Mexican Senate Approves Bill to Amend the Mexican Securities Market Law and the Investment Funds Law
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On April 29, the Mexican Senate approved a Bill to Amend, Repeal and Supplement Certain Provisions of the Securities Market Law and the Investment Funds Law (the "Bill").
If approved in its terms by the Mexican House of Representatives (Cámara de Diputados), this would constitute the most relevant reform to the Securities Market Law since the Financial Reform enacted in 2014. The foregoing comes from the generally accepted diagnosis of the lack of depth of the Mexican stock market, the need to make certain processes for the offering of securities more flexible, as well as the generation of incentives for small and medium-sized companies to use the Mexican stock market as a source of financing.
Thus, the purpose of the Bill is to create alternatives to participate in the Mexican stock market that, on the one hand, encourage its growth and depth and, on the other hand, allow it to be an accessible source of financing for large, medium and small companies. In order to achieve the above, the Bill seeks to incorporate the following reforms:
I. Simplified Registration of Securities
The Bill focuses on the incorporation of a new simplified procedure for the registration of securities in the National Securities Registry ("RNV") to allow small and medium-sized companies to participate in the Mexican stock market through the public offering of debt or equity securities in accordance with the following principles:
- The requirements for companies to participate in the simplified securities registration procedure will be determined by the National Banking and Securities Commission ("CNBV") by means of general provisions. Issuers that currently maintain securities registered with the RNV may not participate in the simplified registration of securities.
- The Bill provides that companies intending to become simplified issuers must apply to the CNBV, jointly with the stock exchange on which they intend to be listed. In order for the CNBV to proceed with the simplified registration in the RNV, it will suffice that the corresponding stock exchange grants its favorable opinion to the CNBV, releasing the CNBV of its obligation to review and authorize the offering.
- The CNBV will also be released of the obligation to supervise simplified issuers, since it will lack the necessary documentation and information to do so. Therefore, reviewing the registration documentation will be the responsibility of the broker-dealers that participate as underwriters, and of the securities exchanges, in accordance with a self-regulation principle.
- The broker-dealers that participate as underwriters must include in their manuals the processes for the review of the information and documentation of simplified issuers under the principle of self-regulation, in accordance with the general provisions to be issued by the CNBV.
- Securities subject to simplified offerings may only be purchased by institutional or qualified investors.
- The stock exchanges on which the securities subject to simplified offering will be listed must set the rules for the disclosure of periodic information to investors with respect to this type of issuers.
- The Bill intends to enable securities rating agencies to adopt specific valuation methodologies for this type of instruments, in accordance with the general provisions to be issued by the CNBV for such purposes.
- The Bill proposes to set limits, to be defined by the CNBV, for issuances by simplified issuers.
- Simplified issuers may not request from the CNBV the preventive registration of securities issued under simplified offerings, which means that shelf programs for this type of securities may not be established.
- Under the Bill, investors of simplified issuers will have the right to report conducts attributable to simplified issuers that they consider to be unlawful without the need for an opinion of a crime by the CNBV.
II. Corporate Regime of Issuers
The Bill aims to strengthen the freedom of will of the shareholders of publicly traded companies ("SABs") through amendments related to the issuance, transfer and reach of stock certificates.
- SABs would be authorized to issue shares of capital stock with differentiated rights without special authorization from the CNBV. Under the current law, SABs may only issue common shares in which the rights and obligations of their holders are not limited or restricted, subject to limited exceptions and that these limited shares do not exceed 25% of the paid-in capital stock.
- The shareholders' meeting of SABs and of stock market investment promotion corporations (SAPIBs) will be authorized to delegate to the board of directors the authority to increase the capital stock and to set the terms for the subscription of shares, including the exclusion of preemptive subscription rights. The prohibition to offer differentiated share packages to the shareholders is also repealed. Currently, capital increases are the exclusive authority of the shareholders’ meeting.
- In connection with the inclusion of clauses in the bylaws to prevent hostile takeovers of issuers (known as poison pills), the percentage of capital stock represented at a shareholders' meeting that must not have voted against the inclusion of such clauses is increased from 5% to 20%, and other restrictions to such clauses are eliminated. This is intended to facilitate and promote the inclusion of this type of clauses in issuers' bylaws.
- With respect to SAPIBs, the obligation to become a SAB within 10 years of incorporation or when their stockholders' equity exceeds a certain threshold is repealed. The aim is to make their regime more flexible in order to favor the creation of this type of companies, which have not been attractive since their creation in 2005.
III. Cancelation of Registration in the RNV
For the cancellation of the registration of securities in the RNV of issuers that have committed serious or repeated violations to the Securities Market Law, the Bill enables the CNBV to waive the requirement to carry out a tender offer for those issuers whose listing is suspended. The purpose is to avoid the situation where issuers whose securities are suspended are not in a position to carry out tender offers in order to seek their cancellation from the RNV.
The Ministry of Finance and Public Credit, with the prior opinion of the CNBV and Banco de México, will issue general provisions on sustainable development and on strengthening gender equity, aimed at promoting, informing and evaluating the adoption of best practices in this area by issuers and other participants in the securities market.
V. Hedge Funds
The Bill introduces the possibility of setting up hedge funds in Mexico, which are intended to have a flexible investment regime and may acquire, among others, securities issued by simplified issuers, as provided in their respective investment policies and strategies.
- A new special regime is provided for Investment Advisors that intend to act as founding partners of hedge funds. For these purposes, they will require an authorization from the CNBV.
- Only institutional or qualified investors will be able to invest in hedge funds.
- Hedge funds will be able to operate with any Investment Asset.
VI. CERPIs and CKDs
In connection with CERPIs and CKDs (alternative investment funds), whenever there are any modifications related to the number, class or series of securities derived from capital calls, the prior update of the registration in the RNV will no longer be required, and it will be sufficient to give notice to the CNBV once the placement of the securities has been made, within a term to be provided by the CNBV in general provisions.
VII. Investment Advisors
A stronger regime is provided for the CNBV to supervise the shareholding structure of Investment Advisors. In particular, the CNBV must be notified of any share transfer of less than 10% of their capital stock, and the transfer will be subject to authorization by the CNBV if it exceeds the 10% threshold.
VIII. Legislative Process
The Bill is subject to the Mexican legislative process. Having received the approval of the Mexican Senate, it now follows the review and, if applicable, approval by the House of Representatives, so it may undergo amendments before its promulgation by the President of Mexico and then published in the Official Gazette of the Federation. In addition, as described above, several provisions of the Bill will need to be developed in enabling regulations.
Pursuant to the transitory articles of the Bill, the amendments would become effective the day after its publication in the Official Gazette of the Federation. Additionally, the CNBV will have a term of 365 days from the publication of the reform to issue the enabling regulations required under the Bill.
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