• No results found

PAYMENTS AND SECURITIES CLEARANCE AND SETTLEMENT SYSTEMS IN MEXICO

N/A
N/A
Protected

Academic year: 2021

Share "PAYMENTS AND SECURITIES CLEARANCE AND SETTLEMENT SYSTEMS IN MEXICO"

Copied!
134
0
0

Loading.... (view fulltext now)

Full text

(1)

MARCH 2003

PAYMENTS AND SECURITIES

CLEARANCE AND

SETTLEMENT SYSTEMS

IN MEXICO

(2)
(3)

WESTERN HEMISPHERE PAYMENTS AND SECURITIES CLEARANCE

AND SETTLEMENT INITIATIVE

CENTRE FOR LATIN AMERICAN MONETARY STUDIES

WORLD BANK

CLEARANCE AND

SETTLEMENT SYSTEMS

(4)

Publicado también en español

Centro de Estudios Monetarios Latinoamericanos, 2003 Durango 54, México, D.F. 06700

All rights reserved

Derechos reservados conforme a la ley ISBN 968-6154-92-2

Printed and made in Mexico Impreso y hecho en México

(5)

1999 the Western Hemisphere Payments and Securities Clearance and Settlement Initiative. The World Bank in partnership with the Centre for Latin American Monetary Studies (CEMLA) leads this initiative. Its objective is to describe and assess the payments systems of the Western Hemisphere with a view to identifying possible improvement measures in their safety, efficiency and integrity. To carry out this mandate an International Advisory Council (IAC) was established in March 1999 comprised of experts in the field from several institutions. In addition to representatives from the WB and CEMLA this Council includes members from the: Bank for International Settlements, Bank of Italy, Bank of Portugal, Bank of Spain, Council of Securities Regulators of the Americas (COSRA), De Nederlandsche Bank, European Central Bank, Federal Reserve Board, Federal Reserve Bank of New York, Inter-American Development Bank, International Monetary Fund, International Organization of Securities Regulators (IOSCO), Securities Commission of Spain, Swiss National Bank and U.S. Securities Commission (SEC).

To assure quality and effectiveness, the Initiative includes two important components. First, all studies are conducted with the active participation of country officials and the project builds on the existing work being undertaken in the respective countries. Second, the Initiative draws on international and national expertise on the subject, through the IAC, to provide guidance, advice and alternatives to current practices.

The Initiative has undertaken a number of activities in order to respond to the Western Hemisphere Finance Ministers’ request. These include: the preparation of public reports containing a systematic in-depth description of each country’s payments clearance and settlement systems; the delivery of recommendations reports to country authorities on a confidential basis; the organization of IAC meetings to review country studies and provide input for future work; the organization of workshops focusing on issues of particular interest; the creation of a web-page (www.ipho-whpi.org) to present the outputs of the Initiative and other information of interest in the payments systems area; and the promotion of working groups to ensure a continuation of the project activity.

CEMLA has been acting as Technical Secretariat of the Initiative and is playing a major role in making the process sustainable and capable of extension to all the countries in the Hemisphere. To this end, the Initiative has helped strengthen CEMLA’s in-house expertise. Additionally, practitioners in payments and securities clearance and settlement in some countries in the Region have participated in the studies under the Initiative, through CEMLA coordination, and this has contributed to the broadening of knowledge and the transfer of know-how within the Region. The endeavors of the working groups in coordination with CEMLA will maintain the infrastructure created under the Initiative and provide a permanent forum for the countries in the Region to discuss, coordinate, and add a collective impetus to the work in the area of payments and securities clearance and settlement systems.

This Report “Payments and Securities Clearance and Settlement Systems in Mexico” is one of the public reports in the series and was prepared under the coordination of CEMLA and the World Bank. The Banco de México and the Comisión Nacional Bancaria y de Valores of México also participated actively in its preparation. Kenneth Coates Director General CEMLA David de Ferranti Vicepresident, LAC World Bank Cesare Calari

Vicepresident, Financial Sector World Bank

(6)

auspices of the Western Hemisphere Payments and Securities Clearance and Settlement Initiative (WHI). This document was prepared under the coordination of CEMLA and the World Bank. Jose Antonio Garcia (CEMLA) was the task manager, with cooperation from Massimo Cirasino and Mario Guadamillas, both from the World Bank. The WHI mission was performed in coordination with the Financial Sector Assessment Program (FSAP) mission, the joint IMF-World Bank effort to assess vulnerabilities and development opportunities in each country’s financial system. The team wants to express its appreciation to the local team comprised of officers of Banco de México, coordinated by Francisco Solís (Payment Systems Manager), and the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, CNBV) of Mexico. Carlos Orta (CNBV) made valuable comments to the Report and contributed in collecting the information for the Statistical Appendix.

(7)

TABLE OF CONTENTS

1 ECONOMIC AND FINANCIAL MARKET OVERVIEW ...1

1.1 OVERVIEW OF RECENT REFORMS...1

1.2 MACROECONOMIC BACKGROUND...3 1.2.1 Real Sector...3 1.2.2 External Sector ...4 1.2.3 Public Sector ...5 1.2.4 Monetary Sector ...5 1.3 FINANCIAL SECTOR...7 1.4 CAPITAL MARKETS ...9

1.5 MAJOR TRENDSIN PAYMENT SYSTEMS...10

1.6 MAJOR TRENDSIN SECURITIES CLEARANCEAND SETTLEMENT SYSTEMS ...13

2 INSTITUTIONAL ASPECTS ...15

2.1 GENERAL LEGAL FRAMEWORK...15

2.1.1 Payments ...16

2.1.2 Securities ...17

2.1.3 Derivatives ...17

2.1.4 Specific Legal Issues Related to Clearance and Settlement...18

2.1.4.1 Netting ...18

2.1.4.2 Zero Hour Rule ...18

2.1.4.3 Electronic Documents and Signatures ...19

2.1.4.4 Novation ...19

2.2 THE ROLEOF FINANCIAL INSTITUTIONS: PAYMENTS...20

2.2.1 The Banking Sector...20

2.2.2 Other Institutions that Provide Payment Services ...20

2.2.2.1 CECOBAN ...20

2.2.2.2 Payment Cards ...21

2.2.2.3 ATMs and EFTPOS ...21

2.2.2.4 Telecomm Telégrafos ...22

2.2.2.5 Remittances ...22

2.3 THE ROLEOF FINANCIAL INSTITUTIONS: SECURITIES...22

2.3.1 Securities Markets Participants ...22

2.3.2 Exchanges ...23

2.3.3 Securities Clearance and Settlement Institutions ...24

(8)

2.5 THE ROLE OFTHE CENTRAL BANK...25

2.5.1 Monetary Policy and Other Functions ...25

2.5.2 Involvement in the Payments System...26

2.6 THE ROLEOFTHE SUPERVISORY AGENCIESOFTHE FINANCIAL SYSTEM...26

2.6.1 The National Banking and Securities Commission ...26

2.6.1.1 Supervision of Financial Entities ...27

2.6.1.2 Supervision Model ...27

2.6.1.3 Payment System Oversight ...28

2.6.1.4 Anti-Money Laundering Measures ...28

2.6.2 Deposit Insurance Agency ...29

2.6.3 Pensions System Regulator...30

2.6.4 Financial Services Consumer Protection Agency ...31

2.7 THE ROLEOF OTHER PRIVATEAND PUBLIC SECTOR ENTITIES...31

2.7.1 Ministry of Finance and Public Credit ...31

2.7.2 Bankers’ Association ...32

2.7.3 Brokerage Houses’ Association ...33

2.7.4 Credit Information Registries ...33

3 PAYMENT MEDIA USED BY NON-FINANCIAL ENTITIES ...35

3.1 CASH ...35

3.2 PAYMENT MEANSAND INSTRUMENTS OTHERTHAN CASH ...35

3.2.1 Cheques ...35

3.2.2 Direct Debits/Credits ...36

3.2.2.1 Direct Credits ...37

3.2.2.2 Direct Debits ...37

3.2.3 Payment Cards ...37

3.2.3.1 Credit and Debit Cards ...37

3.2.3.2 ATMs ...38

3.2.3.3 Prepaid Cards ...38

3.2.3.4 Electronic Purse ...39

3.2.3.5 Electronic Funds Transfer in the SPEUA ...39

3.3 NON-CASH GOVERNMENT PAYMENTS...39

4 PAYMENTS: INTERBANK EXCHANGE AND SETTLEMENT CIRCUITS ...40

4.1 CLASSIFICATIONOFTHE MAIN PAYMENT SYSTEMS...40

4.2 THE REGULATORY FRAMEWORKFOR CLEARINGHOUSES...40

4.3 RETAIL PAYMENT TRANSFER SYSTEMS...41

4.3.1 Clearinghouses ...41

(9)

4.3.1.2 Direct Credits and Direct Debits ...42

4.3.2 Clearing and Settlement ...43

4.3.2.1 Risk Management Mechanisms ...44

4.4 LARGE VALUE PAYMENT TRANSFER SYSTEMS ...45

4.4.1 Extended Electronic Payments System (SPEUA) ...45

4.4.1.1 Settlement ...46

4.4.1.2 Pending Obligations in the SPEUA ...46

4.4.1.3 Risk Management Mechanisms ...46

4.4.2 Account Holders Service System (SIAC) ...47

4.4.2.1 Other Payment Systems that Settle in the SIAC ...48

4.4.2.2 Risk Management Mechanisms ...49

4.5 FOREIGN EXCHANGE SETTLEMENT SYSTEMS...49

4.6 CROSS BORDER SETTLEMENT SYSTEMS...49

4.7 MAJOR PROJECTSAND POLICIES BEING IMPLEMENTED ...49

5 SECURITIES: MARKET STRUCTURE AND TRADING ...51

5.1 FORMSOF SECURITIES...51

5.2 TYPESOF SECURITIES...51

5.2.1 Shares and Other Securities Representing Equities ...52

5.2.2 Debt Securities ...53

5.2.2.1 Short Term Debt Instruments ...53

5.2.2.2 Medium Term Debt Instruments ...53

5.2.2.3 Long Term Debt Instruments ...54

5.3 SECURITIES IDENTIFICATION CODE...55

5.4 TRANSFER OF OWNERSHIP...56

5.5 PLEDGEOF SECURITIESAS COLLATERAL...56

5.5.1 Repos...58

5.5.2 Securities Lending...59

5.6 TREATMENTOF LOST, STOLENOR DESTROYED SECURITIES...59

5.7 LEGAL MATTERS CONCERNING CUSTODY...59

5.7.1 Protection of the Securities in Custody in case of Bankruptcy or Insolvency of the Custodian ...60

5.7.2 Elimination of Physical Delivery ...60

5.8 PUBLIC OFFERING OF SECURITIES...61

5.9 PRIMARY MARKET...62

5.10 SECONDARY MARKET ...63

5.11 STOCK EXCHANGE TRADING...63

(10)

5.12 DERIVATIVES TRADING...64

5.13 OVER THE COUNTER MARKET...66

5.14 MARKET SIZE...67

5.15 RECENT TRENDS...68

6 GOVERNMENT AND PRIVATE SECURITIES CLEARANCE AND SETTLEMENT CIRCUITS ...70

6.1 ORGANIZATIONSAND INSTITUTIONS...70

6.1.1 Mexican Stock Exchange ...70

6.1.2 INDEVAL...70

6.2 SECURITIES REGISTRATION AND CUSTODY PROCEDURES...71

6.2.1 Registration in the RNV ...71

6.2.2 Securities Registry and Custody with INDEVAL...72

6.2.2.1 Deposit Accounts ...73

6.2.2.2 Operations Execution ...74

6.2.2.3 Deposit Account Information ...74

6.2.2.4 Administration of the Deposited Securities ...74

6.2.3 Securities Transfers ...75

6.2.4 Registry of Seizures over Deposited Securities ...75

6.2.5 Securities Withdrawal ...75

6.3 GUARANTEE SCHEMES ...76

6.4 SECURITIES CLEARANCEAND SETTLEMENT PROCESS...77

6.4.1 Legal Issues Concerning Securities Clearance and Settlement ...77

6.4.2 Settlement Alternatives ...77

6.4.3 Settlement Procedures ...78

6.4.3.1 SIDV, Securities Accounts and Control Accounts ...78

6.4.3.2 Operations Executed in the BMV ...79

6.4.3.3 Operations Executed in the OTC market ...80

6.4.3.4 Closing of the Settlement Cycle ...80

6.4.4 Flow Charts of Settlement Processes ...81

6.4.5 Securities Lending ...82

6.4.6 Procedures to Handle Failures ...82

6.4.6.1 Conventional Penalties ...83

6.4.6.2 Pending Obligations Due to Lack of Securities (at the BMV) ...83

6.4.6.3 Pending Obligations due to Exhaustion of the Operational Capacity (BMV Transactions) ...84

6.4.6.4 Operations Executed outside the BMV ...85

6.5 DERIVATIVES CLEARANCEAND SETTLEMENT...85

(11)

6.5.2 Extraordinary Settlement...87

6.5.3 Settlement of Contracts at Expiration Date...87

6.5.4 Risk Management Mechanisms ...87

6.6 INTERNATIONAL LINKS AMONG CLEARANCEAND SETTLEMENT INSTITUTIONS ...88

6.7 SAFEGUARDAND SECURITY SYSTEMS...88

7 THE ROLE OF THE CENTRAL BANK IN CLEARANCE AND SETTLEMENT SYSTEMS ...90

7.1 RESPONSIBILITIES ...90

7.2 SETTLEMENT...90

7.3 RISK CONTROL POLICY...90

7.4 MONETARY POLICYAND PAYMENT SYSTEMS...91

7.4.1 Open Market Operations ...92

7.5 THE ROLEOF THE CENTRAL BANKIN CROSS-BORDER PAYMENTS...92

7.6 PRICING POLICIES...93

8 SUPERVISION OF SECURITIES CLEARANCE AND SETTLEMENT SYSTEMS ...94

8.1 SECURITIES REGULATORY SUPERVISORYAND STATUTORY RESPONSIBILITIES...94

8.1.1 Responsibility over Stock Exchanges ...95

8.1.2 Responsibility over Central Securities Depositories ...96

8.1.3 Responsibility over Central Counterparties ...97

8.1.4 Obligations of Information...97

8.1.4.1 Issuers ...97

8.1.4.2 Intermediaries ...98

8.1.5 Sanction Capacity of the Securities Regulator ...98

8.2 SELF-REGULATORY ORGANIZATIONS SUPERVISORYAND STATUTORY RESPONSIBILITY...99

8.2.1 Stock Exchanges ...99

8.2.2 Central Securities Depositories ...102

APPENDIX: STATISTICAL TABLES ...104

LIST OF ABBREVIATIONS ...118

GLOSSARY ...122

TABLESIN THE TEXT TABLE 1: MACROECONOMIC INDICATORS...3

TABLE 2: ECONOMIC INDICATORS OFTHE MEXICAN EXTERNAL SECTOR...4

TABLE 3: FINANCIAL RESULTOFTHE MEXICAN PUBLIC SECTOR...5

(12)

TABLE 5: COMMERCIAL BANKS FUNDINGBY MAIN INSTRUMENTS ...8

TABLE 6: LEGAL FRAMEWORKOFTHE MEXICAN FINANCIAL SYSTEM...15

TABLE 7: CLASSIFICATIONOFTHE MAIN PAYMENT SYSTEMSIN MEXICO...40

TABLE 8: OPERATIONS SUMMARY OFTHE CHEQUE CLEARINGHOUSE ...42

TABLE 9: PRIVATE SECTORAND LOCAL GOVERNMENT DEBT ISSUANCESIN 2001 ...62

TABLE 10: TYPESOF FUTURE CONTRACTS TRADEDIN THEMEXDER ...65

TABLE 11: TRADED AMOUNTSATTHEBMV ...67

TABLE 12: TOTAL TRANSACTIONS PROCESSEDBYINDEVAL...68

TABLE 13: BALANCEOF SECURITIES DEPOSITEDININDEVAL ...71

CHARTSINTHE TEXT CHART 1: TRANSACTIONSINTHE INTERBANK PAYMENTS SYSTEM...36

FIGURESIN THE TEXT FIGURE 1: MEXICAN FINANCIAL SYSTEM REGULATORY STRUCTURE...25

FIGURE 2: ORGANIZATION CHART OFTHE NATIONAL BANKINGAND SECURITIES COMMISSION...27

FIGURE 3: STRUCTUREOFISIN CODES...55

FIGURE 4: SETTLEMENTOF TRANSACTIONS EXECUTEDATTHEBMV ...81

FIGURE 5: SETTLEMENTOFTHE TRANSACTIONS MADEINTHEOTC MARKET...82

(13)

1 ECONOMIC AND FINANCIAL MARKET OVERVIEW

1.1 O

VERVIEW OF

R

ECENT

R

EFORMS

The comprehensive set of reforms that Mexico has implemented since the middle of the 1980s has changed the evolution of the country’s economy.

The period of economic reforms from 1987 to 1993 was one of the most intense in the country’s experience. Among other reforms, the external debt was renegotiated, many government enterprises were privatized, a profound fiscal and financial reform was carried out, and greater attention was paid to foreign trade as a source of economic growth. A particularly important event was the reprivatization in 1991 of the banking sector, which had been nationalized in 1982.

Another significant reform was the adoption of a restrictive fiscal policy, which substantially reduced the public sector deficit from levels above 10 percent of the gross domestic product (GDP) in 1982

to close to budgetary equilibrium in the first years of the 1990s. Together with adoption of the exchange rate as the nominal anchor of the economy, the restrictive fiscal policy lowered inflation to 7 percent in 1994, down from a high of nearly 160 percent in 1987.

International investors accepted the reforms, as evidenced by net inflows of foreign private capital starting in 1990. These inflows helped to finance a growing deficit in the current account, which passed from a surplus of USD 4.2 billion in 1987 to a deficit of USD 29.7 billion in 1994.1

The substantial increase in imports during this period was due mainly to revaluation of the real exchange rate and trade liberalization. In the first part of the 1990s and until December 1994, the exchange rate regime consisted of a lower and an upper limit within which the exchange rate could fluctuate freely. For the upper limit, there were pre-announced daily mini-devaluations (i.e., a crawling peg). One of the most relevant events of this period was the creation of the North America Free Trade Agreement (NAFTA) among Canada, Mexico, and the United States of America (USA).

In 1994 a sequence of political events reversed the flow of foreign capital, leading to a substantial decline in the country’s international reserves. For the purpose of containing capital outflows, the federal government began to issue Tesobonos, bonds indexed to the exchange rate. Toward the end of 1994, the amount of tesobonos outstanding was nearly USD 30 billion. Despite this effort, capital outflows continued, and by December 1994 it became impossible to sustain the existing exchange rate regime. This led to the free flotation of the exchange rate, the regime in force today.

Owing to this situation, the economy entered into a financial crisis. In 1995 the Mexican economy registered a 6.2 percent drop in GDP, while inflation rose to 52 percent. Interest rates passed

1 Throughout this report, the symbol USD is used for U.S. dollars and $ for the Mexican peso. A billion is 1,000 million.

(14)

from less than 10 percent to more than 100 percent by March 1995. The banks, which, after the reprivatization, had substantially expanded the amount of credit issued to the private sector, often without adequate assessment of risk, began to experience a reduction in the payment capacity of debtors. Past-due loans rocketed, exerting severe pressure on payments in the economy. To contain the effects of the banking crisis, the government created financial aid plans for the sector through the Banking Fund for the Protection of Savings (Fondo Bancario de Protección al Ahorro,

FOBAPROA). All the major banks in the country continued to operate normally, and depositors did not suffer a loss of their savings. This, of course, was possible only at enormous fiscal cost to the nation.

Starting in 1996, when the main economic and financial variables were stabilized, economic growth resumed. In the 1996–2000 period, GDP grew at an average rate above 5 percent, and starting in 2000 inflation subsided to less than 10 percent.

After the 1994–95 crisis, the following main reforms allowed the economy to grow with more stability:

• The free-floating exchange rate regime was maintained,2 which allowed shocks in the

economy to be distributed among different economic variables and facilitated the necessary adjustments. In addition, this policy lessened the appeal of domestic financial markets to volatile (often speculative) foreign capital.

• Fiscal discipline was maintained.

• The central bank adopted a new monetary policy stance, which made its inflation forecasts more reliable and increased public confidence in them.

• The pension system was reformed, which led to the creation of individual accounts managed by specialized private sector companies.

• Regulation and supervision of the financial system were strengthened, and banking laws were reformed to enable foreign capital to participate more extensively in the system, resulting in an increase in its solvency.

Another significant change in the domestic context was the presidential election in 2000. For the first time in more than 70 years, a candidate of a political party different from the Institutional Revolutionary Party (Partido Revolucionario Institucional, PRI) was elected president. The elections took place without incident.

After nearly 15 years of economic and financial reforms, in the eyes of investors Mexico has apparently succeeded in differentiating its economy from that of the rest of Latin America. For example, in

2 Until 2000, Banco de México —the central bank— still intervened in the foreign exchange market through previously announced mechanisms to limit the volatility of the exchange rate. Since then, any kind of intervention has been eliminated.

(15)

contrast to the severe economic crisis recently occurring in Argentina, Mexico has experienced extreme stability.3

1.2 M

ACROECONOMIC

B

ACKGROUND

1.2.1 Real Sector

Since the end of the 1980s, economic growth has been driven by the external sector, which is highly dependent on the economic growth of the USA, Mexico’s main trading partner.

Between 1996 and 2000 GDP grew at a real average annual rate of 5.4 percent. In 1997 GDP grew 6.8 percent, 4.9 percent in 1998, and 3.7 percent in 1999. The instability of the world financial markets—a product of crises in Southeast Asian countries, Russia, and Brazil, among others—was largely responsible for this slowdown in economic growth.

In 2000 the economy grew almost 7 percent, having received a big impulse from exports, which grew more than 22 percent. By the end of that year, however, the economy started slowing down in response to the first signs of slower growth in the USA. In 2001 the economic slowdown in the USA

was a major cause of the 0.3 percent decrease in Mexican GDP and the 4.8 percent drop in exports. Gross capital formation declined from 21.2 percent of GDP in 1999 to 19.6 percent in 2001, as a result of revaluation of the Mexican peso and its effect on the imported component of investment.

Table 1: Macroeconomic Indicators*

1998 1999 2000(a) 2001(a)

GDP at current prices (thousands of millions of pesos) 3,846.4 4,593.7 5,485.4 5,771.9

Real GDP annual growth rate (in %) 4.9 3.7 6.6 -0.3

Consumption (as % of GDP) 67.3 67.1 67.6 71.3

Capital gross creation (as % of GDP) 20.9 21.2 21.3 19.6

F.o.b. imports (as % of GDP) 32.8 32.4 33.2 31.0

F.o.b. exports (as % of GDP) 30.8 32.7 31.4 29.4

Current account of the balance of payments (as % of GDP) -3.8 -2.9 -3.1 -2.9 Inflation (annual growth rate of the Consumer Price Index) 18.6 12.3 9.0 4.4

Unemployment rate 3.2 2.5 2.1 2.8

Memo: Nominal exchange rate (as of December)(b) 9.87 9.51 9.57 9.14

Sources: Banco de México and Instituto Nacional de Estadística, Geografia e Informática (INEGI).

(a)

Preliminary figures.

(b)

“Fix” exchange rate (Exchange rate for the payment of obligations denominated in foreign currency payable in Mexico, determined by the Banco de México).

3 During previous crisis episodes, investors apparently did not differentiate among the countries of the region. Thus, a crisis episode in one country would generally produce extreme volatility in the financial variables of others.

* The following conventions for notation are used throughout the Report: “n.a.” indicates data that are not available; “…” stands for data that are not applicable; “neg” (this is, negligible) indicates where data are very small relative to other relevant data in the table concerned.

(16)

Job creation was boosted by the dynamic behavior of the export sector. Industries in the north of the country, particularly assembly plants known as maquiladoras, had contributed to a gradual reduction in the unemployment rate, which by 2000 stood at 2.1 percent. This trend reversed in 2001, when the decline in exports raised unemployment to 2.8 percent.

1.2.2 External Sector

4

Between 1988 and 1994, the deficit in Mexico’s balance of payments current account averaged 4.4 percent of GDP, reaching 7 percent in 1994, its highest level. The portion of this deficit that was being covered by volatile sources of capital (such as foreign portfolio investment) averaged 58 percent in this period.

With the 1995 crisis, the current account experienced a major adjustment, passing to a deficit of 0.6 percent of GDP. Since then, annual deficits have remained within manageable parameters, with a maximum deficit of 3.8 percent of GDP in 1998. In 2001 the current account deficit was 3.1 percent of GDP, and a similar level was estimated for 2002. Since 1995 approximately 80 percent of this deficit has been financed with foreign direct investment. In recent years foreign direct investment reached US$13 billion. In 2001, partly influenced by Citigroup’s acquisition of Banamex-Accival—Mexico’s largest financial group—it reached nearly US$25 billion.5

International reserves, which fell abruptly in 1994, have been recovering since then, reaching the historic level of more than US$40 billion by the end of 2001.

During the 1990s, the traditional vulnerability of the current account to fluctuations in international oil prices was greatly reduced, and the share of non-oil exports in total exports rose to an average of 91 percent during the 1995–2000 period. However, foreign trade remains heavily concentrated in the USA, which receives more than 80 percent of Mexican exports. Hence, the recent slowdown of the economy of the former has had a severe impact on Mexico’s export sector.

Table 2: Economic Indicators of the Mexican External Sector

(in USD million)

1998 1999 2000(a) 2001(a)

I. Current Account -16,090 -14,168 -17,737 -17,681

II. Capital and Financial Account 17,360 15,575 16,930 22,707 III. Errors, omissions and undetermined capital flows 868 -813 3,629 2,075 IV. Reserve Assets (decrease +, increase -) -2,137 -594 -2,822 -7,325

Memo: Nominal exchange rate (as of December)(b) 9.87 9.51 9.57 9.14

Sources: Banco de México and INEGI.

(a)

Preliminary figures.

(a)

“Fix” exchange rate.

4 The data of this section were extracted under the methodology of the Fifth Manual of the Balance of Payments of the IMF applied since 1994.

(17)

Mexico has executed the necessary reforms to liberalize the capital and financial account of the balance of payments within a framework of free exchange rate flotation.

1.2.3 Public Sector

Even before the 1995 crisis, the public sector has been applying a balanced budget policy to avoid putting pressure on interest rates and inflation. About one-third of Mexican fiscal revenues stem from the oil sector, which in turn is highly dependent on international oil prices. This sector is controlled by the state through Petróleos Mexicanos (PEMEX), the fifth biggest oil exporter in the world. In view of this situation, and due to severe fluctuations in international oil prices, the Mexican Congress has established that, whenever the actual price of exported oil is higher than the price used for budgetary purposes, the corresponding surplus will be kept in a special fund to be used whenever the country faces the opposite situation.

The efforts to reduce the fiscal deficit have borne fruit: between 1998 and 2001, the fiscal deficit did not exceed 1.5 percent of GDP in any year. The central government’s deficit, which was reduced by transfers from other government sectors, was smaller than 1.8 percent of GDP and declining (see table 3).

Table 3: Financial Result of the Mexican Public Sector

(as % of GDP)

1998 1999 2000 2001(a)

Non financial Public Sector -1.2 -1.1 -0.9 -0.7

Central Government -1.8 -1.7 -1.4 -1.4

Public Institutions 0.1 0.1 0.0 0.0

Public Enterprises 0.9 1.0 0.9 0.9

Source: Secretaría de Hacienda y Crédito Público (SHCP).

(a)

Preliminary figures.

The disciplined budgetary policy also permitted a decline in the ratio of total public sector debt to

GDP. From almost 37 percent in 1995, the ratio declined to a little more than 20 percent in 2001. The structure of total debt also changed as the share of internal debt grew. The costs undertaken by the government as a consequence of the 1995 banking bailout are not recognized as official public debt, and by the end of 2001 these costs represented almost 12 percent of GDP.

1.2.4 Monetary Sector

Inflation has been falling since reaching a high of 52 percent in 1995. Starting in 1999, observed inflation rates have been below the official targets established by Banco de México, Mexico’s central bank. For the years 1999, 2000, and 2001, observed inflation was 12.3, 9.0, and 4.4 percent, with inflation targets for these years of 13.0, 9.0, and 6.5 percent, respectively. For 2003 Mexico is seeking to match the inflation rate of its main commercial partners, which is approximately 3 percent.

(18)

From 1997 to 1999, characterized by episodes of high volatility in interest rates and in the exchange rate, the monetary policy of the central bank was highly restrictive in order to avoid money issuance, which could trigger a speculative attack.

Since then, monetary policy has been characterized by the gradual abandonment of a “two-step” regime and the move to a regime of inflation targeting, which was formally approved in the Monetary Program for 2001.6 In the current paradigm, Banco de México evaluates whether the observed

growth in prices is consistent with its multi-annual inflation target and signals the market of its intention to pursue a more accommodating or a more restrictive monetary policy through a mechanism known as “accrued daily balances” (saldos diarios acumulados) of the accounts that commercial banks hold at the central bank. This mechanism is discussed in more detail in section 7.4 of this Report.

The monetary policy strategy has been supported by the free flotation of the exchange rate, which distributes the effects of external imbalances among various variables.

The monetary aggregate M1 remained relatively stable at around 10 percent of GDP during the 1998–2000 period (see table 4). For 2001, the fact that observed inflation was below the planned target of 6.5 percent together with the general slowing of the economy motivated the government to inject more liquidity into the system. The consequent change in the direction of monetary policy beginning in the second quarter of that year resulted in an increase in liquidity as measured by the various monetary aggregates.

Table 4: Mexican Monetary Aggregates

(in millions of pesos, at the end of each year)

1998 1999 2000 2001(a)

M1 387,897 489,136 564,233 676,646

As % of GDP 10.1 10.7 10.4 11.9

M2 = M1 + Internal Financial Assets owned by residents 1,656,617 2,016,394 2,337,375 2,736,549

As % of GDP 43.1 43.9 43.0 48.0

M3 = M2 + Internal Financial Assets owned by foreign

residents 1,683,152 2,033,275 2,365,752 2,763,792

As % of GDP 43.8 44.3 43.6 48.5

M4 = M3 + Deposits in foreign agencies of Mexican Banks 1,769,041 2,106,970 2,422,133 2,812,620

As % of GDP 46.0 45.9 44.6 49.3

Workers’ funds in the Savings for Retirement System 192,403 282,087 381,511 507,735

As % of GDP 5.0 6.2 7.0 8.9

Source: Banco de México.

(a)

Preliminary figures.

6 The two-step regime consists of reaching final objectives through instruments and intermediate objectives. In the first step, the instruments affect the intermediate objectives, and in the second step, the intermediate objectives affect the final objectives. The inflation targeting regime establishes inflation objectives for the short and medium term. These objectives are communicated to the public in order to facilitate the alignment of private forecasts with the authority’s targets.

(19)

The analysis of the velocity of the various aggregates is similar. All the aggregates showed an increase in their velocity beginning in 1998, with the exception of 2001, when monetary policy was modified.

1.3 F

INANCIAL

S

ECTOR

When banks were nationalized in 1982, the monetary authorities determined the activities of this sector, and banking supervision was limited to verifying compliance with those rules. An increasing percentage of each peso in banking deposits was destined to finance the fiscal deficit. For this reason, the private sector was crowded-out and had difficulty acquiring bank loans. Restrictions were imposed on interest rates, and other quantitative and qualitative limits were imposed on credit.

To address the financing needs of the private sector, a parallel banking system emerged. Brokerage houses were the main institutions to compete with the nationalized banking system.

In 1990, with the creation of FOBAPROA, the ground was set for reprivatizing the banking system, a process that began in 1991. This coincided with strong net capital inflows and the abolition, by Banco de México, of the reserve requirements on new banking liabilities. These events greatly increased the liquidity of the banking system and, thus, its potential to grant loans.

The nationalization had erased many market practices of banks, mainly by eliminating the responsibility for risk management, capping interest rates, and imposing qualitative and quantitative limitations on credit. Supervision was distracted from its main goal of ensuring the ongoing soundness and solvency of the system. As a result, the significant growth in banking credit from 1991 to 1994 was accompanied by extremely lax or null requirements on loans, together with very optimistic scenarios for their reimbursement.

Banking was among the sectors heavily affected by the financial crisis triggered by devaluation of the Mexican peso in December 1994. In the following weeks and months, the drop in economic activity and the sharp rise in interest rates deepened the deterioration in the quality of the credit portfolio. Facing the latent insolvency of most of the country’s banks, the government decided to apply several bailout programs in an attempt to avoid major repercussions in the payments system, the wider financial sector, and the real economy.

In 1995 the Temporary Capitalization Program (Programa de Capitalización Temporal, PROCAPTE) was created. Its objective was to support the banking institutions so that they would comply with the minimum capital and reserve requirements. Through PROCAPTE, banks could sell part of their past-due loans, net of credit risk provisions, to FOBAPROA in exchange for FOBAPROA’s high-quality

securities. Moreover, bank owners committed themselves to inject new capital into their institutions through the issuance of subordinated debt, in a proportion of two pesos for every peso of securities granted by FOBAPROA.

The authorities also implemented the Agreement for Immediate Support to Bank Debtors (Acuerdo de Apoyo Inmediato a los Deudores de la Banca, ADE) with the objective of containing the

(20)

deterioration of the loan portfolio. ADE had two basic features: (a) the establishment of caps on

interest rates for individuals and firms, with the federal government paying the difference between these rates and prevailing market rates, and (b) the restructuring of debts in so-called “investment units” (unidades de inversión, UDIs).7

Later on, some interventions became necessary for the system to remain operational. Moreover, in order to keep the banking system in the hands of the private sector, bank equity was opened to foreign capital. In this way, domestic private banking assets switched into the hands of foreign capital in a very short period of time. In 1998, 76 percent of the banking system belonged to domestic capital. In 2000, approximately half of the system was in the hands of foreign capital. By 2001, with Citigroup’s acquisition of Banamex, almost 90 percent of banking system assets was owned by foreign institutions.

Table 5: Commercial Banks Funding by Main Instruments

(in millions of pesos)

1995 1999 2000

Traditional Funding 510,962 1,153,187 1,141,359

Traditional Funding in domestic currency 491,059 1,093,440 1,015,317

Checking Accounts 87,059 284,593 337,940(a)

Savings Accounts 1,517 1,163 1,344

Long-Term Deposits redeemable in fixed days 7,616 5,269 5,032

Fixed Term Deposits 36,673 136,502 106,012

Promissory Notes with interest payable at maturity 296,664 597,565 532,130 Current Account Deposits at sight with interests 10,982 n.a. n.a.

Other instruments 50,548 68,347 32,859

Funding in foreign currency(b) 19,903 59,747 126,042

Investment banking and repos in domestic currency 210,118 470,669 692,381(c)

Source: Banco de México.

(a)

Includes traditional current accounts, sight current account deposits with interest and certified cheques.

(b)

Converted at the exchange rate of the accounting closing date.

(c)

Includes the balances of operations documented as trusts.

Some other laws were also reformed in order to facilitate the access of national and foreign investors to other kinds of financial institutions. The most relevant changes were made to the General Law of Credit Auxiliary Organizations and Activities (Ley General de Organizaciones y Actividades Auxiliares del Crédito), the General Law of Insurance Institutions and Mutual Companies (Ley General de Instituciones Mutualistas y de Seguros), and the General Law of Guarantee Institutions (Ley General de Instituciones de Fianzas).

7UDIs are constant-value units. In high-inflation conditions, a loan denominated in UDIs avoids the accelerated amortization of the debt principal. Hence, in the context of straight-line amortization, the periodic payments of UDI-denominated loans remain relatively constant in real terms.

(21)

Pension fund management firms (administradoras de fondos para el retiro, AFOREs) began to operate

in 1997, right after the reform of the Mexican Social Security Institute (Instituto Mexicano del Seguro Social, IMSS). AFOREs are private financial institutions handling the pension system based on the accumulation of resources in individual accounts. At present, this system is applicable only to workers in the private sector. Public sector workers remain in the original system, which does not have individual accounts.

Until 2001, the Mexican financial system comprised 28 financial groups, 56 commercial banks, 381 institutions belonging to the securities market, and 460 institutions classified as other financial intermediaries and credit information companies.

1.4 C

APITAL

M

ARKETS

The Mexican securities market is divided into the following categories:

• Capital markets, which include equities, optional securities related to equities, and medium-and long-term debt instruments

• Money market, comprising short-term debt instruments

• Metals market.

Equities and debt instruments issued by non-banking private entities are traded mainly on the stock exchange, while government and banking instruments are traded mainly in over-the-counter (OTC) markets.

The stock market is small compared with the economy. Capitalization of the equities market represented 45 percent of GDP in 1994, but only 22 percent in 2000. Traded volumes also decreased,

from 20 percent of GDP in 1994 to 8 percent in 2000.

The market for corporate debt as well as for debt issued by state-owned firms and local governments is also relatively small. Therefore, the Mexican securities market is concentrated in securities issued by banks and the federal government. In 1995–2000, the number of transactions in the debt securities market grew at an annual average real rate of 12 percent, mainly as a result of the demand of Mexican investors. In this period, the federal government was able to expand significantly the maturities of the various types of securities it regularly issues.

Mexico has only one stock exchange: the Mexican Stock Exchange (Bolsa Mexicana de Valores,

BMV). Since 1999, all trades have been executed electronically through the SENTRA-Capitales,

SENTRA-Deuda, and REMATE Lince systems. The clearance and settlement of operations with securities traded either at BMV or in the OTC markets are executed through the central securities depository,

INDEVAL.

Since 1998, there has been an organized market for derivatives, called the Mexican Derivatives Market (Mercado Mexicano de Derivados, MEXDER). The main instruments traded in this market

(22)

are currency, interest rates, and individual stock futures. Since it began operations, MEXDER has

been experiencing significant growth in traded volume.

In recent years, several reforms had been carried out to develop the securities market further. In general, reforms have focused on increasing transparency, protecting small investors, and facilitating market access to the general public of investors.

For the most part, reforms are concentrated in two laws, the Securities Market Law and the Mutual Funds Law. Changes to the Securities Market Law focus on protecting the rights of minority shareholders, avoiding operations that are contrary to the market’s normal and safe operations, changing the privacy rules to enable the sharing of information with foreign regulators, changing the registration and public offering regime from a framework based on merit to one based on disclosure,8 creating new instruments to develop the medium- and long-term debt market, creating

central counterparties, and demutualizing the stock exchange.

The new Mutual Funds Law focuses on strengthening the securities market, improving the access of small and medium investors to the equity market, protecting the interests of investors, diversifying capital, and contributing to the financing of productive activities in the country. Another new aspect of this law is the requirement that mutual fund management firms be independent. Credit institutions and brokerage houses can no longer operate directly as mutual fund managers, and they have to create independent subsidiaries with independent staff. This measure aims to eliminate potential conflicts of interest with other entities in the same financial group. Mutual fund management firms are compelled to operate as independent business units with the sole purpose of managing and distributing mutual funds.

1.5 M

AJOR

T

RENDS IN

P

AYMENT

S

YSTEMS

Up until the mid-1990s the Mexican payments system was relatively simple. Only two clearance and settlement mechanisms were relevant to the operation of financial markets: the cheque clearinghouse and an electronic procedure for interbank transfers. The electronic procedure did not allow, and still does not allow, banks to include in the payment instructions information related to clients, either to indicate that a client has ordered a transaction or to instruct the receiving bank to credit a payment to one of its own clients (so-called third-party information). This limitation on the electronic system and on settlement facilities at the cheque clearinghouse was the major reason why most payments among financial sector entities were made through cheques.

The central bank guaranteed the settlement of all transactions, both in the electronic system as well as in the cheque clearinghouse, with no limits on transaction amounts or on bank balances at the central bank. This allowed banks to make uncollateralized overdrafts on their current accounts at the central bank. Hence, the central bank undertook excessive credit risks, introducing moral hazard into the system and creating disincentives to the proper behavior of financial market participants.

8 In the new framework, authorizations are given on the basis of the amount and quality of the information that is disclosed by the interested party.

(23)

In 1994 Banco de México initiated a comprehensive reform of its payment systems in an effort to reduce moral hazard and achieve a high degree of operational security and reliability in payment clearance and settlement. A major component of this reform was the design and development of new payment systems with more stringent risk controls and real-time settlement procedures that could replace the use of cheques for large-value financial transactions. Thus Banco de México first developed the Extended Electronic Payments System (Sistema de Pagos Electrónicos de Uso Ampliado, SPEUA) to facilitate the settlement of payment transactions made by bank clients and also the Interactive System for Securities Deposits (Sistema Interactivo para el Depósito de Valores, SIDV) to support securities transactions through a delivery-versus-payment mechanism. In both systems, transactions are settled as soon as sufficient funds (or credit), and eventually securities, are available at the corresponding accounts. Banco de México has established limits to the credit it grants to participants and has required participants to provide collateral or other guarantees. The SPEUA is still in the process of implementing this last requirement.

These changes aim to reduce the reliance of payment systems on the settlement guarantee provided by Banco de México and to give participants the right incentives to contribute, through proper market decisions, to the financial stability of the system overall. For this purpose, clear mechanisms and procedures have been established to cover the liquidity shortfalls of individual participants or the inability of one participant or more to settle a transaction. Authorities also have tried to balance the operational needs of financial markets while maintaining reasonable standards of security in the systems.

Banco de México owns and operates two electronic systems for large-value payments. The first is the Account Holders Service System (Sistema de Atención a Cuentahabientes, SIAC), which handles the current accounts that banks and other financial institutions, such as brokerage houses, mutual fund management firms, AFOREs, and some insurance companies, hold at the central bank. Payment

transactions made by third parties or on their behalf may not be processed through SIAC. Banco de México also owns and operates the SPEUA, which, as mentioned before, was launched in 1995 with the objective of substituting large-value cheques and reducing credit risks for Banco de México, financial institutions, and the public in general. Only banks have access to the SPEUA, and through it they may execute large-value payments with same-day value for account holders at different banks. The SPEUA does not operate directly with the banks’ current accounts in the

SIAC, although it is linked with the SIAC, and every day, at closing time, balances in SPEUA are transferred to SIAC for settlement.

As for deferred net settlement systems, the Banking Clearing Center (Centro de Compensación Bancaria, CECOBAN) offers countrywide clearance of cheques, in Mexican pesos and in USD, and other methods of paying for retail purchases, including both credit and debit instruments.

CECOBAN belongs to the commercial banks, and it replaced the former trust managed by Banco de México. The Clearinghouse System (Sistema de Cámaras, SICAM) operated by Banco de México clears the payments that CECOBAN has processed up to the morning following the day in which

the documents or files are presented for collection. The resulting balances are settled at the SIAC

(24)

The new structure of interbank clearance and settlement favors efficiency in the payment services that financial institutions provide to their clients. The rules and procedures of payment systems have enabled participants to understand the financial risks they incur by participating in the payment system and thus allow them to better manage their credit and liquidity risks. The central bank no longer provides special credit facilities to deferred net settlement systems. Instead, it manages a process for executing the credit lines that banks grant to each other. If a bank is unable to fulfill its obligations by the time these are due, it is excluded from the settlement process before all other banks credit the payments to the corresponding beneficiaries.

Notwithstanding the reforms already made, the current systems still depend on Banco de México to assure final settlement. To eliminate the remaining moral hazard, Banco de México is entering a new phase of reforms. To guide this effort, at the beginning of 2001 the Board of Governors of Banco de México adopted the Core Principles for Systemically Important Payment Systems issued by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS). The reforms are expected to be completed by 2005.

Eventually, Banco de México will withdraw the guarantee it provides for the settlement of large-value transactions and will only provide liquidity facilities in the system through which it manages the current accounts of financial institutions. These changes will be implemented gradually to allow participants to adjust to the new operational practices and to allow the financial system to operate smoothly.

The design of SPEUA’s current information system is not adequate to support some of the changes described here. Therefore, Banco de México will have to replace it with a new platform consisting of two modules: one using cash deposits generated in SIAC and one using credit lines among banks. The new system will provide banks with further opportunities to automate their own processes, which is expected to improve efficiency and security, as well as open new possibilities for cost reductions. For further details on the reforms being planned, see section 4.7.

As regards other payment instruments, credit and debit cards are widely used, with approximately 8 million and 33 million cards outstanding, respectively. Credit cards are issued under Visa, MasterCard, and, less frequently, American Express.9 Debit cards are issued by banks, mainly

under Visa (Electron) and MasterCard (Maestro). Major retailers also offer payment cards, which can be either credit or debit cards. Prepaid cards for gasoline and telephone services also are used extensively.

Regarding automated teller machines (ATMs), in Mexico there are three interconnected networks with national coverage. Two are the property of the two largest banks of the country, Banamex-Citibank and BBVA Bancomer. The third one, named RED, integrates the networks of all other banks and is controlled by Promoción y Operación, S.A. de C.V. (PROSA), a company owned by the participating banks.

The settlement of credit and debit card transactions is similar to that of ATM transactions. The three big networks process the operations. PROSA clears the payments, which are then settled by a commercial bank through electronic funds transfers at SPEUA.

(25)

Regarding other methods of payment, postal money orders through the state-owned Telecomm Telégrafos are widely used. Remittances from Mexicans residing in the USA are important as well. Remittances are processed by companies such as Money Gram and Western Union in collaboration with local partners, usually a bank or a retailer with wide national coverage.

1.6 M

AJOR

T

RENDS IN

S

ECURITIES

C

LEARANCEAND

S

ETTLEMENT

S

YSTEMS

All securities in the National Securities Registry (Registro Nacional de Valores, RNV) are represented physically, generally by global notes, and are immobilized in INDEVAL, the central securities depository. Securities are standardized and carry identification numbers that follow the criteria of International Securities Industry Numbering (ISIN).

INDEVAL is the only entity authorized to operate as a central securities depository. Among other services, it is the custodian and administrator of all the securities registered in RNV, and it clears and

settles all transactions made with such securities. INDEVAL is a private sector firm whose shareholders include 29 brokerage houses, 13 commercial banks, six insurance and guarantee firms, as well as Banco de México, the BMV, and Nacional Financiera, a state-owned development bank.

Until 1994, INDEVAL was responsible only for the transfer of securities, while payments were arranged bilaterally among counterparties. At the end of 1995, together with the Banco de México, it implemented the SIDV, which allows the settlement of all operations under a delivery-versus-payment framework. For settlement of the cash leg, SIDV has a real-time link with the payment systems of Banco de México.10

Stock exchange trades, mainly equities and debt securities issued by private sector entities, are settled in T+2 under a multilateral netting scheme for both the securities leg and the cash leg (DVP

model 3 of the BIS).11 Securities traded in the OTC market are settled according to conditions

established by the parties, generally in T or T+1, on a gross basis for both the securities leg and the cash leg (DVP model 1 of the BIS).

Although INDEVAL does not act as central counterparty, it guarantees the settlement of all transactions executed through BMV by means of a settlement fund. To qualify for this guarantee, operations need to be declared unfulfilled, because of the lack of either securities or cash, which would happen at the closing of T+5. Prior to this day, if the operations are not settled normally by T+2, they are declared in arrears, and the participants may access the securities lending facility created by INDEVAL

in order to accomplish settlement.

Regarding the derivatives market, a clearinghouse, Asigna Compensación y Liquidación (ASIGNA), operates as a central counterparty for all derivative contracts traded in the MEXDER. ASIGNA shares the credit risks with four trusts. Each of these four trusts was established by a commercial bank.

10 However, the changes being planned for the SPEUA will eliminate its connection with the SIDV.

11 “Delivery Versus Payment in Securities Settlement Systems,” Committee on Payment and Settlement System of the Central Banks of the Group of Ten Countries of the Bank for International Settlements, September 1992.

(26)

With the reform of June 2001, the Securities Market Law enables the creation of central counterparties for securities market transactions, with the purpose of reducing or eliminating the risk of settlement defaults. Central counterparties have to determine and apply a strict system of financial safeguards to assure fulfillment of their obligations.

Presently, INDEVAL is working to establish a subsidiary, together with partners that could act as settlement partners, that will seek to function as a central counterparty for the capital market.

(27)

2 INSTITUTIONAL ASPECTS

2.1 G

ENERAL

L

EGAL

F

RAMEWORK

In Mexico, the principal laws regulating the system of payments and the system of securities clearance and settlement are the Central Bank Law, the Payment System Law, the Securities Market Law, the Banking Law (Ley de Instituciones de Crédito), and the General Law of Credit Certificates and Transactions (Ley General de Títulos y Operaciones de Crédito, LGTOC), which regulates paper-based payment instruments like cheques, money orders, and bills. All these laws are federal. According to the Mexican Constitution, states may not issue laws regulating any part of financial activity.

Tabla 6: Legal Framework of the Mexican Financial System

Law Ruling since

Banking Law 18/06/90

Banking Savings Protection Law 19/01/99

Bankruptcy Law 12/05/00

Bonding Institutions Federal Law 20/12/50

Central Bank Law 20/12/93

General Law of Credit Auxiliary Organizations and Activities 14/01/85

General Law of Credit Certificates and Transactions 27/08/32

General Law of Insurance Institutions and Mutual Companies 31/08/35

Law for the Protection and Defense of Financial Services Users 18/01/99

Law Regulating Financial Groups 18/06/90

Mutual Funds Law 04/06/01

National Banking and Securities Commission Law 00/00/95

Organic Law of Nacional Financiera (National Development Bank) 26/12/86 Organic Law of the Banco del Ahorro Nacional y Servicios Financieros

(Savings and Financial Services National Bank) 30/05/01

Organic Law of the Banco Nacional del Ejército, Fuerza Aérea y Armada

(National Bank of the Army and Air Force) 13/01/86

Organic Law of the Banco Nacional de Comercio Exterior

(Foreign Trade National Bank) 20/01/86

Organic Law of the Banco Nacional de Obras y Servicios Públicos

(Public Works and Services National Bank) 20/01/86

Organic Law of the Banrural System 13/01/86

Organic Law of the Patronato del Ahorro Nacional (National Savings Foundation) 26/12/86 Organic Law of the Sociedad Hipotecaria Federal (Federal Mortgage Society) 25/09/01 Organic Regulations of Financiera Nacional Azucarera

(Sugar National Financing Company) 02/04/91

Payment System Law 12/11/02

Savings for Retirement System Law 23/05/96

Securities Market Law 02/01/75

(28)

Other rules governing the operations of financial entities are the Circulars of Banco de México and those of the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores,

CNBV).

2.1.1 Payments

The Central Bank Law of 1993 (Ley del Banco de México) establishes the responsibilities and powers of the central bank. According to this law, Banco de México is in charge of fostering the stability of the national currency’s purchasing power, the sound development of the financial system, and the smooth functioning of the payment system.

The following are some of the articles dealing with the specific powers of the Banco de México regarding payment systems:

• Article 2 establishes fostering a well functioning payments system as one the primary task of the central bank

• Article 3 defines the central bank’s functions as being to regulate the issuance and circulation of currency and of the payments system and to operate with credit institutions as the reserve bank and as lender of last resort

• Article 15 details the requirements and exceptions for financing that Banco de México may grant to credit institutions in order to avoid problems in the payments system and the operations Banco de Mexico can make as the lender of last resort

• Article 24 establishes the central bank’s ability to issue regulations for the payments system and to impose sanctions on entities that do not follow these dispositions

• Article 31 establishes the central bank’s ability to regulate the transfer of funds through credit institutions.

The present interpretation of these powers, consistent with the general practice in many countries, is that Banco de México is responsible for regulating, organizing, and controlling its own payment systems—SIAC and SPEUA—as well as for overseeing self-regulated private systems in order to guarantee the continuous, appropriate, efficient, and safe provision of financial services in a competitive environment of free access. However, until November 2002 it was not clear whether Banco de México was empowered to oversee all payment systems. Hence, Banco de México oversaw the systems operated by other entities only indirectly. In that month, the Mexican Congress enacted the Payment System Law granting Banco de México full powers to oversee all payment systems and to impose sanctions.

The Banking Law regulates the operations of banks and establishes that banks are the only institutions authorized to operate current accounts. A June 2001 reform of this law authorized banking institutions to provide clients with direct debit or preauthorized charge services, in which the client authorizes

(29)

12 Article 8 of the Securities Market Law.

13 The Chicago Mercantile Exchange, the Chicago Board of Options Exchange, and the Mid-America Commodity Exchange are also regarded by Banco de México and the CNBV as “recognized markets” for derivatives.

a third party, generally a provider of goods or services, to dispose of his or her funds through a direct charge on the client’s account. To protect users of this service, the law obliges the credit institution to return the correspondent funds if a client opposes any of the charges made.

2.1.2 Securities

The Securities Market Law of 1975 regulates securities dealers, securities market intermediaries, stock exchanges, and central securities depositories. It also regulates public offerings of securities, the intermediation of these securities, the National Securities Registry, and the authorities and services related to this market.

According to this law, securities are considered to be equities, obligations, bonds, certificates, and other credit certificates that are issued in series or in bulk and are circulated in the market. This law also applies to other types of publicly offered credit securities and documents issued both domestically and abroad granting credit, property, or participation rights in the equity of firms. Intermediation in the securities market is defined as the regular execution of brokerage activities, commissions, and other operations that match offers of and demands for securities, the execution of operations on one’s own behalf with securities issued or guaranteed by third parties subject to public offering, and the management and handling of securities portfolios owned by third parties. Intermediation in the securities market may be executed by brokerage houses, stock exchange specialists, other financial entities, and individuals.

The Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público, SHCP)12 is

empowered to interpret, for administrative purposes, the precepts of this law and to provide, through general rules, everything necessary to apply it. In turn, the CNBV is empowered to supervise the securities market.

2.1.3 Derivatives

Mexico has no formal legal basis for derivatives trading. Banco de México’s Circular 2019/95 is the only reference to formal regulations for the trading of “financial operations known as derivatives.” This circular regulates the operations of credit institutions. As a result of the June 2001 reform of the Securities Market Law, brokerage houses and stock exchange specialists also can trade derivatives, subject to regulations issued jointly by Banco de México and the CNBV.

This circular contains rules focusing on authorization requirements for derivatives trading. The rules establish that authorized credit institutions may trade derivatives with any counterpart, subject to the existence of a written contract, as long as they inform Banco de México about the transaction. Trades may be executed either in OTC markets or on recognized exchanges. MEXDER, established in 1998, is one of the “recognized markets” for derivatives.13

(30)

In 2001 this circular was modified as follows:

• The different types of derivatives transactions that may be performed by commercial banks were grouped in a single rule, as were underlying assets. Swaps were incorporated as transactions on their own and not as underlying assets, as was the case in the previous regime

• Banco de México was empowered to carry out derivatives transactions with those underlying assets stated in the applicable regime

• Banking institutions that already had obtained permanent authorization to carry out derivatives transactions with particular underlying assets were allowed to request a similar authorization to carry out transactions with other underlying assets

• Banco de México was empowered to authorize some institutions, for a predetermined time span and value, to trade derivatives without having to comply with risk management requirements established in the applicable regime, as long as the transactions are exclusively for risk-hedging purposes.

2.1.4 Specific Legal Issues Related to Clearance and Settlement

2.1.4.1 Netting

The Federal Civil Code contains the legal underpinning for netting arrangements.14

Netting occurs when two people are reciprocal creditors and debtors. The effect of netting is to extinguish, through use of the law, the two debts up to the smallest quantity. In order for netting to take place, debts must be equal in both liquidity and maturity. Operations different from these may be netted only if the parties explicitly agree. Netting, once legally executed, produces its full effects and extinguishes all related obligations.

Netting only proceeds when debts are of a monetary nature or are fungible, meaning that the relevant things are of the same species and quality, as long as this has been established in a contract. Netting cannot be executed if doing so would harm the legally acquired rights of third parties.

2.1.4.2 Zero Hour Rule

In the Mexican legislation no specific rules are related to the zero hour rule, which invalidates transactions already settled and considered final that were executed after the beginning of the day on which the bankruptcy of a given entity was declared. Even so, in an insolvency procedure, it is possible to establish retroactive effects if the insolvent debtor operated dishonestly.

(31)

15 Article 90 of the Commercial Code.

16 Fifth Title, Book 4, Articles 2213 to 2223 of the Federal Civil Code.

2.1.4.3 Electronic Documents and Signatures

The Commercial Code contains a section on electronic commerce. Article 89 establishes that, for purposes of the code, electronic and optic media and any other technology may be used in commercial activities. The information created, sent, received, filed, or communicated through these media is called a data message. It is presumed that a data message comes from the issuer if a means of identification such as a user name and password has been used or if the message is received through an automated information system programmed either by the issuer or on his behalf.15 For this purpose, an information system is considered as any technological means used to

generate, send, and receive data messages.

In certain cases the law requires written contracts and signatures on the related documents. In the case of data messages, the latter requirement is considered to be executed if data messages can be attributed to the relevant persons and can be accessed for further consultation.

Also, Article 1298-A establishes that data messages are accepted as proof in a court of law. When weighting the proof of these messages, the reliability of the method with which the information was generated, filed, communicated, or maintained has to be determined.

On July 5, 2002, Banco de México issued Circular 19/2002, known as the “Circular on Extended Infrastructure” (Infraestructura Extendida, IES). This circular allows Banco de México to authorize commercial banks to issue digital certificates to their clients for operational purposes and to register and process such certificates through the extended infrastructure.

Starting on September 9, 2002, Banco de México, as the IES Central Registrar (Agencia Registradora Central, ARC), may issue digital certificates to commercial banks, which allow them to act as registration or certification agencies of the IES; all participants in the Mexican financial system can

receive the digital certificates issued by commercial banks.

The IES allows the on-line validation of certificates. These certificates facilitate the use of electronic signatures, which in turn improve the safety of and confidence in the operations of the financial system.

2.1.4.4 Novation

The legal dispositions regarding novation are also contained in the Federal Civil Code.16

A contract is novated when the interested parties significantly modify it by substituting a new obligation for an old one. Novation is a contract, and as such it is subject to the corresponding rules, except for the following:

(32)

• Even when the former obligation is subordinated to a condition of suspension, novation depends on the fulfillment of that obligation only if this has been stated

• If the first obligation is extinguished when the second obligation is undertaken, the effects of novation cease

• Novation is void if the original obligation is also void, except when only the debtor may invoke the cause for voidance or when ratification validates void acts in the original obligation. If novation is void, the former obligation subsists.

Novation extinguishes the principal obligation and the accessory obligations. The creditor can, for a specific reason, prevent the extinction of the accessory obligations, which in this case are added to the new one.

2.2 T

HE

R

OLEOF

F

INANCIAL

I

NSTITUTIONS

: P

AYMENTS

2.2.1 The Banking Sector

The Banking Law of 1990 defines banking and credit services as the acceptance of deposits made by the public in the domestic market for the purpose of placing these funds as loans to the public. In Mexico, commercial banks are corporations whose equity may be sold on the stock exchange and that are authorized to provide a wide range of banking activities as well as activities related to the securities market. All banks can open up offices and do business anywhere in the country. The Banking Law allows foreign banks to establish subsidiaries and representative offices in the national territory.

Commercial banking is highly concentrated. The two biggest banks—Banamex-Citibank and BBVA

Bancomer—constitute more than 50 percent of the market, measured in terms of either assets or deposits. One-quarter of all banks control almost all retail operations and services.

Development banks are entities controlled by the federal government that perform second-tier activities, which are activities for a specific sector of the economy. Generally speaking, development banks grant credit to commercial banks so that they may, in turn, grant loans to firms or individuals following the guidelines of development banks.

Regarding payment services, commercial banks are the only institutions authorized by law to operate with cheques and to provide interbank payment services through the SPEUA and the Internet. Commercial banks issue debit cards related to transferable deposits as well as credit cards with the Visa and MasterCard brands.

2.2.2 Other Institutions that Provide Payment Services

2.2.2.1 CECOBAN

In 1996 Mexico’s principal banks decided to transform into a private entity the government trust, managed by Banco de México, that was operating the cheque clearinghouse. In October of that year, CECOBAN was created. By December 2001, 44 banks were CECOBAN shareholders.

References

Related documents

unhappiness, although with the higher addictions (love and consciousness growth) you experience less suffering than with the lower level addictions of security, sensations,

Input the validation value attached to each inspection filter. Fig.3-14 10% filter parameter settings screen.. 4) Return to the instrument validation screen. 5) With the filter

Notice that given a feasible solution ζ for the multicommodity flow problem on G φ , we can express the graph’s edge capacity vector as the sum of two non-negative vectors, one for

– digital information modelling technique for software application systems – addition of ontological layer at the top of content management layer – semantic guided access to

Abbreviations: PSO – Psoriasis, CNTL – controls, T2DM – Type 2 Diabetes mellitus, BMI – body mass index, TC- total cholesterol, TG – triglycerides, AD – Atopic dermatitis,

– Better understand users experience and interaction with range-related remote access functions (RRRAF).. 

The findings in this study indicate the importance of digital literacy education which has a positive impact on knowledge, understanding and skills in using social media that

Abuse, treatment researchers, and community - - based service based service providers cooperatively develop, validate, refine, and deliver n providers cooperatively develop,