Mexico

1
Secretaría de Hacienda y Crédito Público
Mexicos New Securities Law
2
Financial Sector Depth is highly correlated with
income percapita.
Fuente i) Profundización financiera Levine, et.
al., ii) PIB per cápita (Banco Mundial)
2004 Cifras de México al 2005 Banxico e INEGI
3
At the beginning of the administration the
financial sector was not contributing to economic
growth

• A economy requires a set of rules and
  institutions that allow markets to function
  efficiently.
• Five years into the administration, structural
  reform in the financial sector is far advanced
  and turns the financial sector into an engine for
  growth.
• There have been over 35 legislative initiatives
  and many other regulatory modifications that have
  reduced vulnerability and fostered the
  development of financial markets
• Increase the amount and quality of savings.
• Improve traditional and non-traditional financial
  intermediation (banking, capital, and corporate
  debt as well as venture capital and private
  equity).

4
The importance of the new Law

• In today's globalized financial markets, stock
  exchanges compete for funds thereby reducing the
  country's cost of capital.
• Investors look for the markets with the greatest
  liquidity, transparency, information, and
  shareholder rights.
• Corporate governance is an evolving topic that
  requires continuous adjustments. The U.S.
  corporate scandals are the latest in a series of
  corporate governance reforms.
• Despite many adjustments to the 1974 Securities
  legislation, the Mexican Stock exchange, and
  capital investments in general did not develop to
  their potential. Two examples

5
Example 1 Mexico's stock market is small by
almost any measure.
Fuente Datos internacionales Empresas listadas
(FIBV y FIB), Población (Banco Mundial) Cifras al
2003. Mexico BMV e INEGI cifras a octubre.
Fuente Valor de Capitalización (BMV), PIB (Banco
Mundial) Cifras al 2004 (otros países) y
junio de 2005 para México.
6
Example 2 Worldwide there are more than 100
billion dollars invested in private equity.
Mexico attracts only 0.1 of the total

• Mexico attracts only México 10 of the private
  equity inflows to Latin America, contrasting with
  close to 30 of the foreign direct investment in
  that region.

Source NVCA Yearbook 2004.
7
The World Bank Doing Business Survey places
México at 125 out of 145 countries in investor
protection
9.7
10
Minority Protection Index
9.3
8.7
9
8.3
8
6.7
7
6.3
Régimen Actual
6
6
5.7
5.7
5.7
6
5.3
5.3
5
5
4.7
4.7
4.7
5
4.3
4.3
4
3.7
3.7
3.7
3.7
4
3.3
3
3
2.3
2
0.7
1
0
EUA 6
Perú 22
India 29
Chile 38
Brasil 54
Corea 79
Haití 123
Japón 15
Canadá 3
Bolivia 98
China 100
Singapur 2
Turquía 75
Colombia 37
Senegal 126
Tailandia 33
Paraguay 46
Argentina 52
Ecuador 113
MEXICO 125
Jordania 124
Latinoamérica
Nicaragua 73
N. Zelandia 1
Honduras 129
Venezuela 142
El Salvador 83
Afganistán 145
Costa Rica 134
Fuente Doing Business 2006, Banco Mundial.
8
Main objectives of the new Securities Law

• The new Law attempts to increase the depth of the
  Stock market by increasing the supply of listed
  firms and the demand for their stock
• Promotes the introduction of new companies into
  de stock market by making private equity
  investments more attractive and easing the
  process for going pubic.
• Improves transparency, minority rights, and
  radically modernizes the corporate structure of
  listed companies in line with international
  practices.

9
Index

• Promote venture capital and private equity
• Public Companies
• Other topics
• Intermediaries
• Crime/offenses and sanctions
• Reallocation of functions between the SHCP and
  the CNBV

10
Securities Markets CompaniesBroadening the scope
Public companies
Currently, only public companies, are subject to
modern corporate governance standards

The Law does not allow the family companies to
engage in certain activities that are essential
for private equity transactions
Investor protection and/or information disclosure
standards
Common Company (Sociedad Anónima, a figure
similar to the corporation in the US. In many
cases a family company.)
-
11
The New Law introduces the Sociedad Anónima
Promotora de Inversión, SAPI (Investment
Promoter Company) to promote the access of medium
size companies to the securities markets and to
reduce their gap with public companies.
Public Company
An optional regime that will signal investors
that the company has good corporate governance
standards and provides investor protection.
Sociedad Anónima Promotora de Inversión

Investor protection and/or information disclosure
standards
Common Company (Sociedad Anónima, in many cases a
family company)
-
12
Broadening the scope of good corporate practices
beyond the stock market through the new
Securities Market Law.

• Currently, medium and small enterprises (SMEs)
  are not attractive to private equity investors
  because they lack modern corporate governance
  structures and therefore do not provide enough
  legal certainty.
• The new Securities Law introduces a new type of
  firm regime, whose adoption is optional, in order
  to
• Improve investors corporate rights.
• Improve transparency.
• Include more exit options for those who invest
  in private equity.
• Companies that adopt this regime will signal
  potential investors that the company is a good
  recipient of private equity with a credible legal
  commitment to honor the corporate rights of
  investors.

13
Characteristics of the Sociedad anónima
promotora de inversión (SAPI)

• The SAPI will have enhanced corporate governance,
  minority rights, and information disclosure
  standards in exchange for
• Exemptions from the General Law of Corporations
  (Ley General de Sociedades Mercantiles (LGSM)) to
  allow essential activities for private equity
  transactions
• Shareholders voting agreements
• Tag-along and drag-along rights
• Buy back mechanisms for the redemption of shares
• Restrictions to preemptive and exit rights
• The possibility to be listed in the stock
  exchange. The SAPI will have a three year grace
  period to converge to the public companies
  standards. These will create a breeding ground of
  companies to boost the securities markets.
• The types of investors that will be allowed to
  invest in SAPIs are institutional investors,
  qualified investors (as defined in the
  Securities Markets Law), and those investors that
  explicitly acknowledge that they know the risks
  of investing in these types of companies.

14
Minorities rights
Type of company
Percentage of shareholders needed

• 10 to appoint board members and to call for
  shareholders meetings.
• 5 for civil action against board members and
  directors.
• 20 for judiciary opposition to the meetings
  resolutions.
• 10 to postpone voting.

Public Company

• 10 to appoint board members and to call for
  extraordinary shareholders meetings.
• 15 for civil action against board members and
  directors.
• 20 for judiciary opposition to the meetings
  resolutions
• 10 to postpone voting.

SAPI (Public and private)
Common Company (Sociedad Anónima)

• 25 to appoint a board member and the
  commissary.
• 33 to call for shareholder meetings, to postpone
  voting, for civil action against the board, and
  for the judiciary opposition to meetings
  resolutions.

NO CHANGE
15
Information disclosure
Type of company

• Relevance principle.
• Prospectus.
• Annual report.
• Audited annual financial statements.
• Quarterly financial statements with annexes.

Public Company

• Relevance principle.
• Prospectus.
• Simplified annual report.
• Audited annual financial statements
• Quarterly financial statements without annexes.

SAPI (In transit towards a public company)
SAPI
Common Company
NO CHANGE The regime is incompatible with market
practices.
16
Index

• Promote venture capital and private equity
• Public Companies
• Other topics
• Intermediaries
• Crime/offenses and sanctions
• Reallocation of functions between the SHCP and
  the CNBV

17
The agency problem in México is fundamentally
different
Corporate governance legislation must address
fundamentally different conflicts of interest but
it must consider international standards.
Managers/Minority shareholders with corporate
control
18
Public companies Conglomerates

• At the conglomerate level, the scope of the law
  will reach the subsidiary companies on the
  following aspects
• Information disclosure requirements
• Relevant transactions and transactions with
  related parties.
• Consolidated accounting (which already applies).

19
(No Transcript)
20
Clarification of the responsibility regime of
board members, directors, auditors, and
controlling shareholders.

• Currently, board members, directors and
  shareholders have broad and imprecise
  responsibility benchmarks. They have to act
  according to the mandate of taking care of the
  business as if it was their own.
• Proposal

Act in good faith, creating company value,
without favoring a particular group of
shareholders, following diligence and fiduciary
duties that are clearly defined in the law.
Obligations
If he acts in bad faith or with conflict of
interest.
Legal Responsibilities
Demonstrate that acts were done in a reasonable
way (business judgment rule)
Exceptions
21
Diligence and fiduciary duties

• Lack of diligence is considered when a board
  member
• Does not attend, without a justification, board
  or committee meetings.
• Does not disclose to the board or to the
  committees, information that s(he) knows and
  that is necessary to make decisions, unless s(he)
  must keep it as secret.
• Disloyalty is considered when a board member
• Favors a shareholder a group of shareholders at
  the expense of others.
• Votes or makes decisions with conflicts of
  interest.
• Makes inappropriate use of privileged information.

22
Index

• Promote venture capital and private equity
• Public Companies
• Other topics
• Intermediaries
• Crime/offenses and sanctions
• Reallocation of functions between the SHCP and
  the CNBV

23
Other Innovations contained in the Law

• Flexibility in the investment bank regime and
  clarification of its resolution process.
• Clarify and improve de regime violations regime
• Five categories of sanctions without increasing
  the maximum and minimum.
• A new chapter on notifications to improve the
  application of the law.
• The CNBV will be able to accept or deny the
  existance of an investigation.
• Three new criminal offenses are introduced
• Violate the public offerings rule (one share one
  price).
• Continue to operate when ordered not to.
• Fraudulent administration.
• Reassignment of powers between the Ministry and
  the CNBV to improve and streamline supervision.

24
Index

• Promote venture capital and private equity
• Public Companies
• Other topics
• Intermediaries
• Crime/offenses and sanctions
• Reallocation of functions between the SHCP and
  the CNBV

25
The World Bank study indicates a substantial
improvement in Mexico's investor protection with
the approval of the new Securities Law
Source Doing business in 2006. Note The
exercise for the new Law was made by the SHCP in
collaboration with the World Bank, it is
preliminary and subject to change.
26
The investor protection index and the size of the
stock market are correlated.
Source i) Market capitalization, BMV ii) GCP
World Development Indicators, World Bank and for
Mexican data INEGI iii) Investor protection
index Doing Business 2006, World Bank.
27
Final Thoughts

• Mexico has achieved macroeconomic stability which
  is a necessary but not suffieicient condition for
  high growth.
• Successful financial markets have a set of laws
  and institutions which allow them to be efficient
  and with sound rule of law.
• Five years into the administration, financial
  sector reform in Mexico has progressed
  substantially.
• The new Securities Market Law will foster the
  development of capital markets for both public
  and private companies reducing financing costs.

28
Secretaría de Hacienda y Crédito Público
Mexicos New Securities Law
29
Sanciones y Delitos

• Se establece un catalogo de infracciones que
  contiene cinco grandes categorías en los que se
  agrupan las conductas infractoras en función de
  su gravedad que no implica ampliar los rangos de
  las sanciones vigentes (de 200 a 100,000 días de
  salario mínimo).
• Los delitos prescriben en 3 años cuando se tuvo
  conocimiento y 5 años a partir de que se
  cometieron si no fueron descubiertos.
• Se considera reincidente al infractor, cuando
  dentro de los dos años siguientes incurra en la
  misma violación.
• Se incorpora un nuevos mecanismos de notificación
  para darle certidumbre a los particulares y a la
  autoridad.
• La Comisión puede abstenerse de emitir opinión de
  delito cuando los daños causados no excedan
  25,000 días, y se haya reparado el daño, y el
  infractor no sea reincidente, y el delito no sea
  grave, y los responsables colaboren con las
  autoridades.
• La CNBV podrá afirmar o negar la existencia de
  investigaciones en relación a información
  relevante revelada al mercado, así como dar a
  conocer las sanciones que haya impuesto una vez
  que hayan quedado firmes y ajustándose a los
  lineamientos de la Junta de Gobierno.

30
Sanciones y Delitos (cont)

• Se precisaron y ampliaron los tipos penales
  vigentes.
• Se incorporaron tres nuevos delitos
• Violar la regla de ofertas públicas de
  adquisición (OPAs), pagando un premio o
  sobreprecio por el control de una sociedad.
• Desempeñar funciones estando inhabilitado o
  suspendido.
• Incurrir en administración fraudulenta.

31
Clarificación y precisión de los delitos
32
Las alteraciones propuestas debilitan
sustancialmente la Iniciativa

• No revelar al mercado cuando el Consejo tome una
  decisión contraria a la de los Comités los hace
  irrelevantes. La ley ya contempla que si hay
  diferencias se publiquen los dos puntos de vista.
• Establecer que la CNBV sólo puede admitir o negar
  que existe una investigación sobre hechos
  públicos hasta que exista un fallo podría
  implicar que el mercado no esté debidamente
  informado.
• Limitar la definición de evento relevante a una
  lista implica que gran parte de la información no
  sea revelada al mercado y nulifica el régimen de
  información privilegiada y libera de
  responsabilidad a todos los casos en proceso.
• Introducir un consejero no independiente al
  Comité de Auditoria equivale a convertir a la
  administración en juez y parte de su vigilancia.

33
El estudio del Banco Mundial también indica que
si se aprueban los cambios como están planteados,
Mexico caería del lugar 125 al 132.
Fuente Doing business in 2006. Nota El
ejercicio para la nueva ley es preliminar y
sujeto a revisión.
34
El índice de gobierno corporativo/ protección a
los inversionistas está altamente correlacionado
con el tamaño del mercado de capitales
Fuente i) Valor de Capitalización Indicador
Bursátil BMV ii) PIB World Development
Indicators, Banco Mundial e INEGI para México
iii) Indice de protección a los inversionistas
Doing Business 2006. Banco Mundial.
35
II. Redefinición de funciones de la administración
Consejo de Administración
Funciones Actuales
Funciones Propuestas

• Responsable de la administración y de las
  operaciones diarias de la empresa.
• Responsable de la existencia y mantenimiento de
  los sistemas de contabilidad, control y registro.

• Establece estrategia de negocio.
• Vigila gestión y conducción de la sociedad y las
  empresas morales que ésta controla y desempeño de
  directivos.
• Aprueba operaciones relevantes o con personas
  relacionadas.
• Aprueba nombramientos y retribuciones al director
  general y políticas en esta materia para los
  directivos relevantes.
• Aprueba políticas para el uso o goce de los
  bienes por parte de personas relacionadas.
• Designa a miembros de comités (prácticas
  societarias y auditoría).
• Vigila cumplimiento de acuerdos de la asamblea.

36
Director General y directivos
Funciones Actuales
Funciones Propuestas

• Gestión conducción y ejecución de operaciones
  diarias del negocio.
• Proponer al comité de auditoría, lineamientos de
  control interno.
• Suscribir y difundir información relevante y
  eventos que deban ser revelados al público.
• Mantenimiento de los sistemas de contabilidad,
  registro e información.
• Presentar al consejo un informe de labores.
• Vigilar cumplimiento de acuerdos del consejo y
  asamblea.
• Establecer mecanismos para verificar el apego a
  la normativa aplicable.

• Sin responsabilidades específicas, son nombrados
  para ejercer las facultades que le sean
  encomendadas apoyando al Consejo de
  Administración.

37
Funciones de Vigilancia
Desaparece y se reasignan sus funciones
Comisario
Funciones actuales (Comisario)
Órgano que las asume

• Emite informe sobre la veracidad de la
  información presentada por el consejo a la
  asamblea.
• Asiste a sesiones del consejo.
• Vigila ilimitadamente las operaciones de la
  sociedad.
• Exige a administradores información financiera.
• Convoca a asambleas de accionistas y propone
  puntos para el orden del día.
• Propone puntos para el orden del día de las
  sesiones del consejo.

Auditor Externo
Consejo de Administración
Comités auditoría y prácticas societarias
38
Excluyentes de responsabilidad de los consejeros
y directivos regla de juicio de negocios.

• Tratándose de la aprobación de operaciones que
  causen un daño o perjuicio a la sociedad, los
  consejeros, directores generales y directivos
  relevantes no serán responsables cuando
• Elijan la alternativa más adecuada, a su leal
  saber y entender, con base en la información
  disponible.
• Cuando los efectos patrimoniales negativos
  derivados de su decisión no hayan sido
  previsibles.
• Cumplan los acuerdos de la asamblea de
  accionistas, siempre que estos no sean
  violatorios de la Ley.
• Voten en sesiones del consejo o tomen decisiones
  basados en la información u opiniones de los
  directivos relevantes o de expertos
  independientes cuya capacidad y credibilidad no
  ofrezcan motivo razonable para la duda.

39
Las Sociedades del mercado de valoresAmpliando
el alcance

Objetivo de la Nueva Ley del Mercado de Valores
Empresas que Cotizan en Bolsa
Empresas LGSM
Sociedad Anónima Bursátil
Revelación de Información
Sociedad Anónima
Sociedades Promotoras de Inversión Privada
Bursátil
Empresas LMV
Empresa Familiar
Con la introducción de la Sociedad Promotora de
Inversión se promueve el acceso de las empresas
medianas al mercado de valores y se reduce la
brecha con las empresas bursátiles
-
-

Protección de Minorías