Mexican government proposes reforms to securities market and investment funds laws
The Mexican government has proposed significant amendments to its Stock Exchange Act (Ley del Mercado de Valores or LMV) and Investment Funds Law (Ley de Fondos de Inversión or LFI) aiming to improve access for small and medium-sized companies to capital markets and expanding investment opportunities. Below, we provide a general overview of the proposed amendments to the LMV and the LFI, as well as their potential impact on issuers, investors, and other market participants.
Introduction
Mexico has made significant progress in developing its capital markets sector in recent years, driven by reforms aimed at increasing competition, transparency, and investor protection. The most recent amendments to the LMV changed the standards for securities to be traded from merit requirements to disclosure requirements. The intent was to have the Mexican stock exchanges (bolsas de valores) expanded and facilitate the access of companies to investor financing.
That effort was not sufficient, and small and medium-sized companies still face significant barriers, including significant costs to obtain and maintain the registration in the Mexican Registry of Securities (Registro Nacional de Valores or RNV) and the listing in the list of securities in the Mexican stock exchanges (Listado de Valores autorizados para Cotizar) and to access funding available through those exchanges, limiting their growth potential and constraining the overall development of the sector.
The proposed series of amendments to the LMV and the LFI aim to simplify the registration process for issuers in the RNV, enhance corporate governance, and expand the range of investment vehicles available and incentivize investors to invest in Mexican publicly traded companies. The reforms align with international best practices to promote greater efficiency, stability, and sustainable economic growth.
Amendments to the LMV
Simplified registration process
The proposed reform aims to create a new simplified registration filing process for small and medium-sized companies, allowing them to access and participate in the Mexican Stock Exchanges through a special public offering process of debt or equity securities. It is expected that the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores or CNBV) will issue regulations to determine specific characteristics and requirements that such companies must meet to participate in this simplified registration process.
Broker dealers (casas de bolsa) would participate in structuring the operations of companies intending to become simplified issuers and review the necessary documentation to ensure compliance with the requirements for registration. Once approved, broker dealers may only intermediate such securities with institutional or qualified investors due to the high level of risk associated with these operations.
Preferential stock with different rights
The reform also proposes amendments to the currently existing regime of publicly listed companies (Sociedades Anónimas Bursátiles), including enabling companies to issue preferential capital stock with differentiated rights, disclosure of essential information to the market, and the elimination of certain restrictions on the issuance and transfer of shares.
These amendments allow the shareholders' meeting to delegate to the board of directors the power to increase the capital stock and determine the terms of the share subscription, including the exclusion of the preemptive subscription right. They also eliminate the prohibition on offering differentiated share packages to the shareholders, providing greater liquidity to the shares and resulting in greater value for shareholders, while facilitating decision-making and protecting minority shareholders.
SAPIBs
The reform eliminates the requirements set forth for Investment Promotion Stock Exchange Corporations (Sociedades Anónimas Promotoras de Inversión Bursátil or SAPIB) to transition into Stock Exchange Corporations (Sociedades Anónimas Bursátiles or SAB), providing more flexibility for medium-sized companies and new investment options for investors.
The proposed changes are in line with the principles of corporate governance of the Organization for Economic Co-operation and Development (OECD) and the G20, aiming to provide guidance to lawmakers and policymakers on measures for efficiency, financial stability, and sustainable economic growth.
Poison pill clauses and shareholders’ approval
In addition, the proposed amendments seek to establish measures to prevent hostile takeovers by allowing publicly traded companies (SABs) to include protective clauses in their bylaws, known as poison pills. The proposed amendments would reduce the quorum required for voting against such clauses, allowing for the approval of the inclusion of these clauses in the by-laws of public companies by 20 percent or more of the shareholders present.
Cancelation of recording in the RNV
Currently, the regime for the cancellation of registration on the RNV registered by companies that fail to comply with their obligations or have their listing suspended is limited. To address this, the proposed amendments would allow the CNBV to cancel the securities registrations of companies that fail to comply with their obligations or have their listing suspended, subject to certain conditions. This change aims to avoid maintaining securities indefinitely and better safeguard the interests of the investors.
The abovementioned amendments to the Securities Market Law shall be effective as of the next day such amendments are published in the Official Federal Gazette, and the CNBV shall have a term of 365 days following publication in order to issue the regulations regarding the simplified registration process.
Investment advisors
Finally, in line with the amendments to Mexico's Investment Funds Law described below, the proposed amendments aim to strengthen the financial sector by enhancing the registration requirements for investment advisors (asesores en inversiones) in the Investment Advisor Registry (Registro de Asesores en Inversión). The proposed amendments will ensure that individuals seeking registration have the technical and administrative elements necessary to provide high-quality services. Entities seeking registration will be required to provide information about shareholders or partners and their contribution to the capital of the company. Cancellation of registration will result in the dissolution and liquidation of the advisor company.
In addition, the proposed reforms will authorize Mexican Investment Advisors to act as founders and asset managers of hedge funds “fondos de inversión de cobertura.” Investment advisors will have the flexibility to hire specialists to reduce operating costs and improve returns for investors. These changes will modernize the structure of corporate governance for hedge funds, enabling them to compete globally and offer new investment opportunities.
Amendments to the LFI
Hedge funds
The reform aims to expand the range of collective investment mechanisms available in Mexico, introducing “fondos de inversión de cobertura,” known globally as hedge funds, as a new investment opportunity. The International Organization of Securities Commissions (IOSCO) has recommended regulations for hedge funds, including registration and transparency requirements for administrators, risk reporting to regulators, and uniform regulatory practices. The IOSCO Investment Funds Statistics Report shows continued growth in hedge funds, making them an attractive opportunity for the Mexican market
Hedge funds can take advantage of market inefficiencies, perform arbitrage operations, and contribute to price discovery, promoting a bidirectional market and attracting new investors. These investment vehicles will operate with any investment objective defined in their prospectus, only available to qualified and institutional investors.
To ensure a transparent valuation process for hedge funds, the reform requires them to hire a price provider or valuation committee designated by the board of directors. The price provider or valuation committee should be a legal entity independent to the hedge funds and founding partners (investment fund operating company or investment advisor). The only activity of the price provider is to value the instruments that make up the hedge fund's portfolios.
Overall, the introduction of simplified registration of securities and simplified issuers in Mexico's financial markets, coupled with the potential involvement of hedge funds, presents an opportunity for investors to channel resources towards investment projects.
Conclusion
The proposed reforms to the LMV and the LFI aim to improve access to capital markets, expand investment opportunities, and promote financial stability and sustainable economic growth. These changes will provide greater flexibility for small and medium-sized companies as well as new investment opportunities for investors. The Mexican government plans to implement these reforms in the near future, and we will keep you updated on any further developments.
