Registration, reporting and liability for derivatives transactions in Mexico

Liability and enforcement

What is the territorial scope of the laws and regulations governing listed, cleared and uncleared equity derivatives transactions?

Mexican laws apply to parties who are present in Mexico or to transactions that have, as underlying assets, Mexican equity securities or securities representing those securities, including American depositary receipts.

What registration or authorisation requirements apply to market participants that deal or invest in equity derivatives, and what are the implications of registration?

Mexican banks, pension funds and broker-dealers are required to obtain a specific authorisation from Banco de Mexico, Mexico’s central bank, to deal or invest in equity derivatives. Such authorisation will be issued if the relevant entity has complied with 31 requirements related to risk management, trading and control, among others. Other Mexican financial entities are not authorised to enter into equity derivatives. Non-regulated entities may invest in equity derivatives but they may not deal with such products. Foreign entities may offer these products on a cross-border basis.

What reporting requirements apply to market participants that deal or invest in equity derivatives?

Mexican banks, broker-dealers and pension funds are required to file a large number of reports with Banco de Mexico with respect to the equity derivatives in which they deal or invest. Corporations with listed shares are required to disclose in their quarterly financial statements the equity derivatives they entered into where the underlying assets are their own shares. Also, all parties are subject to shareholding disclosure obligations as described above if the equity derivatives are physically settled.

What legal issues arise in the design and issuance of structured products linked to an unaffiliated third party’s shares or to a basket or index of third-party shares? What additional disclosure and other legal issues arise if the structured product is linked to a proprietary index?

If the relevant products are offered to the public, such securities must be registered with the RNV, and the CNBV must approve the public offer of securities. The public offer must be conducted by a Mexican broker-dealer. Disclosure will require legal, financial, business, management and accounting information of the issuer, as well as of the structured product and the underlying index. Generally, a licence from the owner of the index is required.

Describe the liability regime related to the issuance of structured products.

Liability for the issuer will be no different from that for the issuer of shares or other securities. In other words, the issuer will be liable for misleading or false information disclosed to the public or for market practices that could be considered insider trading or market manipulation.

What registration, disclosure, tax and other legal issues arise when an issuer sells a security that is convertible for shares of the same issuer?

If the relevant products are offered to the public, the securities must be registered with the RNV, and the CNBV must approve the public offer of securities. A public offer such as this must be conducted by a Mexican broker-dealer. Disclosure will require legal, financial, business, management and accounting information of the issuer, as well as of the relevant convertible security.

What registration, disclosure, tax and other legal issues arise when an issuer sells a security that is exchangeable for shares of a third party? Does it matter whether the third party is an affiliate of the issuer?

If the relevant products are offered to the public, the securities must be registered with the RNV, and the CNBV must approve the public offer of securities. The public offer must be conducted by a Mexican broker-dealer. Disclosure will require legal, financial, business, management and accounting information of the issuer, as well as of the relevant convertible security and of the issuer of the shares into which the securities will be converted.