Capital markets and structured investments

There are restrictions on offering and selling debt securities under Mexican law.

Unless certain exclusions or exemptions apply, it is unlawful to offer debt securities to the public in Mexico or to request that they are admitted to trading on a regulated market operating in Mexico unless a prospectus approved by CNVB has been made available to the public.

The main types of debt securities depend on the type of issuer. Typically, banks and other financial institutions issue short-term notes and commercial paper while private companies and local governments issue long-term structured notes under programs.

Debt can be issued under a short (less than a year) or a long (more than a year) term. It can be issued directly as corporate debt (certificados bursátiles, pagarés, obligaciones) (eg a bond issuance) or structured debt through a trust (certificados bursátiles fiduciarios).

Debt can be issued in a single series or under a program.

Institutional investors are heavily regulated and subject to the supervision of regulatory authorities including the National Banking and Securities Commission (CNBV), National Retirement Savings System Commission (CONSAR) and Banco de México (BANXICO). Generally, institutional investors can only invest in those assets that applicable regulations explicitly permit.

The Securities Market Law defines institutional investors as any entity which, under federal law, is deemed as such or is a financial entity (that is, Mexican and foreign banks, broker-dealers, insurance companies, AFORES, investment funds, private pension funds, among others), including fiduciary divisions.

Generally, all debt public offerings require registration with the CNBV and filing a prospectus for approval, except for:

• short-term offerings that require issuers to file only an oferring statement (aviso de oferta); and
• issuances under programs, which only require an information memorandum (suplemento) because the prospectus was filed when the relevant program was authorized.

Currently, the regulated exchanges in Mexico are Bolsa Mexicana de Valores (Mexican Stock Exchange) and Bolsa Institicional de Valores (BIVA).

Since 2014, the Mexican Stock Exchange has been part of the Mercado Integrado Latinoamericano (MILA), an agreement that integrates the stock exchange markets of Chile, Colombia, Mexico, and Peru, as part of economic integration efforts among the Pacific Alliance member countries. MILA is not a regulated stock exchange but an agreement between regulated stock exchanges establishing a regional market to trade equities from the four countries.

In october 2015, BIVA formally applied for a concession to organize and operate a new stock exchange in Mexico, wich was granted by the mexican financial authorities in August 2017.

Mexico has an active private placement market.

Issuing debt securities

Issuers are required to take responsibility for prospectuses for debt securities. Misleading statements in, or omissions from, any applicable offering document can give rise to both civil and criminal liability under Mexican law. Mexico has various investor protection statutory provisions relevant to liability for an inaccurate offering memorandum. There are also general fraud statutes and liability may also arise under Mexican law through a civil action for deceit, negligent misstatement or misrepresentation.

Investing in debt securities

Debt security terms and conditions typically contain provisions which may permit their modification without the consent of all investors and confer significant discretions on the common representative, which may be exercised without the consent of investors and without regard to the individual interests of particular investors. The conditions also provide for meetings of investors to consider matters affecting the investors' interests. These provisions typically permit defined majorities to bind all investors including investors who did not attend and vote at the relevant meeting and investors who voted against the majority.

Investment funds can be marketed by management companies, insurance companies, brokers, brokers' dealers and distributors. These entities must be authorized to market the funds.

The marketing of the investment fund management companies must be clear to avoid confusion and allow for simple interpretation. The broadcasting of announcements with ambiguous information is forbidden. The advertising material must not contain any false information, omission, ambiguity, hyperbole or deception, which might induce the public to make wrong or inaccurate conclusions about the products and services offered by the mutual fund managers.

Although its approval is not required, marketing material must be sent to the National Banking and Securities Commission (CNBV). The Association of Securities Intermediaries (Asociación Mexicana de Intermediarios Bursátiles) (AMIB) can also comment on marketing material.

Managers of investment funds must be authorized by the National Banking and Securities Commission (CNBV). The portfolio of assets must be deposited in institutions for deposits of securities, which institutions must be licensed.

In Mexico, entering into derivatives contracts can be carried out in the following markets.

Organized market

In the organized markets, the derivatives contracts are governed pursuant to standardized terms and conditions (active type, underlying, quantity or size of the agreement, expiration of the agreement, price quotations and liquidation procedure). The main feature of these markets is that the seller and the purchaser never trade directly, but through a central counterparty clearing house specialized in derivatives, in order to eliminate the exchange and insolvency risks.

The only institutional, regulated and organized market existing for the trading of derivatives contracts in Mexico is the Mercado Mexicano de Derivados, S.A. de C.V. (MexDer), an affiliate of the Mexican Stock Exchange (Bolsa Mexicana de Valores). MexDer along with Asigna, its triple-A rated clearinghouse (Asigna), offers liquid, transparent Mexican benchmark products based on interest rates, foreign exchange and stock indexes. Asigna acts as a counterpart for all transactions performed on MexDer.

In principle, to trade directly in MexDer, it is required to be:

• a Clearing Member (Socio Liquidador), which is a trust that is a member of MexDer and owns a share in the equity of Asigna, and whose purpose is to settle and, in some cases, enter into exchange-listed futures and option contracts on behalf of clients; or
• a Trader, which is a bank, brokerage firm or any other entity, that may or may not be a member of MexDer, whose purpose is to act as a broker for one or more clearing members in entering into futures and option contracts, and which may access MexDer’s electronic trading system to enter into such contracts.

Over the counter (OTC)

In the non-organized markets, the parties set out the relevant terms and conditions in accordance with their particular needs; the derivatives contracts are designed by institutions pursuant to the particular needs of their clients. In these markets, there is no clearing house and thus each party takes default risk. In the OTC, there are absolutely no limitations regarding the type of derivatives products to be commercialized, as long as there are assets, trade flows or goods that may allow the documentation of such transactions.

In MexDer, only future, options and interest rate swap agreements are listed. Only futures and options with the following underlying assets are eligible:

• futures – foreign currency, indexes, debt, shares and commodities; and
• options – foreign currency, indexes, and shares.

All other types of derivatives contracts (including forwards and currency swaps) are privately negotiated in non-exchange-traded market transactions (OTC or Over the Counter).

The derivatives market regulation relies on general provisions encompassing the Ministry of Finance and Public Credit (SHCP), Banco de México (BANXICO) and the National Banking and Securities Commission (CNBV). There is no regulation for OTC derivatives, which impairs enforcement and supervisory efforts by CNBV in this area, however, the CNBV aims at maintaining oversight of OTC derivatives transactions to ensure that participants do not engage in regulated activities, such as trading with securities.