Circular 10/2015 — Ordinary Additional Liquidity Facility

2015, Year of the Generalissimo José María Morelos y Pavón CIRCULAR 10/2015 Mexico, D.F., May 11, 2015.
TO MULTIPLE BANKING INSTITUTIONS:
SUBJECT: ORDINARY ADDITIONAL LIQUIDITY FACILITY

The Bank of Mexico, with the objective of continuing to promote the sound development and stability of the financial system, as well as to foster the proper functioning of payment systems, has resolved to issue new rules applicable to the exercise of financing that may be granted to multiple banking institutions that present ordinary additional liquidity needs and meet the established requirements, under terms that, on the one hand, strengthen the mechanisms and conditions for such granting, and on the other hand, facilitate multiple banking institutions to implement the necessary measures to access such financing if necessary.

For the above reason, the Bank of Mexico, based on Articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 7, fractions I, II and X, 8, 14, 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 Orderly Management of Financial Services; 4, first paragraph, 8, fourth and seventh paragraphs, 10, 14 Bis, in relation to 17, fraction I, 19 Bis, fractions I and V, and 14, in relation to 25, fraction VII, of the Internal Regulations of the Bank of Mexico, which provide for the powers of the Central Bank, through the General Legal Department, the National Operations Directorate and the General Directorate of Financial Stability respectively, to issue provisions, and Second of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, fractions IV, VI and X, issues these Rules, in accordance with the following provisions:

RULES APPLICABLE TO THE EXERCISE OF FINANCING GRANTED BY THE BANK OF MEXICO TO COVER ORDINARY ADDITIONAL LIQUIDITY NEEDS

1. Definitions.
   For the purposes of these Rules, the following shall be understood, in singular or plural:

BONDES: Development Bonds issued by the Federal Government of the United Mexican States in the national market, denominated in national currency and UDIS, both at fixed interest rate and at variable interest rate.

BONOS UMS: Debt instruments denominated in foreign currency issued by the Federal Government of the United Mexican States in international markets.

BPAS: Savings protection bonds issued by the Institute for the Protection of Bank Savings with respect to which the Bank of Mexico acts as financial agent for their issuance and placement in the national market.

BREMS: Monetary Regulation Bonds issued by the Bank of Mexico in the national market.

CETES: Certificates of the Treasury of the Federation 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).

Cuenta Única (Single Account): The national currency demand deposit account that the Bank of Mexico maintains for each multiple banking institution in accordance with what is provided in Circular 3/2012, as well as its modifications, issued by the Bank itself.

Días Hábiles Bancarios (Banking Business Days): The days on which multiple banking 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.

Dólares (Dollars): United States dollars.

Empresas Productivas del Estado (State Productive Enterprises): Those referred to in Article 25, fourth paragraph, of the Political Constitution of the United Mexican States.

FIRA: Trusts Established in Relation to Agriculture, in which the Bank of Mexico acts as trustee institution and which correspond to the following: Guarantee and Promotion Fund for Agriculture, Livestock and Poultry, Special Fund for Agricultural Financing, Special Fund for Technical Assistance and Guarantee for Agricultural Credits, and Guarantee and Promotion Fund for Fishing Activities.

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

Institución Calificadora de Valores (Securities Rating Agency): Anonymous societies authorized by the National Banking and Securities Commission to act in such capacity, in terms of what is provided by the Securities Market Law.

Instituciones de Banca de Desarrollo (Development Banking Institutions): Those credit institutions constituted with such character in accordance with the Credit Institutions Law and the organic laws relative to each of them.

Manual: The Operation Manual for the Exercise of Liquidity Financing that the Bank of Mexico makes known to multiple banking institutions through the internet portal located at the address: <http://webdgobc>.

Red Financiera (Financial Network): The financial information network integrated by various public and private institutions of the Mexican financial system and the Federal Public Administration, whose operation, maintenance and updating is in charge of the Bank of Mexico.

UDIS: Investment units referred to in the Decree establishing the obligations that may be denominated in Investment Units and Reform and Add various provisions of the Federal Tax Code and the Income Tax Law published in the Official Journal of the Federation on April 1, 1995.

2. General Terms and Conditions.
   2.1 Conditions for the granting of financing.
   The multiple banking institution interested in obtaining the financing from the Bank of Mexico referred to in these Rules must submit an application in terms of the format attached to these Rules as Annex 1, no later than the Banking Business Day on which it intends to make the disbursement of the corresponding resources, within the hours indicated in the Manual for these purposes. Such application must bear the handwritten signature of the General Director of the multiple banking institution in question. Only in the event of the absence of the General Director, the application may be signed by a legal representative of said institution who has powers to perform acts of administration and ownership, who must inform the General Director of the multiple banking institution in question in writing.

The exercise of the financing subject to these Rules may be carried out, at the choice of the multiple banking institution, through any of the following operations or combination thereof: (i) simple secured credit operations with monetary regulation deposits or Dollar deposits that the accredited multiple banking institution maintains at the Bank of Mexico, or (ii) repurchase agreements on eligible titles, subject to what is provided in numerals 2.2 and 2.3 of these Rules, respectively.

Only multiple banking institutions that meet the requirements established for each type of financing may use the temporary financing referred to in these Rules.

In the event that a multiple banking institution, once it has disposed of the resources subject to the financing granted in accordance with these Rules, requires obtaining additional resources for the same purposes of said financing, it must submit a new application to the Bank of Mexico subject to what is provided in this numeral.

2.2 Secured credits with monetary regulation deposits or with Dollar deposits at the Bank of Mexico.
For the multiple banking institution in question to obtain the financing subject to these Rules through the secured credit indicated in clause (i) of the antepenultimate paragraph of numeral 2.1 above, it must previously celebrate a simple credit opening contract with guarantee with the Bank of Mexico, which shall have the following characteristics, in addition to those other that the parties agree to for this effect:

Acreditante (Creditor): The Bank of Mexico.
Acreditada (Grantee): The multiple banking institution that meets the requirements to obtain financing from the Bank of Mexico in accordance with these Rules.

Term for the disbursement of the credit amount: From the Banking Business Day that the multiple banking institution in question has indicated in the application presented to the Bank of Mexico in accordance with numeral 2.1, in the hours provided by the Manual for these purposes, and up to the next Banking Business Day.

Term for the payment of the amount disbursed by the Grantee: To the next Banking Business Day following that on which the credit amount was disbursed, with automatic renewal for the same term.

The Bank of Mexico may refrain from renewing the corresponding credit when: (i) the Grantee does not comply with the conditions provided in these Rules or with what is stipulated in the contract referred to in this numeral, or (ii) when the amount of the credit disbursed by the Grantee is not used to cover the temporary liquidity needs indicated in the respective application. The Bank of Mexico will notify the multiple banking institution in question about the conclusion of the credit renewal at least the Banking Business Day prior to that on which it considers the automatic renewal terminated. Likewise, such renewal may conclude at the request of the Grantee, through the respective notification presented to the Bank of Mexico, which will carry out the cancellation of the financing on the next Banking Business Day following the date of receipt of said application.

Amount: That which the multiple banking institution in question requests, up to an amount that, added to the agreed interest, may not exceed the balance of the monetary regulation deposits and the peso equivalent of the Dollar deposits, which said institution must maintain at the Bank of Mexico during the validity of the credit and which will be subject to the guarantee granted on the credit.

Interest Rate: Equivalent to the result of multiplying the factor of 2.0 (two) by the one-day interbank interest rate that the Governing Board of the Bank of Mexico has determined as the target rate for monetary policy purposes, expressed annually and in percent with rounding to two decimals, made known on the internet electronic page of the Bank itself and which is in effect at the time of the disbursement of the resources corresponding to the credit or the respective renewal.

For the purpose of interest calculation, the interest rate will be divided by 360 and the result obtained will be multiplied by the number of natural days actually elapsed.

Payment of Interest: The payment of interest must be made on all Banking Business Days that the credit remains in force, as it is renewed, through charges that the Bank of Mexico makes in the Single Account it maintains for the Grantee.

Guarantee: Pledge on the monetary regulation deposits or Dollar deposits that the Grantee maintains at the Bank.

Regarding guarantees constituted on deposits, the multiple banking institution must request that, for such purposes, the respective amounts be segregated into a special guarantee account maintained by the Bank of Mexico, in accordance with what is provided in the Manual. Regarding Dollar deposits, 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 multiple banking institutions through the internet site located at the address: << http://webdgobc >>.

The amount of the pledged deposits must cover both the principal and the interest that the credit will accrue.

Acreditation of Resources: Once the contract is signed and the corresponding application is presented, the Bank of Mexico will carry out, during the hours established in the Manual on the Banking Business Day indicated for this purpose by the multiple banking institution, the credit entry in question in the Single Account of said institution up to the guaranteed amount.

2.3 Repurchase operations.
For the multiple banking institution in question to obtain the financing subject to these Rules through repurchases indicated in clause (ii) of the antepenultimate paragraph of numeral 2.1, it must previously celebrate the respective contract with the Bank of Mexico, which shall have the following characteristics, in addition to those other that the parties agree to for this effect:

Reportador (Repo Seller): The Bank of Mexico.
Reportada (Repo Buyer): The multiple banking institution that meets the requirements to obtain financing from the Bank of Mexico in accordance with these Rules.

Term for the start of the operation: From the Banking Business Day that the multiple banking institution in question has indicated in the application presented to the Bank of Mexico in accordance with numeral 2.1, in the hours provided by the Manual for these purposes, and up to the next Banking Business Day.

Term for the maturity of the operation: One Banking Business Day after that on which the repo is perfected, with automatic renewal for the same term.

The Bank of Mexico may refrain from renewing repurchase operations when: (i) the Repo Buyer does not comply with the conditions provided in these Rules or with what is stipulated in the contract referred to in this numeral, or (ii) when the resources obtained by the Repo Buyer by reason of the repo are not used to cover the temporary liquidity needs indicated in the respective application. The Bank of Mexico will notify the Repo Buyer about the conclusion of the repo renewal at least the Banking Business Day prior to that on which it considers the automatic renewal terminated. Likewise, such renewal may conclude at the request of the Repo Buyer, through the respective notification presented to the Bank of Mexico at least the Banking Business Day prior to that on which the Repo Buyer intends to conclude such renewal.

Titles Subject to Repo:
i) CETES; ii) BONDES; iii) Segregated coupons of BONDES with fixed interest rate or in UDIS referred to in the "Rules for the Segregation and Reconstitution of Titles" issued by the Secretariat of Finance and Public Credit; iv) BPAS; v) BREMS; vi) BONOS UMS; vii) Debt instruments denominated in national currency or in UDIS, deposited in Indeval and which have, at least, two ratings equal to or higher than AA in national scale or its equivalent, granted by Securities Rating Agencies and issued by any of the following persons:
a. Parastatal entities of the Federal Public Administration, including Development Banking Institutions and FIRA; b. State Productive Enterprises;
c. Federal Entities;
d. Municipalities; e. International organizations; f. Non-financial legal persons resident in Mexico that do not form part of the same business group or consortium as the Repo Buyer, and g. Trust institutions of trusts that issue said debt titles in the form of fiduciary exchange certificates that represent rights on mortgage credit portfolios that are affected in trust and have been granted by financial entities resident in Mexico, or by parastatal entities or their decentralized bodies, except for credits that have been granted by the Repo Buyer or by financial entities of the same financial group to which it belongs;

viii) Debt instruments denominated in Dollars, euros, British pounds and yen, deposited in Indeval or in the accounts abroad that, if applicable, the Bank of Mexico determines, and which have a credit rating, granted by, at least, two Securities Rating Agencies, that is equal to or higher than that which the corresponding Securities Rating Agency grants to the Federal Government, and which have been issued by any of the following persons:
a. Development Banking Institutions; b. FIRA;
c. Parastatal entities of the Federal Public Administration;
d. State Productive Enterprises, and e. Non-financial legal persons resident in Mexico that do not form part of the same business group or consortium as the Repo Buyer;

ix) Debt instruments denominated in national currency, issued by Multiple Banking Institutions, other than the Repo Buyer, which have been issued six months in advance of the date on which the application to access the liquidity facility is presented, deposited in Indeval and which have, at least, two ratings in national scale equal to or higher than AA or its equivalent granted by Securities Rating Agencies, and

x) Debt instruments denominated in Dollars, euros, British pounds and yen, issued by Governments or Central Banks of other countries that have at least two ratings equal to or higher than AA in global scale, or its equivalent, granted by Securities Rating Agencies or by entities abroad that perform similar functions, deposited in the accounts that the Bank of Mexico determines.

The maturity of the titles subject to repo must be subsequent to that corresponding to the term of the repo. Likewise, the value of said titles, determined in accordance with what is provided in the following paragraph, must be equal to or greater than the sum of the price plus the premium of the operation.

The Bank of Mexico will make known to multiple banking institutions that have submitted their application to celebrate repos in accordance with what is provided by these Rules, the market price valuation of the titles to be repoed and the corresponding discount factors, in the terms established by the Manual.

In any case, the Bank of Mexico may not accept titles that do not have an updated market price valuation.

Price: The market value of the titles subject to repo made known by the Bank and on which the discount factors determined by the Bank itself and made known through the internet portal it maintains at the address: << http://webdgobc >> will be applied.

Premium: That which results according to the following formula:

Premium =
Interest Rate x Amount x Days

Where:
Interest Rate: Will be equivalent to the one-day interbank interest rate that the Governing Board of the Bank of Mexico has determined as the target rate for monetary policy purposes, expressed annually and in percent with rounding to two decimals, made known on the internet electronic page of the Bank itself and which is in effect at the time of the crediting, in favor of the Repo Buyer, of the resources subject to the repo or the respective renewal of the repo, multiplied by a factor of:
a) 2.0 times, for titles included in numerals i) to v) of this numeral, and b) 2.2 times, for titles included in clauses vi) to x) of this numeral.

Amount = To the amount agreed for the corresponding repo.
Days = To the number of natural days that elapse between that on which the repo is perfected and the next Banking Business Day.

The payment of the premium must be made on all Banking Business Days that the repo remains in force, as it is renewed, through charges that the Bank of Mexico makes in the Single Account it maintains for the Repo Buyer.

Acreditation of Resources: Once the multiple banking institution in question has signed the contract and presented the corresponding application to carry out this operation, said institution must transfer the titles subject to repo to the securities deposit account that Indeval maintains at the Bank of Mexico or, if applicable, to the accounts abroad that the Bank of Mexico makes known to it for these purposes. Once the delivery of said titles has been carried out, the Bank of Mexico, during the hours established in the Manual, will carry out the credit entry in question in the Single Account of the Repo Buyer, up to the amount of the market value of the titles, adjusted by the discount factors.

3. General Provisions.
   3.1 Celebration of contracts. To celebrate the simple credit opening contracts and repos subject to these Rules, interested multiple banking institutions must present to the International and Special Legal Affairs Management of the Bank of Mexico, certified copies of the deed in which the powers granted to their representatives to perform acts of ownership are recorded, as well as the official identifications of said representatives who intend to sign the cited contracts and the other documents indicated therein.

3.2 Payment of Financing. Regarding the renewal of the simple credit and repo operations contemplated in these Rules, the Grantee or Repo Buyer multiple banking institution may pay in full or in part the amount of the principal corresponding to the financing it has received in accordance with these Rules, for which it must inform the Bank of Mexico, in writing, in accordance with the format attached as Annex 2 to these Rules, no later than the Banking Business Day immediately prior to that on which it intends to make the payment, in the hours established in the Manual. Once each of the operations provided for in these Rules has been fully settled, these will be extinguished.

For the purpose of making the payment of the financing operations subject to these Rules, as an exception to what is provided by Article 116 of Circular 3/2012 issued by the Bank of Mexico, multiple banking institutions that celebrate such operations may not incur overdrafts in their respective Single Accounts not covered by guarantees. By virtue of the above, in the event that the respective charge cannot be made at the maturity of the credit operation in question, the payment obligation of the respective credit or repo will be considered breached up to the amount not covered by the multiple banking institution in question.

Anexo 1
Format for the Application that Multiple Banking Institutions must submit to the Bank of Mexico Mexico City, on (DAY) of (MONTH) of (YEAR).
General Directorate of Central Banking Operations Bank of Mexico Present, Through this channel, the undersigned, [__ FULL NAME ], in my capacity as [_ POSITION ___] of the multiple banking institution named [ FULL DESIGNATION OF THE MULTIPLE BANKING INSTITUTION, INCLUDING, IF APPLICABLE, THE FINANCIAL GROUP TO WHICH IT BELONGS ], on behalf and for the account of said institution, request that the Bank of Mexico grant my represented entity a temporary financing, in order to obtain liquidity, in accordance with the provisions of the "RULES APPLICABLE TO THE EXERCISE OF FINANCING GRANTED BY THE BANK OF MEXICO TO COVER ORDINARY ADDITIONAL LIQUIDITY NEEDS", contained in Circular 10/2015, dated May 11, 2015, and its modifications. In relation to the above, I declare that I have requested in writing from the president of the board of directors of this institution, [as well as from the president of the board of directors of the holding company of the Financial Group to which this institution belongs], to inform said collegiate body in writing, as soon as possible, regarding the submission of this communication. Regarding this matter, the causes that originated the need to obtain financing from the Bank of Mexico and the destination to which the obtained resources will be given are as follows:
_________________.
The amount of the aforementioned financing that my represented entity requests is $ __________________ (amount in letters, pesos, national currency) and the date required for the disbursement of the resources by my represented entity is the day of _____. For these purposes, my represented entity accepts to carry out the financing operations in the manner and terms provided for in Circular 10/2015, as well as in the corresponding contracts. Likewise, my represented entity declares its agreement with any modifications that may have been made to Circular 10/2015, subsequent to the execution of the contracts documenting the granting of financing by the Bank of Mexico. It also recognizes that in case of discrepancy between the terms and conditions established in the aforementioned contracts and those provided for in Circular 10/2015 and its

respective modifications, which are in force at the time of this application, the terms and conditions provided for in the latter shall prevail.
I declare, under oath, that the statements contained in this communication are true and reliable, for all legal purposes.
Sincerely,
[NAME AND SIGNATURE OF THE GENERAL DIRECTOR OF THE INSTITUTION OR, IN THEIR ABSENCE, THE LEGAL REPRESENTATIVE WITH POWERS TO PERFORM ACTS OF ADMINISTRATION AND OWNERSHIP]

Anexo 2
Format for Payment Communication that Multiple Banking Institutions must submit to the Bank of Mexico Mexico City, ____________________.
General Directorate of Central Banking Operations Bank of Mexico Present, Through this channel, I inform you that on [day] of [month] of [year] ( FULL DESIGNATION OF THE MULTIPLE BANKING INSTITUTION, INCLUDING, IF APPLICABLE, THE FINANCIAL GROUP TO WHICH IT BELONGS ), will make the payment of the financing granted to it by the Bank of Mexico in terms of Circular 2015 for an amount of $ __________________ (amount in letters), [a partial payment in the amount of $ __________________ (amount in letters)] for which I authorize and instruct that Central Institute to make the respective charge in the Single Account that it holds for this institution in terms of the contract. Sincerely, (NAME AND SIGNATURE OF AUTHORIZED OFFICIALS)

TRANSITORY PROVISIONS
FIRST. These Rules shall enter into force on May 12, 2015.
On the date indicated in the preceding paragraph, the Rules applicable to the exercise of financing, provided for in Circular 48/2008, dated October 13, 2008, as well as its modifications made known through Circular 49/2008, dated October 16, 2008, Circular 61/2008, dated December 8, 2008, Circular 63/2008, dated December 18, 2008, and Circular 7/2013, dated December 31, 2013, shall be repealed. SECOND. Contracts signed for the execution of the operations referred to in items 1.1 and 1.2 of the Rules that are repealed by the previous Transitory Rule shall retain full validity and legal effect for a period of ninety calendar days, counted from the date on which the Bank of Mexico makes known to the multiple banking institutions the contract clauses referred to in these Rules. Therefore, multiple banking institutions must execute, prior to the expiration of the term indicated in this Transitory Rule, new contracts in terms of the aforementioned clauses, which shall replace those that were executed following the provisions of Circular 48/2008 of the Bank of Mexico.