Circular 11/2008 — Amending Circular 115/2002

2008, Year of Physical Education and Sports

CIRCULAR 11/2008

Mexico, D.F., March 28, 2008.

TO BROKER-DEALERS:

SUBJECT: AMENDMENTS TO CIRCULAR 115/2002.

The Bank of Mexico, based on Articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 24 and 33 of the Bank of Mexico Law; 22 of the Law for Transparency and Ordering of Financial Services; 8th third and fourth paragraphs, 10, 14 in relation to 25 fraction II, and 17 fraction I, which grant the General Directorate of Analysis of the Financial System and the Directorate of Central Bank Regulations, respectively, the authority to participate in the issuance of provisions, all of them from the Internal Regulations of the Bank of Mexico published in the Official Journal of the Federation on September 30, 1994, whose last modification was published in the aforementioned Official Journal on April 26, 2007, with the purpose of promoting the sound development of the financial system through the updating of regulations directed at these broker-dealers and considering:

a) The need to establish a mechanism so that newly created broker-dealers and those that have recently increased their paid-in capital can calculate the limit to be observed in their foreign exchange risk position, and

b) That securities issued or guaranteed by the Mexican Government already have investment grade, as well as that the position of securities issued or guaranteed by foreign governments held by broker-dealers is not significant, and that according to capitalization rules they must be considered within their capital for the risks incurred when taking positions in this type of securities.

Has resolved to modify the title of section CB.3; the second, third, and fifth paragraphs of section CB.3.2.3; section CB.3.2.6.1, as well as section CB.3.4; add a fourth paragraph to section CB.3.2.3, relocating the current fourth paragraph to become the sixth paragraph in said section, and repeal sections CB.3.3 to CB.3.3.5.2, all of Circular 115/2002, to remain in the following terms:

“CB.3 FOREIGN EXCHANGE OPERATIONS, COINED METALS AND FOREIGN EXCHANGE RISK POSITIONS.”

2

CB.3.2 FOREIGN EXCHANGE RISK POSITIONS.

“CB.3.2.3 LIMITS.

…

Broker-dealers may request authorization from the Bank of Mexico so that the limits referred to in the previous paragraph, applicable to the Long Position or Short Position, are calculated from a certain Long Position, up to the equivalent in United States dollars of their equity capital. In the corresponding authorization that, if applicable, the Bank of Mexico grants whenever, in its judgment, circumstances warrant it, the amount of said Long Position will be established.

For the purposes of what is provided in this section, Basic Capital will be that determined in terms of what is provided in section CB.3.2.1. Without prejudice to the foregoing:

a) In the case of broker-dealers constituted in the month for which the calculations are made, as well as in the month immediately preceding it, the Basic Capital relative to the date on which resources were effectively contributed for the constitution will be used;

b) In the case of broker-dealers constituted in the second month immediately preceding the month for which the calculations are made, the Basic Capital relative to the close of said second month will be used;

c) In the case of broker-dealers that have increased their paid-in capital in the month immediately preceding the month for which the calculations are made, through increases in share capital or capital contributions already made pending formalization, the Basic Capital relative to the date on which said increase was effectively carried out will be used, and

d) In the case of broker-dealers that have increased their paid-in capital in the second month immediately preceding the month for which the calculations are made, through increases in share capital or capital contributions already made pending formalization, the Basic Capital relative to the close of said second month will be used.

The provisions in subsections c) and d) above will be applicable only if the broker-dealers inform the Basic Capital used as a reference to the Financial System Information Directorate of the Bank of Mexico, in the manner established by said Directorate.

In the event that, subsequent to the month in question, the amount of the broker-dealer's Basic Capital, applied in said month, is subject to modification for any reason, the Bank of Mexico may determine in each case whether new calculations of the Foreign Exchange Risk Position considering the modified Basic Capital must or must not be made.

For the purposes of calculating the limits referred to in this section, the equivalence in United States dollars of the corresponding Basic Capital will be considered, using the exchange rate published by the Bank of Mexico in the Official Journal of the Federation in accordance with what is established in the "Applicable Provisions for the Determination of the Exchange Rate to Settle Obligations Denominated in Foreign Currency Payable in the Mexican Republic", on the next banking business day following the date to which the Basic Capital corresponds.”

CB.3.2.6. OTHER PROVISIONS

“CB.3.2.6.1 Authorization Requests

The authorization requests referred to in the last paragraph of CB.3.2.2, the second paragraph of CB.3.2.3, and the second paragraph of CB.3.2.4, must be presented to the Bank of Mexico through the Directorate of Authorizations, Queries, and Legal Control.”

“CB.3.3 Repealed.

CB.3.3.1 Repealed.

CB.3.3.2 Repealed.

CB.3.3.3 Repealed.

4

CB.3.3.4 Repealed.

CB.3.5 Repealed.

CB.3.3.5.1 Repealed.

CB.3.3.5.2 Repealed.”

“CB.3.4 AUTHORIZABLE EXCESSES TO THE REGIMES CONTAINED IN SECTION CB.3.2.

The Bank of Mexico may authorize excesses to the limit referred to in section CB.3.2.3, up to five calendar days in a period of twelve months, provided that within a period not exceeding ten business days counted from the date on which the excess in question occurs, a communication duly signed by officials with sufficient authority for this purpose is presented to the Directorate of Authorizations, Queries, and Legal Control, in which:

a) The act or omission that originated the excess or excesses is detailed;

b) The corrective actions that will be adopted to prevent the excess or excesses from repeating in the future are reported, and

c) The necessary information is provided to prove that once the aforementioned corrective actions are implemented, the broker-dealer is within the limit in question.

In the event that ten banking business days have elapsed after the aforementioned Directorate has received the aforementioned communication and the Bank of Mexico abstains from expressing its decision in writing regarding the authorization in question, or from requesting additional information, it will be understood that the excesses subject to such communication are authorized.”

T R A N S I T O R Y

SINGLE.- This Circular will enter into force on March 31, 2008.