Circular 3/2021 — Contingent Financing from the Bank of Mexico Guaranteed with United States Dollars or Government Securities

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CIRCULAR 3/2021 addressed to Multiple Banking Institutions, regarding the Rules applicable to the contingent financing of the Bank of Mexico guaranteed with United States dollars or government securities.

A logo is placed at the margin, which says: Bank of Mexico - "2021: Year of Independence".

CIRCULAR 3/2021

TO MULTIPLE BANKING INSTITUTIONS:

SUBJECT: RULES APPLICABLE TO THE CONTINGENT FINANCING OF THE BANK OF MEXICO GUARANTEED WITH UNITED STATES DOLLARS OR GOVERNMENT SECURITIES

The Bank of Mexico, in the exercise of its powers, attends to the operations carried out by multiple banking institutions, as well as other financial intermediaries. Among such institutions, those that participate daily in the market for raising United States dollars in cash are included. In particular, such institutions, in exceptional cases due to causes not attributable to them, may face conditions in international markets that prevent them from placing such banknotes and coins in their country of origin. This could cause such institutions to reduce the supply of foreign exchange operations, which would cause effects on the public users of this service. In order to mitigate such exceptional effects, the Bank of Mexico has considered it convenient to offer multiple banking institutions that find themselves in the referred situation a contingent financing facility guaranteed with such currencies or with government securities.

With the offer of this facility, the Bank of Mexico continues to promote the sound development of the financial system and facilitate the proper functioning of payment systems, by avoiding disturbances in them. This facility will help multiple banking institutions that are in the referred situation to mitigate the impact caused in their operations with United States dollars in cash by the mentioned conditions. The measure would facilitate that foreign currency cash entering national territory through legitimate activities flows in a simple, safe, and economical manner, in support of those who receive such resources and their families, safeguarding the institutional scope and the integrity of the Mexican financial system.

For the above, based on articles 25, second paragraph, and 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 7, fractions I, II and X, 8, 14, first paragraph, 15, 16, 24 and 36, of the Bank of Mexico Law, 96 Bis of the Credit Institutions Law, 22 of the Law for Transparency and Ordering of Financial Services, 1, 4, first paragraph, 8, paragraphs fourth and eighth, 10, first paragraph, 14 Bis, first paragraph, in relation to 17, fraction I, 14 Bis 1, first paragraph, in relation to 25 Bis 1, fraction IV, and 19 Bis, fraction V, of the Internal Regulations of the Bank of Mexico, which grant it the attribution to issue provisions through the General Legal Directorate, the General Directorate of Affairs of the Financial System and the National Operations Directorate, respectively, as well as Second, fractions I, VI and X of the Agreement on the Assignment of Administrative Units of the Bank of Mexico, has resolved to issue the following provisions:

RULES APPLICABLE TO THE CONTINGENT FINANCING OF THE BANK OF MEXICO GUARANTEED WITH UNITED STATES DOLLARS OR GOVERNMENT SECURITIES

1. Definitions.
   For the purposes of these Rules, the terms used in these, in singular or plural, shall have the meanings indicated below, without prejudice to the different treatment given to similar terms in other regulations:

Single Account: the national currency demand deposit bank account that the Bank of Mexico maintains for each of the Institutions in accordance with what is provided in the Operational Provisions.

Custodian: the legal entity designated by the Bank of Mexico, which keeps Eligible Currencies in deposit and, in case the Institution fails to comply with the obligations derived from obtaining financing under any of the operations indicated in these Rules, must execute the guarantees.

Banking Business Days: the days in the calendar on which Institutions are not obliged to close their doors or suspend their operations, in terms of the general provisions issued for such effect by the National Banking and Securities Commission.

Operational Provisions:
the "Provisions Applicable to the Operations of Credit Institutions, Regulated Multiple-Object Financial Companies that Maintain Patrimonial Links with Credit Institutions and the National Development Bank for Agricultural, Rural, Forestry and Fisheries Development", issued by the Bank of Mexico through Circular 3/2012, published in the Official Gazette of the Federation on March 2, 2012, as modified by subsequent resolutions.

Eligible Currencies: the Dollars in cash owned by the Institution in question, which meet the characteristics indicated in Annex 1 of these Rules, for their use, by the same Institution, as guarantee for the obligations that result from its side for the financing that the Bank of Mexico grants it in accordance with these same Rules.

Dollars: the legal tender in the United States of America.

Guarantee Trust:
the one referred to in section 4.1 of these Rules.

Indeval: the S.D. Indeval, Securities Deposit Institution, S.A. de C.V.

Institutions: multiple banking institutions.

Manual: the operational manual to implement the operations provided for in these Rules, which the Bank of Mexico will make known to the Institutions through the internet portal located at the address: <http://webdgobc>.

Specialized Third Party: the legal entity whose professional and specialized activity allows the verification of banknotes and coins in the terms indicated in Annex 1 of these Rules.

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Government Securities:
to (i) Certificates of the Treasury of the Federation (CETES) issued by the Federal Government of the United Mexican States in the national market, excluding those issued under credit restructuring programs in UDIS (Special CETES); (ii) Development Bonds (BONDES) issued by the Federal Government of the United Mexican States in the national market, denominated in national currency, both at fixed interest rate, also known as "BONOS M", and at variable interest rate, also known as "BONDES D", and denominated in UDIS at fixed interest rate, also known as "UDIBONOS", including the coupons segregated from BONDES with fixed interest rate in pesos or in UDIS referred to in the "Rules for the Segregation and Reconstitution of Titles" issued by the Ministry of Finance and Public Credit; (iii) Savings Protection Bonds (BPAS) issued by the Institute for the Protection of Bank Savings regarding which the Bank of Mexico acts as financial agent for their placement in the national market; (iv) Monetary Regulation Bonds (BREMS) issued by the Bank of Mexico in the national market, and (v) to debt titles denominated in foreign currency issued by the Federal Government of the United Mexican States in international markets (BONOS UMS).

2. General terms and conditions
   These Rules apply to Institutions that acquire Dollars in cash as part of their ordinary operations and do not have the possibility to remit the respective amounts to a foreign financial entity for disposal. Such Institutions may request from the Bank of Mexico, in accordance with what is indicated in section 2.1 below, the contingent financing subject of these Rules, up to the amount indicated in section 3.3 below, with the guarantee of the proceeds from the sale of such currency that constitutes an Eligible Currency or Government Securities. The financing granted by the Bank of Mexico in response to such request will aim to avoid disturbances in payment systems and will be subject to the terms and conditions indicated in these Rules, through any of the following operations:

I. Simple credit guaranteed with Eligible Currencies entrusted in a guarantee trust and, if applicable, with stock pledge on Government Securities.
II. Simple credit with pledge guarantee on Eligible Currencies or, if applicable, on Government Securities.

For the corresponding Institution to obtain financing from the Bank of Mexico in accordance with these Rules, it must celebrate with the latter the applicable contracts for such purposes in accordance with what is provided in these same Rules, subject to the Bank of Mexico determining at its discretion the admissibility of the request, in accordance with what is indicated in section 2.1. Additionally, the referred financing will be subject to, once the Bank of Mexico notifies the Institution of the admissibility of the request presented by it, the respective guarantees are constituted and perfected to the satisfaction of the Bank of Mexico.

2.1. Conditions for granting financing.
The Institution interested in obtaining the financing from the Bank of Mexico referred to in these Rules must present, for this purpose, a request on any Banking Business Day, in accordance with the format and within the hours indicated in the Manual for these effects. Such request must be presented through the email indicated for these effects in the Manual, and must have the advanced electronic signature of the person holding the general directorship of the Institution, whose data are susceptible of verification through the corresponding digital certificate issued by the Tax Administration Service, or, by means of a written document presented at the address of the Bank of Mexico, indicated in the Manual, containing the autograph signature of said person. Likewise, the request may be signed by a legal representative of said Institution who has powers to perform acts of dominion, who must include their advanced electronic signature in the request presented by email or

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their autograph signature in the written request, as well as prove having informed, in writing, the holder of the general directorship of the Institution in question, about the presentation of the referred request.

At the time of presenting the request, the Institution must declare that the currencies that, if applicable, it offers as guarantee for the requested financing meet the requirements of Annex 1 of these Rules to be considered Eligible Currencies, subject to the verification carried out by the fiduciary institution of the guarantee trust or the Custodian in the case of the constitution of the pledge, as applicable in accordance with these Rules, directly or through a Specialized Third Party. Institutions that do not accompany their request with the referred declaration will not be able to access the requested financing.

The request must include, in addition to the information indicated above in this section, at least the following:

a) Proof that the requesting Institution is dedicated to carrying out, among others, operations to purchase Dollars in cash from the general public; b) Relevant information regarding the correspondent relationships of Dollars in cash that it has maintained with foreign financial institutions, which includes the denomination of said institutions, the date and term of contracting, as well as the amounts in Dollars in cash that the requesting Institution in question has remitted to such institutions within a period of twelve months prior to that in which the respective request is presented or in a shorter period, if the correspondent services were provided before the referred twelve months, as well as the maximum amounts that the latter have agreed to receive for their processing in accordance with said services; c) The documentation, including that sent or signed by the foreign financial institution corresponding to those indicated in the previous letter b), that proves that the respective Institution has suspended or terminated its contractual relationships for the correspondent services of Dollars in cash that it had available with the referred foreign financial institution, as well as the reasons why these correspondent services ceased to be provided to it, expressly indicating the circumstances that gave rise to this situation, in which it is proven that it originated from causes not attributable to the internal procedures of the requesting Institution, which must adhere to best banking practices; d) The declaration that the Institution complies with the regulation and supervision to which it is subject in matters of prevention and detection of acts, omissions or operations that could favor, provide help, aid or cooperation of any kind for the commission of any of the crimes provided for in articles 139 and 148 Bis of the Federal Penal Code or that could be located in the circumstances of article 400 Bis of the same Code, accompanied by the rest of the relevant documentation, which satisfies the following requirements:

i. The Institution must not have been subject to the imposition of a final sanction for infractions to said regulation, corresponding to a fine for infractions to the regulation referred to in this letter d), at least in the last three years prior to the date on which it presents the request to access the financing provided for in these Rules. In this case, as a condition for the admissibility of the request presented by the Institution, the infractions that gave rise to the referred sanction must not correspond to structural or relevant weaknesses or vulnerabilities of said Institution in the compliance with the indicated regulation.

In this declaration, it must be included that the Institution is in compliance with the General Provisions referred to in article 115 of the Credit Institutions Law, so it is not subject to the imposition of sanctions by the National Banking and Securities Commission, in the exercise of the supervision powers conferred on it for these effects by the Credit Institutions Law and other regulations.

ii. In case it has been sanctioned in accordance with the previous letter i., the Institution must prove that it has carried out the necessary actions to correct the causes that gave rise to the respective infractions. Such proof may be resolved through the result of the follow-up visit that the National Banking and Securities Commission has carried out to verify such situation, or by means of the presentation of a report prepared by an independent external auditor.

iii. In the event that the Institution in question has been notified by the National Banking and Securities Commission about a possible or presumed infraction to the regulation referred to in this letter d), the Institution must inform about this situation to the Bank of Mexico and

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present a report from an independent external auditor on the causes that gave rise to such notification, as well as on the viability of the correction plan that it must present for such effects, in the event that the referred Commission has required it.

iv. In case the Institution has not been subject to an inspection visit by the National Banking and Securities Commission in the matter referred to in this letter d) during the two years immediately prior to the date of presentation of the financing request, it must prove, by means of a report prepared by an independent external auditor, that it has the capacity to comply with the regulation contemplated in this same letter d) that is applicable to it.

Regardless of what is provided in letter d), the Bank of Mexico may request an independent external auditor that the Bank itself designates for such effect, at the expense of the accredited Institution, to verify at any time the compliance of said Institution with the regulation referred to in the previous letter d). In the event that, from the verification carried out by the referred external auditor, it is detected that the Institution has incurred infractions to the indicated regulation, which correspond to structural or relevant weaknesses or vulnerabilities of said Institution in the compliance with the indicated regulation, this will constitute a cause for early maturity of the credit granted by the Bank of Mexico, in terms of what is stipulated regarding this by the parties.

In the request that the Institution presents in accordance with this section, it must manifest its consent to be subject to the terms and conditions of these Rules, as well as specify the following: (i) the operations, among those provided for in section 2 of these Rules, that it requests to celebrate for this effect, and (ii) the Eligible Currencies or, if applicable, Government Securities that it offers as guarantee for the respective financing.

3. Common characteristics of financing operations.
   In addition to the particular characteristics corresponding to each of the financing operations that Institutions celebrate with the Bank of Mexico in accordance with these Rules, as indicated below, these must be subject to the following characteristics:

3.1 Term for the celebration of the financing operation.
The Institution in question will have a term of twenty Banking Business Days subsequent to that in which it presents the request referred to in the previous section, to celebrate the corresponding contracts for the financing operation, in accordance with the models provided by the Bank of Mexico, provided that the Institution complies with the requirements established for said request in accordance with section 2.1 above. In case of not celebrating the contracts within said term, the request will be considered not presented, without the need for notification to the respective Institution.

For the perfection of the respective financing, in case the Institution has offered currencies as guarantee, the Bank of Mexico will notify if such currencies are admissible to be granted as guarantee as Eligible Currencies, in accordance with these Rules, once the Bank of Mexico itself has obtained from the fiduciary institution of the Guarantee Trust or the Custodian, as applicable, the verification that the currencies granted by the Institution as guarantee meet the authenticity requirements based on Annex 1. To this effect, the fiduciary institution or the Custodian that corresponds may carry out the referred verification directly or through a Specialized Third Party, as agreed with the Bank of Mexico. Regardless of the above, the Bank of Mexico may carry out additional verifications to the previously referred one, directly or through the fiduciary institution or the Custodian that corresponds or, of the Specialized Third Party designated for this purpose. In any case, the Institution requesting the referred financing must cover the costs of the mentioned verifications.

In the referred notification in the previous paragraph, the Bank of Mexico will indicate the value that corresponds to the Eligible Currencies or Government Securities for this purpose, subject to the discount factors that the Bank of Mexico itself determines. The Bank of Mexico will communicate the above to the Institutions through the electronic, computing or telecommunications medium indicated for this effect by the Bank of Mexico itself in the Manual.

3.2 Terms of financing operations.
The term of the financing that Institutions celebrate with the Bank of Mexico will be up to ninety natural days, which may be renewed, at the request of the accredited Institution, for additional equal terms, without the accumulated term exceeding three hundred sixty natural days, and will be counted from the

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Banking Business Day on which the Bank of Mexico has credited the financing resources to the Single Account of the accredited Institution, which will correspond to the immediate next Banking Business Day after the guarantees are perfected. In the event that the Institution requests an extension of the term, it must indicate to the Bank of Mexico the specific actions it is undertaking to restore the correspondent banking service with foreign financial institutions, in order to be able to repatriate the Dollars to their country of origin.

3.3 Amount of the principal and applicable interest rate.
The amount of the principal of the financing operation, added to the estimated interest in accordance with the following section 3.4 and any other expenses generated by the implementation of the financing, may not exceed the equivalent value of the Eligible Currencies or Government Securities that the Institution has delivered as guarantee in favor of the Bank of Mexico, determined also in accordance with the provisions of section 3.4 of these Rules, notwithstanding the amount requested by the respective Institution. Additionally, the amount of the principal requested may not exceed the amount in cash Dollars that the respective Institution has deposited in foreign financial institutions under the correspondent banking services provided to it during the six consecutive calendar months prior to the one in which such Institution has presented to the Bank of Mexico the request referred to in the previous section 2.1, multiplied by a factor of 1.5. The aforementioned amount shall be reduced in proportion to that which has been subject to the suspension or termination of the correspondent banking service provided by the foreign institution in question. In the event that the Institution has started Dollar deposit operations in a period less than the aforementioned six months, the amount of the principal of the financing that, if applicable, is granted by the Bank of Mexico may not exceed the average of the amounts deposited during the corresponding months, multiplied by the factor indicated in this paragraph.

Likewise, the respective financing operation will generate interest daily on the amount of the principal, corresponding to a rate equivalent to the result of multiplying (i) the factor applicable to the calculation of the interest rate corresponding to guaranteed credits with deposits referred to in the “Rules applicable to the exercise of financing granted by the Bank of Mexico to cover additional ordinary liquidity needs”, issued through Circular 10/2015, published in the Official Gazette of the Federation on May 11, 2015, as modified by subsequent resolutions by (ii) the one-day interbank interest rate that the Board of Directors of the Bank of Mexico has determined as the target rate for monetary policy purposes, expressed annually and in percentage with rounding to two decimal places, made known on the internet website of the Bank of Mexico itself and which is in effect on each day of the validity of such operations from the moment of the disposal of the resources corresponding to the credit.

Regarding the financing operations provided for in these Rules, for the purpose of calculating interest, the aforementioned interest rate shall be divided by 360 and the result obtained shall be multiplied by the number of natural days effectively elapsed, and in turn, the previous result shall be multiplied by the amount of the principal of the operation that the respective Institution has effectively disposed of.

The financings that the Bank of Mexico grants to accredited Institutions through the operations referred to in these Rules shall be denominated in national currency.

3.4 Disposition of the amount of the financing operation, crediting of the respective resources, and valuation of the Eligible Currencies or, if applicable, of the Government Securities.
The Institution may dispose of the amount of the financing operation in question on the Banking Business Day following that on which the allocation of the Eligible Currencies to the Guarantee Trust or their delivery to the Custodian, in the case of the pledge, as well as, if applicable, the perfection of the pledge on the Government Securities. For this purpose, the Bank of Mexico, in accordance with what is established in the Manual, will make the credit of the amount equivalent to the principal amount of the financing in the Single Account held by the Institution. The value of the Eligible Currencies or of the Government Securities must cover, at all times, both the principal and the estimated interest and any other expense that arises from the implementation of the financing, in accordance with what is established in these Rules.

Valuation of Eligible Currencies and Government Securities and estimation of interest.
The value of the Eligible Currencies will be calculated each day applying the exchange rate determined by the Bank of Mexico, in accordance with Title Third, Chapter V, of the Operations Provisions, and that it publishes on that day on its internet portal, considering the corresponding discount factors that the Bank of Mexico makes known to the Institutions, through the internet portal located at: <http://webdgobc>. On the other hand, the value of the Government Securities will be determined daily in accordance with the prices and the corresponding discount factors that the Bank of Mexico makes known to the Institutions, through the aforementioned internet portal.

Additionally, the estimated interest will be calculated as follows:
The estimated interest will be those resulting from applying the corresponding interest rate in accordance with what is established in section 3.3 of these Rules, for which the target rate for monetary policy purposes made known on the Bank of Mexico’s internet page will be taken, from the date of perfection until the valuation date, assuming, for the purposes of this calculation, that such rate will remain constant during the remaining term of the financing. Additionally, in the event that, from the day of perfection of the financing until the agreed date of expiration of the financing term, the aforementioned target interest rate is modified by decision of the Board of Directors of the Bank of Mexico, the value of said rate will be taken as applicable for each of the days from the one on which it takes effect until the agreed date of expiration of the financing term. Without prejudice to the foregoing, the interest that the Institution receiving the financing must pay to the Bank of Mexico will be that resulting from the calculation performed, at the expiration of the financing, in accordance with what is indicated in sections 3.3 and 3.5 of these Rules.

The value of the Eligible Currencies or of the Government Securities given as guarantee will be determined daily, until such time as the accredited Institution settles the respective financing, in accordance with the valuation carried out by the Bank of Mexico in accordance with these Rules and, as a result of such determination, the following will proceed:

a) If the value of the Eligible Currencies or of the Government Securities, when applying the corresponding discount factor, results in less than the sum of the principal of the financing, the estimated interest and any other expense that arises from the implementation of the financing, the Bank of Mexico will notify said situation to the Institution in question, which must send a communication within the term and conditions established for this purpose in the Manual, in which it indicates the additional Government Securities that it will grant to the Bank of Mexico to cover the amount of the corresponding difference. The Institution must carry out, on the same Banking Business Day that the Bank of Mexico notifies that the shortage is applicable, the transfer of said Government Securities to the securities deposit account that the Bank of Mexico maintains in Indeval that is applicable, within the hours that Institutions can consult in the Manual.

The value of the additional Government Securities will be determined daily in accordance with what is indicated in the first paragraph of this section titled “Valuation of Eligible Currencies and Government Securities and estimation of interest”.

b) If the value of the Eligible Currencies or of the Government Securities initially given as guarantee plus the value of the additional Government Securities that the Institution has transferred to the Bank of Mexico’s securities deposit account in accordance with the previous subsection, when applying the discount factor that corresponds in each case, results in greater than the sum of the principal of the financing, the estimated interest and any other expense that arises from the implementation of the financing, the Institution may request the Bank of Mexico for the return of the excess Government Securities, through a communication sent to the Bank of Mexico in the terms of the Manual.

In the event that the Institution does not carry out the transfer of the Government Securities in accordance with what is referred to in the previous subsection a), on the Banking Business Day following the notification referred to in said subsection, the financing will be considered terminated early, in which case the Institution must make a payment for the uncovered amount derived from the corresponding difference between the sum of the principal of the financing, the estimated interest and any other expense that arises from the implementation of the financing, and the value of the Eligible Currencies or of the Government Securities given as guarantee, when applying the corresponding discount factor. Notwithstanding the foregoing, without prejudice to the corresponding conventional penalty for the uncovered amount, the Institution and the Bank of Mexico may celebrate a new financing with the remaining Eligible Currencies that the Institution had previously delivered to it for a term equal to the remaining term of the original operation.

3.5 Payment of the financing.

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The amount of the principal and the interest of the corresponding financing operation provided for in these Rules, and other expenses, at the expense of the Institution in question, will be payable at the maturity of the respective operation.

Once the financing has been fully settled, the obligations of the parties will be extinguished.

3.6 Early payment.
The Institution that enters into any financing operation in accordance with these Rules may, prior to the agreed maturity date for such operation, pay in full or in part the amounts owed by it by virtue of said operation.

In the event that the accredited Institution intends to make an early payment in accordance with the above, it must inform the Bank of Mexico thereof, through a communication prepared for such purposes in accordance with the format established for this purpose in the financing contract in question, with the advance notice and in the hours indicated for this purpose in the Manual. In said communication, the Institution that, if applicable, corresponds, must grant its authorization for the Bank of Mexico to charge the corresponding amount in the respective Single Account of the Institution. In the event that the accredited Institution makes the total payment of the amounts owed, upon the extinction of the obligations of the accredited Institution, the pledge right will be extinguished. In the event that the accredited Institution makes a partial payment of amounts owed, the pledge right will be extinguished with respect to the settled amounts, and will subsist with respect to the amounts owed.

3.7 Simple credit guaranteed with Eligible Currencies or Government Securities.
For the Institution in question to obtain the financing subject to these Rules through the guaranteed credits indicated in the previous section 2, it must previously enter into a simple credit contract with guarantee with the Bank of Mexico, which will have, at least, the following characteristics:

Grantor: The Bank of Mexico.
Grantee: The Institution that meets the requirements to obtain financing from the Bank of Mexico in accordance with these Rules.
Guarantee: The obligations of the Institution under the simple credit contract will be guaranteed through the Guarantee Trust constituted in accordance with section 4.1, to which the Institution will contribute the Eligible Currencies and, if applicable, the Government Securities, or by means of a pledge constituted on the Eligible Currencies and, if applicable, the Government Securities, in accordance with section 4.2.

Additionally, the Institution may agree with the Bank of Mexico to constitute a stock market pledge on Government Securities, in accordance with what is indicated in section 4.2, as a complement to the Eligible Currencies affected in the aforementioned guarantee trust.

3.8 Eligible Currencies in Guarantee.
The credit granted by the Bank of Mexico to the accredited Institution, as appropriate to the financing operation entered into by the Institution among those indicated in the previous section 2, will be guaranteed with Eligible Currencies indicated in Annex 1 of these Rules, which meet the characteristics described in said Annex, as well as with the Government Securities referred to in the previous section 3.4.

4. Particular characteristics of financing operations.
   In addition to the characteristics indicated in the previous section 3, the financing operations subject to these Rules must have the following particular characteristics:

4.1 Guarantee Trust.
The Institution that intends to obtain financing in terms of these Rules may agree with the Bank of Mexico that the Institution itself constitutes a Guarantee Trust in which it transfers the Eligible Currencies for the amount corresponding to said financing, based on a trust contract that will have the characteristics indicated in this section.

The Guarantee Trust will have as trustees, first, the Bank of Mexico, as creditor of the financing operation entered into by the Institution in question and, second, the accredited Institution.

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The accredited Institution must pay the fees of the fiduciary institution of the Guarantee Trust in terms of the respective contract, as well as all other costs related to the implementation of the trust and granting of the respective credit.

4.2 Pledge.
The Pledge will be constituted on the Eligible Currencies or Government Securities or a combination of both. Regarding Eligible Currencies given as guarantee, the parties will agree that the ownership of said Eligible Currencies will not be transferred to the Bank of Mexico as the pledgee creditor, in terms of article 336 of the General Law of Titles and Credit Operations. The Bank of Mexico will designate a Custodian, either a local or foreign institution, that offers custody services for the Eligible Currencies. Likewise, the parties will agree in the respective contract that the pledge will be sold extrajudicially in the event of default by the accredited Institution, in addition to the fact that the ownership of the Eligible Currencies will not be transferred to the Bank of Mexico when there is a default of the guaranteed obligations, therefore, if such default occurs, the Bank of Mexico, as pledgee creditor, will abstain from keeping the cash, up to the amount of the guaranteed obligations, without prejudice to the collection actions that proceed.

Regarding the Government Securities given as guarantee in accordance with these Rules, the Institution must constitute such guarantee through a stock market pledge with transfer of ownership in the terms and under the conditions provided in the contract that it celebrates for this purpose with the Bank of Mexico. In said contract, in accordance with what is provided by article 204 of the Securities Market Law, the parties must agree that, in the event that there is a default of the guaranteed obligations, the Bank of Mexico maintains the ownership of the securities granted in pledge up to the amount of the guaranteed obligations without the need for a judicial execution or resolution procedure and applies the amount of the securities granted in pledge to the payment of the payment obligations of the accredited Institution, considering them at their market value. The effect of such application to payment will be to extinguish the guaranteed obligations up to the amount of the market value of the securities granted in pledge.

For the perfection of the pledge on the Government Securities, the accredited Institution must deposit the Government Securities subject to said guarantee through a transfer instructed in accordance with what is established in the Manual, in the Bank of Mexico’s account that, for such purposes, it has opened in some institution for the deposit of securities. For the foregoing, the Institution must present to the Administrative Unit of the Bank of Mexico indicated in the Manual a mandate in favor of the latter in terms of the format included in the Manual, signed by whoever has the faculties to carry out acts of administration or dominion on behalf of the Institution, of which a copy must be sent to the corresponding securities deposit institution. The Institution must carry out the title deposits, before the time established in the Manual, on the Banking Business Day on which the Bank of Mexico has made known to it the amount of the respective guarantees.

Pledgee Creditor: The Bank of Mexico.
Pledgor Debtor: The Institution that meets the requirements to obtain financing from the Bank of Mexico in accordance with these Rules.
Guarantee: The pledge on the Eligible Currencies or Government Securities that the Institution indicates for such purposes, among which are the obligations of the Institution under the obtaining of the financing, provided that such Eligible Currencies or Government Securities indicated have, individually or jointly, as the case may be, sufficient balance to cover the principal and estimated interest and other expenses that arise from the implementation of the financing of the respective credit. The constitution of the aforementioned pledge will be without prejudice to what is established in article 16 of the Bank of Mexico Law. Costs: The accredited Institution will be obligated to cover all costs necessary for the implementation of the credit and the pledge in accordance with these Rules.

4.3 Execution of guarantees.
In the event that the Institution fails to meet the obligations corresponding to the financing it obtains in accordance with the operations indicated in fractions I and II of section 2 of these Rules, the fiduciary institution of the guarantee trust or the Custodian, as executor authorized by the Bank of Mexico,

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Mexico, as applicable, will be responsible for executing the Eligible Currencies that the Institution has provided as collateral through their alienation, in accordance with what is established in this regard in the corresponding contract, to cover the financing of the accredited Institution with the proceeds from said execution of guarantees. In the case of the stock pledge on Government Securities, its execution will be carried out in accordance with what is established in the respective contract.
Likewise, in the event that the Institution complies with the obligations under its charge within the terms and deadlines agreed upon for the referred financing, the Eligible Currencies subject to the guarantee trust or pledge, as applicable, will be released in favor of said Institution in accordance with what was agreed to that effect in the respective contracts.

5. General Provisions.
   5.1 Celebration of Contracts.
   To celebrate the financing subject to these Rules, interested Institutions must present to the Operations Instrumentation Management of the Bank of Mexico a certified copy of the deed in which the powers granted to their legal representatives to exercise acts of ownership are recorded, as well as the official identification of said representatives who sign the aforementioned contracts and the other documents indicated therein.

5.2 Responsibility of Institutions in the use of resources for problems arising from difficulties in repatriating foreign exchange.
Operations with resources obtained from the Bank of Mexico as a result of the operations provided for in these Rules, will be celebrated by the respective Institutions as a result of decisions that only they are responsible for taking, as part of the origin and evaluation process they carry out; therefore, the Bank of Mexico will be excluded from all responsibility for the decisions taken by the Institutions. Likewise, for the formalization of the referred credit operations, Institutions must comply with the applicable regulations, including that referred to in Article 115 of the Credit Institutions Law, corresponding to the prevention of operations with resources of illicit origin.

ANNEX 1
Eligible Currencies. The Eligible Currencies that Institutions may affect as collateral for the financing operations they celebrate with the Bank of Mexico, in accordance with these Rules, will be Dollars that meet, at least, the following characteristics and requirements:

I. Cash Dollars. The currencies must consist of bills and coins of legal tender in the United States of America. The integrity of the bags or containers in which the currencies are found must not be judged as compromised. If a package, or any part of it, shows a pattern of intentional mutilation or an attempt to defraud the Bank of Mexico, the package may be rejected, without prejudice to the corresponding procedure for allegedly counterfeit bills and coins.

II. Bills. Bills out of circulation, mutilated, or stained with ink will be returned to the Institution, and therefore cannot be considered as subject to the guarantee of the corresponding operation. Counterfeits will not be returned, but will be reported by the Bank of Mexico and delivered to the corresponding authorities.
The Institution undertakes not to send bills that are contaminated with chemical substances or harmful or dangerous substances, including, among others, pesticides or bodily fluids that may cause personal injury. If external tests show that the bills in question are contaminated bills and that the Institution that provided the bills had knowledge of said situation or, due to its processes, there was negligence regarding said knowledge about the contaminated bills, then, without prejudice to any contrary provision, the Institution that provided the bills will be responsible for all resulting losses and damages (including personal injuries). The Bank of Mexico through the Custodian may reject any shipment that it suspects may be contaminated.

III. Identification of cash deposits. The Institution must present the currencies according to their denomination. For denominations of $1 to $20 Dollars, the packages must be complete. If the Institution deposits denominations of $50 or $100 Dollars, it must be in complete straps or complete packages. For these purposes, a package consists of 1,000 bills of the

Friday, May 14, 2021 OFFICIAL GAZETTE 311 same denomination in ten equal straps. A strap is a package of 100 bills of the same denomination.
Each strap must have only one band around it. A band is a strip of paper used to join or hold a strap. The band must be color-coded (along the edges) in accordance with existing standards of the American Bankers Association (ABA).
The Institution is responsible for the counting of pieces, the verification of authenticity in accordance with the characteristics and requirements of this Annex, and the proper assembly and packaging of its coin deposit. Cash deposits that do not meet the criteria established after the judgment of the Independent Professional Appraiser will be rejected.
In addition to the characteristics and requirements previously mentioned, the fiduciary institution of the guarantee trust or the Custodian, as applicable, as well as the Specialized Third Party that carries out the verification of the bills and coins delivered by the Institution requesting a financing in accordance with the rules referred to in this Annex, may establish additional characteristics that such bills and coins must meet to be considered as Eligible Currencies based on the conditions observed in the domestic or foreign markets.

TRANSITORY PROVISIONS
FIRST. This Circular will enter into force on the Banking Business Day of its publication in the Official Gazette of the Federation.
SECOND. The financing operations celebrated between the Institutions and the Bank of Mexico in accordance with these Rules will remain in effect until their liquidation date, subject to what is provided in these provisions and to the contracts celebrated to that effect.
Mexico City, May 7, 2021.- BANK OF MEXICO: The General Legal Director, Luis Urrutia Corral.- Signature.- The General Director of Financial System Affairs, José Luis Negrín Muñoz.- Signature.- The Director of National Operations, Juan Rafael García Padilla.- Signature.
For any inquiries regarding the content of this Circular, the Bank of Mexico is at your disposal through the Directorate of Authorizations and Sanctions of Central Banking at phone (55) 5237-2000 extension 3200.