The interest expressed by Mexico’s Bolsa Mexicana de Valores (BVM) in joining exchange integration project Mercado Integrado Latino Americano (MILA) is likely to further enhance international access to Latin America’s capital markets, according to Danielle Tierney, analyst at financial consultancy Aite Group.
Under MILA, the exchanges of Chile, Peru and Colombia created a trading link that allows domestic brokers access to each other’s markets via local brokers. With its mantra of “three countries, one marketplace”, the ultimate aim of the project is to make its members’ equity markets more attractive to investors via lower costs, increased liquidity and a greater range of financial instruments.
Although Mexico has yet to officially join the initiative, BVM was reported to be “in talks” in October, with Javier Artigas, the exchange’s head of strategy, predicting an announcement before the end of the year.
MILA formally combined operations of the stock markets of Chile, Colombia and Peru on 30 May 2011, effectively creating Latin America’s second largest equity pool after Brazil’s BM&F Bovespa, which has an order routing agreement with Chile.
“MILA will increase the volumes traded across the board, as almost by definition it expands the opportunities available to all market participants,” said Tierney. “Interconnectivity supports liquidity. As liquidity and trading opportunities rise, the whole marketplace becomes much more attractive to foreign institutional investors.”
Tierney added that the size of pension funds in each MILA participant country had been constrained to date by domestic factors. But the ability to diversify into other markets in the MILA partnership has allowed greater opportunities in the form of cross-listings and a much broader consumer base. The addition of Mexico would expand that base still further.
Although the project has faced coordination difficulties – Peru at one point nearly withdrew due largely to tax harmonisation issues – Tierney does not expect the addition of Mexico to present as much of a difficulty.
“The greatest obstacle to integration has always been differing tax regimes in the different countries – especially capital gains tax,” she said. “But Mexico already has low capital gains tax, meaning its integration should be relatively straightforward. Besides, integration is the direction that exchanges are already moving in. Brazil’s BM&F Bovespa already has an order routing agreement with the CME Group, for example.”
Index provider S&P launched its S&P MILA 40 stock index in August, which tracks the top 40 largest and most liquid stocks trading on the MILA platform. The initial universe includes all stocks that are domiciled in Chile, Colombia and Peru and trade on MILA as domestic stocks. To be eligible, stocks must have a float-adjusted market capitalisation above US $100 million as of the rebalancing reference date.