Money Market
Analysis of trading changes from money market brokers
Committee members went over the trading changes proposed by brokers and recommended the following modifications:
Increase the size of the bid book across the bond curve. Brokers pointed out that the current auctions can be for only 5 million pesos across the bond curve, but for reasons of protection and consistency, they should be at least 10 million pesos. This was submitted for the consideration of committee members, which approved the measure by a majority, agreeing that the bid books for bonds across the curve should be for at least 10 million pesos.
- Outside quotes. Because brokers do not register volume quoted outside, and in order to make the market more transparent, industry members were asked consider having brokers seek outside quotes provided half basis points are not traded. The measure was approved by a majority, so it was agreed that service suppliers would be allowed to seek outside prices provided half basis points are not traded, and that the parties listed in the bid book will be given price preference. All market participants will be notified of the price, and the trades should also be shown on the screens.
- Half basis point trading on broker screens. Committee members were asked to consider not allowing half basis point bids and asks in the bid book, since this should be restricted to traders. The Committee agreed that half basis point increments should not be entered in the bid books.
- Adjustable bond spreads. The committee discussed the practice that has arisen of having opposite bids in the book, since according to the price vendors' methodology, these cannot be taken into account in pricing. Members agreed that the spreads quoted on the screens should be maintained, and that cost that brokers charge should be negotiated independently between each participant and the service suppliers.
Committee members agreed to ratify these decisions with representatives of the ABM and call on brokers to comment how to make the agreements official.
Valuation of taxable government instruments at a nominal rate and terms of less than a year
Price vendors issued notices to their clients indicating that in order to ensure congruence between the valuations of Cetes and taxable M bonds, to determine the prices of taxable M bonds (with a term to maturity of 365 days or less) some criteria will be considered and validated by the Valuation Committees. The industry proposed that the issue of margins on repos be revised, because significant haircuts are already applied on these.
Inconsistencies in 28-day Cetes benchmark rates
Due to some inconsistencies in the vector issued by price vendors, the methodologies were revised with representatives from PiP and Valmer, and the following issues were discussed:
- Analysis of differences in methodologies between vendors. Representatives from the two vendors said that their methodologies were different, but both were authorized by the CNBV. They reiterated that by market practice, the average price of the two vectors should be used, interpolating to find the base, and, in the case of auctions, it will depend on whether the price traded reaches a level 10% higher than the fixed or initial price for the auction.
- Settlement of issues that are adjustable according to the TIIE. The group discussed corporate issues that are adjustable by the TIIE, and how they should be settled, agreeing that they should be settled according to the current published TIIE and not the previously-reported rate, a decision that was ratified by members of the Money Market Committee.
- Inconsistencies between RMBS prices. Both vendors said they were currently working with the Federal Mortgage Society (SHF) to obtain standardized payment tables, and to have a strong calculator for each of the flows in order to reduce the differences between the prices. They also plan to have the calendar of payments that the SHF is now preparing.
- The price vendors remarked that even though corporate bonds are different from RMBS, because they are based on different scenarios, their methodologies coincide. On this matter, they said they were planning to have these trade at price.
- Callable bonds. Price vendors were asked about not valuing bonds in a linear fashion, at price, when they have a call feature in their structure and that call can be applied to avoid a loss on the day the option is exercised. Both price vendors coincided that most corporate issues have a call feature. However, they do not pay a premium in these cases, and it is not common market practice to value that risk.
- Participation of best limit orders in cross trades
- Tick Table for stocks listed in the SIC
- Cross transactions on the global market (with the Tick Table)
- Global Market auctions by price fluctuation
- In-spread cross transactions.
Introduction of SENTRA Capitales Version 6.2
AMIB participated in the preparation and startup of testing of the new BMV SENTRA Capitales Version 6.2, with improved functionality. We worked together with the BMV and in keeping with the scheme authorized by the CNBV on incorporating the following changes:
We also helped to design and internally develop the corresponding changes to the generation of unified formats from the central system. The new version was released to production on March 12.