Circular 3/2017 — Rules for Foreign Exchange Hedging Auctions

(First Section) OFFICIAL GAZETTE Friday, February 24, 2017 BANCO DE MEXICO CIRCULAR 3/2017, addressed to Credit Institutions, regarding the Rules for Foreign Exchange Hedging Auctions.

A logo appears at the margin, stating: Banco de México.

CIRCULAR 3/2017

TO CREDIT INSTITUTIONS:

SUBJECT: RULES FOR FOREIGN EXCHANGE HEDGING AUCTIONS

The Bank of Mexico, based on Articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States; Articles 7, first paragraph, fraction X, and second paragraph; 14; 21, first paragraph; 22, fraction II; 24; and 32, of the Bank of Mexico Law; Article 22 of the Law for Transparency and Orderly Conduct of Financial Services; Articles 8, fourth and seventh paragraphs; 10, first paragraph; 12, in relation to Article 19 Bis, fraction V; and Article 19 Bis 1, fraction XI; and Article 14 Bis, in relation to Article 17, fraction I, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Directorate of Central Banking Operations and the General Legal Directorate, respectively; as well as Article 2, fractions VI and X, of the Agreement on the Assignment of Administrative Units of the Bank of Mexico; and in compliance with the agreement adopted by the Exchange Commission on the 21st of the current month and made known via press release on that same day, through which it instructed the Bank of Mexico to implement a foreign exchange hedging program payable at maturity by difference in national currency, has resolved to establish the terms and conditions under which such auctions, as well as the own foreign exchange hedging operations, shall be carried out, in accordance with the following:

RULES FOR FOREIGN EXCHANGE HEDGING AUCTIONS

CHAPTER I
PRELIMINARY PROVISIONS

1a. Purpose.- These Rules aim to establish the terms and conditions under which credit institutions may participate in the Foreign Exchange Hedging Auctions offered by the Bank of Mexico, as well as the other terms to which such institutions must adhere in the celebration and execution of the respective Hedges.

2a. Definitions.- For the purposes of these Rules, the following shall be understood:

I. BONDE: Development Bonds issued by the Federal Government of the United Mexican States, denominated in national currency or UDIS, both at fixed and variable interest rates.

II. BPA: Savings Protection Bonds issued by the Institute for the Protection of Bank Savings.

III. BREM: Monetary Regulation Bonds issued by the Bank of Mexico.

IV. CETE: Treasury Certificates of the Federation issued by the Federal Government of the United Mexican States, excluding those issued under credit restructuring programs denominated in UDIS (Special Cete).

V. Foreign Exchange Hedge: The operation resulting from the Auction conducted by the Bank of Mexico, which this entity enters into with the Assigned Institution, with the objective that, upon maturity of the term established in the Auction announcement, the latter assumes the obligation to pay the Bank of Mexico or acquires the right to receive from it, depending on whether the institution assumes a debtor or creditor position respectively, the amount in pesos that is due or in its favor, as applicable, equivalent to the settlement amount resulting from multiplying, in accordance with Rule 13a of these Rules, (a) the amount assigned in the Auction, by (b) the result of subtracting, from the Settlement Exchange Rate, the Assignment Exchange Rate, understanding that, when the value of said result is positive, the position of the Assigned Institution will be creditor, and if said value results negative, the referred position will be debtor.

VI. Single Account: The national currency deposit account that the respective credit institution maintains at the Bank of Mexico, in accordance with the Applicable Provisions to the Operations of Credit Institutions and the National Financial Development Agency for Agriculture, Rural, Forestry and Fisheries, issued by said Bank through Circular 3/2012, as well as modifications to said provisions issued subsequently.

VII. Deposits: i) monetary regulation deposits; ii) term deposits resulting from auctions that the Bank of Mexico conducts to receive term deposits; iii) term deposits celebrated in accordance with the procedure for determining the interbank equilibrium interest rate; or iv) deposits in the United States of America dollar account. For these purposes, the deposits referred to in items ii) to iv) correspond to those constituted in accordance with the Applicable Provisions to the Operations of Credit Institutions and the National Financial Development Agency for Agriculture, Rural, Forestry and Fisheries, issued by said Bank through Circular 3/2012, as well as modifications to said provisions issued subsequently.

VIII. Banking Business Day: The day on which credit institutions are not obliged to close their doors or suspend operations, in terms of the general provisions issued for such effect by the National Banking and Securities Commission.

IX. Dollar: The legal tender in the United States of America.

X. Guarantee: That constituted on the Deposits, as well as the stock pledge with transfer of ownership over the Securities, which Assigned Institutions must constitute to guarantee, in terms of Rule 16a of these Rules, the obligations incumbent upon them for the pending Foreign Exchange Hedges they have celebrated in the terms and conditions provided in the contract to that effect celebrated in accordance with Rule 5a of these Rules.

XI. INDEVAL: S.D. INDEVAL Institution for the Deposit of Securities, S.A. de C.V.

XII. Assigned Institution: The credit institution that, by virtue of the bids it has presented in an Auction in accordance with these Rules, has received some assignment of the Foreign Exchange Hedges offered in said Auction.

XIII. Bidding Institution: The credit institution that meets the requirements established in these Rules to present bids in the Auctions.

XIV. SAGAPL: The Guarantee and Reporting Administration System of SIAC-BANXICO.

XV. SIAC-BANXICO: The Bank of Mexico Account Holder Attention System.

XVI. SUBCAM-BANXICO: The Foreign Exchange Auction System of the Bank of Mexico.

XVII. Auction: The Foreign Exchange Hedging Auction conducted in accordance with the provisions of these Rules.

XVIII. Exchange Rate: That corresponding between the peso and the Dollar, expressed as the amount in pesos per one unit of Dollar.

XIX. Assignment Exchange Rate: The Exchange Rate corresponding to the bid presented by the credit institution that has resulted with an assignment in the respective Auction.

XX. Settlement Exchange Rate: The Exchange Rate corresponding to that applicable to settle obligations denominated in Dollars payable in the Mexican Republic, which the Bank of Mexico determines on the Banking Business Day of the maturity of the corresponding Foreign Exchange Hedge and publishes on its website located at www.banxico.org.mx on that same day, as well as in the Official Gazette of the Federation on the following Banking Business Day, in accordance with the provisions of the Applicable Provisions to the Operations of Credit Institutions and the National Financial Development Agency for Agriculture, Rural, Forestry and Fisheries, issued by said Bank of Mexico through Circular 3/2012, as well as modifications to said provisions issued subsequently.

XXI. Revaluation Exchange Rate: The Exchange Rate that the Bank of Mexico determines on each Banking Business Day, in accordance with the methodology included in Annex 1 of these Rules, corresponding to the value of the pending Foreign Exchange Hedges updated on that same day.

XXII. UDI: The unit of account, whose value in national currency is published by the Bank of Mexico in the Official Gazette of the Federation, in accordance with Articles Third of the "Decree by which obligations that may be denominated in investment units are established and reforming and adding various provisions of the Federal Tax Code and the Income Tax Law" and 20 Ter of the Federal Tax Code.

XXIII. Securities: BONDE, BPA, BREM, and CETE.

The terms mentioned above may be used in singular or plural, without it being understood that their meaning changes.

3a. Bidding Institutions.- Only credit institutions that meet the requirements established in Rule 5a of these Rules may present bids in the Auctions.

4a. Call for Auctions.- The Bank of Mexico will make the calls for Auctions known to the Bidding Institutions through SUBCAM-BANXICO, the website << http://webdgobc >>, or, in case said system is not available, through any other authorized electronic, computing, or telecommunications medium, as the Bank of Mexico will make known to the Bidding Institutions in due course.

In each of the calls referred to in this Rule, the Bank of Mexico will make known the characteristics of the Foreign Exchange Hedges that will be offered in the respective Auction, as well as the other necessary characteristics for the conduct of the corresponding Auction.

5a. Requirements to Present Bids in Auctions.- Credit institutions interested in participating in the Auctions must previously sign a contract with the Bank of Mexico by which, on the one hand, they agree to be subject to the terms and conditions applicable to Foreign Exchange Hedging operations they celebrate in accordance with these Rules, and on the other hand, establish the constitution of the Guarantees referred to in these Rules. For these purposes, credit institutions must present to the Operations Instrumentation Management a certified copy and a simple copy of the deed in which the powers to exercise acts of domain granted to the persons who will sign the respective contracts on behalf of the corresponding credit institutions are recorded, as well as a simple copy of the official identifications issued by some federal authority of said persons.

In each of said contracts referred to in the previous paragraph, the respective credit institution must authorize the Bank of Mexico to: (i) make charges or credits in the Single Account of said credit institution resulting in accordance with what is established in Rules 14a and 20a of these Rules, (ii) make the charge in said Single Account for the amount resulting from what is provided in Rule 16a of these Rules, and (iii) make the credit of accessories in the Single Account for the amount resulting in accordance with what is provided in Rule 19a of these Rules. The contract must be signed at least two Banking Business Days in advance of the date on which the institution intends to participate in the respective Auction.

6a. Types of Auctions.- Each of the Auctions may be:

a) Traditional: That in which each Bidding Institution presents its respective bid in the respective Auction without knowing the information of the bids presented by other Bidding Institutions. The Bidding Institution will receive information of the other bids until the Bank of Mexico makes known to all Bidding Institutions the results of the Auction in accordance with what is provided in Rule 12a of these Rules, or

b) Interactive: That in which all Bidding Institutions present their respective bids in the respective Auction with knowledge of the marginal assignment price from the moment the total amount of bids presented by the Bidding Institutions is equal to the amount offered in the respective Auction.

Both types of Auctions will be carried out based on a multiple-price assignment, that is, the offered amount of Foreign Exchange Hedges will be assigned starting from the highest bid, in terms of what is stated in Rule 11a of these Rules, understanding that the assignment of the corresponding bids will be carried out based on the Exchange Rate indicated by each Bidding Institution.

CHAPTER II
BIDS

7a. Characteristics.- Bidding Institutions must present competitive bids in each Auction, indicating in them the following:

a) The Exchange Rate, expressed in four decimals, that the Bidding Institution is willing to have established as the Assignment Exchange Rate for the Foreign Exchange Hedge celebrated as a result of the respective Auction, and

b) The amount in Dollars for which the Bidding Institution is willing to celebrate the Foreign Exchange Hedge, which must be, at minimum, one million Dollars or multiples of that amount.

8a. Limits of Bids.- For traditional auctions referred to in Rule 6a, item a), of these Rules, the sum of the amounts of bids presented by the same Bidding Institution in the same Auction must not exceed the total amount that the Bank of Mexico indicates in the call for said Auction as corresponding to the total Foreign Exchange Hedges that can be assigned.

9a. Presentation of Bids.- Each Bidding Institution may present one or more bids in an Auction conducted under the same call.

Interested Bidding Institutions must present their bids on the date and time indicated in the respective call, through SUBCAM-BANXICO.

In case bids cannot be presented through SUBCAM-BANXICO, the Bank of Mexico, exceptionally, will authorize their presentation, within the time established for the conduct of the respective Auction, by telephone communication with the staff of the Sub-Manager of National Exchanges or through any other electronic, computing, or telecommunications medium authorized for that effect by the Bank of Mexico, as the Bank of Mexico will make known to the Bidding Institutions in due course. Bidding Institutions that present bids under the supposition of this paragraph must confirm their bids in writing addressed to the National Operations Management of the Bank of Mexico, presented in a closed envelope, no later than 17:00:00 hours on the same Banking Business Day of the respective Auction, in a format substantially equal to the one attached to these Rules as Annex 2, accompanied by a letter of presentation, as applicable for each call of the respective Auction.

The aforementioned writing must be accompanied by the signature knowledge that the respective credit institution has previously registered at the Bank of Mexico.

10a. Effects of Bids.- The presentation of bids by Bidding Institutions in the respective Auctions constitutes evidence of their consent to celebrate the Foreign Exchange Hedges subject to said Auctions, in the terms and under the conditions established in these Rules and in the respective calls. In turn, the assignment of Foreign Exchange Hedges that the Bank of Mexico carries out in each Auction perfects said Foreign Exchange Hedges at the moment when the referred assignment is made known to the corresponding Assigned Institutions, and consequently, the latter are obliged to make the payments that, if any, result from said operations, as well as to comply with the other related obligations, in terms of these Rules.

Any bid presented in an Auction in accordance with these Rules has an obligatory character for the Bidding Institution that presents it and is irrevocable.

The Bank of Mexico may invalidate the bids it receives if they do not comply with these Rules or what is stated in the respective call; are not clearly legible; have amendments or corrections; or are incomplete or incorrect in any way.

Likewise, the Bank of Mexico may declare the Auction void or reject any bid if, in its judgment, the participation of the respective Bidding Institutions in said Auction, due to their characteristics, could produce inconvenient effects on the healthy development of the foreign exchange market or the financial system in general.

The Bank of Mexico may limit the participation of one or more Bidding Institutions when the bids they present do not comply with sound market practices.

CHAPTER III
ASSIGNMENT

11a. Assignment Criteria.- The Bank of Mexico will assign the respective bids in the corresponding Auctions, in descending order of the Exchange Rates indicated in the respective bids, without exceeding the total amount offered in the respective call. In case the value of the total bids exceeds said auctioned amount, only those with an accumulated value equal to this will be accepted.

In case two or more Bidding Institutions present their bids with the same Exchange Rate and that, in accordance with the order stated in the previous paragraph, they remain in the last place of assignment to cover the total amount offered by the Bank of Mexico in the respective Auction, such that the total amounts of bids with higher Exchange Rates do not reach to cover said offered amount, but the sum of the amounts of said last bids exceeds this last amount, the assignment of said last bids will be made pro rata according to the amount indicated in said bids, when it is a traditional Auction, or according to the order in which they were received when the corresponding Auction is interactive.

In case failures occur in the systems during the period between the presentation of bids and the moment when the results of the Auctions are made known, the Auction will be declared void, even in the case where the Bank of Mexico has received bids. In this supposition, the Bank of Mexico will call for a new Auction on the same day, by the same medium or, in the absence of provision of this, by any other electronic, computing, or telecommunications medium authorized for that effect by the Bank of Mexico and made known to credit institutions.

CHAPTER IV
RESULTS

12a. Report of Auction Results.- The Bank of Mexico will make available to the Bidding Institutions that have participated in an Auction, through SUBCAM-BANXICO or through any other electronic, computing, or telecommunications medium authorized for that effect by the Bank of Mexico and made known to Bidding Institutions, the results of the respective Auction, no later than ten minutes after the deadline for the presentation of bids. Such information will remain available to Bidding Institutions through the mentioned medium, until the general results of a new Auction are incorporated.

In the event that, due to force majeure or fortuitous event, SUBCAM-BANXICO cannot be used to make known the calls or inform the results of the Auctions, the Bank of Mexico will timely communicate the procedure that will be followed for such purposes.

CHAPTER V
SETTLEMENT

13a. Calculation of Settlement Amount.- The settlement of each Foreign Exchange Hedge celebrated by an Assigned Institution will be for the amount, in national currency, resulting from multiplying: (i) the amount assigned in the Auction to said Assigned Institution, by (ii) the result of subtracting, from the Settlement Exchange Rate, the Assignment Exchange Rate.

In the event that the Assignment Exchange Rate is lower than the Settlement Exchange Rate, the Assigned Institution will have the right to receive from the Bank of Mexico the settlement amount calculated in accordance with the previous paragraph, and in case the Assignment Exchange Rate is higher than the Settlement Exchange Rate,

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of Settlement, the Assigned Institution shall be obligated to pay the Bank of Mexico the respective settlement amount.

14th. Settlement.- On the second Banking Business Day following the maturity of each Foreign Exchange Coverage entered into by each Assigned Institution, the Bank of Mexico, in accordance with the authorization referred to in Rule 5th of these Rules, shall charge or credit, as applicable, in national currency, the settlement amount resulting in accordance with the previous Rule in the Unique Account of said Assigned Institution, subject to what is established in this regard in the Applicable Provisions to the Operations of Credit Institutions and the National Financial Development Bank for Agriculture, Rural, Forestry and Fisheries, issued by the Bank itself through Circular 3/2012, as well as modifications to said provisions issued subsequently.

On the maturity date of each Foreign Exchange Coverage entered into by each Assigned Institution and once the Bank of Mexico has published the Settlement Exchange Rate, it shall issue a call for a new Auction in accordance with what is provided in these Rules, for at least an amount equal to the Foreign Exchange Coverages that, in accordance with what is provided in the preceding paragraph, mature on the day of the Auction referred to in this paragraph.

CHAPTER VI
GUARANTEE AND EARLY MATURITY

15th. Determination of the value of Foreign Exchange Coverages.- The Bank of Mexico will calculate, on each Banking Business Day, the value of each of the Foreign Exchange Coverages entered into by the Assigned Institutions, as the equivalent result of multiplying: (i) the amount of the Foreign Exchange Coverage that was assigned in the corresponding Auction, by (ii) the result of subtracting, from the Revaluation Exchange Rate, the corresponding Assignment Exchange Rate. The value of those Foreign Exchange Coverages whose Assignment Exchange Rate is greater than the Revaluation Exchange Rate will be considered as owed by the respective Assigned Institution and, on the other hand, the value of those Foreign Exchange Coverages whose Assignment Exchange Rate is less than the Revaluation Exchange Rate will be considered as due to that same Assigned Institution.

Once the Bank of Mexico carries out the calculation of the value referred to in the preceding paragraph, for each Foreign Exchange Coverage entered into by the same Assigned Institution, it will calculate the aggregated value of all Foreign Exchange Coverages entered into by this one, as the result of the following arithmetic subtraction: (i) the sum of the amounts equivalent to the value of the Foreign Exchange Coverages owed by that Assigned Institution, minus (ii) the sum of the amounts equivalent to the value of those other Foreign Exchange Coverages due to that Assigned Institution.

The Bank of Mexico will inform, on the same day it carries out the calculation referred to in this Rule, to each of the Assigned Institutions that are parties to Foreign Exchange Coverages pending settlement, through the address << http://webdgobc >> or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico and made known to said Assigned Institutions, the Revaluation Exchange Rate used for the calculation of the value of the aforementioned Foreign Exchange Coverages, as well as the aggregated value of the valuations corresponding to all Foreign Exchange Coverages that resulted from the calculation provided for in this Rule.

16th. Guarantees of obligations owed by Assigned Institutions.- Assigned Institutions that enter into Foreign Exchange Coverages in accordance with these Rules shall be obligated to guarantee, until such time as the amounts of payments derived from said operations are settled, the fulfillment of the obligations that may arise against them in terms of what is provided in these Rules.

For the purposes of what is provided in the preceding paragraph, in the event that the aggregated value referred to in the previous Rule results in favor of the Bank of Mexico, it shall make known to the respective Assigned Institutions, on the same day it carries out the calculation provided for in that same Rule, through the address << http://webdgobc >>, the amount of the Guarantees that these must constitute to cover that part of the value of the respective Foreign Exchange Coverages that results as owed by said Assigned Institutions in accordance with the aforementioned Rule.

In order to constitute the Guarantees referred to in this Rule, the valuation of the Securities that will be taken into account for said Guarantees will be determined in accordance with the methodology and procedure described in Annex 3 of these Rules, which shall be applied depending on the type of Security involved, as well as on the corresponding parameters that the Bank of Mexico makes known to the Assigned Institutions through SAGAPL or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico and made known to said institutions.

The Assigned Institution that must constitute the Guarantees in accordance with what is provided by this Rule shall, in the case of:
a) Securities: under the terms and conditions provided in the contract celebrated for this purpose in accordance with Rule 5th of these Rules and before the closing time of operations of INDEVAL on the Banking Business Day immediately following that on which the Bank of Mexico made known to it the amount of the respective Guarantees referred to in the preceding paragraph, deposit as security the Securities object of said Guarantee, through the transfer it carries out in the account of the Bank of Mexico that, for such purposes, it has opened in INDEVAL, and b) Deposits: send a request to the Bank of Mexico in a format substantially identical to the one attached to these Rules as Annex 4, no later than 16:00:00 hours on the Banking Business Day on which they intend to constitute the Guarantee, in which they indicate the type of Deposit they intend to affect as Guarantee, as well as the amount of each of them. In this case, the Bank of Mexico will verify the availability of the Deposits to be granted as Guarantee. Regarding Guarantees constituted over Deposits, the Assigned Institution must request that, for such purposes, the respective amounts be segregated into a special account for guarantees for Foreign Exchange Coverages that it enters into with the Bank of Mexico. Regarding deposits in the US dollar account, the value of this Guarantee will be determined by applying the exchange rate published by the Bank of Mexico in the Official Journal of the Federation on the date of constitution of said Guarantee minus the discount factor that the Bank of Mexico makes known to the Assigned Institutions through the internet site located at the address <http://webdgobc>.

The document referred to in this subsection must show knowledge of signature, so that said signatures must be previously registered at the Bank of Mexico.

In the event that the Assigned Institution referred to in the preceding paragraph does not constitute the respective Guarantees within the deadline established in said paragraph, the Bank of Mexico will charge, for each day of delay, the next Banking Business Day, in the Unique Account of said Assigned Institution, as a conventional penalty, the equivalent to one percent of the unguaranteed amount.

17th. Procedure for substitution of Securities.- Assigned Institutions may substitute the Securities they have deposited as guarantee in accordance with what is provided in the previous Rule, for which they must send a request to the Bank of Mexico in accordance with Annex 5 of these Rules, no later than 13:30:00 hours on the Banking Business Day immediately prior to that on which they intend to carry out the substitution, in which they indicate the Securities to be substituted and the new Securities they intend to deliver to the Bank of Mexico, provided that the amounts resulting from the corresponding valuation of said Securities are equivalent. In this case, the Bank of Mexico reserves the right to reject or accept said request.

The document mentioned in the preceding paragraph must show knowledge of signatures, so that said signatures must be previously registered at the Bank of Mexico itself.

18th. Withdrawal of excess guarantees.- In the event that the amount corresponding to the valuation of the Securities object of the Guarantees constituted by an Assigned Institution in accordance with what is provided in Rule 16th of these Rules is superior to the part determined by the Bank of Mexico of the aggregated value of the Foreign Exchange Coverages that said Guarantees must cover, the Assigned Institution may request the Bank of Mexico for the return of Securities or the termination of the Guarantee constituted over the Deposits for the excess amount corresponding, through communication in a format substantially identical to the form included in Annex 6 or Annex 7 of these Rules, as applicable, presented no later than 14:15:00 hours on the Banking Business Day on which it requests to receive said Securities or to consider terminated the Guarantee over Deposits. In the event that the Bank of Mexico receives the aforementioned request after the hour indicated in this paragraph, it will carry out the transfer of the respective Securities to the next Banking Business Day subject to the valuation carried out in accordance with these Rules.

The document mentioned in the preceding paragraph must show knowledge of signatures, so that said signatures must be previously registered at the Bank of Mexico itself.

19th. Crediting of accessories.- In the event that the Bank of Mexico obtains any payment corresponding to any accessory right, such as interest or coupon payment, derived from the Securities deposited in the guarantee account or from the Deposits referred to in Rule 16th of these Rules, the Bank of Mexico itself will credit the respective amount in the Unique Account of the Assigned Institution that has constituted the Guarantee in question. The Bank of Mexico will carry out the crediting referred to in this paragraph on the same Banking Business Day on which it has received the payment of said accessory rights, provided that such receipt occurs no later than 16:00:00 hours on that day. In the event that the Bank of Mexico receives the aforementioned payment after the indicated schedule, it will carry out the crediting in the Unique Account of the corresponding Assigned Institution on the next Banking Business Day.

20th. Early Maturity.- The Bank of Mexico reserves the right to terminate, in advance, some or all of the Foreign Exchange Coverages entered into with an Assigned Institution, in the event that this fails to comply with the obligation to constitute Guarantees referred to in Rule 16th of these Rules. In this case, the Bank of Mexico will send a written communication to the Assigned Institution that is a party to that Foreign Exchange Coverage, with at least one Banking Business Day's advance notice to the date on which the Foreign Exchange Coverage is to be considered terminated.

The Bank of Mexico will terminate the Foreign Exchange Coverages referred to in this Rule in the following manner:
a) The Bank of Mexico will determine the market value of the Foreign Exchange Coverage entered into with the Assigned Institution in question in accordance with what is provided in Rule 15th of these Rules, corresponding to the Banking Business Day on which it intends to be considered terminated. The Bank of Mexico will make known to the Assigned Institution the referred market value, on the date of early maturity; b) The Bank of Mexico will credit or charge, the amount corresponding according to what was determined in the previous subsection a), in the Unique Account of the respective Assigned Institution, as applicable, in accordance with what is provided in Rule 14th of these Rules; c) The Bank of Mexico will consider terminated the Guarantee constituted over the Deposits and will return the respective resources to the type of Deposit corresponding, and d) The Bank of Mexico will request INDEVAL to transfer the Securities object of the Guarantees that correspond to release to the account held by the respective Assigned Institution, once that, in accordance with what is provided in the previous subsection b) or in any other way, the debts derived from the early maturity of the Foreign Exchange Coverages have been fully covered.

CHAPTER VII
GENERAL PROVISIONS

21st. Modifications to the Auction.- The Bank of Mexico may modify the dates, times and deadlines mentioned in the calls in the event that circumstances occur that prevent strict observance of the procedure and other acts related to the Auction in question. In such an event, the Bank of Mexico will inform about the referred modifications through SUBCAM-BANXICO or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico and made known to credit institutions.

22nd. Assignment of rights and obligations.- Assigned Institutions that have entered into any Contract may not assign the rights and obligations to which said Contracts refer.

23rd. Operations with the public. Credit institutions that enter into Foreign Exchange Coverage operations referred to in these Rules shall be subject, among others, to the applicable regulations on foreign exchange risk position and investment regime included in the Applicable Provisions to the Operations of Credit Institutions and the National Financial Development Bank for Agriculture, Rural, Forestry and Fisheries, issued by the Bank of Mexico through Circular 3/2012, as well as modifications to said provisions issued subsequently.

Likewise, those credit institutions that intend to enter into, on their own account, operations with their clients in terms substantially similar to the Foreign Exchange Coverages shall be subject to what is provided by the Rules for the Realization of Derivative Operations issued by the Bank of Mexico through Circular 4/2012, as well as modifications to said rules issued subsequently.

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ANNEX 1
DETERMINATION OF THE REVALUATION EXCHANGE RATE

Foreign exchange differential for the day with term calculated based on information published at 11:00 hrs. New York in the Bloomberg information system, according to the following identifiers 1:
Identifier Example for 1 month
MXN[term] F110 Curncy MXN1M F110 Curncy

ANNEX 2
MODEL FOR CONFIRMATION OF BIDS PRESENTED TO PARTICIPATE IN THE FOREIGN EXCHANGE COVERAGE AUCTION

(CREDIT INSTITUTION LETTERHEAD)
Mexico City, on _____ of ___________ of ________

BANK OF MEXICO
NATIONAL OPERATIONS MANAGEMENT
5 de Mayo Avenue number 6
Centro Neighborhood,
Mexico City, C.P. 06059.
Present.

Full denomination of the Credit Institution: ___________________________________________ Date of the corresponding Auction: ___________________________ (date of the assignment that, if applicable, corresponds to the Auction) Settlement date: ___________________________ (maturity date of the Foreign Exchange Coverage in question)

1 Bank of Mexico may modify, if necessary, both the source of information and the references used for the calculation of the Revaluation Exchange Rate.

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Exchange Rate
(pesos per one unit of Dollar expressed in four decimals) Bid amount (minimum one million Dollars or its multiples) _________________ _________ _________________ _________ _________________ _________ _________________ _________ _________________

This communication certifies the confirmation of the bids presented to the Bank of Mexico today by the credit institution on whose behalf this same communication is signed to participate in the Foreign Exchange Coverage Auctions, which correspond to those referred to the data preceding. With respect to this, this credit institution certifies its recognition that the bids indicated in this communication are mandatory for the institution itself and irrevocable, will produce the widest effects in law, and imply the acceptance of the credit institution itself to be subject to the "Rules for the Foreign Exchange Coverage Auctions", issued by the Bank of Mexico through Circular 3/2017, in force today, as well as to the other terms and conditions of the call dated ______ of ______________________ of ______. The terms included in the present communication with initial capital letters have the meanings assigned to them in the cited Rules.

Sincerely,
(FULL DENOMINATION OF THE BIDDER INSTITUTION)
(NAME AND SIGNATURE OF AUTHORIZED OFFICIALS)

(Primera Sección) DIARIO OFICIAL Viernes 24 de febrero de 2017

ANNEX 3
VALUATION OF SECURITIES

1. General valuation procedure.
   The Bank of Mexico will carry out the valuation of the Guarantee using the information sent to it daily by price providers (Providers) with whom it has the respective agreement. For the purpose of determining the valuation of the Securities that will be used to guarantee the Foreign Exchange Coverages referred to in the "Rules for the Foreign Exchange Coverage Auctions", contained in Circular 3/2017 of the Bank of Mexico, it may apply to each Security a discount factor on the valuation price obtained in accordance with the procedure described in this Annex. If applicable, the referred discount factors will be those corresponding to one-day term operations and will be made known to the Bidding Institutions by the Central Bank itself.

The valuation of fixed income Securities will be carried out by calculating a weighted average of the prices of the Providers, using random weights. The weighters are generated from a uniform distribution and subsequently normalized to ensure that the Bank of Mexico's valuation price is between the lowest and highest prices calculated by the Providers.

For each outstanding issuance, its dirty price, that is, including accrued but unpaid interest, as well as its clean price, that is, without including accrued but unpaid interest, will be determined.

1.1 Set of Securities to be valued in accordance with the procedure provided for in this section (Price Vector).
The valuation will be carried out for the following Securities:

• BONDE;
• BPA;
• BREM, and
• CETE.

1.2 Calculation of the Price Vector.
The valuation prices will be calculated as follows 2:
A) If for Security x on the valuation date t there is at least 2 valuations from the Providers, the Bank of Mexico will determine the clean valuation price of that Security in accordance with the following equation:
For each Security, on each valuation date, new weighters must be determined. The dirty prices in this case will be calculated using the same weighters as for the clean prices.

2 The Bank of Mexico may use same-day, 24-hour or 48-hour prices.

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B) If for Security x on the valuation date t there is information only from the i-th Provider, the clean valuation price that the Bank of Mexico will determine for that Security will consider the clean price of that single Provider, modified in accordance with the following equation:
C) If for the valuation date there is no information from any Provider for Security x, the Bank of Mexico will determine the clean and dirty valuation prices of that Security by repeating the one from the previous day.

2. Procedure to value Securities in their first placement.
   When there are no valuation prices from Providers, the Bank of Mexico will value the Securities in their first placement using the unique prices or rates or the weighted average rates or prices resulting from the respective auction.

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ANNEX 4
COMMUNICATION TO THE OPERATIONS MANAGEMENT DEPARTMENT TO REQUEST THE SEGREGATION OF DEPOSITS IN THE FOREIGN EXCHANGE COVERAGE GUARANTEES ACCOUNT

(INSTITUTION LETTERHEAD PAPER)
Mexico City, on __ of___ of 20__

BANK OF MEXICO
Operations Management Department
5 de Mayo Avenue, number 6
Centro Neighborhood,
Mexico City, C.P. 06059
Present.

By means of this, for the purposes of what is established in Rule 16th of the "Rules for the Foreign Exchange Coverage Auctions issued by that Bank of Mexico through Circular 3/2017, I request the Bank of Mexico on behalf of (Full denomination of the credit institution), to carry out the actions that result necessary so that it segregates from the Deposits indicated below, the corresponding amounts in the deposit account for Foreign Exchange Coverage guarantees that it holds at this Institution, in order to guarantee our position owed from Foreign Exchange Coverage operations carried out based on the cited Circular.

TYPE OF DEPOSIT AMOUNT
Regulatory monetary deposits: $_______________________ Term deposits derived from auctions that the Bank of Mexico carries out to receive term deposits:
$_______________________
Term deposits celebrated in accordance with the procedure for the determination of the equilibrium interbank interest rate:
$_______________________
Deposits in the United States dollar account:
$_______________________

Sincerely,
Name, signature and position of the official or officials of the Institution with powers to exercise acts of dominion

C.c.p.: Operations Support Department
Sub-management of Operations Management with Account Holders

This communication may be directed to the email accounts indicated below:
Email Account rcanojau@banxico.org.mx ncastro@banxico.org.mx gtorresn@banxico.org.mx

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Friday, February 24, 2017 OFFICIAL JOURNAL (First Section)
ANNEX 5
COMMUNICATION TO THE OPERATIONS MANAGEMENT DEPARTMENT TO REQUEST THE SUBSTITUTION OF VALUES Mexico City, on __ of ___ of 20__ BANCO DE MÉXICO Operations Management Department 5 de Mayo Avenue, number 6 Centro Neighborhood, Mexico City, C.P. 06059 Present.
By means of this document, for the purposes of what is established in the 17th of the "Rules for Foreign Exchange Hedge Auctions" issued by that Banco de México through Circular 3/2017, on behalf and for the account of my represented entity, [FULL NAME OF THE CREDIT INSTITUTION, INCLUDING, IF APPLICABLE, THE FINANCIAL GROUP TO WHICH IT BELONGS], we communicate the request to carry out the substitution of the Values that this institution, in its capacity as Assigned Institution in accordance with said Rules, provided as collateral for the obligations under its charge under the Foreign Exchange Hedges, celebrated as a result of the assignment of the bids presented by this same institution in the auctions carried out in accordance with the cited Rules. To this effect, the Values that this Assigned Institution requests to be returned are the following 1:
[For each of the Values considered, indicate the following fields] ISIN NUMBER OF TITLES* NOMINAL VALUE* TYPE OF VALUE ISSUER SERIES* CURRENCY MATURITY DATE Mandatory fields.
The Values that will be delivered in substitution are the following: 1 [For each of the Values considered, indicate the following fields] ISIN NUMBER OF TITLES NOMINAL VALUE* TYPE OF VALUE ISSUER SERIES* CURRENCY MATURITY DATE CREDIT RATING LAST AVAILABLE PRICE OR VALUATION *Mandatory fields.

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1 A list of the Values for which their return is required, as well as those that will substitute them, is attached to this document, in electronic format [only comma-separated text files (.csv) or Excel files (.xlsx) will be accepted]. This list includes the following information for each of the titles considered: ISIN, NUMBER OF TITLES, NOMINAL VALUE, TYPE OF VALUE, ISSUER, SERIES, CURRENCY AND MATURITY DATE, CREDIT RATINGS AND THE LAST AVAILABLE PRICE OR VALUATION. Sincerely, (Name of the Assigned Institution) (Name and signature of persons with signatures previously registered at Banco de México)

(First Section) OFFICIAL JOURNAL Friday, February 24, 2017
ANNEX 6
COMMUNICATION TO THE OPERATIONS MANAGEMENT DEPARTMENT TO REQUEST THE RETURN OF VALUES Mexico City, on __ of ___ of 20__ BANCO DE MÉXICO Operations Management Department 5 de Mayo Avenue, number 6 Centro Neighborhood, Mexico City, C.P. 06059 Present.
By means of this document, for the purposes of what is established in the 18th of the "Rules for Foreign Exchange Hedge Auctions" issued by that Banco de México through Circular 3/2017, on behalf and for the account of my represented entity, [FULL NAME OF THE CREDIT INSTITUTION, INCLUDING, IF APPLICABLE, THE FINANCIAL GROUP TO WHICH IT BELONGS], we communicate the request that those Values be returned to this institution, in its capacity as Assigned Institution in accordance with said Rules, which were provided as collateral for the obligations under its charge under the Foreign Exchange Hedges, celebrated as a result of the assignment of the bids presented by this same institution in the auctions carried out in accordance with the cited Rules and which correspond to the excess amount over that referred to as the Guarantees calculated in accordance with those same Rules. Values for which their return is requested: 1 [For each of the titles considered, indicate the following fields] ISIN NUMBER OF TITLES* NOMINAL VALUE* TYPE OF VALUE ISSUER SERIES* CURRENCY MATURITY DATE *Mandatory fields. Sincerely, (Name of the Assigned Institution) (Name and signature of persons with signatures previously registered at Banco de México) _____________________________ 1 A list of the titles for which their return is requested is attached to this document, in electronic format [only comma-separated text files (.csv) or Excel files (.xlsx) will be accepted]. This list includes the following information for each of the titles considered: ISIN, NUMBER OF TITLES, NOMINAL VALUE, TYPE OF VALUE, ISSUER, SERIES, CURRENCY AND MATURITY DATE.

Friday, February 24, 2017 OFFICIAL JOURNAL (First Section)
ANNEX 7
COMMUNICATION TO THE OPERATIONS MANAGEMENT DEPARTMENT TO REQUEST THE TERMINATION OF THE GUARANTEE CONSTITUTED ON THE DEPOSITS (PAPER WITH THE LETTERHEAD OF THE CREDIT INSTITUTION) Mexico City, on __ of ___ of 20__ BANCO DE MÉXICO Operations Management Department 5 de Mayo Avenue, number 6 Centro Neighborhood, Mexico City, C.P. 06059 Present.
By means of this document, for the purposes of what is established in the 18th of the "Rules for Foreign Exchange Hedge Auctions" issued by that Banco de México through Circular 3/2017, I request that Banco de México, on behalf of (Full name of the credit institution), carry out the actions that may be necessary for the termination of the Guarantee constituted on the Deposits indicated below, the corresponding amounts of the deposit account for Foreign Exchange Hedge Guarantees that it holds at this Institution in order to guarantee the position under our charge for Foreign Exchange Hedge operations celebrated in accordance with the aforementioned Circular, which are mentioned below:
TYPE OF DEPOSIT AMOUNT
Monetary regulation deposits: $_______________________ Time deposits derived from the auctions that Banco de México carries out to receive time deposits: $_______________________ Time deposits celebrated in accordance with the procedure for determining the equilibrium interbank interest rate: $_______________________ Deposits in the United States dollar account: $_______________________ Sincerely, Name, signature and position of the official or officials of the Institution with authority to exercise acts of dominion c.c.p.: Operations Support Directorate Sub-Department of Operations Management with Account Holders This communication may be directed to the email accounts and fax numbers indicated below:
Email account rcanojau@banxico.org.mx ncastro@banxico.org.mx gtorresn@banxico.org.mx TRANSITORY SINGLE.- These Rules shall enter into force the day following their publication in the Official Journal of the Federation.
Mexico City, on February 22, 2017.- The General Director of Central Banking Operations, Jaime José Cortina Morfín.- Initials.- The General Legal Director, Luis Urrutia Corral.- Initials.
For any queries regarding the content of this Circular, please contact the Department of Authorizations, Consultations and Legal Control, at the phone numbers (55) 5237-2308, (55) 5237-2317 or (55) 5237-2000, extension 3200.