Stock Markets. Source: Bloomberg.

12 Mexico: Fixed Income Market • The Mexican fixed income market has showed a significant improvement and development over the last two decades. During this time, the market evolved from being closed and with few types of securities, to one of the most liquid and deep markets in the emerging and developed economies with several instruments available for trade. Investors Position in Government Securities Sovereign Debt Securities Characteristics Evolution of Mexican curve denominated in Mexican Pesos Percentage Percentage of Government securities outstanding 50 1995 100%

Face Interest 90% Security Maturities Interest rate First issue 45 Value payments

28 and 91 80% Zero- CETES 10 days, six January 19, 40 coupon Discount rate pesos months and 1978 Federal Treasury Certificates bonds 70% one year Overnight effective 35 BONDES D 1, 3 and 5 rate, compounded August 17, 1998 28 days 60% Federal Government years daily during the 2006 Development Bonds interest rate period 30 100 50% pesos BONOS 3, 5, 10, 20 January 27, Federal Government and 30 25 2000 40% Development Bonds with fixed years Coupon rate is set by interest rate the Federal 182 days 20 30% UDIBONOS Government before the issuance 100 3, 10 and 30 May 30, 2000 Federal Government 20% Development Bonds UDIS years 1996 15 denominated in inflation- indexed investment units (UDIS) 10% The highest between 10 2003 2006 IPAB SECURITIES Government overnight Savings Protection Bonds with effective rate (or 2019 0% 100 3, 5 and 7 28, 91 and April 29, monthly/quarterly/semmiannual change in the UDI) 2000 2002 2005 2008 2010 2013 2016 2019 pesos years 182 days 2004 5 interest payment and additional during the interest rate Foreign Investors Banks interest rate reference or period and 28/91/182- 1D 1M 3M 6M 1Y 3Y 5Y 10Y 20Y 30Y Pension Funds Investment Fund protected against inflation day CETES Cetes Bonos Other Domestic Resident Source: of Mexico. Source: Central . Source: Central Bank of Mexico.

13 Mexico: Fixed Income Market • The consequences of the aforementioned market development the trading conditions in the market has improved.

MBonos bid-ask spread for selected Daily Trading Volume in Sovereign Debt Trading Volume in Mexican Debt maturities Millions of pesos (10-day moving average) Billions of dollars Basis points (40 days moving average) 5.0 20Y 3Y 5Y 10Y 30

4.5

4.0

3.5

3.0

2.5

2.0

1.5 Feb-16 Feb-17 Feb-18 Feb-19 Aug-16 Aug-17 Aug-18 Aug-19 Nov-16 Nov-17 Nov-18 May-16 May-17 May-18 May-19 Source: Central Bank of Mexico. Source: Trade Association for the Emerging Markets (EMTA). Source: Interbank brokerage house.

14 Mexico: Fixed Income Market • The development of the government securities market has positive consequences for other fixed income markets, such as the corporate bond market. Monthly Trading Volume in Corporate Debt with Local Banks Investors Position in Private Securities Mexican Non-Financial Corporations Billions of pesos denominated in Mexican Pesos Outstanding Debt by Market of Issuance Percentage of Government securities outstanding Billions of pesos 100%

90%

80%

70%

60%

50% Trading Volume in Mexican Corporations Debt at 1Q19 by Market of Issuance 40% Millions of dollars 30%

20%

10%

0% 2012 2014 2015 2016 2017 2019 Foreign Investors Banks Pension Funds Investment Fund Other Domestic Residents

Source: Central Bank of Mexico. Source: Central Bank of Mexico. Source: Central Bank of Mexico. Source: Trade Association for the Emerging Markets (EMTA). 15 Mexico: Fixed Income Market • As a further step to develop Mexico’s debt markets and promote the liquidity of the secondary market, the Mexican Ministry of Finance established in 2000 a market-making program for government bonds. The combination of all the factors previously mentioned had important consequences regarding the relevance of Mexican securities in global fixed income markets. These measures improved substantially the depth and liquidity of the market, allowing the inclusion of local government securities in several Global Fixed Income Indexes. Primary Dealers System in Mexico: Mexican Sovereign Debt Inclusion in Repos Position with Local Banks by Investor in Private Securities denominated in Mexican Pesos Characteristics Global Indices Year of Billions of pesos Index name Selection Criteria inclusion Universal Government Inflation- Declare their interest in Active participation in Linked Bond Index (Barclays) 2003 participating in the primary and secondary Index Broad (JP program markets Morgan-GBIBroad) Market ≥ 7% Government Bond Index Emerging Markets (JP Morgan-GBIEM) 2005 Obligations Privileges Global Aggregate Index (Lehman/Barclays) Primary Market Participation “Greenshoe” option Global Government Bond Commitment to participate in primary The right to buy up to an additional 20% 2006 auctions. of the Fixed-rate securities offered in the Index (Merrill Lynch-GGBI) primary auction. Global Government Inflation-Linked Secondary Market Participation Securities lending facility Index (Merrill Lynch -GGILI) Provide two-way quotes for each of the 2007 securities they are market makers of, in all Borrowing privileges with the Central Emerging Markets Government their maturities. Bank. Inflation-Linked Bond Index (Barclays) Global Emerging Markets (Markit Comply with the Code of Conduct Syndicated auctions 2008 Group-GEMX) Comply with the Code of Conduct for the Exclusive access to syndicated auctions money and fixed income market. where they act as distributors. World Government Bond Index (Citi- 2010 WGBI) Note: Mexico was the first Latin Americacountry included in the WGBI. Source: Central Bank of Mexico. Source: Mexican Ministryof Finance. Source: Central Bank of Mexico. 16 •

Source: Central Bank Bank Central Source: Market in the dollars sold Central of Bank when Mexico Note: indicate Vertical lines Jan-71 Multiple exchangeMultiple rate Regime Float Managed Fixed Dec-72 MXN/USDThe market is one of mostthe FX liquid markets

. . Nov-74 Nov-76 Exchange Oct-78 Sep-80 Sep-82 . ofMexico Aug-84 Jul-86 Jul-88 Pesosdollar per Jun-90 May-92 May-94

Apr-96 Historical ExchangeRegime Rate Band Regime Float Managed Exchange Exchange Floating Mar-98 Mar-00 Feb-02 Jan-04 Jan-06 Control Regime

Dec-07 Events Nov-09 Nov-11 Oct-13 Sep-15 Aug-17

Fx Aug-19 - 0 5 10 15 20 25 Mexico FXC Source Survey Federal OTC Note Mexico:Foreign ExchangeMarket FX : derivatives For : . without 65% 35% Volume Reserve

BIS Apr-11 Totaltradedvolume USD/MXN in spot April “Triennial Rest of theRest world of Traded volume with at leastone Mexican counterparty Oct-11 69% 31% averages,Daily US of dollars million 2013 the Survey, FXC markets among emergingamong markets.

intersection Apr-12 70% 30% and FX Central Volume London April in Oct-12 67% 33% 2016 Bank 2016 of

Survey 78% 22% Foreign ” Apr-13 . these Other data Survey Oct-13 61% 39% and markets is Exchange data sourced of the Apr-14 57% 43% foreign is London to estimated 68% 32% avoid from Joint Oct-14 exchange Foreign

the 65% Standing double Apr-15 35% by BIS 65% 35% Bank

Exchange Oct-15 and counting “Triennial Committee OTC of Apr-16 78% 22% Mexico . derivatives Joint

Central Oct-16 71% 29% (FXJSC) Standing using Apr-17 63% 37% Bank markets information FX 69% 31% Committee Survey Oct-17 Turnover

in Apr-18 68% 32% of 2016 foreign from Survey (FXJSC) Oct-18 71% 29% ”, Federal the

exchange 68% 32%

and Apr-19 FX semiannual Turnover Reserve Bank 0 120 140 20 40 60 80 100 and of Source MexicanCLS turnoveron peso

: Oct-11 CLS Volumenoperación del CLS Apr-12 Oct-12 Apr-13 Millions of US dollars US of Millions

Oct-13 Linked Settlement) Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 (Continuous Apr-17

17 Oct-17 Apr-18 0 5,000 10,000 15,000 20,000 25,000 30,000 Mexico: • The Mexican peso is the most traded Latin American currency and second most amongst emerging markets after the Chinese ; and it is traded 24 hours.

Trading hours for emerging markets Distribution of MXN daily traded volume through Refinitiv Millions of dollars (daily average in 2019) 300 100% Asia London America 270 90%

240 80%

210 70%

180 60%

150 50%

120 40%

90 30%

60 20%

30 10%

0 0%

12 AM 2 AM 4 AM 6 AM 8 AM 10 AM 12 PM 2 PM 4 PM 6 PM 8 PM 10 PM

Mexican Peso Brazilian Real Chilean Peso 1:00 to 6:29 6:45 to 7:00 7:15 to 7:30 7:45 to 8:00 8:15 to 8:30 8:45 to 9:00 9:15 to 9:30 9:45 to 10:00

Colombian Peso South Korean Won South African Rand 10:15 to 10:30 10:45 to 11:00 11:15 to 11:30 11:45 to 12:00 12:15 to 12:30 12:45 to 13:00 13:15 to 13:30 13:45 to 14:00 14:15 to 14:30 14:45 to 15:00 15:15 to 15:30 15:45 to 16:00 Turkish Lira Pölish Zloty Malaysian Ringgit ←Amount (md) Cumulative percentage→

Source: Reuters. Note: The graph shows the average volume during 2019. Source: Refinitiv and Central Bank of Mexico. 18 Mexico: Foreign Exchange Market

Market depth Bid-Ask spread

Source: CentralBank of Mexico calculations with information from Refinitiv. 19 Mexico: Foreign Exchange Market Mexican FX-spot market: Achievements and Challenges

No Capital controls Increase market liquidity in Asian trading hours

Free Convertibility

Increase market liquidity in cross 24 Hour Trading Activity currency pairs such as EURMXN, JPYMXN, etc.

Continuous Linked Settlement (CLS) Member More trading activity through Second most traded electronic market currency among emerging markets

Source: Central Bank of Mexico.

20 Mexico: Equity Market • The Mexican equity market is composed by two securities exchange market, “Bolsa Mexicana de Valores” (BMV) and “Bolsa Institucional de Valores” (BIVA); totalizing 144 companies listed. Other securities such as CKDs, SPACs, FIBRAs, and CERPIEs are trades in the Mexican equity market. Initial in Equity Market Millions of pesos

70,000

Equity Securities Characteristics 58,824 61,154 60,000 First issue Instrument Description Purpose year Fiduciary securities that provides sources Support economic growth 45,109 Development 50,000 of capital for Mexican companies or with mainly capital from Equity Certificates 2009 project in general located in Mexican mandatory 40,753 (CKDs) Mexico. pension funds (Siefores). 40,000 Provide a new financing Publicly traded buyout companies that 31,568 Special purpose alternative, strengthen raise funds through an IPO with the goal of acquisition the Stock Market and 2017 30,000 later completing acquisitions (18 to 24 23,034 company (SPAC) allow dynamism to months). 19,803 economic sectors. 18,643 20,000 18,127 Attract investment to the Real Estate and An investment trust dedicated to the commercial real estate Investment Trust acquisition and development of real 2011 sector through an (FIBRAs) estate in Mexico held for leasing. 10,000 investment vehicle. 6,371 0 0 Certificates issued to finance investment Fiduciary 0 as well as to the investment in shares, Encourage participation Investment Project

social parts or to the financing of societies, through investment in 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Securitization 2015 either directly or through investment energy and Certificates Number of Issues vehicles. Can only be acquired by infrastructure. (CERPIS)

qualified institutional investors. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 3 0 4 2 3 8 4 5 5 6 7 0

Source: Bloomberg Source: Central Bank of Mexico, National Banking and Securities Commission, National Commission for the Retirement Savings System. 21 Mexico: Equity Market • Mexican outstanding equity is composed mainly by and Fibras.

Traded Volume Mexican Stock Exchange Outstanding Equity by security Stocks, SPACS and FIBRAS holdings by type of Thousands of millions MXN Thousands of millions MXN investor as a percentage of the total 30,000 Percentage

25,000

20,000

15,000

10,000

5,000 Jul-18 Jul-19 Jan-19 Jun-19 Oct-18 Apr-19 Sep-18 Feb-19 Dec-18 Aug-18 Nov-18 Mar-19 May-19

Source: Central Bank of Mexico. Issuers Numberof Source: Central Bank of Mexico, Bloomberg, Price vendors Source: Central Bank of Mexico. 22 Mexico: Equity Market

CKDS and CERPIS holdings by type of investor as a CKDs and CERPIs total outstanding by instrument Thousands of millions MXN percentage of the total Percentage Number of Issuers Numberof Source: Central Bank of Mexico, Bloomberg, Price vendors Source: Central Bank of Mexico.

23 Mexico: Equity Market

Stock market foliage through Increase the liquidity in equity markets. project funding with savers's Mainly in securities like CKDs, CERPIs, money of the mandatory pension FIBRAs. funds (2009).

A second stock exchange market Promote trading in medium and small start operations in México (2018). business shares

Working in modifications to the Promote and increase the stock trade rules of reports and lending of in both exchange markets, removing securities in order to add equity entry barriers securities.

Proposal of 10% decrease in Implement market makers programs Income Tax on the gain on on medium and small business shares disposal, in order to increase Initial through development banking. Public Offerings.

Develop of best execution methodologies incorporating Promote new Initial Public Offerings of positions of the operating stock medium and small business exchanges.

Source: Central Bank of Mexico.

24 Mexico: Foreign Exchange Derivatives Market • Mexican peso derivative market is composed mainly by Forwards, Fx-Swaps, Cross Currency Swaps, and Options.

Total volume traded in USD/MXN Annual Traded Volume in Fx-derivatives as a Daily averages, billions of US dollars underlying Mexican peso Billions of US dollars 140 12,000 OTC Mexican peso derivatives turnover volume Call Daily averages, billions of US dollars Put 120 Forward 10,000 Fx derivative Daily traded volume

Outright forwards 1,445 100 FX Swaps 11,642 8,000 Cross Currency Swaps 99 80 Options 650 6,000 Source: Bank for International of Settlements.. 60

4,000 40

2,000 20

0 - 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019

Source: Estimations madeSpotby Bank of Mexico with dataForwardprovided from the BIS “TriennialSwapsCentral Bank Survey of foreign exchange and OTC derivatives markets in 2016” and the semiannual Federal Reserve FXC FX Volume Survey and the London Foreign Exchange Joint Standing Committee (FXJSC) Source: Bloomberg FX Turnover Survey. 25 Mexico: Foreign Exchange Derivatives Market • Non-Residents investors have increased their position in Mexican peso during the last years. Non-Residents FX Derivatives Position in Open Interest in Mexican Peso Derivatives Mexican FX-derivatives markets: Challenges Mexican Pesos Millions of US dollars Billions of US dollars Derivatives Position on MexDer 18,000 300,000 Futures Position on Chicago Mercantile Exchange More trading activity through electronic market OTC Derivatives 15,000 Call Put Forward 12,000 250,000 9,000 Increase market liquidity in securities such as exotic options, 6,000 cross currency swaps, structure 200,000 notes, etc. 3,000 0 -3,000 150,000 More trading activity in local markets -6,000

-9,000 100,000 -12,000 Expansion of investor base -15,000 50,000 -18,000

-21,000 Use of value adjustments and 0 different interest rates in prancing -24,000 process Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 jul. 10 jul. 11 jul. 12 jul. 13 jul. 14 jul. 15 jul. 16 jul. 17 jul. 18 jul. 19

Source: Central Bank of Mexico. Source: Bank of Mexico and CME. Source: DTCC. 26 Mexico: Fixed Income Derivatives Market • The development of the government debt market in Mexico has also fueled the emergence of the derivatives market. TIIE IRS’ Daily Turnover Mexder Fixed Income Derivatives TIIE IRS’ Daily Turnover Billions of pesos (20-day moving Characteristics Billions of pesos (20-day moving average)/Millions of pesos (20-day average) moving average ) 7,000 300 Futures Swaps 400 Underlying 28 days TIIE 91 days Bonos M (3Y 28 days TIIE Cetes to 30Y) 350 asset 6,000 100,000 10,000 1,000 Bonos 100,000 250 Pesos Cetes (Equivalent Pesos 300 Size (Equivalent to 100,000 5,000 to 100,000 pesos) 250 200 pesos) Monthly Monthly or Quarterly Number of 4,000 200 cycles for 10 quarterly cycles for coupons by 150 Maturity years. cycles for up to a 28 days. up to 10 year. 150 3,000 years. 100 Future Future Future Fixed 100 2,000 interest annualized bond nominal rate value. interest transaction annualized Quotation 50 50 rate value. price in interest 1,000 Mexican rate. pesos. 0 0 0 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

SEF Non-SEF ← DTCC Mexder → Source: Mexder. SEF: Swap execution facility. Source: DTCC and Central Bank of Mexico. Source: DTCC. 27 Mexico: Fixed Income Derivatives Market • The Mexican Interbank Interest Tate (TIEE) is the most used underlying in fixed income derivative in securities such as futures, forward, and swaps.

Monthly Trading Volume in Forwards Monthly Trading Volume in Futures with Monthly Trading Volume in with Local Banks Local Banks Options with Local Banks Billions of pesos Billions of pesos Billions of pesos

Source: Central Bank of Mexico. Source: Central Bank of Mexico. Source: Central Bank of Mexico. 28 Mexico: Equity Derivatives Market • The equity derivative market in Mexico is traded mainly in MexDer. Daily Trading Volume in Futures, Forwards Biannual Trading Volume in Futures, Mexican Equity-derivatives markets: and options on equity securities Forwards and options on equity securities Challenges Billions of pesos Billions of USD Develop the listed derivative Markets , increasing de number of underlying Assets

Increase the liquidity on Derivatives Underlying Asset on listed equity market. types markets* Stock Shares Index Futures 14/145 1/13 Options 14/145 1/13 Increase the number of Forwards 0/145 1/13 OTC Options 9/145 1/13 contracts with underlying a * Underlyings assets are showed number o assets national equity index availables on each Markets over the total assets available

Develop the OTC Market

Source: Central Bank of Mexico. Source: Central Bank of Mexico.

29

South America Markets

Fixed Income Equity Foreign Exchange South America Region Markets Corporate Corporate Dollarized Derivatives Derivatives Free Floating Local Currency Local Equity Markets Equity Foreign Currency Foreign Govt 10Y Bond in in Bond 10Y Govt in Bond 10Y Govt Argentina         Bolivia         Brazil         Chile         Colombia         Ecuador         Guyana         Paraguay         Peru         Suriname         Uruguay         Venezuela         Mexico        

Note: Dollarized are those with a peg or with USD as a currency. Here, Free Floating currencies are those considered Free Floating and Floating by the International Monetary Fund. Source: International Monetary Fund, Central Banks, Stock Exchanges and Bloomberg.

31 Central America Markets

Fixed Income Equity Foreign Exchange

Caribbean región Markets Corporate Corporate Dollarized Derivatives Derivatives rate floating local Currency Free exchange Equity Markets Equity foreing currency foreing Govt 10Y Bond in in Bond 10Y Govt in Bond 10Y Govt Belice         Costa Rica         El Salvador         Guatemala         Honduras         Nicaragua        

Note: Dollarized currencies are those with a peg or with USD as a currency. Here, Free Floating currencies are those considered Free Floating and Floating by the International Monetary Fund. Source: International Monetary Fund, Central Banks, Stock Exchanges and Bloomberg.

32 Caribbean Markets

Fixed Income Equity Foreign Exchange

Caribbean region Markets Corporate Corporate Dollarized Derivatives Derivatives rate floating Free exchange local Currency Equity Markets Equity foreing currency foreing Govt 10Y Bond in in Bond 10Y Govt in Bond 10Y Govt Aruba         Bahamas         Barbados         Cayman Islands         Cuba         Curacao         Eastern Caribbean         Hait         Jamaica         Dominican         Trinidad and Tobago        

Note: Dollarized currencies are those with a peg or with USD as a currency. Here, Free Floating currencies are those considered Free Floating and Floating by the International Monetary Fund. Source: International Monetary Fund, Central Banks, Stock Exchanges and Bloomberg.

33