Reform to the Securities Market Law and the Investment Funds Law

Executive Summary:

• On April 24, 2023, the Second Committee on Finance and Public Credit and Legislative Studies presented the initiative to reform, add and repeal various provisions of the Securities Market Law and the Investment Funds Law.
• On November 15, 2023, the plenary session of the Chamber of Deputies unanimously approved the Opinion. The publication of the decree for the entry into force of the reform is still pending.
• The National Banking and Securities Commission must issue secondary provisions to complement the reform.

LEGISLATIVE STATE

On April 24, 2023, the members of the Second Finance and Public Credit and Legislative Studies Commission presented to the Honorable Chamber of Senators the initiative with a draft decree to reform, add to and repeal various provisions of the Securities Market Law (“LMV”) and the Investment Funds Law (“LFI”).

On April 28, 2023, in an ordinary session of the Honorable Chamber of Senators, the corresponding opinion that reforms, adds and repeals various provisions of the LMV and the LFI (the "Opinion") was unanimously approved, which was referred to the Honorable Chamber of Senators.

In an ordinary session on November 15, 2023, the plenary session of the H. Chamber of Deputies unanimously approved the Opinion.

Although the reform has already been approved by both chambers, the publication of the decree by the Federal Executive for the reform to come into force is still pending.

The National Banking and Securities Commission (“CNBV”) must issue secondary provisions to complement the reform.

REFORM TO THE SECURITIES MARKET LAW

1. Simplified registration regime in the National Securities Registry (“RNV”)

The simplified registration process in the RNV is introduced to the LMV with the purpose of catalyzing the intermediate sector of the Mexican stock market, in particular encouraging small and medium-sized companies to participate in it.

Thus, the possibility arises for new issuers to issue securities covered by a differentiated regulation in accordance with general provisions issued by the CNBV. This simplified regime has the following distinguishing qualities:

Power of the CNBV to issue general provisions establishing the characteristics that companies wishing to participate in the simplified regime must comply with. Such regulations must be issued within a period of no more than one year from the entry into force of the decree in question.

More active participation by brokerage firms before and during the issuance of simplified issuers, as well as the structuring of their operations, which will not be able to participate simultaneously in a traditional issue.

Securities may only be placed with institutional and/or qualified investors, and public offering is optional for such securities covered under the simplified regime.

It is important to highlight that the current reform grants a new power to the CNBV to cancel the registration of securities in the RNV, other than shares or credit instruments that represent them, when the issuer is not up to date with its obligations to provide information.

2. New schemes for public companies

The Stock Market Public Limited Companies (“SAB”) and Public Limited Companies for the Promotion of Stock Market Investment (“SAPIB”) will see a regulatory change in the provisions applicable to their structure and operation, particularly with a conviction to reinforce the participation of shareholders in the modification of the issue, transmission and scope of their shares, as well as to relax current restrictions, namely:

• The obligation for SAPIBs to transform into SABs within 10 years or upon reaching the threshold of 250 million investment units is repealed.
• The voting quorum against is modified from 5% to 20% so that SABs, through their shareholders' meeting, establish statutory measures to avoid hostile takeovers (poison pills). 
• Whereas previously there was a 25% limit for issuing shares other than ordinary shares and with differentiated rights, now there is no limit and two or more series in circulation may be linked.
• It will be sufficient to update the registration after the placement of shares for capital increases, dispensing with the need to request the registration of the new shares in the RNV.
• Possibility for the Assembly to delegate to the Board of Directors the power to increase the share capital and modify the rules relating to the subscription of shares that correspond, even excluding the right of preference.
• Principles of the Organization for Economic Cooperation and Development aimed at ESG (Environmental, Social and Governance) criteria are incorporated.

3. New market segments through differentiated regulation

The financial authorities, as provided for by the transitional articles of the reform to which we refer, will issue a secondary and differentiated regulation that will apply to the issuers that are covered by the new simplified regime, in accordance with the following criteria:

• Introduction of minimum requirements for the internal regulations of the Stock Exchanges to carry out simplified securities issues.
• Simplified issuers will have a different regime regarding transparency obligations for public companies.
• An individual and aggregate limit on simplified securities issued will be established.
• Rules for the qualification of securities issued under the simplified regime.
• Provisions relating to the Stock Exchange Calzas manuals for their simplified securities placement procedures.
• Rules regarding the information and documentation required for the issuance of simplified securities, as well as the need to prepare a prospectus or information brochure, whether or not there is a public offering.

REFORM TO THE INVESTMENT FUNDS LAW

The reform to the LFI modifies the previous limited-purpose investment fund concept to introduce a new investment alternative called “Hedge Funds”. These new funds will have a flexible investment regime in terms of their liquidity, risk and diversification of assets to be invested, to the point of allowing them to invest in assets other than those established in their statutes and prospectuses according to market circumstances or the needs of the fund.

Investment fund operating companies and investment advisors authorized by the CNBV will be able to participate as founding partners and asset managers of the new Hedge Investment Funds. It is important to note that only institutional or qualified investors will be able to invest in these funds, and they will be able to hire price providers independent of the investment funds and founding partners.