QUIZ FINAL Flashcards
What are physical securtities?
Before electronic systems existed, securities
(stocks, bonds, etc.) were issued as physical paper certificates.
Each certificate represented ownership of a certain number of shares or debt instruments
What was Manual Registration and Transfer?
The new owner’s name was written in a company’s
shareholder registry, often kept by a trustee or custodian.
To transfer securities from one person to another:
1. The paper certificate had to be physically delivered.
2. The back of the certificate was often endorsed by the seller
What was a Settlement (delivering securities)?
- Every transaction required physical handling of documents.
- Settlements took days or even weeks.
- As trading volumes increased, physical systems became unmanageable.
- Cross-border trades were even more complex, needing coordination between
multiple banks and agents
What did the Transition to
Electronic Systems consist of?
Because of these problems, markets around the
world began transitioning to dematerialized systems and establishing central securities depositories (CSDs):
◦ DTCC (The Depository Trust & Clearing
Corporation) in the U.S.
◦ Euroclear and Clearstream in Europe
◦ Indeval in Mexico
What is the Indeval?
S. D. Institución para el Depósito de Valores, it is the Central Securities Depository (CSD) in Mexico.
It is a financial market infrastructure responsible for the safekeeping, settlement, and transfer of securities traded in the Mexican capital market.
Core functions
of INDEVAL
- Custody of Securities (electronic safekeeping)
- Trade Settlement
- Corporate Actions Management
- Maintenance of Ownership Records
- International Custody (via global custodians for
SIC)
What does the Core Function of the Indeval “Custody of Securities” consisits of?
Indeval holds all securities (stocks, bonds, ETFs, etc.) in dematerialized form, meaning no physical certificates.
It acts as a centralized ledger that securely stores the securities issued and traded in Mexico
What does the Core Function of the Indeval “Trade Settlement” consisits of?
After a buy/sell trade is executed, Indeval ensures the synchronous exchange of: Securities from seller to buyer ==>
Money from buyer to seller
This is called Delivery versus Payment (DvP), and it reduces settlement risk
What does the Core Function of the Indeval “Corporate Events
Management” consisits of?
Indeval processes Corporate Events such as:
◦ Dividend payments
◦ Stock splits
◦ Rights issues
◦ Mergers and Capital increase
What is the RNV?
Registro Nacional de Valores.
It is a public, official registry managed by Mexico’s financial
regulator, the CNBV (Comisión Nacional Bancaria y de Valores),
and it serves as the legal gateway for securities to be offered, traded, and distributed in the Mexican market
What are the core functions of the RNV?
- Register issuers (companies, governments, trusts, etc.)
- Register securities authorized for public or private
offering - Register financial intermediaries and advisors
- Ensure disclosure and transparency
- Support investor protection
What does the Core Function of the RNV “Registration of Issuers” consisits of?
Companies and government entities that issue securities must:
*Provide full documentation
The RNV confirms that the issuer has provided the required financial, legal, and risk information
What does the Core Function of the RNV “Registration of Securities” consisits of?
Before any security (stock, bond, ETF, etc.) can be sold or traded
in Mexico, it must be authorized by the CNBV and registered in
the RNV.
◦ Applies to both public offerings (mass market) and some private
placements.
◦ Once registered, the security can be listed on the Stock Exchange
What does the Core Function of the RNV “Registration of
Intermediaries” consisits of?
The RNV also keeps a record of:
◦ Brokerage firms
◦ Investment banks
◦ Advisors and analysts
◦ Investment funds
What does the Core Function of the RNV “Investor Protection” consists of?
By requiring accurate, updated, and audited information, the
RNV reduces the risk of:
*Fraud
*Misleading offers
*Poor corporate governance
It also enables the CNBV to monitor compliance and impose
sanctions if necessary
What does the Core Function of the RNV “Disclosure and
Transparency” consists of?
The RNV publishes information for public access, such as:
- Issuer details
- Financial data Prospectuses
- Relevant events (corporate changes, ratings, etc
What is the SIC?
The Sistema Internacional de Cotizaciones (SIC) is a
mechanism within the Mexican financial market infrastructure that allows Mexican investors to buy and sell foreign securities
Why does the SIC
exist?
Before the SIC existed, Mexican investors had to:
◦ Open brokerage accounts abroad
◦ Operate under foreign regulatory frameworks
◦ Deal with FX, tax and custody complexities
When was the SIC created?
The SIC was created in 2003 to solve this, allowing investors to access international securities locally — using Mexican brokers, peso-denominated trading, and Mexican custody systems, without the need for offshore accounts
How does the SIC work?
The SIC allows the cross-listing of securities that are:
* Listed on recognized foreign exchanges (e.g., NYSE,
NASDAQ, etc.)
* Approved by the CNBV
* Registered in a simplified form in the RNV
What are the key characteristics of the SIC?
- Traded in pesos, but reflect prices from foreign markets
- Accessible via Mexican brokerage firms
- Uses Indeval for settlement and custody
through foreign custodians - Investors have access to dividends and capital gains as if they held the asset abroad
Operational Flow of the SIC
- A Mexican broker requests a foreign security to be
available on the SIC. - The request is processed and validated by the
infrastructure operators and CNBV. - Once approved, the security is made available on BMV,
BIVA, or both. - Investors place orders through local brokers.
5.Indeval handles settlement, using international custodians
to hold the real shares. - Investors receive economic rights (dividends, price
movements, etc.)
Institutions involved in the SIC?
CNBV → Approves the foreign securities for public
offering in Mexico
RNV → Registers the foreign securities with limited
disclosure
BMV/BIVA → Enable trading on their platforms
Indeval → Handles custody and settlement via global
custodians
Brokers → Offer the securities to investors through normal channels
What is an ADR?
American Depositary Receipt:
An ADR is a negotiable certificate issued by a U.S. bank
It represents shares of a foreign company.
It allows U.S. investors to invest in foreign companies as if they
were U.S. stocks, without dealing with foreign exchanges,
currencies, or regulations.
The first ADR was created in 1927 by J.P. Morgan, with British
retailer Selfridges as the first issuer
How does and ADR work?
A U.S. depositary bank (e.g., BNY Mellon, Citi, JPMorgan) sets up an ADR program for a
foreign company.
The bank purchases or holds the foreign company’s shares through a custodian bank
in the home country.
It then issues ADRs in the U.S. market, representing the shares.
U.S. investors buy and sell these ADRs like any other U.S. stock, in USD, through regular
brokers
Key players in a ADR
- Depositary Bank: Issues ADRs inthe U.S.; manages dividends,
communications, conversions - Custodian bank: Holds the
underlying foreign shares in the
home country - Foreign company: (In sponsored ADRs) works with the depositary and provides disclosure
Types of ADRs
Sponsored:
* Created with the cooperation and approval of the foreign company
* Managed by a single depositary bank
* Traded on stock exchanges
Unsponsored:
* Created without the involvement of the foreign company
* Can be managed by multiple depositary banks
* Traded OTC
Can ADRs of
other countries
be traded on
the SIC?
Yes, ADRs from other countries can and are listed on the SIC.
From an operational perspective, it’s easier for Mexican brokers and custodians to mirror the ADR in the SIC than to deal with each country’s original shares and infrastructure
Can a stock with an unsponsored ADR later switch to a sponsored
ADR and be traded on a stock exchange (like NYSE or NASDAQ)
This process is known as “upgrading the ADR program” and it happens when a
company wants more visibility, better liquidity, or wants to raise capital in the
U.S.
◦ The foreign company decides to take control of its ADR program.
◦ It partners with a single depositary bank to create a sponsored ADR program
◦ The depositary bank cancels existing unsponsored ADRs and replaces them with the new
sponsored ones.
What does it mean that a Level III ADR “can raise capital” if the company already had an IPO?
It means the foreign company can issue new shares —
in the form of ADRs — to raise capital specifically in the
U.S
If a company raises
capital through a Level
III ADR in the U.S., are
those new shares only
traded in the U.S., or
can they also be
traded in Mexico?
It depends — but usually, they
can be traded in both markets,
depending on how the ADR
program is structured
Can shares move between
markets?
Yes — this is called ADR conversion:
◦ Investors can convert ADRs into local shares, and vice versa
What is
Abitrage?
Arbitrage is a strategy that involves taking advantage of a price difference for the same
or equivalent asset being traded in two or more different markets, by buying where the
asset is cheaper and selling where it is more expensive, simultaneously or nearly
simultaneously, to obtain a risk-free profit.
Characteristics of Arbitrage
- Helps eliminate price
inefficiencies between markets - Involves the same or identical
asset - Executed simultaneously (or
with minimal timing difference) - Carries no market risk
Barriers of Arbitrage
- Access to both markets is required (Brokerage and Bank account in both countries)
- Comissions: brokerage and
conversion fees - Currency Spread
What is a Stock Market
Indices?
A stock market index is a statistical indicator that measures the performance of a specific group of publicly traded stocks.
Main purpose:
To summarize the performance of a set of companies in a
single value so that we can understand how a market or
sector is doing without analyzing each individual stock
Main Indices In
Mexico
S&P/BMV IPC: Índice de Precios y Cotizaciones.
S&P/BMV INMEX: Índice México
S&P/BMV IMC 30: Índice de Mediana Capitalización
S&P/BMV IRT: Índice de Rendimiento Total
FTSE BIVA: Financial Times Stock Exchang
S&P/BMV IPC
The S&P/BMV IPC (Índice de Precios y Cotizaciones) is the main benchmark index of the Mexican stock market. It reflects the overall performance of the largest and most liquid companies listed on the Mexican Stock Exchange (BMV).
In 2015, the Mexican Stock
Exchange (BMV) signed an
agreement with S&P Dow Jones
Indices to adopt international index management standards. As a result, the IPC was rebranded as the S&P/BMV IPC.
S&P/BMV
INMEX
The INMEX Index is the second most representative equity index in the Mexican stock market, after the IPC.
Key Features:
* It is composed of 20 to 25 issuers.
* Each company must have a minimum market
capitalization of USD 100 million.
* No single stock can have a weight greater than
10% of the index.
* The index composition is reviewed every 6 months.
S&P/BMV IMC 30
The IMC 30 Index is a complementary index of the Mexican stock market that tracks the performance of 30 medium-sized companies.
Key Features:
◦ Composed of 30 issuers listed on the Mexican Stock Exchange
(BMV).
◦ Includes companies with smaller market capitalization compared
to those in the IPC.
◦ No single issuer can represent more than 15% of the index.
◦ The composition is reviewed annually.
S&P/BMV IRT
The IRT Index (Índice de Rendimiento Total)
reflects the total return performance of the
Mexican equity market by tracking the same
companies included in the S&P/BMV IPC.
Key Features:
◦ It reflects total return, including declared
dividends and other corporate actions such as
stock splits, rights, or spin-offs.
◦ The index composition is reviewed every 6
months, in line with IPC updates.
FTSE BIVA
The FTSE BIVA Index is the first Mexican index backed by FTSE
Russell, a globally recognized index provider. It aims to represent
the performance of the broad Mexican equity market, including
large-, mid-, and small-cap companies.
Key Features:
◦ It does not have a fixed number of constituents; the number of
companies may vary depending on eligibility.
◦ It includes companies regardless of the stock exchange on which they
are listed, whether BMV or BIVA.
◦ No single issuer may have a weight greater than 15% of the total
index.
◦ The index is rebalanced every 6 months
FTSE BIVA:
Issuer Selection
Stages
- Liquidity Rule:
◦ A liquidity screening process is conducted to filter out
companies with the highest average daily trading activity.
◦ Companies of any size may participate, regardless of whether
they are listed on BIVA or BMV.
◦ The screening also includes FIBRAs (REITs) and mortgage trusts. - Inclusion Level:
◦ A series of procedures are carried out using the liquidity
threshold and the liquidity test calculation method.
◦ This stage considers: The volume traded (total monetary value
of trades), and the number of trades (frequency of transactions)
per issuer.
◦ Issuers whose trading activity exceeds the inclusion threshold
are selected to be included in the index
Methodology
for Index
Construction
- Selection of issuers
- Percentage weighting
◦ Market capitalization (market weight)
◦ Stock Price (price weight
Point Measurements
Unlike stock prices, which are expressed in currencies (like pesos or dollars), stock indices
are measured in index points — a neutral unit of measurement that reflects the relative movement of the market, not the price of individual stocks or the exchange rate.
Purpose of
point-based
measurement
To standardize comparisons across time and across markets
To eliminate the influence of currency fluctuations
To express market performance in relative terms, rather than absolute monetary values
To align with international methodologies used
by major index providers like S&P, FTSE, MSCI, et
How does an Index
work?
Each index chooses a base date — a specific point in
time used as a reference.
On that date, the index is assigned a base value,
typically 100, 1,000, or 10,000 points.
From then on, the index tracks daily price variations
of its components.
Each variation is proportional to the movement in
the total market value of the companies it tracks.
These changes are reflected as increases or
decreases in index points.
Index Sector Classification
Since 2009, both Mexican and international issuers have been classified into 10 sectors to
facilitate analysis and comparison.
1. Energy: CFE Capital
2. Materials: Cemex
3. Industrials: Grupo Aeroportuario del Pacífico
4. Consumer Discretionary (Non-essential goods and services): Alsea
5. Consumer Staples (Essential products like food, hygiene, etc.): Grupo Bimbo
6. Health Care: Genomma Lab
7. Financials: Banorte
8. Information Technology: Megacable
9. Telecommunication Services: América Móvil
10. Utilities: IEnova.
