Circular 1/2008 — Modifies Circular 2/2005

“2008, Year of Physical Education and Sport” CIRCULAR 1/2008 Mexico, D.F. on January 4, 2008. TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT COMPANIES AND SPECIALIZED INVESTMENT COMPANIES FOR RETIREMENT FUNDS: SUBJECT: MODIFICATIONS TO THE RULES FOR THE SWAP OF FIXED-RATE FEDERAL GOVERNMENT DEVELOPMENT BONDS.

The Bank of Mexico, in its capacity as financial agent of the Federal Government, based on what is provided in articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 3, fraction III, 7, fraction I, 8, 14 and 24 of the Bank of Mexico Law; 22 of the Law for Transparency and Orderly Conduct of Financial Services; 8th, 10, 17, fraction I and 19, fraction IX, which provide for the attribution of the Central Banking Dispositions Directorate and the Operations Directorate to participate in the issuance of dispositions, respectively, all of the Internal Regulations of the Bank of Mexico published in the Official Gazette of the Federations on September 30, 1994, whose last modification was published in the aforementioned Official Gazette on April 26, 2007, as well as in the Single Article, fraction I of the Agreement on the Assignment of Administrative Units of the Bank of Mexico published in the Official Gazette of the Federations on October 15, 1998, whose last modification was published in the aforementioned Official Gazette on April 26, 2007; as well as in terms of Office 305.-159/2007 of December 27, 2007, through which the Ministry of Finance and Public Credit through the Public Credit Unit instructs this Central Bank to act in its capacity as financial agent of the Federal Government, to carry out the necessary acts to include in the “Rules for the swap of Fixed-Rate Federal Government Development Bonds”, contained in Circular 2/2005 of September 29, 2005 and its modifications, the Federal Government Development Bonds denominated in Investment Units (UDIBONOS) as securities susceptible to being the object of the swaps contemplated therein, and with the object of continuing to promote the development of the internal debt market, has resolved: to modify the Title of the aforementioned Rules; the definitions of Bonds and Net Long Position; the numerals 1, second paragraph; 2, first and second paragraphs in their clauses c), d) and e); 3.; 4,

2 first paragraph, 5.1; 5.2, first paragraph; 5.31; 6.1, second paragraph; 6.2; 6.3, paragraphs second, third and fourth; 7, first and third paragraphs; 8.1; 8.2, and 8.3; Appendix 1, last paragraph; and Appendix 2, first and second paragraphs; as well as add the definitions of Udibonos, UDIS and Appendix 3, all of the “Rules for the Swap of Fixed-Rate Federal Government Development Bonds”, contained in Circular 2/2005, to read as follows:

“RULES FOR THE SWAP OF FIXED-RATE FEDERAL GOVERNMENT DEVELOPMENT BONDS AND FEDERAL GOVERNMENT DEVELOPMENT BONDS DENOMINATED IN INVESTMENT UNITS”

Bonds: Federal Government Development Bonds, issued in pesos, with fixed interest rate. Net Long Position: the sum of the own position plus the securities to be received by repo or securities lending minus the securities to be delivered by repo or securities lending; Udibonos: Federal Government Development Bonds denominated in investment units, and UDIS: the investment units referred to in the “Decree establishing the obligations that may be denominated in Investment Units and reforming and adding various provisions of the Federal Tax Code and the Income Tax Law”, published in the Official Gazette of the Federations on April 1, 1995.”

1. Bidders. “… The person who has a Net Long Position, at nominal value, greater than 60% of the amount in circulation of the Bonds or Udibonos subject to the swap, must refrain from submitting bids.

3 …”

2. Call for Bids. “The Bank of Mexico will make available to bidders the calls for auctions for the swap of Bonds or Udibonos (Auctions), two business days before the date of the respective Auction, starting at 12:00 hours, through its electronic page on the worldwide network (Internet) identified by the domain name: www.banxico.org.mx or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico, unless the Bank announces another date or time for any particular call. … c) The issue keys of the Bonds or Udibonos that bidders may offer in the Auctions for their swap; d) The maximum amount of Bonds or Udibonos that the Federal Government is willing to accept from bidders, and e) The issue keys of Bonds or Udibonos that the Federal Government will offer in the Auctions for their swap, as well as the date and time when the prices at which such securities will be offered will be announced.”

3. Types of Auctions. “The Auctions may be: a) Single-price: those in which the Bonds or Udibonos will be assigned starting from the most convenient bid in terms of price for the issuer and all bids that result in assignment will be served at the same price, or b) Multiple-price: those in which the Bonds or Udibonos are assigned starting from the most convenient bid in terms of price for the issuer and the bids that result in assignment will be served at the unit price indicated in the bid itself.”

4. Prices.

4 “The Bank of Mexico will announce to bidders the prices of the Bonds or Udibonos that the Federal Government offers for their swap, through its Internet electronic page or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico. …”

5. Bids. 5.1 Types of Bids. “Each bid must be competitive and indicate: a) the issue key of the Bond or Udibono that the bidder offers for swap and the unit price at which the bidder is willing to deliver for each Bond or Udibono offered, expressed up to five decimal places; b) the total amount at nominal value in amounts expressed in thousands of pesos or UDIS, rounded to five thousand pesos or UDIS or their multiples, of the Bond or Udibono that the bidder offers, and c) the issue key of the Bond or Udibono intended to be acquired in the swap.”

5.2 Bid Limits. “The sum of the amounts of the bids presented by each bidder, for each call, shall not exceed the maximum amount of Bonds or Udibonos that the Federal Government is willing to accept from bidders. …”

5.3 Submission of Bids. “5.31. Interested parties must submit their bids on the date and time indicated in the corresponding call, through the Bank of Mexico Account Holder Attention System (SIAC-BANXICO); through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico, or in requests prepared according to the models attached as “Appendix 1” and “Appendix 3” of these Rules, as applicable. The access, identification and, if applicable, operation keys established for the use of electronic computing or telecommunications media will substitute the autograph signature with an electronic one, so that documentary or technical records where they appear will produce the same effects that the laws grant to documents signed by the parties and, consequently, will have equal probative value.

5 Bids submitted according to the models provided for in the Appendices referred to in the previous paragraph, must be delivered to the National Operations Management of the Bank of Mexico, in a closed envelope accompanied by a letter of presentation. Both documents must be signed by the same representatives, duly authorized by the bidder, and the aforementioned letter must show the knowledge of signatures granted by the Cash Account Operations Office of the Bank of Mexico, so that such signatures must be registered in the cited Office.”

6. Assignment. 6.1 Single-price Auction. “… The single price for the Auction of the Bonds or Udibonos offered by bidders for their swap, will be that corresponding to the last bid that receives assignment, even if it has not been fully served in its amount.”

6.2 Multiple-price Auction. “Bids will be assigned according to the ascending order of the corresponding unit prices without exceeding the maximum amount indicated in the call. In case of receiving assignment, the Bonds or Udibonos of each bid will be assigned precisely at the unit price indicated in the bid in question.”

6.3 Common Provisions. “… The Federal Government may determine in any Auction, the maximum unit price at which it is willing to receive the Bonds or Udibonos subject to the swap. In these cases, bids with prices higher will not be served. The Federal Government may declare any Auction completely void, in which case no bid will receive assignment of Bonds or Udibonos.

6 The amounts of the Bonds or Udibonos to be delivered by each bidder who has received assignment will be at nominal value, rounded to thousands of pesos or UDIS.”

7. Results. “The Bank of Mexico will inform each bidder individually, through SIAC-BANXICO, no later than sixty minutes after the deadline for the submission of bids for the Auction, the quantity of Bonds or Udibonos that must be delivered, as well as the quantity of Bonds or Udibonos that will be received, indicating the amounts thereof. … Starting from the settlement date of the swap in question, the Library Services Office of the Bank of Mexico will make available to interested parties information on the bids received in each Auction and the amount of Bonds or Udibonos assigned to each of them, without indicating the name of the bidder. The historical information corresponding to all Auctions carried out by the Bank of Mexico will be made available to interested parties in the Office mentioned.”

8. Settlement of Auctions. 8.1 “The Federal Government, through the Bank of Mexico, acting as its financial agent, based on articles 2312 and 2331 of the Federal Civil Code, will reserve ownership of the Bonds or Udibonos subject to the swap that it must deliver, until the moment it receives from the bidder the Bonds or Udibonos corresponding.”

8.2 “The settlement date of the swaps will be that established in the call. On the day of settlement, the Bank of Mexico will instruct S.D. Indeval, Institution for the Deposit of Securities, S.A. de C.V., (Indeval) to: a) make the corresponding charge in the securities account of the credit institution or brokerage house in question, for the total of Bonds or Udibonos that must be delivered to the Federal Government, in terms of what is provided in the following paragraph, and b) credit the cited account with the total of Bonds or Udibonos that must be received. What is provided in this paragraph will be carried out in terms of what is provided in the Indeval Internal Regulations. The persons referred to in clauses c), d) and e) of numeral 1. above, must deliver and receive the corresponding Bonds or Udibonos, through a credit institution or brokerage house. To this effect, the credit institution or brokerage house that the bidders have

7 designated, must send to the National Operations Processing Management of the Bank of Mexico a communication in terms of “Appendix 2”. For the purposes of the foregoing, all of the Bonds or Udibonos that bidders who have received assignment are obligated to deliver must be deposited in the securities accounts corresponding, no later than 15:30:00 hours on the day the swap is settled. Bidders who: i) do not have the total amount of Bonds or Udibonos that must be delivered in the designated account at the time referred to in the previous paragraph, or ii) submit bids in contravention of what is provided in the second and third paragraphs of numeral 1 of these Rules, must cover the conventional penalties corresponding according to what is established in the following paragraph. In the first case, the Bank of Mexico may, without the need for a judicial declaration, rescind the swap for the missing amount, so that no corresponding credits and charges will be made in the securities accounts at Indeval. Without prejudice to the above, the Bank of Mexico in both cases may disqualify the respective bidder from participating in the Auctions. In the cases referred to in the previous paragraph, the conventional penalties will be, with respect to numeral i) the equivalent to one percent of the nominal amount of the Bonds or Udibonos that were not delivered on time to the Federal Government, and with respect to numeral ii) the equivalent to one percent of the nominal amount of the Bonds or Udibonos corresponding to the bids submitted. These conventional penalties will be charged on the settlement date of the respective Auction in the account that the Bank of Mexico holds for the non-compliant bidder or the institution or brokerage house authorized by said bidder in terms of “Appendix 2”.”

8.3 “The settlement of Bonds or Udibonos, as applicable, issued prior to the placement date must be carried out by adding to the assigned unit price the accrued unpaid interest, from the date of their issuance or from the last interest payment as applicable, until the settlement date, according to the following formula: (1) Where:

8 = Accrued Interest VN = Nominal Value of the security. d = Days elapsed between the date of issuance or last interest payment, as applicable, and the settlement date. c = Annual interest rate of the Bond or Udibono expressed in percentage terms. For each bid assigned within call i, bidders will deliver the quantity of Bonds or Udibonos assigned in the swap, , and will receive from the Federal government Bonds or Udibonos in swap of series j requested. is determined by: (2) Where: is the price assigned by bidders for the Bond or Udibono offered in swap in call i. is the quantity of accrued unpaid interest of the Bonds or Udibonos offered in swap by bidders in call i and calculated according to formula (1) above. is the price fixed by the Federal Government for the Bond or Udibono of series j that it offers in swap.

9 is the quantity of accrued unpaid interest of the Bond or Udibono of series j offered in swap by the Federal Government and calculated according to formula (1). is the quantity of Bonds or Udibonos to be delivered by bidders for each bid assigned in call i. is the quantity of Bonds or Udibonos of series j to be received by bidders for each bid assigned in call i. It will be truncated to the nearest lower integer. In case of that the total value of the Bonds or Udibonos to be delivered by the bidder is greater than the total value of Bonds or Udibonos to be received in swap, the difference in favor of the bidders mentioned in clauses a) and b) of numeral 1., will be paid on the settlement date of the swap by credit to the account that the Bank of Mexico holds for them. Regarding the bidders referred to in clauses c), d) and e) of the cited numeral 1., cash differences in their favor will be deposited in the account that the Bank of Mexico holds for the credit institution or brokerage house they designate according to “Appendix 2” of these Rules.”

10 APPENDIX 1 MODEL REQUEST TO PARTICIPATE IN THE AUCTION FOR SWAP OF FIXED-RATE FEDERAL GOVERNMENT DEVELOPMENT BONDS (BONDS) “… The aforementioned bids are mandatory and irrevocable; they will produce the broadest effects that correspond in law, and imply our acceptance to all and each of the “Rules for the Swap of Fixed-Rate Federal Government Development Bonds and Federal Government Development Bonds denominated in Investment Units” in force, as well as to the terms and conditions of the call dated ____ of _____________ of 200_. …”

APPENDIX 2 MODEL LETTER OF INSTRUCTIONS TO CHARGE THE ACCOUNT OF CREDIT INSTITUTIONS OR BROKERAGE HOUSES “… (DENOMINATION OF THE CREDIT INSTITUTION OR BROKERAGE HOUSE), authorizes and instructs in an irrevocable manner the Bank of Mexico to process on our behalf, in the securities account it holds for us at S.D. Indeval, Institution for the Deposit of Securities, S.A. de C.V., the settlement of the swap operations of Bonds or Udibonos that, as a result of the Auctions for the swap of said Bonds or Udibonos, must be delivered and received by (DENOMINATION OF THE BIDDER). Likewise, it authorizes and instructs in an irrevocable manner that Central Bank to: a) in case of existing cash differences in favor of (DENOMINATION OF THE BIDDER) derived from the swap operations mentioned in the previous paragraph, be deposited in (the Single Account or Cash Deposit Account) in national currency that said Bank holds for us, and b) make the charges that, if applicable, proceed, in the aforementioned account, for the payment of the conventional penalties that (DENOMINATION OF THE BIDDER) must cover in terms of what is provided in the “Rules for the Swap of Fixed-Rate Federal Government Development Bonds and Federal Government Development Bonds denominated in Investment Units” in force. …”

11 “APPENDIX 3 MODEL REQUEST TO PARTICIPATE IN THE AUCTION FOR SWAP OF FEDERAL GOVERNMENT DEVELOPMENT BONDS DENOMINATED IN INVESTMENT UNITS (UDIBONOS) REQUEST ON OWN ACCOUNT Mexico, D.F., on ____ of ____ of 200__. Bidder Name: _____________________________ Bidder Key at the Bank of Mexico: _____________________________ Issue Key of the Udibono willing to deliver: ___________________ BIDS: Unit Price Total Amount Issue to Receive .___ __________ thousands of UDIS ________________ .___ __________ thousands of UDIS ________________ .___ __________ thousands of UDIS ________________ .___ __________ thousands of UDIS ________________ .___ __________ thousands of UDIS ________________ PRICES must be expressed up to FIVE decimal places. PRICES are exclusive of accrued interest. The aforementioned bids are mandatory and irrevocable; they will produce the broadest effects that correspond in law, and imply our acceptance to all and each of the “Rules for the

12 Swap of Fixed-Rate Federal Government Development Bonds and Federal Government Development Bonds denominated in Investment Units” in force, as well as to the terms and conditions of the call of __ of _____________ of 200__. Sincerely, (bidder denomination) (name and signature of authorized officials)”

TRANSITORY SINGLE.- This Circular will enter into force on January 14, 2008.