Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 4

Each market must have clear rules assuring investor protection by safeguarding participants from the financial risks of failed settlement and ensuring that listed companies are required to follow sound policies on corporate governance, transfer of economic benefits and shareholder rights.

1.	Does the depository or the market have securities lending and borrowing schemes in place, and are these open to all market participants and their settlement agents?	Yes, Indeval offers a securities lending scheme through its proprietary system Valores Prestables (Valpre). Participation in Valpre is only open to local intermediaries. Investors seeking to loan or borrow securities must do so through a local broker or bank.
2.	Does the settlement system mark fail trades to market and collect margin from the failing counterparty to protect the innocent counterpart's interest?	Failed trades have been marked to market for the last three years. Indeval is in the process of adapting its settlement trust to introduce the value at risk (VAR) concept that will require brokers to maintain collateral based on its total exposure to the market. Fail trades will be marked to market and additional margins may be required from the failing counterpart if its collateral is insufficient to cover its obligations.
3.	Does the market operate a guarantee fund or have an equivalent procedure to protect against the cost of failed transactions; and which sectors of the market does it cover?	There are two guarantee funds in the Mexican market: the AMIB Guarantee Fund and Indeval’s Settlement Trust. The Mexican Brokers Association (AMIB) established a Guarantee Fund to protect investors, brokerage house clients, from the insolvency of a brokerage house and guarantee the brokerage house’s monetary obligations with their clients. Brokerage firms that are members or participants in Indeval must participate in Indeval’s Settlement Trust Fund in order to guarantee cover their stock exchange executed transactions. This fund is used to cover penalties and price differentials related to failed transactions that are actually bought in. If totally extinguished, replenishment of funds must be covered by all participants. If a member or participant does not replenish their contribution to the fund, they will be suspended from trading on the BMV until such time as their contribution is met. Starting in the second quarter 2001, this fund will be changed in order to adapt it to the requirements of the Clearing House Project. Instead of placing contributions depending on each participant’s fail rate, contributions will be done according to VAR calculations on total exposure. Margins calls will be placed according to all open transactions (securities traded that day and those pending to settle until T+2) each participant has. Cash, government securities and letters of credit issued by specific banks will be acceptable for collateral and margin calls.
4.	Are the stock transfer agents (share registrars) linked electronically to the depository?	There are no stock transfer agents in the Mexican market. Shares are registered in the issuing companies’ books in the name of S.D. Indeval as depository. Participants/members maintain separate accounts for their proprietary position and positions held on behalf of their customers. Registration occurs upon settlement.
5.	Is there a legal maximum time period to complete ownership transfers in the books of the issuer? If so, does market practice adhere to the deadline?	This is not applicable in the Mexican market as ownership transfer occurs simultaneously with the settlement of the transaction.
6.	Are investors entitled to all benefits arising on a security from the point of purchase; and how are any rules enforced?	Investors are entitled to all benefits arising on a security from the point that the deal is struck. (For foreign investors, this will only apply to those securities which they are permitted to purchase.) Entitlement in Mexico is based on traded position as of ex-date. For trades failing over record date, a claim must be lodged directly with the counterpart. There are no standards for market claims in Mexico. Indeval has been discussing implementing a claim mechanism that it would administer however no definitive date on this has been announced.
7.	Is proxy voting permissible in the market and can such proxies be lodged by post or other remote delivery method?	Proxy voting is both permissible and common in the Mexican market. Physical attendance is required in order to vote in a meeting and remote voting by post or other means is not permitted.
8.	Are there binding rules in the market stating the minimum and maximum lapsed time between the announcement and completion of key events, including registration, the calling of shareholder meetings, the payment of dividends or interest, rights issues, tender offers and other voluntary corporate actions?	Yes, binding rules for specific events are considered in the Mexican Law. The Securities Market Act considers that in order to celebrate an assembly it must be announced with 14 days of anticipation. Tender offers and voluntary actions require the CNBV’s approval, and these have specific considerations.
9.	Are all voluntary corporate actions advised through a central mechanism assuring consistent information to all investors?	Record date and pay date information for subscription offers is provided by Indeval as each event occurs. Ex-date and record date information for all voluntary events is provided by the Mexican Stock Exchange. By law, all corporate action announcements must be published in at least one major local newspaper in the company’s state of domicile. According to the Mexican Stock Exchange’s by-laws, the BMV must be notified of all corporate action events for those companies listed on the exchange in order to establish an official ex-date in the market. As such the daily Boletín Bursátil issued by the BMV and the CNBV’s electronic press bulletin, EMISNET; are the only official sources of corporate actions information in Mexico.
10.	Is information on corporate actions available electronically, and is the minimum lapsed time for responding to such actions sufficient to enable all domestic and foreign investors to respond in a timely and considered fashion?	Yes, as mentioned before, EMISNET is the CNBV’s web bulletin, and the regular Boletín Bursátil is also available on the web. There is a regulation in the Mexican law that obligates companies listed on the exchange to publish all their relevant information through EMISNET. The minimum lapsed time to respond on voting assemblies is sufficient for domestic investors but usually shorter than the required time in foreign countries, therefore may not be sufficient for foreigners.