Resolution modifying the General Provisions Applicable to Brokerage Houses

DOF: 04/11/2021

RESOLUTION modifying the General Provisions Applicable to Brokerage Houses

A seal with the National Coat of Arms appears at the margin, which reads: United Mexican States.- TREASURY.- Ministry of Finance and Public Credit.- National Banking and Securities Commission.

The National Banking and Securities Commission, based on the provisions of articles 171, first paragraph, and 180, third paragraph of the Securities Market Law; 98 Bis of the Credit Institutions Law; as well as 4, fractions XXXVI and XXXVIII, and 16, fraction I of the Law of the National Banking and Securities Commission, and

CONSIDERING

That, in accordance with article 78 of the General Law for Regulatory Improvement and with the aim of reducing the compliance cost of these provisions, the National Banking and Securities Commission, through a resolution published in the Official Gazette of the Federation on December 26, 2017, reformed the "General Provisions Applicable to Credit Institutions," with the object of granting an extension to the deadline to which multiple banking institutions were subject to constitute their operational risk capital requirements;

That, taking into account the existing conditions in the stock market, it is convenient to incentivize and maintain competition among its participants, as well as to ensure a balance in the submission of orders to stock exchanges, and to strengthen the framework applicable to the duty of best execution that brokerage houses must observe in the execution of their clients' orders, in order to create conditions that strengthen the operation of said stock exchanges and, consequently, the healthy and balanced development of the securities market as a whole, and

That, taking into account that in the Mexican market the operation of equity securities presents concentration of operations at the close of stock sessions, as well as that it is in the interest of brokerage house clients to participate in the operations that form part of the determination of the closing price in order to operate as close as possible to the level of said price, orders under the "participation in closing price" modality are incorporated, regarding which brokerage houses shall not observe the duty of best execution and may only execute them when they originate from instructions given by institutional investors, has resolved to issue the following:

RESOLUTION MODIFYING THE GENERAL PROVISIONS APPLICABLE TO

BROKERAGE HOUSES

SOLE.- Articles 59, fraction XI; 68, first paragraph; 76 Bis; 85, and 117 Bis 12, fraction IX, are REFORMED, and articles 63, fraction VII, and 74 Bis are ADDED to the "General Provisions Applicable to Brokerage Houses," published in the Official Gazette of the Federation on September 6, 2004, and last reformed by the resolution published in said dissemination organ on November 9, 2020, to read as follows:

" Article 59.-

. . .

I. to X.

. . .

XI.

The mechanisms to comply with the submission of passive orders for equity securities to stock exchanges, the methodology for the transmission of said orders to stock exchanges in the terms established in article 74 Bis, as well as the duty of best execution, including the selection criteria for the execution of the client's instruction referred to in article 76 Bis, both provisions of these provisions.

XII.

. . .

. . .

. . . "

" Article 63.- . . .

. . .

I. to VI.

. . .

VII.

Of participation in the closing price: that executed during the time period in which the sample of facts that will constitute the closing price of the stock exchange in which the equity instrument referenced by the client's instruction is listed is taken. Brokerage houses that receive instructions from their clients to be executed during said time period will not be obligated to observe the duty of best execution referred to in article 76 Bis of these provisions and must send the order in question to the stock exchange in which the equity instrument subject to the order is listed. The time period in which the closing price referred to in this fraction is determined will be that determined by the stock exchanges in their internal regulations or operating manuals.

To this effect, a sample of facts shall be understood as the set of operations executed in the trading systems of the stock exchanges during the period defined in their respective internal regulations and operating manuals for the calculation of the closing price.

For the purposes of this fraction, brokerage houses must have the express manifestation of the client stating that they understand and accept that the brokerage house will execute their instruction without observing the duty of best execution and that, consequently, there is a possibility that the best result will not be obtained in the execution of said instruction. The manifestation referred to in this paragraph must be renewed annually by the brokerage houses.

Brokerage houses may only execute orders described in this fraction when they originate from instructions of National Institutional Investors or their equivalent abroad.

. . .

. . . "

" Article 68.- Brokerage houses may provide their clients with direct electronic access channels, for the immediate submission of instructions to the electronic trading systems of a stock exchange. Orders transmitted through said channels will not be subject to the methodology for the transmission of passive orders to stock exchanges in the terms provided by article 74 Bis of these provisions, nor to the duty of best execution.

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . . "

" Article 74 Bis.- Brokerage houses must ensure that their systems for receiving and assigning operations have mechanisms for the submission of passive orders for equity securities to stock exchanges. Likewise, brokerage houses must have a methodology for the transmission of passive orders to stock exchanges; said methodology must be determined by the brokerage houses and approved by their general manager, and may not establish conditions that generate biases leading to selecting or favoring one stock exchange to the detriment of another.

In determining the methodology for the transmission of passive orders referred to in the previous paragraph, brokerage houses must incorporate information of at least the last three months of the totality of variables, which are made known daily by the stock exchanges in terms of the "General Provisions Applicable to Stock Exchanges," published in the Official Gazette of the Federation on May 15, 2017, and their respective modifications. In case that brokerage houses consider any other variable in addition to those published daily by the stock exchanges, said variable must be related to the operation, be verifiable, and documented.

Brokerage houses must make the methodology referred to in this article known to the investing public through their Internet page.

To this effect, a passive order shall be understood as that which, upon entering the stock exchanges, does not perfect an operation and remains waiting for a contrary order to execute it. "

" Article 76 Bis.- Brokerage houses, in the execution of their clients' orders on equity securities, must comply with the duty of best execution. For such purposes, they must have automated systems that allow them to execute the order considering the factors indicated below:

I.

The best available price in the stock exchanges, given the market conditions at the moment of execution.

II.

The volume of said value available in the stock exchanges; the foregoing will be applicable only in case that the client instructs the brokerage house to give priority to the volume of their order.

III.

In case that the factor referred to in fraction I of this article is equal in the stock exchanges or is not considered by client instruction according to fraction II, and the available volume is sufficient to satisfy the client's instruction in any of the stock exchanges, brokerage houses must establish the selection criteria for the stock exchange in question for the execution of the client's instruction, which must be approved by their general manager, must not generate biases, and must encourage the execution of passive orders that are in the stock exchanges, in favor of the investing public.

Brokerage houses must make the criteria referred to in this article known to the investing public through their Internet page.

Brokerage houses must comply with the duty of best execution when the type of order is contemplated in any of the stock exchanges; otherwise, they must send the order to the stock exchange in which the respective type of order is contemplated. "

" Article 85.- Operations resulting from the execution of an order under the participation in closing price modality will be assigned to the volume-weighted average price of the operations that compose said order. "

" Article 117 Bis 12.-

. . .

I. to VIII.

. . .

IX.

Have as their purpose to verify compliance with the obligations contained in articles 74 Bis and 76 Bis of these provisions.

X. and XI.

. . . "

TRANSITORY PROVISIONS

FIRST.- This Resolution will enter into force four months following the date of its publication in the Official Gazette of the Federation.

SECOND.-

Brokerage houses will have up to two months, counted from the publication of this instrument in the Official Gazette of the Federation, to make modifications to their manuals and systems and, no later than at the end of said period, submit them for authorization by the National Banking and Securities Commission, as well as to update measures and controls, in order to comply with what is established by articles 59, fraction XI; 76 Bis, and 117 Bis 12, fraction IX, which are reformed by this Resolution, as well as to attend to what is indicated by article 74 Bis, which is added to the "General Provisions Applicable to Brokerage Houses" through this instrument and submit them for authorization by said Commission, as applicable.

To this effect, the National Banking and Securities Commission will have until the date of entry into force of this Resolution to approve the modifications to the manuals and systems referred to in the previous paragraph.

Respectfully,

Mexico City, October 27, 2021. - President of the National Banking and Securities Commission, Juan Pablo Graf Noriega.- Rubric.

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