Bloomberg, Banco De México, and financial leaders discuss upcoming regulations

Mexican banks, brokerage firms, investments funds, and some corporations need to work quickly to address upcoming regulations, said financial experts who gathered together at a recent Bloomberg Mexico Regulatory Outlook 2024 event.

More than 150 financial professionals attended the event to discuss new standards from the Central Bank of Mexico that requires firms to change their benchmark lending rates by January 1, 2025. The affected firms must transition away from the 28-day Interbank Equilibrium Interest Rate, or TIIE, to the F-TIIE or TIIE de Fondeo, ahead, ahead of a ban on the benchmark’s use in derivative trades. Also, many Mexican firms need to adhere to new margining requirements on local bilateral derivative transactions in line with the global uncleared margin rules (UMR) to increase transparency and reduce systemic risk in the derivatives market, debt and banking instruments.

“We brought together Mexico’s regulator and financial experts to help everyone understand the changes, and show how firms can make a successful transition,” said Liza Parlatore, Bloomberg’s Business Executive for financial products, services and technology services for Mexico and Central America. “We want to get the word out, so everyone understands how they can maintain efficiency and proper competitiveness in the Mexican marketplace.”

Speakers included:

• Jorge Alegría, Head of Mexico, CME Group
• Rodrigo Cano, Operations Support Director, Banco de México
• Fernando Ávila Embriz, Director of Information of the Financial System, Banco de México;
• Pedro Oscar Arroyo Espinoza, Head of ALM in Monex and AMIB Derivatives Committee President
• Abraham Izquierdo, Managing Director Trading & Treasury Risks, Banorte
• David Mireles, Managing Director, XVA Trading & Financial Resources Management, BBVA
• Beatriz Muñoz, FTIIE Transition Leader, BBVA

Cano of Banxico, said, “As of January next year, the 28-day TIIE will cease to be used, so it is necessary for all financial institutions to transition soon.  All banks will need to use the new risk-free rate, TIIE de Fondeo – known as F-TIIE or TIIE de Fondeo.”

Izquierdo of Banorte said, “The main objective of this transition to the TIIE de Fondeo is to promote transparency and allow reference rates based on real market dynamics. It is a significant step toward a more transparent and market-driven financial environment.”

This change is in line with international standards that seek to avoid biases and errors in reference rates.

“Today we are already operating with the TIIE de Fondeo and on November 22 we will make the conversion so that all 28-day swaps will be changed to the new TIIE”, said Alegría of CME Group.

Meanwhile, the new regulation on margins protects financial markets, since it introduces an extra layer of collateral for bi-lateral derivatives.

Fernando Ávila Embriz of Banco de México, said. “For initial margins, financial entities such as banks and brokerage firms will be able to grant guarantees to non-financial counterparties, as long as the outstanding derivative notional they carry are above the amount of 20 billion UDIs. In turn, the pension funds (Afores) are not subject to compliance with this regulation.”

Parlatore of Bloomberg added, “Many financial firms have not updated their systems yet and they need to make these operational and technology upgrades soon. We are here to help as we have deep experience in the Mexican market and initial margin regulation globally due to UMR, and tools such as electronic trade order management systems, and multi-asset solutions for portfolio management, trading, compliance and operations.”

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Read this news in Spanish.