On September 30, 2020, the Mexican Central Bank (Banxico) published in the Federal Official Gazette Regulation 36/2020 addressed to securities issuers and Securities Depository Institutions, governing the electronic issuance of securities required to be deposit in Securities Depository Institutions (the “Rules”).
Terms used with initial capital letter that are not specifically defined herein, shall have the meaning attributed to them in the Rules.
Rules purpose
Considering the economic impact originated by the COVID-19 contingency, and with the purpose of continuing to promote the healthy development of the financial system and the proper performance of the payment systems, Banxico deemed necessary to create a procedure to govern the electronic issuance of global certificates required to be deposited in Securities Depository Institutions.
Through the Rules, Banxico established a procedure for the electronic issuance of securities, as well as the characteristics and security requirements that such securities must meet.
Securities Market Law
Subject to Article 282 of the Securities Market Law (Ley del Mercado de Valores, the “Law”), securities required to deposited in Securities Depository Institutions may be issued through multiple certificates or in a single global certificate that represents all or a portion of the securities subject to the issuance and deposit.
According to such Article, global certificates may be issued electronically as data messages with an advanced electronic signature in accordance with the Code of Commerce (Código de Comercio)1 and according to the general rules issued by Banxico, in this case, the Rules.
Securities’ requirements
Electronic Global Certificates. Electronic global certificates are single or multiple certificates that represent all or a portion of an issuance of securities required to be deposited in Securities Depository Institutions, that comply with the requirements in the Rules to be considered as issued electronically for the purposes of Article 282 of the Law.
Electronic Global Certificates that meet such requirements will create the same effects as certificates issued physically and with wet signatures; therefore, they are equally admissible as evidence in court.
Content of the Data Message. For purposes of the issuance of Electronic Global Certificates, the Data Message created by the Issuer for delivery to a Securities Depository Institution shall include, in addition to the specific requirements under the applicable regulation to the relevant type of security, the following: (i) type of securities; (ii) ticker number or issuance code; (iii) corporate name of the Issuer; (iv) number of securities of the issuance; (v) issuance amount, par value and currency; (vi) place and date of issuance; (vii) place and date of payment, if applicable; (viii) series; (ix) maturity date, if applicable; (x) discount or interest rate, if applicable; and (x) Issuer’s account for the deposit of the Electronic Global Certificates.
Electronic Signature. The signatory of the Issuer and, to the extent applicable, any additional parties that participate in the issuance of Electronic Global Certificates (e.g. common representative), must create an Electronic Signature through the Qualified Information System (Sistema de Información Calificado), which signature will be attached to the Data Message that constitutes the electronic certificate.
Deposit of Securities
Agreement between the Issuers and Securities Depository Institutions: Electronic Global Certificates held in deposit with Securities Depository Institutions must be issued in accordance with agreements executed between the relevant Issuer and Securities Depository Institution, establishing the issuance procedure under the Rules.
Additionally, prior to the issuance, Issuers that intend to issue Electronic Global Certificates must deliver to the relevant Institution the Qualified Digital Certificates of the authorized Signatories to represent the Issuer, as well as the Qualified Digital Certificates2 of all the parties that participate in the issuance, such as common representative, guarantor or endorsers, having the Issuer the obligation to obtain such certificates from the relevant parties for their delivery to the Securities Depository Institution.
Encryption and decryption of Data Messages. In order to protect the Data Message, it must be encrypted through the Qualified Information System (Sistema de Información Calificado), prior to its delivery to the relevant Securities Depository Institution. Such delivery can be done through email or any infrastructure technology implemented for such purposes by the relevant Institution.
Securities Depository Institutions will perform the necessary procedures to decrypt the Data Message in order to verify: (i) the authenticity of the Qualified Digital Certificates corresponding to Electronic Signatures; (ii) the integrity of the Data Messages; and (iii) the sufficiency of the information in the Data Message.
Upon completion of the corresponding verification, the relevant Securities Depository Institution will add its Electronic Signature to the Data Message. At the time the Electronic Signature is attached, the Securities Depository Institution will assign the corresponding ISIN Code and will safeguard the Data Message in its Electronic Vaults.
Deposit of Securities. The Securities Depository Institution must safeguard Electronic Global Certificates in no less than four different Electronic Vaults. The Electronic Vaults must be located in at least three different geographic locations with different risk profiles. The Securities Depository Institution must also maintain two of the referred Electronic Vaults in synchronization and the rest of the Electronic Vaults asynchronized, with a latency period of no more than two seconds.
Data Messages referred to in the Rules shall be considered Electronic Global Certificates as of their safeguard in these two synchronized Electronic Vaults.
Securities Registration. Electronic Global Certificates will be credited by the Securities Depository Institution in the Issuer’s securities issuance account or, otherwise, in the account of the financial intermediary that deposited the securities on the Issuer’s behalf. Upon its registration by the Securities Depository Institution, it will send the Issuer and, if applicable, to the financial intermediary, a Data Message with the Electronic Signature of the Securities Depository Institution containing a copy of the Electronic Global Certificate deposited, expressing that it has been electronically issued and deposited.
Precedents on Legal Acts executed through Electronic Means
There are various judicial precedents related to electronic agreements and, in general, execution of legal acts through electronic means. These precedents establish specific requirements for the recognition of such acts, such as the maintenance of logs compliant with technical specifications for their execution. It is important to follow-up the further interpretation of such precedents and resolutions by Mexican courts, as well as the manner in which the guidance derived from those precedents is applied to global certificates issued electronically.
Effectiveness of the Rules
The Rules became effective on October 1, 2020. However, Securities Depository Institutions have a 6-month period from the day of their effectiveness to submit to Banxico and the National Banking and Securities Commission a proposed draft amendments to their internal regulations to comply with the Rules.
A number of operative matters related to the issuance and deposit of Electronic Global Certificates is subject to the rules included in the internal regulations of Securities Depository Institutions; therefore, it will be necessary to wait until such internal regulations become effective for the implementation of the issuance and deposit of Electronic Global Certificates in accordance with the Rules.
1 In accordance with Article 89 of the Commercial Code (Código de Comercio), an “advanced electronic signature” is defined as the electronic data entered in a data message, or attached or logically associated to such message by any technology, used to identify a subscriber and indicate that such subscriber approves the information contained in the data message, and that creating the same legal effects as a wet signature, and admissible as evidence in a trial.
Likewise, in terms of Article 97 of the Code of Commerce (Código de Comercio), an electronic signature qualifies as “advanced” or “reliable” if it meets at least the following requirements: (i) the signature’s creation data correspond exclusively to the subscriber; (ii) the signature’s creation data were, at the time of signature, under the exclusive control of the subscriber; (iii) it is possible to detect any alteration after the time of the signature; and (iv) regarding the integrity of the information in a data message, it is possible to detect any alteration in the data message after it was signed.
2 Digital certificates issued by the Mexican Tax Administration Service (Servicio de Administración Tributaria) also known as “e.firma”, as well as any other digital certificates issued by Banxico or any authorized third party in accordance with the Extended Security Infrastructure Rules (Reglas de la Infraestructura Extendida de Seguridad, “IES”).
Shaanty Rubio Gonzalez (White & Case, Legal Intern, Mexico City) contributed to the development of this publication.
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