Derivatives
Derivatives Bulletin
On December 26, 2006, the Official Gazette of the Federation published Banco de Mexico's Derivatives Bulletin, which took effect on January 15, 2007. Among the changes this bulletin contains to keep pace with the market's needs are:
- Makes trading in derivatives more flexible by allowing transactions on new underlyings: gold, silver, and derivatives on futures, options and swaps.
- Allows for OTC transactions whose underlying values are stocks, baskets of stocks, or stock-referenced certificates, provided they are not settled in kind and the settlement term of the derivative transaction is more than four days.
- Stipulates that any derivative trade at a term of less than 96 hours does not require that the institutions meet Banco de Mexico's 31 points to trade derivatives.
- Allows mutual funds to trade derivatives on options and swaps on over-the-counter markets (swaptions and forward starting swaps).
Banco de Mexico authorized brokerage firms that trade interest rate futures and swaps to trade swap futures on the interbank equilibrium interest rate (TIIE) on MexDer, provided they meet certain requirements.
In tax matters, individual investors and foreign residents were allowed exemption from income tax in the revenues they obtain on equity-derivative trades that are settled in cash or in kind (they were formerly exempt only if settled in kind, which limited this type of trading).
Another step forward was that global account managers can now withhold the income tax on interest or gains from derivative debt or equity trades, issuing and sending to the client the withholding receipt, and turning over the corresponding tax to the authorities.
Book entry of derivatives trades in mutual funds
During the quarter, AMIB committee members worked together with representatives from the CNBV and various mutual fund managers on a series of exercises involving futures and options trading, in order to issue guides on their book entry.
In early 12008, the Mutual Fund Management and Accounting Group was sent guides on the adjusted accounting records for trading in futures and options, which included issues discussed and negotiated by industry representatives with the authorities. In addition, the first version of the guide on book entry of trades in forwards was issued.
The authorities later stated, however, that it was not necessary to wait for approval of the Book Entry Guides to trade derivatives, since the accounting criteria have been contained in the Unified Mutual Funds Bulletin for more than a year. If a transaction is entered in some way other than is specified in the guides the Committee approves, it would only imply a re-classification in the corresponding records.
Derivative Market Promotion and Information
MexDer (the Mexican Derivatives Market) and AMIB joined forces to hold various events promoting the importance of derivatives in mutual fund investment portfolios. The events were prompted by the publication of the Unified Mutual Funds bulletin on December 4, 2006, which, among other points, includes new investment rules and allows mutual funds to trade in derivatives.
Practical workshop on the use of derivatives by institutional investors. The purpose was to explain how derivatives can play a part in institutional investment portfolios. Practical cases were presented on the use of futures and options based on foreign currency, stock, and fixed-income securities. The workshop was aimed at individuals involved in mutual fund sales and trading and insurance companies.
As part of the same effort, MexDer organized a seminar on bond futures.
Another important part of this process of promoting the derivatives market was MexDer's appointment as Emerging Market of the Year by the company Futures and Options World (FOW), a highly prestigious international organization that groups together more than five thousand investors and risk agents involved in the financial derivatives industry. >>
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