IPC Essay

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The IPC (Indice de Precios y Cotizaciones) is an index of stocks that trade on the Bolsa Mexicana de Valores (BMV), which is Mexico’s only stock exchange. The IPC is the  main  indicator  of the  BMV. It measures the performance  of the Mexican stock market,  and it is representative  of all shares  listed on the  stock exchange. This indicator was implemented  in its current structure  in 1978.

The BMV is headquartered on Paseo de la Reforma in  central  Mexico  City. BMV is a private  limited company, with the exchange’s shareholders  consisting exclusively of authorized  brokerage  firms, each of which owns a single share. The exchange trades debt instruments including federal Treasury certificates (CETES), federal government  development bonds (BONDES), investment  unit bonds, bankers’ acceptances, promissory notes with yield payable at maturity, commercial paper, and development  bank bonds. In addition, it also trades stocks, debentures, mutual  fund shares, and warrants.  Trading  is conducted electronically through the BMV-SENTRA Equities System.

The mission of the BMV is to contribute to domestic savings, productive investment and stock brokerage in the country, meeting the needs of companies, issuers and governments, as well as of domestic and foreign investors. Provide services to enable access to the Stock Exchange infrastructure, in order to facilitate listing and trading  of securities,  information   dissemination and the operation of the organized capital and debt market and other financial assets.

Investors  go to stock exchanges worldwide as an option  to protect  and increase  their  monetary  savings, supplying monetary resources that in turn allow corporations and governments  to finance productive and development  projects that in turn  generate jobs and wealth. The stock exchanges are organized markets that  contribute to  this  financial channeling  in a free, efficient, competitive,  equal, and transparent way, holding up previously agreed rules for all participant parties.

The BMV is the  physical place where the  trades made by the brokerage firms are executed and registered. Investors buy and sell stocks and debt securities through  intermediaries,  called brokerage  firms. Note  that  the  BMV does not  buy or sell securities directly. The investors send their  orders  through  an account  executive  employed  by  a  brokerage  firm. These account  executives  are  registered  specialists who have received training and are authorized by the CNBV. The buy and sell orders are transmitted from the brokerage firms to the market through  a sophisticated Negotiation, Transaction,  Registry and Assignation Electronic System (BMV–SENTRA Capitales) where they wait to find an equal but opposite order and thus perfect the operation.  Once shares or debt securities  have been  acquired,  performance  can be monitored in specialized newspapers  and  the  electronic information  system of the BMV.

The BMV is where Mexico’s organized  securities market transactions are held, and its main objective is to facilitate the securities transaction  process as well as market  development,  fostering its expansion  and competitiveness through the following functions:

  1. Establish the facilities and  mechanisms  as an aid  in  the  relationship   of  the  securities  supply and  demand,  credit  certificates,  and  other documents  registered at the National Securities Registry (RNV), as well as provide  the  necessary services for underwriting,  offering and the exchange of the aforementioned securities.
  2. Publish, provide, maintain, and make available to the general public the pertinent information about the securities listed at the BMV and at the International Quotations System (SIC), about its issuers as well as of the executed transactions.
  3. Establish the necessary means to ensure that the transactions held at the BMV by the brokerage firms comply with the applicable legislation.
  4. Issue regulations that set standards and operative guidelines as well as conduct norms to promote fair and equitable market practices at the securities  market; guard their  observation  and impose disciplinary and corrective measures, in case of lack of fulfillment, that  are mandatory for brokerage  firms and the issuers with listed securities at the BMV.

Some important milestones  in the history  of the BMV are outlined below:

1982—President Miguel de la Madrid allowed the establishment  of private brokerage houses with wide latitude to conduct financial transactions  in domestic capital markets.

October 1987—U.S. stock market crash. The BMV recovered slowly in 1988.

1991—The index  of traded  stocks  rose  128 percent in new peso terms and 118 percent in U.S. dollar terms. In November 1991, the government eliminated all exchange  controls,  thereby  unifying the  various peso exchange rates.

1992—199 companies were listed as trading on the stock exchange. A total of 11 trillion new pesos were traded, and the exchange had a total capitalization of US$139 billion and a price-to-earnings ratio of more than 13.

1993—Mexican investors held about 75 percent of the equities traded.

1994—The market  was  buffeted  by  a  series  of political shocks—including two high-profile political assassinations, revelations of high-level corruption in President  Carlos Salinas’s entourage,  and continued unrest in Chiapas—that contributed to its high volatility throughout the rest of the year.

1995—The stock  market  collapsed,  causing  the stock index to fall to less than 1,500 points in February of that year. The main stock index gradually recovered to just under 3,000 points by the end of 1995 and reached 3,300.

September  1996—Mexican stocks gained 24 percent in dollar terms during the first eight months  of 1996. A slow recovery would follow in the next years.

2008—The world financial crisis that began in 2008 affected Mexican stocks negatively. The falling peso was a precipitating factor.

Bibliography:   

  1. Bolsa Mexicana de Valores, www.bmv.com.mx (cited March  2009);
  2. F. Coronel  Brizio and  A. R. Hernández  Montoya,  “Asymptotic Behavior  of the  Daily Increment Distribution  of the IPC, the Mexican Stock Market Index,” Revista Mexicana De Fisica (v.51/1, 2005);
  3. Financial Forecast Center, www.forecasts.org (cited March 2009).

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