Latin America
26 November 2025
As foreign investors show growing interest in Latin America's securities finance markets, Daniel Tison delves into the opportunities and challenges shaping this dynamic and evolving region
Image: stock.adobe.com/eileen10
Characterised by its shared colonial heritage, strong cultural influence, and rich natural resources, Latin America (LATAM) is a vibrant and diverse region encompassing 19 countries across Central and South America. Despite economic challenges and social inequalities, LATAM has a dynamic financial landscape with growing urban centres, emerging markets, and a strong emphasis on trade.
鈥淯nlike the more developed markets in North America and Europe, LATAM鈥檚 securities lending industry is still in a developmental phase, with Brazil and Mexico leading the way,鈥� says Fran Garritt, executive director at ISLA Americas, a newly created affiliate entity of the International 色花堂Lending Association (ISLA).
鈥淭hese countries have relatively mature frameworks,鈥� he continues, 鈥渨ith Brazil鈥檚 B3 exchange offering a highly structured market, while others like Chile, Colombia, Peru, and Argentina are actively working to improve their lending infrastructure and liquidity.鈥�
According to Matt Chessum, executive director of securities finance at S&P Global Market Intelligence, LATAM鈥檚 securities lending markets have shown significant growth and importance in the global financing landscape over the past few years, which positions the region as a vital player in the global financial ecosystem.
鈥淭he total value of securities on loan in Latin America has expanded since inception, reflecting a growing acceptance of these practices, which enhances market efficiency and price discovery,鈥� he adds. 鈥淭he market primarily deals with equity securities lending, which provides essential liquidity, and facilitates short selling and hedging strategies for both local and international investors.鈥�
Hindered by fragmentation and bureaucracy
While local pension funds and asset managers are the primary participants in LATAM鈥檚 securities finance, there has also been a growing interest from international institutions. However, regulatory and tax complexities often limit foreign participation in some of these markets.
A recent survey of global buy side firms, conducted by Nasdaq and The ValueExchange, found that 84 per cent of respondents plan to increase their investment exposure to Latin America over the next 12 to 24 months. However, the survey also revealed certain challenges in the region, with 59 per cent of respondents saying that market structure issues impose limits on their investment flows.
Nasdaq鈥檚 vice president and head of post-trade product strategy, Gerard Smith, comments: 鈥淭here is a clear, demonstrable appetite across global market participants to invest in Latin America. However, market structure continues to be a barrier to accessing the market. Specifically, fragmentation, processing errors, and a lack of standardisation are hampering growth, with institutions demanding greater cohesion and automation across the system.鈥�
Each country in LATAM has its own currency, legislation, and financial policies, which leads to fragmentation of the market. Although there have been efforts towards simplifying these regulations, navigating bureaucracy in the region still represents a certain challenge for investors.
Chile, Colombia, and Peru have been refining their rules to attract more institutions, with an emphasis on transparency and pension fund protection. In Argentina, reforms are seen as much more likely following the change in government this year.
Smith explains that a balance must be struck across the needs of different investor profiles, saying: 鈥淚nstitutional investors are concerned with standards, block trading, collateral management, and shareholder engagement, while wealth investors are operationally focused on returns, funding and financing, proxy voting, and digital asset opportunities.鈥�
In response to market fragmentation being a major challenge in the region, Nasdaq is helping to modernise and standardise the technology underpinning LATAM鈥檚 capital market infrastructure.
The company has more than 50 banking and payment services clients in Latin America, comprising a range of digital and traditional banks, local and regional players, as well as Tier 1 global banks. On the market infrastructure side, the firm has a range of partnerships with the region鈥檚 market operators, including its technology that can digitise securities.
In September 2024, Nasdaq extended its partnership with Nubank, a Brazilian-based bank, to include its AxiomSL regulatory reporting solution. According to Smith, this move reflects the regional accelerating demand for third-party fintech solutions that can support a short time to market for new products and services.
Driving change through collaboration
Addressing given challenges, Garritt explains that regional collaboration is crucial in shaping LATAM鈥檚 securities lending market, as it promotes integration and standardised practices.
鈥淏y aligning with international standards, these initiatives make the region more competitive and appealing to global participants,鈥� he says, adding that ISLA Americas plays a pivotal role by collaborating with regional exchanges, central banks, and regulators to establish global best practices and harmonise standards.
To improve regional integration and promote free trade across the region, Chile, Colombia, Mexico, and Peru formed the Pacific Alliance in 2012. One of its projects was the Mercado Integrado Latinoamericano (MILA), integrating the stock markets of all four member countries, which became the largest stock exchange in the region.
However, Mexico decided to step back from MILA in 2020, which scaled down the exchange鈥檚 activity. Since August 2023, the remaining members 鈥� Santiago, Colombia, and Lima stock exchanges 鈥� have been operating as nuam, a new capital market for LATAM.
Garritt notes that despite Mexico鈥檚 withdrawal, MILA continues to unify the financial markets of Chile, Colombia, and Peru, and the Pacific Alliance remains focused on lowering cross-border transaction costs in the region.
鈥渘uam supports this vision by developing a digital securities platform that streamlines cross-border trading, reduces operational costs, and leverages blockchain for transparency and efficiency,鈥� he says.
Running on Nasdaq鈥檚 MME platform, with internationally accepted communications protocols such as FIX 5.0, the nuam platform aims to improve market accessibility and transparency. Trades will be cleared through its wholly-owned interoperable CCPs using VeriClear by Vermiculus. Participants from outside of the region will be able to access the single market through their preferred market participant in a specific country without having to establish relationships or register in the three countries.
In May 2024, nuam signed a collaboration agreement with the fintech associations of its member countries as part of its commitment to promoting technological innovation in the region.
nuam plans to implement its objective of creating a single market for the three countries in phases, with the first one 鈥� for equities 鈥� planned for mid-2025. The regional holding company hopes that this will lay the foundation to deploy services in other markets like fixed income and derivatives.
Pedro Zangrandi Bustamante, associate director of exchange-traded securities lending at B3, believes that his firm plays a key role in supporting growth across the region through market integration, knowledge sharing, and technological assistance.
B3 stands for Brasil, Bolsa, Balc茫o, and it is one of the world鈥檚 largest market infrastructure companies, providing trading services in both an exchange and an OTC environment. It came out from the merger of the S茫o Paulo Stock Exchange (Bovespa), the Brazilian Mercantile and Futures Exchange (BM&F), and the Central 色花堂Depository (Cetip).
鈥淏3 actively shares its expertise and best practices in market regulation, technology, product development, and incentives with its LATAM partners,鈥� says Bustamante. 鈥淭his is achieved through workshops, conferences, and meetings organised by the B3 team. Such educational initiatives significantly enhance practices, particularly in securities finance, trading, and risk management.鈥�
Brazil: A hot market trapped under layers of complexity
With a gross domestic product of US$2.3 trillion (August 2024), Brazil is the largest market in Latin America. 色花堂lending in the federative republic involves a complex framework that requires engaging with local brokers and a CCP.
Unlike in other parts of the world, where custodians typically dominate this space, the major role played by brokers is a distinctive feature in Brazil, which has driven a recent increase in retail investor participation.
Bustamante explains: 鈥淏rokers have played a crucial role by offering free custody services for retail in exchange for lending positions and utilising B3's pooling feature, which aggregates retail into a single contract with institutional entities. This has led to a rise in retail participation in Brazil over the past three years.鈥�
On the other hand, the necessity of using a local broker can also lead to increased transaction costs and potential delays, and the role of the CCP adds another layer of complexity, as it mandates adherence to specific regulatory requirements and risk management practices.
鈥淭his can complicate the indemnification process for lending agents, as they must ensure compliance with both local laws and the CCP's stipulations, potentially exposing them to greater liability and operational risks,鈥� says Chessum. 鈥淥verall, these complexities can hinder the efficiency and attractiveness of securities lending in Brazil, hence the higher fees on offer.鈥�
Bustamante argues that the CCP model ensures safety and mitigates systemic risk. However, he acknowledges that non-resident investors, who hold significant assets in Brazilian shares, may be hesitant to engage in local securities lending due to the regulatory constraints.
Data from B3 shows that non-residents represent 30 per cent of the borrowing side in Brazil while local institutional investors account for approximately half of both the borrowing and lending volume. Additionally, retail investors represent 40 per cent of the lending side.
The securities lending market is regulated by the Brazilian 色花堂Commission, with a strong emphasis on transparency, rigorous collateral requirements, and detailed disclosure. However, challenges like transaction and withholding taxes remain, which can discourage foreign investment.
Matt Ross, product specialist at EquiLend Data & Analytics, notes that Brazil, alongside Mexico, remains the dominant and most active player in LATAM equities.
鈥淏razil continues to be a hot market,鈥� he says, 鈥渨ith fees consistently above 100 basis points, and it has seen fairly aggressive growth in demand in recent years.鈥�
Data from S&P Global Market Intelligence shows that monthly securities lending revenues to the end of September grew 45 per cent this year in comparison to 2023 in the region. Average lending rates have also been growing over the past few months, reaching a multi-year high of 3.1 per cent in August.
Mexico: A diverse market grappling with demand and regulation
With two stock exchanges, one derivatives exchange, and two securities lending exchanges, Mexico, the second largest market in the region, represents a diversified and fragmented landscape on its own.
Additionally, the Mexican central bank (Banco de Mexico) serves as a lender of first resource to those banks that are signed up to Market Makers Program, issued by the Mexican Ministry of Finance in 2000, which creates a specific submarket.
The central bank is also the main regulator for securities lending in the region, alongside the National Banking and 色花堂Commission (CNBV) which governs Mexico鈥檚 regulatory framework.
Another key player in the Mexican market is Indeval, which acts as the central securities depository for all securities traded on both the Mexican Stock Exchange (BMV) and Bolsa Institucional de Valores (BIVA), and it also provides clearing and settlement services for governmental and banking securities.
Billy Ochoa, managing director and head of the Financial Institutions Group at Banco Santander Mexico, says: 鈥淒espite a diverse marketplace, with conditions that might differ greatly between the available lending alternatives, appetite and interest in the Mexican securities lending market have grown over the past years, drawing the needed attention from key players and regulators.
鈥淭he goal is to build a more complete market infrastructure, with conditions that are good enough to bring the required supply 鈥� both local and foreign 鈥� to meet the needs of all participants, including the market makers.鈥�
Santander Mexico provides the market with a full securities lending infrastructure that covers both OTC and exchange traded fixed income or equities.
Regarding opportunities for foreign investors, Ochoa highlights the size of the Mexican fixed income market, with a sovereign debt value of US$524 billion as of September 2024. He adds that players from abroad currently hold nearly a third (31.1 per cent) of Bonos M, the fixed rate bonds issued by the Mexican government.
Over the last three years, Mexico has seen an influx of lendable supply, increasing by nearly 30 per cent, but demand has not kept pace, according to Ross. Loan balances have remained relatively flat since 2021, and utilisation currently sits around three per cent.
Data from S&P Global Market Intelligence shows a weaker performance for Mexico this year compared to 2023. The securities finance revenues from January to September 2024 come to US$4.6 million, which represents a 46 per cent year-over-year (YoY) decrease.
Chessum adds that the average monthly decline of 32 per cent has had a significant impact on revenues over the year. This might have been due to several factors, including increased regulatory scrutiny and economic policies that have affected market dynamics.
鈥淭he government's focus on promoting local investment and reducing foreign influence may have led to a more cautious approach among international investors,鈥� he says. 鈥淎dditionally, changes in monetary policy, such as interest rate hikes by the Bank of Mexico to combat inflation, have created a less favourable environment for borrowing costs.鈥�
These factors, combined with geopolitical uncertainties and a slowdown in economic growth, might have made Mexico less attractive for securities lending, leading to a decrease in overall activity.
Prospects for accelerated settlement
After Mexico and Argentina adopted T+1 in May, alongside the US and Canada, there have been discussions about shortening the settlement cycle in other Latin American countries.
Garritt notes that views on moving to T+1 vary across the region due to their unique conditions, regulations, and economic priorities. He adds that collaboration is essential for this transition, and ISLA Americas is committed to supporting this process through its working groups and partnerships.
鈥淏y engaging with onshore and offshore stakeholders, as well as leveraging insights from ISLA鈥檚 work in Europe and the Americas, we aim to support a smooth transition to T+1 in LATAM while also addressing the broader needs of these key markets,鈥� says Garritt.
However, he acknowledges that the transition also presents several challenges, including the need for technological upgrades, changes to operational processes, and adjustments to market practices.
As a major economy, Brazil could be the next country to follow suit, but Bustamante notes that industry support and market readiness will be key to a successful move to T+1.
鈥淏razilian brokers, banks, and asset managers need to unite in advocating for this transition, emphasising benefits such as improved liquidity and quicker transaction processing,鈥� he says. 鈥淭he Brazilian Central Bank will play a crucial role in evaluating the regulatory implications of this shift, and collaboration with market participants will be necessary to establish rules that address concerns, particularly those related to securities lending.
Paving the way for transformation
Although challenges such as regulatory hurdles, limited liquidity, and the need for enhanced risk management remain, the LATAM securities lending market is on a promising trajectory, with increasing local and global interest driving its evolution.
Exchanges in Brazil, Mexico, and the Pacific Alliance countries are investing in new technologies like blockchain to streamline operations, improve transparency, and facilitate cross-border trading. At the same time, Chile, Colombia, and Peru are working towards regulatory alignment to lower barriers for international institutions.
In addition, the market is expected to introduce new products such as exchange traded funds (ETFs), structured securities, and cross-listed funds, which can broaden investment options and collateral availability for both local and foreign institutions.
Garritt comments: 鈥淲hile the region faces hurdles such as regulatory complexity, potential tax implications, and operational inefficiencies, ongoing reforms and technological advancements are creating opportunities for growth. These efforts are paving the way for greater engagement from both local and global participants, which is vital for the market鈥檚 continued evolution.鈥�
From a Mexican perspective, Ochoa believes that focus on regulation overhauls and the adoption of new practices are key steps towards a real market evolution.
鈥淥TC securities lending market has a long way to go, and both exchanges must find ways to invite foreign participants into their structures,鈥� he notes. 鈥淲e, as a market, must aim to adopt global practices, like a triparty model, and new ways of structuring loans, such as open loans and evergreens, as well as aspire to longer tenors. Finally, the creation of a solid corporate lending market must be reviewed, along with the convergence of fees, and embracement of digital platforms.鈥�
In Brazil, Bustamante also calls for regulatory reforms to allow bilateral collateralisation of principal risk to enhance non-resident participation.
He adds: 鈥淏3 is actively collaborating with regulators to highlight the benefits of such changes, and discussions are currently underway to address and potentially remove this barrier.鈥�
Looking ahead, Smith says: 鈥淓stablishing mature repo markets will be critical to LATAM鈥檚 success, as it will allow international investors to use reverse repos to swap currency and counterparty risk into sovereign risk, before deploying the capital.鈥�
He believes that technological transformation will be the key driver of progress in LATAM, adding: 鈥淔or securities lending, use of global platforms for execution and booking, alongside standardised messaging for lending trades and recalls, would help to establish the building blocks for greater liquidity. In short, it will require a huge amount of change.鈥�
According to Garritt, LATAM鈥檚 securities lending market is poised for significant growth over the next five years, which will be driven by efforts to align with international standards and attract foreign institutions.
鈥淟ATAM鈥檚 securities lending market is on track to become a more integrated and globally competitive space,鈥� he says. 鈥淲ith enhanced infrastructure, regulatory alignment, and expanded offerings, the region is positioning itself as an attractive destination for foreign capital."
He is convinced that collaboration among local exchanges, regulators, and organisations like ISLA Americas will help the local securities lending market enhance market transparency, efficiency, and accessibility.
With a slightly more moderate approach, Ochoa adds: 鈥淎ll the needed changes take a while to happen, but as long as the conviction and appetite to correctly develop a securities lending environment remains, objectives will be met.鈥�
鈥淯nlike the more developed markets in North America and Europe, LATAM鈥檚 securities lending industry is still in a developmental phase, with Brazil and Mexico leading the way,鈥� says Fran Garritt, executive director at ISLA Americas, a newly created affiliate entity of the International 色花堂Lending Association (ISLA).
鈥淭hese countries have relatively mature frameworks,鈥� he continues, 鈥渨ith Brazil鈥檚 B3 exchange offering a highly structured market, while others like Chile, Colombia, Peru, and Argentina are actively working to improve their lending infrastructure and liquidity.鈥�
According to Matt Chessum, executive director of securities finance at S&P Global Market Intelligence, LATAM鈥檚 securities lending markets have shown significant growth and importance in the global financing landscape over the past few years, which positions the region as a vital player in the global financial ecosystem.
鈥淭he total value of securities on loan in Latin America has expanded since inception, reflecting a growing acceptance of these practices, which enhances market efficiency and price discovery,鈥� he adds. 鈥淭he market primarily deals with equity securities lending, which provides essential liquidity, and facilitates short selling and hedging strategies for both local and international investors.鈥�
Hindered by fragmentation and bureaucracy
While local pension funds and asset managers are the primary participants in LATAM鈥檚 securities finance, there has also been a growing interest from international institutions. However, regulatory and tax complexities often limit foreign participation in some of these markets.
A recent survey of global buy side firms, conducted by Nasdaq and The ValueExchange, found that 84 per cent of respondents plan to increase their investment exposure to Latin America over the next 12 to 24 months. However, the survey also revealed certain challenges in the region, with 59 per cent of respondents saying that market structure issues impose limits on their investment flows.
Nasdaq鈥檚 vice president and head of post-trade product strategy, Gerard Smith, comments: 鈥淭here is a clear, demonstrable appetite across global market participants to invest in Latin America. However, market structure continues to be a barrier to accessing the market. Specifically, fragmentation, processing errors, and a lack of standardisation are hampering growth, with institutions demanding greater cohesion and automation across the system.鈥�
Each country in LATAM has its own currency, legislation, and financial policies, which leads to fragmentation of the market. Although there have been efforts towards simplifying these regulations, navigating bureaucracy in the region still represents a certain challenge for investors.
Chile, Colombia, and Peru have been refining their rules to attract more institutions, with an emphasis on transparency and pension fund protection. In Argentina, reforms are seen as much more likely following the change in government this year.
Smith explains that a balance must be struck across the needs of different investor profiles, saying: 鈥淚nstitutional investors are concerned with standards, block trading, collateral management, and shareholder engagement, while wealth investors are operationally focused on returns, funding and financing, proxy voting, and digital asset opportunities.鈥�
In response to market fragmentation being a major challenge in the region, Nasdaq is helping to modernise and standardise the technology underpinning LATAM鈥檚 capital market infrastructure.
The company has more than 50 banking and payment services clients in Latin America, comprising a range of digital and traditional banks, local and regional players, as well as Tier 1 global banks. On the market infrastructure side, the firm has a range of partnerships with the region鈥檚 market operators, including its technology that can digitise securities.
In September 2024, Nasdaq extended its partnership with Nubank, a Brazilian-based bank, to include its AxiomSL regulatory reporting solution. According to Smith, this move reflects the regional accelerating demand for third-party fintech solutions that can support a short time to market for new products and services.
Driving change through collaboration
Addressing given challenges, Garritt explains that regional collaboration is crucial in shaping LATAM鈥檚 securities lending market, as it promotes integration and standardised practices.
鈥淏y aligning with international standards, these initiatives make the region more competitive and appealing to global participants,鈥� he says, adding that ISLA Americas plays a pivotal role by collaborating with regional exchanges, central banks, and regulators to establish global best practices and harmonise standards.
To improve regional integration and promote free trade across the region, Chile, Colombia, Mexico, and Peru formed the Pacific Alliance in 2012. One of its projects was the Mercado Integrado Latinoamericano (MILA), integrating the stock markets of all four member countries, which became the largest stock exchange in the region.
However, Mexico decided to step back from MILA in 2020, which scaled down the exchange鈥檚 activity. Since August 2023, the remaining members 鈥� Santiago, Colombia, and Lima stock exchanges 鈥� have been operating as nuam, a new capital market for LATAM.
Garritt notes that despite Mexico鈥檚 withdrawal, MILA continues to unify the financial markets of Chile, Colombia, and Peru, and the Pacific Alliance remains focused on lowering cross-border transaction costs in the region.
鈥渘uam supports this vision by developing a digital securities platform that streamlines cross-border trading, reduces operational costs, and leverages blockchain for transparency and efficiency,鈥� he says.
Running on Nasdaq鈥檚 MME platform, with internationally accepted communications protocols such as FIX 5.0, the nuam platform aims to improve market accessibility and transparency. Trades will be cleared through its wholly-owned interoperable CCPs using VeriClear by Vermiculus. Participants from outside of the region will be able to access the single market through their preferred market participant in a specific country without having to establish relationships or register in the three countries.
In May 2024, nuam signed a collaboration agreement with the fintech associations of its member countries as part of its commitment to promoting technological innovation in the region.
nuam plans to implement its objective of creating a single market for the three countries in phases, with the first one 鈥� for equities 鈥� planned for mid-2025. The regional holding company hopes that this will lay the foundation to deploy services in other markets like fixed income and derivatives.
Pedro Zangrandi Bustamante, associate director of exchange-traded securities lending at B3, believes that his firm plays a key role in supporting growth across the region through market integration, knowledge sharing, and technological assistance.
B3 stands for Brasil, Bolsa, Balc茫o, and it is one of the world鈥檚 largest market infrastructure companies, providing trading services in both an exchange and an OTC environment. It came out from the merger of the S茫o Paulo Stock Exchange (Bovespa), the Brazilian Mercantile and Futures Exchange (BM&F), and the Central 色花堂Depository (Cetip).
鈥淏3 actively shares its expertise and best practices in market regulation, technology, product development, and incentives with its LATAM partners,鈥� says Bustamante. 鈥淭his is achieved through workshops, conferences, and meetings organised by the B3 team. Such educational initiatives significantly enhance practices, particularly in securities finance, trading, and risk management.鈥�
Brazil: A hot market trapped under layers of complexity
With a gross domestic product of US$2.3 trillion (August 2024), Brazil is the largest market in Latin America. 色花堂lending in the federative republic involves a complex framework that requires engaging with local brokers and a CCP.
Unlike in other parts of the world, where custodians typically dominate this space, the major role played by brokers is a distinctive feature in Brazil, which has driven a recent increase in retail investor participation.
Bustamante explains: 鈥淏rokers have played a crucial role by offering free custody services for retail in exchange for lending positions and utilising B3's pooling feature, which aggregates retail into a single contract with institutional entities. This has led to a rise in retail participation in Brazil over the past three years.鈥�
On the other hand, the necessity of using a local broker can also lead to increased transaction costs and potential delays, and the role of the CCP adds another layer of complexity, as it mandates adherence to specific regulatory requirements and risk management practices.
鈥淭his can complicate the indemnification process for lending agents, as they must ensure compliance with both local laws and the CCP's stipulations, potentially exposing them to greater liability and operational risks,鈥� says Chessum. 鈥淥verall, these complexities can hinder the efficiency and attractiveness of securities lending in Brazil, hence the higher fees on offer.鈥�
Bustamante argues that the CCP model ensures safety and mitigates systemic risk. However, he acknowledges that non-resident investors, who hold significant assets in Brazilian shares, may be hesitant to engage in local securities lending due to the regulatory constraints.
Data from B3 shows that non-residents represent 30 per cent of the borrowing side in Brazil while local institutional investors account for approximately half of both the borrowing and lending volume. Additionally, retail investors represent 40 per cent of the lending side.
The securities lending market is regulated by the Brazilian 色花堂Commission, with a strong emphasis on transparency, rigorous collateral requirements, and detailed disclosure. However, challenges like transaction and withholding taxes remain, which can discourage foreign investment.
Matt Ross, product specialist at EquiLend Data & Analytics, notes that Brazil, alongside Mexico, remains the dominant and most active player in LATAM equities.
鈥淏razil continues to be a hot market,鈥� he says, 鈥渨ith fees consistently above 100 basis points, and it has seen fairly aggressive growth in demand in recent years.鈥�
Data from S&P Global Market Intelligence shows that monthly securities lending revenues to the end of September grew 45 per cent this year in comparison to 2023 in the region. Average lending rates have also been growing over the past few months, reaching a multi-year high of 3.1 per cent in August.
Mexico: A diverse market grappling with demand and regulation
With two stock exchanges, one derivatives exchange, and two securities lending exchanges, Mexico, the second largest market in the region, represents a diversified and fragmented landscape on its own.
Additionally, the Mexican central bank (Banco de Mexico) serves as a lender of first resource to those banks that are signed up to Market Makers Program, issued by the Mexican Ministry of Finance in 2000, which creates a specific submarket.
The central bank is also the main regulator for securities lending in the region, alongside the National Banking and 色花堂Commission (CNBV) which governs Mexico鈥檚 regulatory framework.
Another key player in the Mexican market is Indeval, which acts as the central securities depository for all securities traded on both the Mexican Stock Exchange (BMV) and Bolsa Institucional de Valores (BIVA), and it also provides clearing and settlement services for governmental and banking securities.
Billy Ochoa, managing director and head of the Financial Institutions Group at Banco Santander Mexico, says: 鈥淒espite a diverse marketplace, with conditions that might differ greatly between the available lending alternatives, appetite and interest in the Mexican securities lending market have grown over the past years, drawing the needed attention from key players and regulators.
鈥淭he goal is to build a more complete market infrastructure, with conditions that are good enough to bring the required supply 鈥� both local and foreign 鈥� to meet the needs of all participants, including the market makers.鈥�
Santander Mexico provides the market with a full securities lending infrastructure that covers both OTC and exchange traded fixed income or equities.
Regarding opportunities for foreign investors, Ochoa highlights the size of the Mexican fixed income market, with a sovereign debt value of US$524 billion as of September 2024. He adds that players from abroad currently hold nearly a third (31.1 per cent) of Bonos M, the fixed rate bonds issued by the Mexican government.
Over the last three years, Mexico has seen an influx of lendable supply, increasing by nearly 30 per cent, but demand has not kept pace, according to Ross. Loan balances have remained relatively flat since 2021, and utilisation currently sits around three per cent.
Data from S&P Global Market Intelligence shows a weaker performance for Mexico this year compared to 2023. The securities finance revenues from January to September 2024 come to US$4.6 million, which represents a 46 per cent year-over-year (YoY) decrease.
Chessum adds that the average monthly decline of 32 per cent has had a significant impact on revenues over the year. This might have been due to several factors, including increased regulatory scrutiny and economic policies that have affected market dynamics.
鈥淭he government's focus on promoting local investment and reducing foreign influence may have led to a more cautious approach among international investors,鈥� he says. 鈥淎dditionally, changes in monetary policy, such as interest rate hikes by the Bank of Mexico to combat inflation, have created a less favourable environment for borrowing costs.鈥�
These factors, combined with geopolitical uncertainties and a slowdown in economic growth, might have made Mexico less attractive for securities lending, leading to a decrease in overall activity.
Prospects for accelerated settlement
After Mexico and Argentina adopted T+1 in May, alongside the US and Canada, there have been discussions about shortening the settlement cycle in other Latin American countries.
Garritt notes that views on moving to T+1 vary across the region due to their unique conditions, regulations, and economic priorities. He adds that collaboration is essential for this transition, and ISLA Americas is committed to supporting this process through its working groups and partnerships.
鈥淏y engaging with onshore and offshore stakeholders, as well as leveraging insights from ISLA鈥檚 work in Europe and the Americas, we aim to support a smooth transition to T+1 in LATAM while also addressing the broader needs of these key markets,鈥� says Garritt.
However, he acknowledges that the transition also presents several challenges, including the need for technological upgrades, changes to operational processes, and adjustments to market practices.
As a major economy, Brazil could be the next country to follow suit, but Bustamante notes that industry support and market readiness will be key to a successful move to T+1.
鈥淏razilian brokers, banks, and asset managers need to unite in advocating for this transition, emphasising benefits such as improved liquidity and quicker transaction processing,鈥� he says. 鈥淭he Brazilian Central Bank will play a crucial role in evaluating the regulatory implications of this shift, and collaboration with market participants will be necessary to establish rules that address concerns, particularly those related to securities lending.
Paving the way for transformation
Although challenges such as regulatory hurdles, limited liquidity, and the need for enhanced risk management remain, the LATAM securities lending market is on a promising trajectory, with increasing local and global interest driving its evolution.
Exchanges in Brazil, Mexico, and the Pacific Alliance countries are investing in new technologies like blockchain to streamline operations, improve transparency, and facilitate cross-border trading. At the same time, Chile, Colombia, and Peru are working towards regulatory alignment to lower barriers for international institutions.
In addition, the market is expected to introduce new products such as exchange traded funds (ETFs), structured securities, and cross-listed funds, which can broaden investment options and collateral availability for both local and foreign institutions.
Garritt comments: 鈥淲hile the region faces hurdles such as regulatory complexity, potential tax implications, and operational inefficiencies, ongoing reforms and technological advancements are creating opportunities for growth. These efforts are paving the way for greater engagement from both local and global participants, which is vital for the market鈥檚 continued evolution.鈥�
From a Mexican perspective, Ochoa believes that focus on regulation overhauls and the adoption of new practices are key steps towards a real market evolution.
鈥淥TC securities lending market has a long way to go, and both exchanges must find ways to invite foreign participants into their structures,鈥� he notes. 鈥淲e, as a market, must aim to adopt global practices, like a triparty model, and new ways of structuring loans, such as open loans and evergreens, as well as aspire to longer tenors. Finally, the creation of a solid corporate lending market must be reviewed, along with the convergence of fees, and embracement of digital platforms.鈥�
In Brazil, Bustamante also calls for regulatory reforms to allow bilateral collateralisation of principal risk to enhance non-resident participation.
He adds: 鈥淏3 is actively collaborating with regulators to highlight the benefits of such changes, and discussions are currently underway to address and potentially remove this barrier.鈥�
Looking ahead, Smith says: 鈥淓stablishing mature repo markets will be critical to LATAM鈥檚 success, as it will allow international investors to use reverse repos to swap currency and counterparty risk into sovereign risk, before deploying the capital.鈥�
He believes that technological transformation will be the key driver of progress in LATAM, adding: 鈥淔or securities lending, use of global platforms for execution and booking, alongside standardised messaging for lending trades and recalls, would help to establish the building blocks for greater liquidity. In short, it will require a huge amount of change.鈥�
According to Garritt, LATAM鈥檚 securities lending market is poised for significant growth over the next five years, which will be driven by efforts to align with international standards and attract foreign institutions.
鈥淟ATAM鈥檚 securities lending market is on track to become a more integrated and globally competitive space,鈥� he says. 鈥淲ith enhanced infrastructure, regulatory alignment, and expanded offerings, the region is positioning itself as an attractive destination for foreign capital."
He is convinced that collaboration among local exchanges, regulators, and organisations like ISLA Americas will help the local securities lending market enhance market transparency, efficiency, and accessibility.
With a slightly more moderate approach, Ochoa adds: 鈥淎ll the needed changes take a while to happen, but as long as the conviction and appetite to correctly develop a securities lending environment remains, objectives will be met.鈥�
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