Circular 12/2007 — Modifies Circular 3/2006

CIRCULAR 12/2007 Mexico, D.F., October 3, 2007 TO CREDIT INSTITUTIONS: SUBJECT: PROCEDURE FOR MARKET MAKERS TO EXERCISE THE RIGHT TO PURCHASE GOVERNMENT SECURITIES AND CONCLUDE LOAN OPERATIONS ON SAID SECURITIES WITH THE BANK OF MEXICO IN ITS CAPACITY AS FINANCIAL AGENT OF THE FEDERAL GOVERNMENT.

The Bank of Mexico, in its capacity as financial agent of the Federal Government, based on the provisions of Articles 3, fraction III, 7, fraction I, and 10 of the Bank of Mexico Law; 22 of the Law for Transparency and Orderly Regulation of Financial Services; 8, paragraphs third and fourth, 10, 12 in relation to 19, fractions I, II, VI, and IX, which provide for the powers of the General Directorate of Central Banking Operations to negotiate and formalize, among others, operations with securities; carry out the necessary acts for the issuance, placement, purchase, sale, and redemption of government securities; operate mandates or commissions entrusted to the Bank of Mexico related to the aforementioned powers, and to participate in the issuance of provisions, as well as Article 17, fraction I, which establishes the power of the Directorate of Central Banking Provisions to issue provisions, all of the Internal Regulations of the Bank of Mexico published in the Official Gazette of the Federation on September 30, 1994, whose last modification was published in said Gazette on April 26, 2007; in the Single Article, fraction IV of the Agreement on the Assignment of Administrative Units of the Bank of Mexico published in the Official Gazette of the Federation on October 15, 1998, whose last modification was published in said Gazette on April 26, 2007, and taking into consideration the provisions in the modifications to section 4.2.6 of Letter No. 305.-038/2006 issued by the Secretariat of Finance and Public Credit, made through Letter No. 305.-088/2007 of the same Department, made known through our Circular 7/2007, as well as sections I and IV of Letter No. 305.-110/2007 of the aforementioned Secretariat, made known through our Circular 9/2007, through which the aforementioned Department:

1. Determined the new method of calculation and collection of the premiums that Market Makers must pay for the securities loan operations they conclude, and

2. Instructed the Bank of Mexico, in its capacity as financial agent of the Federal Government, to carry out the acts necessary to implement the aforementioned, as well as to sign new securities loan contracts with Market Makers incorporating the corresponding modifications and to rescind, consequently, the current contracts.

Has resolved, effective November 1 of the current year, to modify the definitions of "Market Makers" and "Office" in section 1, and the second paragraph of section 3.2, as well as to add a second paragraph to section 3.1, of the "Procedure for Market Makers to Exercise the Right to Purchase Government Securities and Conclude Loan Operations on Said Securities with the Bank of Mexico in Its Capacity as Financial Agent of the Federal Government," made known through Circular-Telefax 3/2006 dated March 1, 2006, to read as follows:

1. DEFINITIONS. "For the purposes of this Procedure, singular or plural, may be designated as: ... MARKET MAKERS: credit institutions and brokerage houses that the Secretariat of Finance and Public Credit determines may act as such in accordance with applicable provisions. ... OFFICE: the one issued by the Secretariat of Finance and Public Credit, No. 305.-038/2006, dated February 27, 2006, as well as its modifications. ..."

2. SECURITIES LENDING BETWEEN MARKET MAKERS AND THE BANK OF MEXICO IN ITS CAPACITY AS FINANCIAL AGENT OF THE FEDERAL GOVERNMENT.

"3.1 The securities lending operations referred to in the OFFICE shall be carried out through INDEVAL in accordance with the provisions of its Internal Regulations, for which purpose, MARKET MAKERS must complete the necessary procedures with said Institution, in order to be able to operate the electronic procedure for the conclusion of specialized securities lending operations, called VALPRE-E.

At the maturity of the securities lending operations referred to in the preceding paragraph, MARKET MAKERS must pay the premium corresponding to each of said operations in two stages; the first, relating to the fixed portion, shall be settled through INDEVAL in the manner and terms provided in its Operational Manual, and the second must be covered to the Bank of Mexico, in its capacity as financial agent of the Federal Government, on the next banking day, through the corresponding charge in the accounts that the Bank of Mexico holds for them."

"3.2 In order for MARKET MAKERS to be able to carry out the aforementioned securities lending operations, they must previously conclude a contract with the Bank of Mexico which shall establish the characteristics of said operations, the rights and obligations of the parties, as well as the procedure to constitute, substitute, and cancel the corresponding guarantees.

For the purposes of the preceding paragraph, at least ten banking days in advance of the date on which they intend to begin the conclusion of such operations, MARKET MAKERS must submit to the Sub-Manager of National Operations Instrumentation within the hours between 9:00 and 18:00, a simple copy and a certified copy for verification, of the public deed containing the power to exercise acts of ownership granted to their representatives; a simple copy of an official identification of said persons, as well as a copy of the communication from INDEVAL stating that the credit institution in question is able to operate VALPRE-E. In this case, the corresponding MARKET MAKER must sign the corresponding contract at least five banking days in advance of said date."

TRANSITIONAL PROVISION Sole.- In order to comply with the provisions of section IV of Letter No. 305.-110/2007, so that MARKET MAKERS are able to sign the new contracts, they must, starting October 4 of the current year, i) submit to the Sub-Manager of National Operations Instrumentation within the hours between 9:00 and 18:00, a simple copy and a certified copy for verification, of the public deed containing the power to exercise acts of ownership granted to their representatives for the conclusion of the corresponding contract, as well as a simple copy of an official identification of said persons, and ii) sign the corresponding contracts. This is understood in accordance with the provisions of section IV of the aforementioned Letter No. 305.-110/2007, that the Bank of Mexico will proceed to rescind the contracts it currently has with MARKET MAKERS on October 31, 2007.