Mexican Stock Market Reform: Driving Growth, Inclusion, and Investor Optimism

In a significant move aimed at enhancing the efficiency and appeal of the Mexican stock market, the Senate approved a reform to two laws on April 28^th. This reform, which pertains to the Securities Law and the Investment Funds Law, is designed to bolster the national market, and prevent companies and investors from seeking opportunities abroad. Additionally, it aims to promote the inclusion of small and medium enterprises (SMEs) in the market as simplified issuers. Although this reform still awaits review by the lower House in September of this year, it has already generated considerable excitement and anticipation among stakeholders.

Key points of the reform are:

• Inclusion of small and medium enterprises (SMEs) in the securities market through a simplified listing process.
• SMEs can list in stock exchanges with a favorable opinion from a brokerage house.
• Eligibility criteria will be established by the National Banking and Securities Commission (CNBV) for SMEs to go public.
• Brokerage houses will assist companies in accessing capital and debt markets. Partnered with stock exchanges, they will monitor them as simplified issuers, relieving direct supervision by the CNBV.
• Trading of these securities will be limited to institutional or qualified investors.
• Disclosure requirements for these companies will be like those of listed companies.
• Expectation to create alternative investment paths, reduce bureaucratic listing procedures, and attract diverse participants to the market.
• Approval of Hedge Funds, modifications for SAB and SAPIB corporations, and a commitment to sustainability and gender equality matters.

While this reform has instilled a sense of optimism for the Mexican stock market, concerns have also emerged. The renowned ratings agency, Moody’s Local Mexico, has identified several obstacles that they believe could hinder the intended purposes of the reforms. These obstacles include a weak legal framework, informality in business practices, idiosyncrasies in corporate governance, and burdensome administrative regulations.

Furthermore, there is growing consternation about the exclusion of retail investors and the lack of incentives to encourage their participation in the market. It is crucial to note that the retail investor segment in Mexico has experienced exponential growth in recent years, with significant untapped potential for further expansion.

Consequently, skepticism remains as to whether these reforms will be sufficient to address the structural flaws plaguing the Mexican stock market. These issues include a limited number of issuers, low marketability of securities, and a relatively small investor base coupled with the absence of a solid foundation, which have led companies to opt for delisting and seeking private funding alternatives.

Addressing these challenges will require the implementation of comprehensive measures that extend beyond the scope of the current reform. María Ariza, CEO of BIVA, aptly remarked, “While these changes represent a significant initial stride, they serve as a foundational step towards attaining the market model we aspire to.”

Sources:

• https://infosen.senado.gob.mx/sgsp/gaceta/65/2/2023-04-28-1/assets/documentos/Dict_Com_Hacienda_Ley_Fondos_Inversion.pdf
• https://www.mayerbrown.com/es/perspectives-events/publications/2023/05/amendments-to-the-securities-market-law-and-the-mutual-funds-law
• https://www.axisnegocios.com/articulo.phtml?id=119723
• https://www.bloomberglinea.com/latinoamerica/mexico/reforma-a-ley-del-mercado-de-valores-aun-con-obstaculos-para-el-sector-financiero-moodys/
• https://www.axisnegocios.com/articulo.phtml?id=119136
• https://www.garrigues.com/es_ES/noticia/mexico-camara-senadores-aprueba-iniciativa-reforma-ley-mercado-valores-ley-fondos-inversion
• https://www.gtlaw.com/en/insights/2023/5/reforma-a-la-ley-del-mercado-de-valores-y-la-ley-de-fondos-de-inversin
• https://basham.com.mx/iniciativa-con-proyecto-de-decreto-por-el-que-se-reforman-derogan-y-adicionan-diversas-disposiciones-de-la-ley-del-mercado-de-valores-y-de-ley-de-fondos-de-inversion/
• https://www.forbes.com.mx/procesos-simplificados-para-empresas-pequenas-y-medianas-en-las-bolsas-de-valores-en-mexico-oportunidad-o-amenaza/
• https://www.chevez.com/upload/files/InfoEsp_2023-1.pdf
• https://www.eleconomista.com.mx/mercados/Apenas-1-de-mexicanos-invierte-en-la-Bolsa-20220825-0120.html