Friday, June 20, 2008

Mexican Stock Market Goes Public and Proposes Trade Fee Increase

Bolsa Mexicana De Valores
"Mexico's BMV to Launch Its Own IPO"
"Mexico's Stock Exchange to Raise Trade Fees"

On June 12th, Bolsa Mexicana de Valores (BMV), the Mexican Stock Exchange launched its first public offering. The initial offering price per share was 16.5 pesos and the transaction raised around $443.8 million. The BMV followed their Latin America counterpart in Brazil when the Bovespa Stock Exchange went public in October 2007. A recent world wide trend has seen at least nine stock exchanges, over the last three years, come under public ownership including the New York Stock Exchange and Spain's Bolsas y Mercados Espanoles. This raises the total of publicly owned stock exchanges around the world to twenty-three.

The current structure of the BMV was formed in 1950 and has grown to become Latin America's second largest stock exchange behind Brazil's Bovespa. Before the public offering, Mexican banks and brokerage houses privately held the exchange. After the public float, their ownership fell to around 60%. Approximately 135 companies are currently traded on the BMV.

Following the public offering, Guillermo Prieto, BMV's exchange president, said the BMV will look to increase trade fees to follow a larger strategy of putting shareholder interests first. The board of directors of the BMV will still need to approve the proposed increase of one basis point in their next meeting. After the increase, the BMV will have an average trade fee of 1.7bp which Mr. Prieto stated will bring fees in line with European levels but still far below the Bovespa.

1) What are the benefits of public ownership that are specific to stock exchanges that could have given rise to this recent trend? Are there any drawbacks?
2) Is raising trade fees the correct strategy for the BMV to get a higher return for shareholders? Or will higher fees decrease world wide competitiveness and cause traders to look elsewhere resulting in lower volume and less profit?

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