For over a year, Mexican commercial banks have been quoting among themselves and keeping track of a daily 91-day inter-bank offering rate known as Mexibor. It was not until July 29 2002 that the Mexican regulators authorized the banking industry to use the Mexibor for their commercial banking transactions with customers. This is a major change in the money markets in Mexico. Historically, it was the Mexican central bank, Banco de Mexico, that was the only entity legally-authorized to establish all such reference rates for the banking industry. This amendment only allows the commercial banks to set this 91-day reference rate, and leaves with the central bank the authority to establish all other reference rates available in the industry.
The Mexibor functions by means of a trust agreement entered into with Nacional Financiara, SNC (a Mexican government-owned development bank) acting as trustee, with 12 participating commercial banks acting as grantors and beneficiaries. The management of the trust is set on a Technical Committee that is composed of one member of each participating commercial bank and one member of the Mexican central bank (that only acts as an observer and has no vote or voice on the committee). The technical committee has the authority to set rules, policies and algorithms for the operation and management of the trust, and also has the authority to supervise the trustee's performance and the system of quotations. The 12 participating commercial banks are: Banca Serfin, Banco Inbursa, Banco Internacional, Banco Invex, Banco JP Morgan, Banco Mercantil del Norte, Banco Nacional de Mexico, BankBoston, Bank of America, BBVA Bancomer, Deutsche Bank, and ScotiaBank Inverlat.
The Mexibor is an inter-bank interest rate determined daily based on quotations provided by the Mexican participating banks, which is calculated and made public by Reuters. The system of quotations to determine the Mexibor was also developed by Reuters based on algorithms, parameters and policies provided by the technical committee. This system requests and receives electronically all quotes from the participating banks. The procedures to estabish the Mexibor require that more than half of the participating banks submit their quotes on a daily basis between 10:45am and 11:00am. In the event that a majority of the participating banks do not submit their quotes, Reuters will inform all participant banks electronically no later than 11:05am, through the quotation system, and will request all of them to submit their quotes no later than 11:30am. With the participant banks that did quote on the first round there are three options: (i) to re-submit the same quote; (ii) to submit a new quote; or (iii) if they do not submit a new quote, the first quote will stand. If after the second round, Reuters has still not received quotes from a majority of the participating banks, then Reuters must notify no later than 11:45am all banks that are members of the Executive Committee of the trust for their quotation that must be submitted no later than 12:00 noon. The Mexibor rate must be published by Reuters no later than 12:30pm. All banks that do not submit their quotes as previously mentioned will face severe penalties for this omission. The Mexibor rate can be researched at the internet pages of Reuters (www.reuters.com.mx), the Mexican Bankers Association (www.abm.com.mx), or Nacional Financiera (www.nafin.com).
There are four different algorithms that have been made public. Algorithm 1 is used to calculate the spread range between the different market rates; algorithm 2 is used to calculate the Mexibor term rate based on the quotes received from the participating banks; algorithm 3 is used to analyze the quotes received by the participating banks to determine if they are outside the market spread or range, and, algorithm 4 is used to calculate penalties to participating banks.
By allowing the Mexibor rate to be used among the commercial banks with their customers, the Mexican authorities are looking to stimulate liquidity in the financial markets and to promote the issuance of mid- and long-term debt instruments.
Alberto J Morales