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HOW TO DEVELOP A MASTER DERIVATIVES AGREEMENT IN MEXICO MA. TERESA VARGAS, BBVA CAROLINA MACHADO, JP MORGAN ISDA - NAFINSA CONFERENCE MAY 7, 2001 MEXICO CITY HOW TO DEVELOP A MASTER DERIVATIVES AGREEMENT IN MEXICO AGENDA 1. INTRODUCTION 2. FIRST STEPS

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how to develop a master derivatives agreement in mexico

HOW TO DEVELOP A MASTER DERIVATIVES AGREEMENT IN MEXICO

MA. TERESA VARGAS, BBVA

CAROLINA MACHADO, JP MORGAN

ISDA - NAFINSA CONFERENCE

MAY 7, 2001

MEXICO CITY

how to develop a master derivatives agreement in mexico2
HOW TO DEVELOP A MASTER DERIVATIVES AGREEMENT IN MEXICO
  • AGENDA
  • 1. INTRODUCTION
  • 2. FIRST STEPS
  • 3. HOW TO DEVELOP A MASTER AGREEMENT
      • NATURE OF AGREEMENT
      • OBJECTIVE OF AGREEMENT
      • PROPOSED STRUCTURE OF AGREEMENT
  • 4. CONCLUSIONS
introduction4
INTRODUCTION

1.1 INTERNATIONAL STANDARD AGREEMENTS

(i) ISDA Master Agreement

(ii) IFEMA

(iii) ISMA (repos and buy sellbacks)

introduction5
INTRODUCTION

1.2 MASTER AGREEMENTS EXISTING IN

MEXICO

  • Currently in Mexico, the local master derivative agreements are specific by product
  • (i) Fx Forwards
  • (ii) Fras
  • (iii) Ois
  • (iv) INPC
first steps7
FIRST STEPS

2.1 IMPORTANCE OF DEVELOPING A LOCAL MASTER

  • The need arises to develop a standard local agreement
  • that governs all over the counter markets,
  • but that is in accordance with local market practices
  • A contractual structure compatible with Mexican
  • legislation and courts
  • Use of the native language for clarity
  • But to the extent possible, with the minimum discrepancies of the internationally used agreements such as ISDA
first steps8
FIRST STEPS

2.2 KEY PLAYERS

(i) Financial Intermediaries (including banks and

broker dealers)

(ii) Mexican Regulators

(iii) With the participation and intervention of ABM,

AMIB and ISDA

(iv) Other potential players are financial intermediaries

such as insurance companies, pension funds and mutual funds

first steps9
FIRST STEPS

2.3 EXPECTED USERS

The local Master Agreement to be developed should be

used between :

  • Mexican Financial Intermediaries
  • Financial Intermediaries and Corporates
  • Financial Intermediaries and Governmental entities
  • Mainly Mexican players
how to develop a master agreement
HOW TO DEVELOP A MASTER AGREEMENT
  • Nature of Agreement
  • Objective of Agreement
  • Proposed Structure of Agreement
how to develop a master agreement12
HOW TO DEVELOP A MASTER AGREEMENT

3.1NATURE OF AGREEMENT

  • Only one contractual relationship to negotiate
  • The local master agreement will act as a frame for
  • the execution of derivative trades, without imposing
  • an obligation to execute trades.
  • If a trade is executed, the terms of the master agreement come into play.
slide13

HOW TO DEVELOP A MASTER AGREEMENT

  • Should be mainly influenced by ISDA Master Agreement, since it is recognized by international community.
  • The Master, the schedule, plus the corresponding confirmation make one same agreement.

3.1NATURE OF AGREEMENT

how to develop a master agreement14
HOW TO DEVELOP A MASTER AGREEMENT

3.2 OBJECTIVE OF AGREEMENT

  • To regulate different types of transactions of the same nature, under one same umbrella.
  • Contractual framework for the same type of trades
  • Netting of trades
  • Reduction of credit exposure
  • Better use of credit line
  • Avoiding credit risk during a bankruptcy situation
  • Legislation has been put in place to apply this in Mexico
how to develop a master agreement15
HOW TO DEVELOP A MASTER AGREEMENT

3.3 PROPOSED STRUCTURE OF AGREEMENT

3.3.1 Sections of document

  • Main form
  • Schedule
  • Confirmation
how to develop a master agreement16
HOW TO DEVELOP A MASTER AGREEMENT

3.3.2 Transactions that should be covered

  • Swaps
  • Forwards
  • Options
  • Foreign Exchange
how to develop a master agreement17
HOW TO DEVELOP A MASTER AGREEMENT

Swaps

  • Interest Rate Swaps (IRS)
  • Cross Currency Swaps
  • Cross Currency Rate Swaps
  • Equity Swaps / Equity Index Swaps
  • Any other type of derivatives that may be negotiatedin the Financial Markets
how to develop a master agreement18
HOW TO DEVELOP A MASTER AGREEMENT

Forwards and Options *

  • Interest Rate
  • Caps, collars and floors
  • Currency
  • Fixed Rate Securities
  • Variable Rate Securities
  • Any other type

* Subject to changes in the corresponding regulations

how to develop a master agreement19
HOW TO DEVELOP A MASTER AGREEMENT

Foreign Exchange

  • FX spot
  • FX Forward
conclusions
CONCLUSIONS
  • Contractual Uniformity in local markets
  • Better legal and credit protection
  • Facilitates the negotiation of agreements
  • Can assist in amending and issuing new regulations
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