Basics

The supervisory authority of the securities markets in Mexico is the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, "CNBV"). The CNBV's regulatory authority extends to a broad range of securities market participants, such as securities firms, securities exchanges, public issuers, and collective investment schemes, among others. The National Banking and Securities Commission Law (Ley de la Comisión Nacional Bancaria y de Valores, "LCNBV") created the CNBV and provides it with the authority to administer and enforce laws related to financial services. The two primary laws governing the securities markets in Mexico are the Securities Market Law (Ley del Mercado de Valores, "LMV") and the Investment Companies Law (Ley de Sociedades de Inversion, "LSI").

Under Mexican law, ETFs are not regulated as mutual funds. Rather, they are regulated as a specific type of security, i.e., indexed trust notes (certifcados bursátiles indizados). These are securities issued by Mexican trusts whose purpose is to track the performance of one or more underlying index, asset, or parameter. They are listed on the stock exchange and treated similarly to corporate issuers.

Currently, under permission granted by the Mexican federal government, one stock exchange operates in Mexico (Bolsa Mexicana de Valores, "BMV"). Foreign equities and ETFs are listed and traded on the BMV's International Quotation System (Sistema Internacional de Cotizaciones, "SIC"). To be eligible for trading on the SIC, a foreign equity or ETF must not have been subject to a public offering in Mexico, must not be registered in the National Securities Registry (Registro Nacional de Valores, "RNV"), and must be listed in a foreign securities market recognized by the CNBV as having comparable standards (e.g., NASDAQ, NYSE) or whose issuers have been otherwise sponsored by a Mexican bank or broker and approved for listing by the CNBV. The sponsor must assume the issuer's disclosure obligations for sponsored recognition. The CNBV permits foreign issuers listing securities on the SIC to use the continuous disclosure documents that they file in their home jurisdiction to meet the Mexican disclosure requirements.

Regardless of product structure, all U.S.-domiciled ETFs and mutual funds must comply with the disclosure-based provisions of the Securities Act of 1933 (1933 Act) and the Securities Exchange Act of 1934 (1934 Act) and associated Securities and Exchange Commission (SEC) rules. These acts require all issuers of securities to disclose material information via prospectuses and annual reports to help investors make informed investment decisions.

Mutual funds and ETFs organized as investment companies must also satisfy the substantive regulations and disclosure requirements of the Investment Company Act of 1940 (1940 Act) and associated SEC rules.

Keep in mind that ETFs structured as open-end investment companies and unit investment trusts (UITs) are regulated by the 1940 Act. However, other ETF structures that mainly accommodate alternative investments restricted in a 1940 Act vehicle may not be.

It's important to remember that there are two key differences between mutual funds and ETFs. First, individual investors in ETFs cannot redeem their shares directly with the issuing fund (instead, only certain authorized participants can do so, in large blocks of ETF shares). Second, individual investors buy and sell ETF shares at prevailing market prices throughout the business day, whereas investors buy and redeem mutual fund shares at net asset value, determined at the close of the market each business day.