UPDATE: Bulltick To Close Mexico Brokerage After Causing Crash

(Updates paragraphs two through seven to add comments from Bulltick, details on the brokerage's Mexican operations.)

--Bulltick to close Mexican operations after causing flash crash

--Miami-based firm says decision predated April trading error

--Mexican unit accounted for less than 5% of Bulltick's 2011 net revenue

By Amy Guthrie

Of DOW JONES NEWSWIRES

MEXICO CITY (Dow Jones)--The local brokerage house of Bulltick Capital Markets has requested the Mexican securities regulator revoke its operating license after the brokerage triggered a mini "flash crash" in April by entering an erroneous trade.

Guillermo Babatz, president of Mexican securities regulator CNBV, said Bulltick's petition to withdraw the license came in the wake of a "very tough" written assessment by the CNBV of the mishap, although the regulator had yet to determine whether it would take disciplinary action against the brokerage.

Bulltick sent a request for the license withdrawal to the CNBV on Tuesday. Given Bulltick's decision to exit the market and liquidate its assets, Babatz said the regulator doesn't plan to impose a fine on the brokerage. "I don't see a bigger consequence for an operator than losing its license," he said.

Miami-based Bulltick said in an e-mailed statement it had decided internally in January to discontinue operating in the Mexican securities market through its local subsidiary "as part of its global strategy." Privately-held Bulltick describes itself as a full-service financial services firm specializing in Latin America, with brokerage, investment banking and research services.

The firm elaborated on its decision to relinquish a license to trade on Latin America's second-biggest stock exchange by saying that local trading isn't its core business. Rather, the "vast majority" of its securities business is with Latin America-based institutional clients executing trades of securities in the U.S. and other markets outside Latin America.

"The trading error [in Mexico] has not adversely affected our business," Bulltick said, adding that the Mexican unit accounted for less than 5% of its net revenue in 2011.

According to data from the CNBV, Bulltick's Mexican subsidiary is one of the country's smallest brokerages with 56 million pesos ($4 million) in assets as of end-2011, 16 employees and MXN384 million of client assets in custody.

Bulltick's Mexican operations were suspended after the brokerage entered a trade in the final minutes of the April 13 session that knocked Mexico's benchmark IPC index down about 2 percentage points.
Bulltick offered a basket of stocks that day referenced to the IPC index all at MXN43.85--the price for a single issue of the stock it intended to sell, Wal-Mart de Mexico SAB de CV (WMMVY,
WALMEX.MX)--prompting sales in 13 of the IPC stocks that were trading above that level. The Mexican Stock Exchange later withdrew those and subsequent trades in the issues.


The transactions were valued at MXN1.72 billion with a potential loss on those trades for Bulltick of MXN169 million, Babatz said. Brokers on the other side of the trade had plenty reason to be upset by the cancellations, he acknowledged, comparing purchases of shares at a discount price to buying a really nice sweater on sale at a retail store.

"The cancellation of trades is a serious matter," Babatz said, adding that it should be a decision of "last resort." The Mexican Stock Exchange has the authority to make such decisions in concert with market participants.

Circuit breakers and other mechanisms that prevent extraordinary trades from being executed kept the Bulltick crash from having been worse. Babatz said the brokerage's sell order for a basket of 35 stocks was valued at MXN49.72 billion, or roughly five times the average value of the exchange's daily trading volume, and that Bulltick didn't have that quantity of shares in its possession to sell.

Even with a lesser impact, Babatz characterized the Bulltick mistake as having provoked a "massive" and unprecendented cancellation of trades involving numerous parties.

Babatz attributed the error to a lack of internal controls at Bulltick, while also recommending a series of additional mechanisms that the stock exchange and local brokerages should implement to prevent atypical trades in the future.

-By Amy Guthrie, Dow Jones Newswires; (52 55) 5980 5177, amy.guthrie@dowjones.com

WSJ