Exchange Traded Funds (ETFs)

Certificados Bursátiles Fiduciarios Indizados or Exchange Traded Funds ("ETFs") are securities issued by a Mexican trust, through a public offering in Mexico, that seek to replicate benchmark indexes with the objective of obtaining returns (before expenses) similar to those of the corresponding benchmark index. Since their invention in the 1990s, ETFs have become one of the most attractive investment products for different classes of investors. In Mexico, ETFs date back to 2002, with the issuance and listing of NAFTRAC on the Mexican Stock Exchange. The ETF market has expanded due to product's benefits, some of the main ones being:

• Diversification. ETFs allow investors to diversify their portfolio by investing in a basket of securities of different classes.
• Cost. By replicating the benchmark index, ETFs have lower management costs compared to mutual funds and investment funds.
• Transparency. ETFs are transparent in terms of portfolio composition and the changes made to the portfolios, allowing investors to better monitor and understand the ETFs' performance.
• Liquidity. ETFs are traded on stock exchanges, making them easily accessible to investors and giving them the flexibility to buy and sell at any time, regardless of the hour.

ETFs are regulated by the Mexican Securities Market Law and its secondary regulations, particularly the "Circular Única de Emisoras" and other general provisions issued by the National Banking and Securities Commission ("CNBV"). Therefore, ETFs must be registered at the National Securities Registry ("RNV") and listed on one of the Mexican stock exchanges. ETFs are structured as fiduciary stock certificates, meaning that the issuing entity is an irrevocable trust that, through a public offering, offers the certificates to previously authorized participants (i.e., brokerage firms) so that they can subsequently place them on the secondary market. Subsequent to the initial public offering, each authorized participant may submit creation or redemption orders for one or more units of ETFs, pursuant to which that authorized participant will transfer the relevant basket(s) of securities (as set forth in the portfolio composition file then in effect) to the trustee in exchange for the certificates corresponding to such unit(s). Throughout the life of the ETF, the investment manager will ensure that the ETF maintains an appropriate portfolio composition of securities in order to replicate the respective benchmark.

Note that it is possible to invest in foreign ETFs from Mexico through the International Quotations System. Foreign ETFs are not subject to an initial public offering in Mexico nor need to be registered at the RNV. However, they must be listed on a foreign securities market recognized by the CNBV.

ETFs are an attractive way to invest due to their diversification, low costs, transparency and liquidity. In addition, their structure and CNBV regulation provide investors greater security and protection.

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