Mexico’s Market Goes More Public : Investment: New regulations made it easier for foreigners to trade. The most difficult task may be to convince Mexican companies to participate.

MEXICO CITY —  Even among the towers of this city’s tree-lined main boulevard, the new Mexican Stock Exchange Center stands out.

Sharply sloping triangles form a backdrop for a glass dome. On the inside, the skylit trading floor is ringed with video monitors flashing price changes. Visitors watching the trading from a mezzanine balcony can listen to explanations in English or Spanish.

It’s quite a difference from this week, when price changes were chalked on blackboards in a nondescript building wedged into the narrow streets of old downtown.

“The new installations will permit us to tell any investor anywhere in the world what transactions are taking place at the Mexican Stock Exchange as they are taking place,” said Alfredo Harp Helu, president of the Mexican Stock Brokers Assn.

That is crucial for plans to turn the Bolsa, or purse, as Mexicans call their stock exchange, into a conduit for international investment in Mexico’s capital-short companies. Regulations that took effect in January made it easier for foreigners to invest in the stock market and easier for Mexican brokerage firms to go after foreign investment.

Now, all that’s left is to convince Mexican companies that the Bolsa is the place to go for foreign capital. That may be the most difficult task of all.

The first steps toward making Mexico’s stock market more international have been deceptively smooth.

Both brokers and foreign investors have reacted enthusiastically.

In the three months that Mexican brokers have been allowed to open subsidiaries abroad--bringing foreign investment to the Bolsa and placing the stock and debt paper of Mexican corporations on international exchanges--six of the country’s 25 brokerage firms have received approval for foreign offices by Mexico’s Securities and Exchange Commission, known by its Spanish initials, CNV. Two of those have been approved by the U.S. Securities and Exchange Commission.

Potential foreign investors, both individuals and institutions, have kept a new four-person department at the Bolsa busy with questions since investment restrictions were eased, said Guillermo Nunez, general director of the stock exchange.

Previously, corporate bylaws had restricted stock purchases so much that only 13% of the stocks traded on the Bolsa were available to foreigners. Now, foreigners can invest in all the shares of all the companies on the market, except banks, through a fund created to hold in trust for foreigners the voting rights of stock corporate bylaws restrict to Mexican ownership.

Early indications are that foreigners are backing their queries with cash. In the first quarter, investments in the trust for foreigners totaled $250 million, a considerable ripple in a market with a total capitalization of $29 billion.

The only holdouts are the presumed beneficiaries of all this activity, Mexican corporations.

Despite a foreign currency influx that sent Morgan Stanley Capital International’s Mexico stock index up 15% this year, no companies have gone public, nor have any of the 64 listed companies launched secondary offerings.

Mexican entrepreneurs will not give up stock. Traditionally, founders keep at least a 51% stake in what is often the family business.

Their reluctance to part with shares has been reinforced by observing corporate raiders’ activities in the stock markets of industrialized countries, hardly encouragement for Mexican businessmen to loosen their grip.

As a result, when more money enters the market, instead of providing funding for expansions or new business ventures, it simply bids up the prices of the limited pool of available stock. Like air being pumped into a balloon, the additional money makes the market look bigger, but it is still the same rubber stretched thinner, the same stocks with higher prices.

Unless stock market promoters can break that cycle, the Bolsa’s role in modernizing Mexico will be limited at best.

To address that problem, Mexican officials created a new position, market maker-specialist. Besides providing an immediate market for buyers and sellers, market maker-specialists also will be expected to help eliminate the root causes of the Bolsa’s liquidity problems.

“They will have to educate administrators, persuade stockholders to sell more shares,” said Oscar Espinoza Villarreal, chairman of the CNV. “We have to convince companies that have fairly high trading volumes that they should have higher trading volumes, even (convince them) that they make changes in their boards of directors.”

That will not be an easy task. Mexican corporations--even publicly traded ones--are not accustomed to much outside meddling.

For example, earlier this month, a U.S. Commerce Department finding that Mexican cement producers were dumping cement at below fair market prices threatened a market that accounts for one-third of Cementos Mexicanos’ sales. The Monterrey-based cement maker issued no announcement to shareholders. Securities analysts said company officials told them they would have to wait for an evaluation of the possible impact and the firm’s response.

Similarly, Vitro S.A. told shareholders nothing during the two months the corporation negotiated the $900 million purchase of Anchor Glass Container Corp. and Latchford Glass Co.--at triple the price the Mexican glass manufacturer originally offered. After the deal was completed, CNV officials had to remind Vitro directors to inform their stockholders.

Nevertheless, companies listed on the Bolsa are more conscientious about disclosure than firms traded in the markets of other developing countries, said Mark Sladkus, publisher of Morgan Stanley Capital International Perspective, an investment newsletter.

“You can usually get annual reports, and that’s not always true, especially in other Latin American countries,” he said.

CNV officials are working to build on that base by enforcing existing disclosure regulations and adding new ones.

Rules governing insider trading and arbitration procedures for disgruntled investors were among the stock exchange regulations added in the January overhaul of regulations.

Regulators must balance the disclosure needed to attract foreign investors with the operating liberty needed to overcome Mexican entrepreneurs’ reluctance to take their companies public.

The goal is to make the Mexican Stock Exchange what the clear, glass architecture of the new center promises, said Harp Helu.

“The Bolsa should be a house of crystal,” he said, “so that everything that happens there is known to everyone at the same time.”