MEXICO CITY (Reuters) - Mexico is planning to launch derivatives rules this year in sync with its northern neighbor but is concerned an overly tough regime could push trades into the United States where they are subject to less oversight, Mexico's chief bank regulator said.
U.S. regulators are hammering out a raft of new rules aimed at boosting transparency in the swaps market after risky derivatives trading helped fuel the 2007-2009 financial crisis and led to multi-billion dollar taxpayer bailouts.
The rules aim to push most swaps trades onto exchanges and through clearinghouses to limit risk, while imposing higher capital charges on firms whose trades remain in the murky $633 trillion over-the-counter market.
Mexico has also been drawing up plans to boost transparency in derivatives trading and synchronize regulation with the United States.
Over-strict rules in Mexico risk pushing local transactions into the United States where regulators have so far chosen not to apply clearing requirements to peso-denominated interest rate swaps.
"This is the problem we have," the president of Mexico's National Banking and Securities Commission told Reuters in an interview on Friday. "We need to think very carefully to avoid generating a distortion that would push all the peso swaps into the United States market where they are not regulated currently."
The opaque derivatives trades that shook U.S. banks during the financial crisis also dealt a harsh blow to Mexican companies.
Cement maker Cemex (CMXCPO.MX)(CX.N) nearly went bust and retailer Comerci was pushed into bankruptcy when their risky derivatives bets exploded, sparking concerns that more companies were hiding huge derivatives losses.
The vast majority of over-the-counter trading in Mexican swaps takes place outside Mexico. Further regulations could push the remaining trades into the United States where peso denominated trades would get less oversight.
U.S. regulators finalized clearing rules last year for interest rate swaps in just four currencies -- yen, U.S. dollar, British pound and euro currencies -- which account for the vast majority of transactions.
Firms that do not clear their swaps will be hit with higher capital charges, which could open up U.S. firms that trade in Mexican currency denominated swaps to higher costs, Gonzalez said.
The best case scenario would be for U.S. regulators like the U.S. Commodity Futures Trading Commission to subject peso denominated swaps to the clearing requirement, Gonzalez added.
"That is what we would have preferred and I think eventually we will be heading in that direction," Gonzalez said.
In its rule, the CFTC noted it still had the authority to designate other currency-denominated interest rate swaps in the future.
Mexico's government on Wednesday presented far-reaching financial legislation in a bid to jumpstart lending in Latin America's No. 2 economy, where banks lend less than their counterparts in other regional economies such as Brazil, Argentina and Chile.
The bill, which will have to be approved by Mexico's divided Congress, gives the CNBV the power to evaluate banks on their lending rates.
Taking a page from the controversial U.S. "Volcker rule", which bans proprietary trading, the bill would also allow regulators to impose limits on banks' trading for their own account, to encourage them to lend.
Gonzalez said the measure responded to a long-standing political position that Mexican banks made so much money off their own trading they had little incentive to lend.
While banks have taken on large securities positions for their own accounts, credit has also increased in recent years, Gonzalez said.
"So we have to consider both of those things, because securities holdings are necessary for the banks. There needs to be an equilibrium, we are still thinking about how to do it."
Another provision in the bill would also give the CNBV power to "name and shame" firms for financial violations. The CNBV currently cannot disclose sanctions until appeals are exhausted, meaning it can take years to find out about a firm's improprieties.
"This is very important," Gonzalez said. "I think that sanctions have to be prompt, exemplary and transparent to dissuade conduct in the market."
He pointed to the recent money laundering case against HSBC, where charges by U.S. authorities over lax controls in its Mexican subsidiary surfaced before any news of a Mexican investigation that had been going on for years.
Writing by Alexandra Alper; editing by Andrew Hay