The stock market intermediaries
Institutions recognized by the Securities Market Act (LMV), as intermediaries of the stock market are:
- Brokerage houses
- Credit institutions
- Mutual Funds and Pension Funds
- Distributors of mutual funds shares and Financial Institutions authorized to act on the aforementioned character of distributors.
Brokerage firms are corporations engaged in securities brokerage, which includes connecting buyers and sellers of securities, doing proprietary trading or representing a third party in both, primary and secondary market. In order to be able to operate as a broker-dealer it is required an authorization from the CNBV.
Main activities of brokerage firms
Brokerage firms support the funding of companies providing issuance of securities’ advice and participating in initial public offerings (IPO) as an underwriter or as an investor’s representative.
After the IPO, they can provide market liquidity as market makers maintaining buying and selling positions continuously for certain securities.
On a day to day basis, they make buy-sell transactions, repo and securities lending, acting on their own or on behalf of their clients. To do these activities, brokerage firms can carry out the liquidation of operations, administration and custody of securities.
They also offer portfolio management services that include making investment decisions on behalf of their clients, providing market and securities analysis and making buy-sell securities recommendations to their clients; they can act as a fiduciary, trustee and executor of loans with pledge of securities; finally they can also act as distributors of mutual funds shares.
Products that brokerage firms can offer their customers also include derivatives, currencies and coined metals.
The permissible activities of brokerage houses are set by the Securities Market Act.
Obligations of the brokerage firms that operate on behalf of third parties
Brokerage firms that operate on behalf of clients must comply with various obligations under law, among the most important are: defining the risk profile of the investor, providing its customers with information regarding products and services offered as well as using the services of a proxy authorized to enter into transactions with the public.
Proxies to enter into transactions with the public
A proxy is a person authorized by the CNBV, who has the power given by a brokerage firm to enter into transactions with the public in compliance with brokerage contracts, trusts, mandates or commissions, as well as deposit and contract management values, which customers have signed with the broker.
To be approved, aspiring persons must prove to have technical quality, honesty and satisfactory banking credit history, which are verified by a self-regulatory body recognized by the CNBV. The association now authorized to perform these functions is the Mexican Securities Industry Association (AMIB).
Brokerage firms must identify the investment objectives of its customers and define their risk profiles taking into account their financial knowledge and experience, his track record in account management, investment horizon, financial situation and the restrictions established by the customer.
The financial products and services offered by brokerage firms should be classified according to their risk characteristics and determine which are right for each customer profile.
If operations or contracted services on behalf of a client are not consistent with its profile, the brokerage firm must have the consent of the client.
Public information regarding products or services offered
Brokerage firms, through their proxies, should inform their clients the risk involved in financial products or services offered, considering the defined profiles. They should also provide information of costs for the services they provide.
Última modificación: 25/10/2013