Certificados Bursátiles Fiduciarios Indizados or Exchange Traded Funds ("ETFs") are securities issued by a Mexican trust, through a public offering in Mexico, that seek to replicate benchmark indexes with the objective of obtaining returns (before expenses) similar to those of the corresponding benchmark index. Since their invention in the 1990s, ETFs have become one of the most attractive investment products for different classes of investors. In Mexico, ETFs date back to 2002, with the issuance and listing of NAFTRAC on the Mexican Stock Exchange. The ETF market has expanded due to product's benefits, some of the main ones being:

  • Diversification. ETFs allow investors to diversify their portfolio by investing in a basket of securities of different classes.
  • Cost. By replicating the benchmark index, ETFs have lower management costs compared to mutual funds and investment funds.
  • Transparency. ETFs are transparent in terms of portfolio composition and the changes made to the portfolios, allowing investors to better monitor and understand the ETFs' performance.
  • Liquidity. ETFs are traded on stock exchanges, making them easily accessible to investors and giving them the flexibility to buy and sell at any time, regardless of the hour.

ETFs are regulated by the Mexican Securities Market Law and its secondary regulations, particularly the "Circular Única de Emisoras" and other general provisions issued by the National Banking and Securities Commission ("CNBV"). Therefore, ETFs must be registered at the National Securities Registry ("RNV") and listed on one of the Mexican stock exchanges. ETFs are structured as fiduciary stock certificates, meaning that the issuing entity is an irrevocable trust that, through a public offering, offers the certificates to previously authorized participants (i.e., brokerage firms) so that they can subsequently place them on the secondary market. Subsequent to the initial public offering, each authorized participant may submit creation or redemption orders for one or more units of ETFs, pursuant to which that authorized participant will transfer the relevant basket(s) of securities (as set forth in the portfolio composition file then in effect) to the trustee in exchange for the certificates corresponding to such unit(s). Throughout the life of the ETF, the investment manager will ensure that the ETF maintains an appropriate portfolio composition of securities in order to replicate the respective benchmark.

1293286a.jpg

Note that it is possible to invest in foreign ETFs from Mexico through the International Quotations System. Foreign ETFs are not subject to an initial public offering in Mexico nor need to be registered at the RNV. However, they must be listed on a foreign securities market recognized by the CNBV.

ETFs are an attractive way to invest due to their diversification, low costs, transparency and liquidity. In addition, their structure and CNBV regulation provide investors greater security and protection.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe - Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.