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AMIB Members

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Executives

Global Market

Confirmation of trades with foreign brokers acting on behalf of unidentified third parties, drafting orders in the equity market.

In a meeting of the Executive Committee of AMIB with the President of the CNBV, the authorities remarked on the need to review the scheme of trading with foreign participants.
In various meetings held with CNBV officials, we were asked:

• To prepare a self-regulatory rule under which brokerage firms use a standard-form "confirmation letter for trades with foreign clients."
• Analyze the changes suggested by the Vice President for Legal Affairs, under the terms of the new Securities market Act.
• Analyze the changes suggested by the General Department of Prevention of Illegal Trading, in order to include a statement by the client regarding compliance with standards of the Anti-Money Laundering Financial Action Group and other organizations with which Mexico and the countries where our clients reside are affiliated.
• We were also asked to hold a subsequent meeting with those officers in order to agree on the final text to be used in that self-regulatory rule.
• In the meantime, we would suggest that brokers immediately begin to use the format so that the matter did not have to wait until approval of the self-regulatory rule.

On these bases, members of the Legal Affairs Committee of AMIB were presented with the following information:

• A Technical Note from the CNBV containing its recommendations.
• A Technical Support Note regarding the CNBV recommendations.
• A text of the confirmation letter that industry representatives had agreed upon.
• Proposed text of the clause suggested by the anti-money laundering area of the CNBV, which reads:

"THE CLIENT states that it is subject to and in compliance with obligations similar to those established in the General Provisions referred to in article 52 Bis-4 (now 212) of the Securities Market Act, and that it has therefore introduced due diligence measures with regard to its clients, on the basis of which it assumes that the funds or securities involved in the transaction carried out under the terms of this document, come from lawful sources.  In addition, THE CLIENT agrees to provide THE BROKERAGE FIRM with information and documentation regarding the identity and its knowledge of those clients, whenever it is so requested for the purpose of complying with the above-mentioned General Provisions, particularly as regards the identification and knowledge of the final beneficiary or real owner of the funds or securities involved in this transaction."

On this matter, a standard was proposed, in which the trading areas would collect the client's signature, which would make the information consistent and resolve the problem of client identification.

The Board of Directors, some committees and the special work group assembled for this purpose agreed that the trading areas would describe the procedure for trading with foreign brokerage firms who trade on behalf of unidentified clients, so a document was prepared and the new version of the standardized procedure was submitted to the CNBV.

In August, in a meeting with the office of the CNBV's Vice President for Compliance, it was agreed that the authorities' remarks would be incorporated into the confirmation letter for foreign clients.
The new proposal was intended to provide a standard document that included a signature (or legal equivalent) providing more security as to the risk described in Mexican legislation, and which would meet minimum contract requirements.

In September, the Legal Affairs Committee was asked to analyze the proposal that included the suggestions of the authorities and brokerage firms, and in October the note was submitted to the CNBV for its consideration, containing reasonable standards on this issue.

Finally, after having been vetted by all the parties involved, the proposed minimum procedure document was presented to the CNBV's Vice President for Compliance, who passed on the comments of the authorities.  On this basis we prepared the final draft of the self-regulatory rule to standardize the procedure and establish minimum requirements for this type of trade. >>