Mexico City December 5, 2023.
On November 15, 2023, the Chamber of Deputies unanimously approved a draft decree amending, abolishing, and adding various provisions to the Securities Market Law and the Investment Funds Law. The decree is now forwarded to the Federal Executive for constitutional purposes.
The aim of the amendment is to streamline procedures, reduce timelines, and lower costs for Small and Medium Companies seeking financing in the securities market. This could be for capital increase or obtaining credit with more favorable terms than those offered by traditional financial institutions.
Securities Market Law
The amendment introduces a «simplified» securities registration regime to welcome new issuers and discourage migration to other markets. The National Banking and Securities Commission (“CNBV”) will determine the characteristics of companies eligible for this simplified procedure through the issuance of general provisions.
Existing stock market participants will not be eligible for the simplified registration, preventing potential relaxation of corporate governance requirements for larger companies.
The main purpose is to prepare small and medium-sized companies that intend to participate in simplified securities registration. The participation of trade associations, as well as stock market intermediaries, is essential both to support future simplified issuers in developing better corporate governance practices and to reduce the high costs currently faced by companies in structuring a stock market transaction.
In this regard, trade associations and stock market intermediaries are crucial in supporting future simplified issuers, aiding in the development of better corporate governance practices, and reducing transaction costs.
Brokerage firms will assist in structuring operations for companies intending to become simplified issuers, reviewing necessary documentation to ensure eligibility for registration.
As a result, Brokerage firms can only intermediate securities subject to simplified registration with institutional or qualified investors due to the risk level of such transactions. The CNBV will establish limits for issuances by simplified issuers, encouraging their maturation process for potential participation in the broader securities market.
On the other hand, it seeks to strengthen the principle of disclosure (Principio de Revelación), with the purpose of identifying the inherent responsibility of each of the participants in the operations carried out in the stock market, both those that are currently carried out and those that will be carried out through simplified registration.
Investment Funds Law
The amendment to the Investment Funds Law includes the incorporation of hedge funds, aiming to facilitate new investment and financing alternatives and enhance asset risk management.
In this matter, the amendment intends to modify Limited purpose investment funds to include hedge investment funds, operating with any Investment Object Asset defined in their prospectus. Investors must be qualified and institutional.
The CNBV will regulate investments in hedge funds through general provisions. Given the increase in the number of applications for registration in the Investment Advisors Registry and its relevance in the securities market, the requirements for registration will be supplemented. This will guarantee that those who intend to do so have the technical elements and administrative strength necessary to offer quality standards in their services, for the benefit and protection of their clients’ interests.
To ensure a transparent valuation process, hedge funds may hire an independent price vendor outside the investment funds. This entity will value the instruments in their portfolios, especially if the assets are not securities.
The entry of hedge funds is significant for several reasons, including their ability to adopt different perspectives, change portfolio compositions frequently, engage in arbitrage operations, and encourage bidirectional market development.
In summary, these amendments aim to benefit the Mexican economy by allowing individuals and Small and Medium Companies to actively participate in the stock market and various investment funds securely. The introduction of new investment forms, such as hedge funds, is expected to contribute positively to the Mexican Stock Market.
The Attorneys in the Banking and Finance practice group of our firm Will be pleased to respond to any doubts or questions in relation to this Newsletter.
S I N C E R E L Y,
Miguel Angel Peralta