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Rating Action:

Moody's assigns to Asigna a Baa1 clearing counterparty rating with a stable outlook; withdraws A3 issuer rating

 The document has been translated in other languages

16 Feb 2016

Mexico, February 16, 2016 -- Moody's de México today assigned a Baa1 long-term global local currency clearing counterparty rating (CCR) and a Aaa.mx long-term Mexican National Scale CCR to Asigna, Compensación y Liquidación. The outlook on all ratings is stable.

Moody's rating actions on Asigna follow the implementation of Moody's rating methodology for Clearing Houses in Mexico on 9 February 2016 (see "Rating Methodology: Clearing Houses," 7 January 2016).

The following ratings were assigned to Asigna:

- Long-term global local currency clearing counterparty rating of Baa1, stable outlook

- Long-term Mexican National Scale clearing counterparty rating of Aaa.mx

RATINGS RATIONALE

NEW CLEARING HOUSES METHODOLOGY

With the implementation of the Clearing Houses methodology in Mexico, Moody's is transitioning the ratings of Asigna to this new methodology from the company's previous categorization under the Global Securities Industry Methodology. Related to the assignment of CCRs, Moody's has withdrawn the long-term global local currency issuer rating of A3 and long-term Mexican National Scale issuer rating of Aaa.mx of Asigna.

Moody's has withdrawn the rating for its own business reasons. Please refer to the Moody's de México Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.mx.

ASIGNA'S CCR IS SUPPORTED BY MODERATE COUNTERPARTY RISK AND RISK MANAGEMENT AND A STRONG CLEARABILITY OF PRODUCTS

As the sole derivatives clearing house in Mexico, Asigna's Baa1 clearing counterparty rating (CCR) benefits from a strong clearability of products, a moderate counterparty strength based on a highly rated but concentrated membership, moderate risk mitigant strength based on ongoing efforts Asigna is currently undertaking to become IOSCO compliant and supported with relatively sophisticated and conservative safeguards against defaults, and a moderate competitive positioning that reflects increasing competition in its domestic market. The Baa1 CCR also includes one notch of government support reflecting moderate probability of financial support from the Mexican Government should Asigna face financial stress.

Asigna has a narrow focus on exchange traded derivatives whose clearability we assess as strong. Futures on the US dollar and the 28-day interbank equilibrium interest rate (TIIE) represented almost 80% of Asigna's total volumes, as of September 2015.

Asigna's clearing members include most of Mexico's largest and most highly rated financial institutions, including BBVA Bancomer, S.A., Banco Nacional de México, S.A. and Banco Santander (México), S.A., whose counterparty risk (CR) assessments are A2(cr), and Scotiabank Inverlat, S.A., whose CR Assessment is A3(cr), as well as other less active players including JPMorgan México (unrated), Grupo Bursátil Mexicano (GBM, unrated) and Actinver Banco, S.A. (unrated). However, just four of Asigna's clearing members compose almost 100% of volumes, exposing the clearing house to a high level of concentration risk among its counterparties.

Moody's moderate risk mitigant strength for Asigna considers that the clearing house has not fully met IOSCO's Principles for Financial Market Infrastructure (PFMIs). However, Asigna is making significant efforts to reform its governance and risk management standards in order to achieve compliance and was deemed a third-country central counterparty by the European Securities and Markets Authority (ESMA) in January 2016. Moody's expects the company to IOSCO's principles in the short- to medium-term. Notwithstanding Asigna's current lack of compliance, it has exhibited a sound track record of risk management since inception in 1998, supported by a well-formulated margining methodology and sound liquidity arrangements. Asigna's risk management processes protected it during the height of the financial crisis when the clearing house actively recalibrated its margin parameters to account for spikes in market volatility. However, a delay in Asigna's efforts to adhere to industry best practices would prompt a reassessment of the company's risk mitigant strength, especially since it would also affect the company's ability to regain the losses in volume and profitability that affected its competitive position during 2015.

A sharp decline in Asigna's clearing volumes and profitability in 2015 underscores its vulnerability to competitive threats, notwithstanding its role as Mexico's sole derivatives clearing house. Asigna lost substantial trading volume last year because many Mexican pension fund managers (afores) closed their positions with the clearing house because of local rules on derivatives valuations as well as other clients that transferred much of their business to the CME. In addition, given Asigna's lack of international recognition, the CME made significant market share gains in the clearing of some of Asigna's main products. Consequently, during 2015, Asigna's open interest plunged 18%, revenues declined 30% and cumulative net income declined 84%. Asigna nevertheless remained profitable given its lean operating structure and absence of debt.

Moody's opinion regarding Asigna's moderate competitive positioning reflects the rating agency's expectations that clients and members engagement will rebound once the local rules on derivative valuations are clarified, which Asigna expects to occur shortly. Moreover, Moody's expect that new Mexican regulations that aim to reduce counterparty risk in derivatives trading by requiring higher capitalization requirements for over-the-counter derivatives (OTC) and the April 2016 deadline for all standardized OTC derivatives to be cleared through a clearing house, as well as fully achieve international standards, will also benefit the company's volume and profitability. Nevertheless, it remains uncertain if Asigna's former clients who have transferred their business elsewhere will be interested in returning.

GOVERNMENT SUPPORT

Asigna's Baa1 CCR incorporates a moderate probability of support from the Mexican government (A3 stable). Moody's believes that although Asigna is small, it retains a unique franchise within the Mexican financial system, as the sole derivatives clearing house in Mexico. As such, Moody's believes that the Mexican government has an interest in supporting Asigna in order to maintain an open, efficient and competitive market.

WHAT COULD CHANGE RATING UP/DOWN

Negative ratings pressure would accumulate if Asigna does not achieve full adherence to IOSCO's PFMIs by the end of 2016, or if Asigna's volumes do not to recover as currently anticipated. A weakening of the company's waterfall resources as a result of the rising competitive threats it faces would also put downward pressure on the rating or any significant operational failure that would present a material reputational damage that could result in clients and members attrition.

Asigna's CCR could face upward pressure if the company's risk management operations exceed industry best practices, including those set forth by IOSCO, and if its counterparties become more diversified.

The principal methodology used in this rating was Clearing Houses published in January 2016. Please see the Ratings Methodologies page on www.moodys.com.mx for a copy of this methodology.

The period of time covered in the financial information used to determine Asigna, Compensación y Liquidación's rating is between 01/01/2011 and 09/30/2015 (source: Moody's, Asigna Compensación y Liquidación).

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings."

REGULATORY DISCLOSURES

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's information.

The rating has been disclosed to the rated entity prior to public dissemination.

A general listing of the sources of information used in the rating process, and the structure and voting process for the rating committees responsible for the assignment and monitoring of ratings can be found in the Disclosure tab in www.moodys.com.mx.

The date of the last Credit Rating Action was 14 September 2010.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.mx.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

This Rating is subject to upgrade or downgrade based on future changes in the financial condition of the Issuer/Security, and said modifications will be made without Moody's de México S.A. de C.V accepting any liability as a result.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on www.moodys.com.mx for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com.mx for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see our website www.moodys.com.mx for further information.

Please see www.moodys.com.mx for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

Please see the ratings tab on the issuer/entity page on www.moodys.com.mx for additional regulatory disclosures for each credit rating.

Felipe Carvallo
Vice President - Senior Analyst
Financial Institutions Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

M. Celina Vansetti
MD - Banking
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's assigns to Asigna a Baa1 clearing counterparty rating with a stable outlook; withdraws A3 issuer rating
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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