Mexico: Mexican Stock-Market

Paramount amendments to the Mexican Stock Exchange Act (Ley del Mercado de Valores or LMV) and the Investment Funds Law (Ley de Fondos de Inversión or LFI) will be enacted, aiming to improve access for small and mid-sized companies to capital markets and expanding investment opportunities.

Although Mexico made some important progress in developing its capital markets sector in the past years, enhancing competition, transparency, and investors’ protection, recent amendments to the LMV are aimed to modify the standards for securities traded, facilitating access of companies to financing and to simplify the registration process, enhancing corporate governance, and expanding the range of investment vehicles available and incentivizing investors to invest in Mexican publicly traded companies. The reforms align with international best practices to promote greater efficiency, stability, and sustainable economic growth.

I. Amendments to the LMV.

Simplified registration and filing process for small and mid-sized companies, allowing them to access and participate in the Mexican Stock Exchanges through a special initial public offering process, whether for debt or equity securities, as applicable. 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 important level of risk associated with these operations.

      a) Preferential stock with different rights.

Publicly listed companies will be enabled 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.

       b) Poison pill clauses and shareholders’ approval.

In addition, certain measures aimed to prevent hostile takeovers will be set forth by allowing publicly traded companies (SABs) to include protective clauses in their bylaws, known as poison pills. Reducing 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.

      c) Cancelation of recording in the National Investment Registry.

The regime would allow the Banking & Securities Commission 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.

       d) Investment advisors.

Finally, in line with the amendments to Mexico’s Investment Funds Law described below, the 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 amendments will ensure that individuals seeking registration have the technical and administrative qualifications 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 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.

II. Amendments to the LFI.

      a) 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.
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