Settlement process - Mexico
|T+0, T+1, T+2 or more depending on what the parties agree
- Trades between brokers
All equity trades executed on the Mexican Stock Exchange must be executed by a broker through an electronic trading platform. These trades will settle on T+2 at Indeval on a multilateral net basis. All trades executed between brokers will settle versus the Contraparte Central de Valores de Mexico, S.A. de C.V. (CCV), the Mexican Securities Counterparty.
Once the trades are matched, they are transferred real-time and electronically to Indeval's system, DALI. At this point, trades are considered final and irrevocable and will be processed for settlement against the CCV in cycles.
Net securities positions will be exchanged simultaneously against the net cash proceeds. If a counterparty is short of cash or securities, the transaction will be held over until the next batch. Once securities and cash positions have been transferred, the transaction is considered final and irrevocable.
Transactions that are not settled on the contractual settlement date (T+2) are segregated into a pending queue, benefiting of a “Grace Period” of maximum 2 days.
- Trades between brokers and custodians
Pre-matching between brokers and custodians is generally performed over the phone on settlement date. Once they are pre-matched, transactions must be inputted separately into DALI by means of a terminal or electronic interface. The system will match the transactions and will settle them on a gross basis exchanging securities and cash simultaneously. The transactions are then considered as final and irrevocable. The system also allows intra-day partial settlement.
Fixed income are generally traded OTC and can settle on T+0, T+1 or T+2 or more depending what is agreed between the parties. Most fixed income transactions settle on T+0.
Against payment transactions must be inputted by both parties into the DALI system. Transactions are settled on a gross basis at the start of the settlement day on settlement date. Once transactions are settled they are irrevocable.
If one of the parties does not have sufficient securities or cash, the system will allow partial settlement on a DVP basis. The system will try to settle partially until the original amount of the transaction is settled or until the end of the day. Any partial settlement amount that remains outstanding at the end of the day will be automatically cancelled and must be re-inputted by the counterparties the following day.
All Mexican securities are held in registered form in the books of Indeval in the name of S.D. Indeval S.A. de C.V. Indeval participants maintain omnibus accounts on behalf of their customers, they usually open one account for national customers and one account for foreign customers. In both cases, the account is clearly designated as a third party account. Registration of securities is performed automatically upon settlement.
Penalties (buy-ins etc.)
Transactions that fail to settle on the original SD (T+2) have a “grace period” of a maximum of two days (total settlement cycle of T+4). Whenever there is a failure to deliver securities, clearing agents or the CCV can get a stock loan or buy the securities in the market with same day SD (T+0) or T+1 settlement cycle.
There is no buy-in in the market. Instead, there is a "Cash Agreement" between the defaulting broker and the CCV and an Extraordinary Cash Settlement between the CCV and the affected broker.
N.B.: This procedure is only valid for settlement between brokers. It is not valid for transactions between brokers and custodians.
If a transaction is not settled by the end of T+2, and the defaulting broker or CCV was unable to contract a stock loan during the "grace period", the defaulting broker must conclude a Cash Agreement with the CCV. The defaulting broker must settle the Cash Agreement before the last settlement cycle on T+5 to avoid a definitive suspension from the CCV. The CCV will compensate the affected broker with the amount of the Cash Agreement received from the defaulted broker during the last settlement cycle on T+5, this will cancel the pending transaction and process an Extraordinary Cash Settlement.
Should there be any remaining positive balance difference between the Cash agreement and the Extraordinary Cash Settlement, the CCV will credit that difference to the Reserve Fund.