Emerging Markets Rates and Currencies Handbook

103 Citi | Emerging Markets Currencies Handbook 2021 Mexico Mexico’s Derivatives Overview The most important derivatives market in Mexico is the over-the-counter (OTC) derivatives market, which is fully integrated with the global derivatives market. Investors and end-users have access to a wide variety of foreign exchange and interest rate contracts, among which the most important ones are FX forwards, FX options, cross-currency swaps, and interest rate swaps. Transactions in the OTC market can be conducted either with a domestic or foreign bank, or directly with an offshore dealer. Exchange-traded derivatives contracts are traded in the Mexican Derivatives Exchange (MexDer), with domestic banks and local subsidiaries of foreign banks accounting for most of the trading activity. The exchange offers listed derivatives contracts including futures contracts on U.S. dollars, the Mexican stock exchange index (IPC), government bonds, interest rates, and individual stocks. MexDer also offers options on the IPC, individual domestic stocks, and exchange traded funds (ETFs) tracking the Nasdaq 100 and S&P 500 indices in the United States. FX Spot FX Forwards NDFs FX Options Interest Rate Swap Interest Rate Options XCCY swaps Market Overview Onshore Offshore Onshore volume (MM USD daily) 5,000 — 7,000 2,000 — 2,800 Negligible 1,000 — 1,400 100 2 50 Offshore volume (MM USD daily) 22,000 — 26,000 9,000 — 10,000 Negligible 4,500 — 5,000 500 — 700 2 90 — 100 Onshore max tenor (or typical tenor for spot) T + 0 2 years 2 years 4 — 5 years for longer tenors speak to traders 20 years 10 years 10 years Offshore max tenor (or typical tenor for spot) T + 2 3 years 2 years 4 — 5 years for longer tenors speak to traders 20 years 10 years 10 years Onshore typical deal size (MM USD) 5 — 10 5 — 10 Episodic Included in offshore 80 2 20 Offshore typical deal size (MM USD) 5 — 10 5 — 10 Episodic 20 — 50 150 2 40 — 60 CitiFX Pulse Capabilities (onshore) CitiFX Pulse Capabilities (offshore) Source: Citi indicative information Market opening hours and liquidity during the day 14.30 01.00 05.30 15.30 Good Liquidity Poor Liquidity Moderate Liquidity Fixing (incl. ticker) The most relevant benchmark rate for the Mexican Peso is the Banxico FIX, which is used to settle transactions the second working day following the expiry day. The FIX rate was created to settle liabilities denominated in foreign currency payable within Mexican territory. Central Bank surveys FX dealer institutions on three different time periods, between 9pm to 12pm, every business day and it calculates the average of the wholesale market quotes. It then publishes daily the Benchmark FIX Rate at 12pm local time (UTC-6). Bloomberg Ticker: {MXN BDEM Currency} The spot market for MXN is very liquid and transactions can be settled in T+0, T+1 or T+2, with T+0 settlement being the market standard. Spot transactions settled after 4 business days from the closing date are considered derivatives by the Central Bank and are subject to compliance with derivatives regulation. Fully deliverable and non-deliverable forwards are available both onshore and offshore. However, the market standard is deliverable contracts. These instruments are usually traded with tenors up to 2 years with greater liquidity concentrated on contracts up to 1 year. NDFs can be cash settled in either MXN or USD.