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Technology Accelerating FX Market Development in Mexico

Speakers at Profit & Loss’ “FX Growth Markets Mexico” conference emphasised the importance of technology as an enabler that will help accelerate the development of the local foreign exchange market.

Felipe Alanís Suárez, deputy director of FX electronic markets at Banorte, explained that the Mexican FX market is still divided in its use and understanding of technology, but that in many cases the demands of his clients are becoming much more sophisticated.

“Today we have clients that we didn’t have two or three years ago requesting information on things such as operations, implementations, response times and comparative analysis of transaction cost analysis,” he said.

Similar to the way that mobile banking is rapidly growing in popularity in Mexico, Suárez sees the growth of electronic trade execution as an inevitability in the local FX market.

“How do we educate our customers on new technologies? The first thing that we have to do is educate our sales force, not only in understanding the technology but also in breaking resistance barriers that are very common and very understandable when they’re talking to customers,” he added.

Guillermo Camou, a director at Scotiabank, said that although there is an economical and technological risk that Mexican firms face when investing in new technologies, this is more than offset by the risks such investments reduce.

“What customers are looking for is straight-through processing so that it goes through to the back office without anyone interfering with the trade,” he said. “This mitigates the different types of operational risk such as 'fat finger' risk when the trade is entered into the back office system. This can be a competitive advantage for the bank offering this technology and the client implementing it.”

Bruce Wolf, head of sales for the Americas at EBS, agreed that it is important to look at how both the banks and their customers are using technology in different ways in the Mexican FX market.

“Banks will use it for disseminating price discovery and trade execution and provide STP performance to be more accurate and not have mistakes. The buy side will use technology for their execution, for better price discovery and to get their banks to compete in offering best execution. So technology is an enabler on both sides of the equation,” he said.

He added: “I think that the other piece of this is thinking about how to unlock the potential of new technology, from a bank’s point of view not only for price discovery and execution, but also how do you leverage your balance sheet? How do you execute with that customer in the most effective way?”

Wolf claimed that some regional banks are not leveraging technology to the maximum possible advantage because the systems that they buy from white label technology providers aggregate prices from other banks and then create a back-to-back trade between the larger bank to the regional bank and then the regional bank to the market place. He said that in doing so and just aggregating prices from international banks the regional banks in Mexico are giving away a big component of their business.

Matt O’Hara, Americas CEO at 360T, agreed that technology is an important enabler for firms in Mexico. “It means that you can be more connected, faster, compliant and you can access clients and liquidity in other parts of the world that without technology would be incredibly challenging,” he said.

O’Hara was also keen to stress that technology, rather than spelling the end for business relationships in FX, is a means to enhance them. He claimed that if clients are trading on single or multi-bank electronic platforms, then this gives sell-side firms more opportunity to focus their time resources on providing their clients with additional services beyond simply providing prices and capturing trades.

“Also the amount of data that is made available around captured trades and price requests means that you can have a much better understanding and knowledge base of just what your clients are trying to do, which enables you to enhance that relationship with the client,” he added.

At the conclusion of the panel, Suárez was optimistic about the impact that technology is having and will continue to have on the Mexican currency markets.

“The limits of technology are still unknown in FX,” he said. Twitter: @Galen_Stops

Profit & Loss

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