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Amendments to the Stock Market Law and the Investment Funds Law

MEXICO CITY, MEXICO, January 23rd, 2024 –  On December 28, 2023, a Decree was published in the Official Gazette of the Federation (Diario Oficial de la Federación) Amending, Adding and Rescinding several provisions of the Stock Market Law (Ley del Mercado de Valores, the “LMV”) and the Investment Funds Law (Ley de Fondos de Inversión, the “LFI”), which became effective on December 29, 2023. Such amendments were unanimously approved by the Mexican Congress (Cámara de Diputados) after several months of discussions, and were also supported by brokerage firms, investors, issuers and the National Banking and Stock Commission (Comisión Nacional Bancaria y de Valores, the “CNBV”).

The main target of this amendments is to open the stock market to SMEs (pequeñas y medianas empresas, the “PyMEs”) through a simplified public offering process in either of the two Mexican stock markets, with simpler processes and procedures, as well as lower costs than those that big companies currently have to comply with.

In addition, through this amendment, provisions applicable to Stock Exchange Corporations (Sociedades Anónimas Bursátiles “SABs”) and Stock Exchange Investment Promotion Corporations (Sociedades Anónimas Promotoras de Inversión Bursátil “SAPIBs”) were modified, and hedge funds were created as a new type of investment, with the purpose of promoting foreign exchange operations in Mexico.

In general terms, the amendments cover the following topics:

I. Stock Market Law

A. Simplified registration system:

1. PyMEs may issue any kind of value in the stock market: shares or debt.

2. The listing process for PyMEs will begin with a brochure prepared by a brokerage firm, which will carry out a qualification of the information, documentation and structure, in accordance with its general regulations, previous to final registration before the CNBV.

3. The CNBV will establish the requirements that simplified issuers must comply at the time of obtaining registration in the National Stock Registry (Registro Nacional de Valores, the “RNV”) with respect to their stockholder´s equity, assets, liabilities or revenues, financing capacity, characteristics and transparency of their corporate governance and the offering of the values subject to simplified registration.

4. The simplified issuance process is different from the process that companies currently have to follow by means of first obtaining authorization from the CNBV, followed by a brochure and a process of structuring and placement on the stock market.

5. The brokerage firms will be liable for the damages caused by the breach of their obligations as qualifiers of the simplified registrations and the issuers will be exclusively responsible for the veracity of the information, documentation and structure provided for the registration.

6. Issuances are allowed through differentiated regulation (individual or cumulative limit established by the CNBV).

7. The simplified Issuances will be reported to the CNBV.

8. Simplified issuance placements may only be made through institutional and/or qualified investors, in accordance with the provisions of the LMV and the Single Provision of Issuances (Circular Única de Emisoras).

9. Issuers may choose between the traditional or simplified regime, in the understanding that it will not be possible to participate in both at the same time.

10. The stock brokerage firms will determine the rules for the disclosure of periodic information to the investing public, based on the provisions published by the CNBV for such purposes.

B. Corporate flexibility

a. SAPIBs may remain in this type of company indefinitely, so it is no longer necessary for them to adopt the SAB modality within 10 years following their registration on the RNV.

b. The mechanisms established for the adoption in the bylaws of SABs of clauses aimed to protect the direct or indirect control of the company by third parties or shareholders (poison pills) are updated, from now on poison pills may be implemented in extraordinary general shareholder´s meetings as long as 20% of the capital stock does not vote against them. Before the amendment, 5% of the capital stock was required to vote against poison pills.

c. SABs are allowed to issue shares different from common shares without requiring authorization from the CNBV on an unlimited amount. Previous to the amendment, such shares could not exceed 25% of the total paid-in capital stock.

d. The placement of capital increases is permitted without requiring previous request for registration of such new shares in the RNV. However, it will be necessary to update the corresponding registration after the placement of new shares issued by means of the capital increase.

C. New faculties of the SHCP

The amendments also establish the power and duty of the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público, the “SHCP”) to establish, with the previous opinion of the CNBV, provisions regarding sustainable development, as well as to strengthen gender equity, for the adoption of best practices in such matters by participants in the stock market.

II. Investment Funds Law

Under the amendments, hedge funds or multi-asset funds were created to promote savings through greater flexibility and profitability compared to conventional investment funds with specific investment purposes in certain instruments. The general characteristics of these investment funds are:

1. Equity or debt securities may be issued, as investment in any type of asset is permitted, in the understanding that such investments must be subject to the regime established by the CNBV under general provisions.

2. The shares representing its capital stock may only be offered to qualified or institutional investors.

3. They are not required to establish maximum shareholding limits per shareholder.

4. Absolute return funds may be created.

5. Operating companies and investment advisors will act as founding partners (with prior authorization from the CNBV).

6. They are required to hire the services of an independent external audit.

7. The management of its assets must be carried out with the intermediation of brokerage firms or credit institutions authorized in accordance with the asset being invested and will be assigned to the operating companies and, exceptionally, to authorized investment advisors, which must be certified in accordance with the provisions issued for such purposes by the CNBV.

The aforementioned amendments seem to allow the democratization of the stock market by encouraging the growth of PyMEs through simplified registration and preventing issuers from leaving the Mexican stock market and migrating to other countries by making listing processes more flexible and investing in a wider range of assets. However, it will be necessary to wait for the CNBV to issue general provisions to regulate and specify these processes and figures.

The SMPS Legal team is at your disposal for any questions regarding this notice, as well as any possible strategies that your company may wish to develop or discuss.

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