Circular 14/2012 — Simultaneous Purchase and Sale Auctions of IPAB Securities

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CIRCULAR 14/2012 addressed to credit institutions, brokerage houses, investment companies, and specialized investment societies for retirement funds, regarding simultaneous purchase and sale auctions of securities of the Institute for the Protection of Bank Savings.

A logo is included at the margin, which reads: Bank of Mexico.

CIRCULAR 14/2012

TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT COMPANIES AND SPECIALIZED INVESTMENT SOCIETIES FOR RETIREMENT FUNDS:

SUBJECT: SIMULTANEOUS PURCHASE AND SALE AUCTIONS OF IPAB SECURITIES

The Bank of Mexico, in its capacity as financial agent of the Institute for the Protection of Bank Savings (IPAB), with the objective of continuing to strengthen the Institute's position as a debt issuer, demonstrating proactive management of its liabilities, improving the liquidity of securities issued by it, and maintaining the confidence of the investing public, has decided to implement simultaneous purchase operations of various issuances of Savings Protection Bonds (BPAs) and Savings Protection Bonds with quarterly interest payment (BPAT), as well as sale operations of Savings Protection Bonds with monthly interest payment and additional reference interest rate (BPAG28) and Savings Protection Bonds with quarterly interest payment and additional reference interest rate (BPAG91).

For the above, in accordance with the provisions of Article 2 of the Federal Revenue Law for the Fiscal Year 2012 and based on the request made by the IPAB to this Central Bank through the letters with references IPAB/SAPAB/DGF/162/2012 and IPAB/SAJ/DGJPA/274/2012 dated July 11, 2012; based on Articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 7, fraction I, 8, 14 and 24 of the Bank of Mexico Law; 22 of the Law for Transparency and Ordering of Financial Services; 4, first paragraph, 8, fourth and seventh paragraphs, 10, first paragraph, 14 Bis, first paragraph, in relation to 17, fraction I, and 19, fraction VII, of the Internal Regulations of the Bank of Mexico, which provide for its attributes to issue provisions through the General Legal Directorate and the Operations Directorate, respectively, as well as Second of the Agreement on the Adscription of the Administrative Units of the Bank of Mexico, fractions VII and XI; has resolved to issue the following:

RULES FOR THE SIMULTANEOUS PURCHASE AND SALE AUCTIONS OF IPAB SECURITIES

CHAPTER I PRELIMINARY PROVISIONS

Definitions

Article 1.- For brevity, in singular or plural, in these Rules it will be understood by:

Bank: the Bank of Mexico acting in its capacity as financial agent of the IPAB.

BPAs: Savings Protection Bonds.

BPAG28: Savings Protection Bonds with monthly interest payment and additional reference interest rate.

BPAG91: Savings Protection Bonds with quarterly interest payment and additional reference interest rate.

BPAT: Savings Protection Bonds with quarterly interest payment.

Banking Business Day: the days in which financial entities 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.

IPAB: Institute for the Protection of Bank Savings.

SIAC-BANXICO: Bank of Mexico Account Holder Attention System.

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Securities: BPAs, BPAT, BPAG28 and BPAG91, jointly or separately.

Bidders

Article 2.- Only the following intermediaries may be bidders:

I. Credit institutions; II. Brokerage houses; III. Investment companies, and IV. Specialized investment societies for retirement funds.

The aforementioned bidders must always act on their own account, except for:

a) Investment companies, who will submit their bids through the investment company operating society that provides them with asset administration services, and

b) Specialized investment societies for retirement funds, who will submit their bids through the retirement fund administrator that administers and operates them.

Hours

Article 3.- All times mentioned in these Rules and in the calls are referred to the time zone of Mexico City, that is, the Central Zone established in fraction I of Article 3 of the Law on Time System in the United Mexican States.

Auction Calls

Article 4.- The Bank will make the calls for auctions available to bidders one Banking Business Day before the date of the respective auction, from 12:00:00 hours, through the electronic page on the worldwide network (Internet) identified with the domain name: www.banxico.org.mx or through any other electronic, computing or telecommunication medium authorized for this effect by the Bank, unless it announces another date or time for a particular call.

Characteristics of the Securities to be Bought and Sold

Article 5.- The keys, amounts and other characteristics of the issuances of the Securities that the Bank will buy and sell in each auction will be those indicated in the corresponding call.

At the time of the opening of the auction, the Bank will make known to the bidders the prices of the BPAG28 or BPAG91 that it will sell, through the Bank of Mexico's electronic page on the Internet or through any other electronic, computing or telecommunication medium authorized for this effect by the Bank itself.

Type of Auctions

Article 6.- The auctions may be:

I. Single price. These are auctions in which the Securities will be assigned starting from the best bid for the issuer and the bids that result in assignment will be attended to at the same price as the last bid that receives assignment.

II. Multiple price. These are auctions in which the Securities will be assigned starting from the best bid for the issuer and the bids that result in assignment will be attended to at the requested price.

CHAPTER II BIDS

Characteristics

Article 7.- Bids may only be competitive and indicate the following:

I. The issuance key of the BPAs and BPAT that the bidder intends to sell;

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II. The unit price at which the bidder is willing to sell the BPAs and BPAT, expressed up to five decimals;

III. The total amount at nominal value in quantities expressed in thousands of pesos, rounded to five thousand pesos or its multiples, of the BPAs and BPAT that the bidder offers to sell, and

IV. The issuance key of the BPAG28 or BPAG91 that the bidder intends to buy, which must coincide with the maturity date of the BPAs or BPAT that it intends to sell in each auction.

This is understood in that bids may only be presented for the simultaneous purchase and sale of BPAs in relation to BPAG28 and of BPAT in relation to BPAG91.

Presentation

Article 8.- The presentation of bids must be carried out as follows:

I. Be made no later than on the date and time indicated in the call;

II. Be made through the SIAC-BANXICO or through any other electronic, computing or telecommunication medium authorized for this effect by the Bank of Mexico, or in requests that they elaborate according to the model attached as Annex 1 of these Rules.

When the cited model is used, the request must be delivered to the National Operations Management of the Bank of Mexico in a closed envelope, accompanied by a cover letter.

The documents mentioned in the previous paragraph must be signed by the same representatives duly authorized by the bidder. Additionally, the aforementioned cover letter must show the signature knowledge granted by the Bank of Mexico, so that said signatures must be registered in the Central Institute itself, and

III. Each bidder may present one or more bids regarding the same call. The bids presented in each request must refer exclusively to the same issuance.

The Bank will not receive bids when, in its judgment, they do not comply with the applicable provisions or do not adjust to the sound uses or practices of the securities market.

Limits

Article 9.- The sum of the amounts of the sale bids of Securities presented by each bidder regarding a call must not exceed the maximum amount that the Bank is willing to buy in the auction in question.

Effects

Article 10.- The bids presented to the Bank will produce the widest effects that correspond in law and will imply the bidder's acceptance of all and each of these Rules, as well as the terms and conditions established in the call in which the Bank communicates the particular characteristics of each auction. Every bid will have an obligatory character for the bidder who presents it and will be irrevocable.

The Bank may cancel the bids it receives if they do not adjust to these Rules or to what is stated in the corresponding call, are not clearly legible, have erasures or corrections, or are incomplete or incorrect in some way.

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Additionally, the Bank may reject bids regarding one or more issuances if, in its judgment, the participation of them, due to their characteristics, could produce inconvenient effects in the sound development of the securities market in particular or of the financial system in general.

CHAPTER III PROCEDURE AND RESULTS OF THE AUCTIONS

Assignment

Article 11.- The Securities will be assigned as follows:

I. Single price: Bids will be assigned according to the ascending order of the corresponding unit prices, without exceeding the maximum amount indicated in the call. The single price of the auction to which they will be assigned will be that corresponding to the last bid that receives assignment, despite not having been fully attended in its amount.

II. Multiple price: Bids will be assigned according to the ascending order of the corresponding unit prices, without exceeding the maximum amount indicated in the call. Each bid will be assigned precisely at the unit price indicated in the bid itself.

Based on the bids that have received assignment, the weighted average price of the auction will be determined.

In case of tied bids at any level and the amount to be assigned is not sufficient to attend such bids, they will be attended pro rata of their amount. All assignments of Securities will be made at nominal value.

Price

Article 12.- The IPAB may determine the maximum unit price at which it is willing to buy each of the issuances of BPAs or BPAT subject to the auctions. In these cases, bids with higher prices will not be attended.

The IPAB may declare the purchase of one or more of the issuances of BPAs or BPAT of the auctions totally deserted, in which case no bid will receive assignment. In this case, the corresponding BPAG28 or BPAG91 bids will also not receive assignment.

The mentions contained in these Rules regarding prices refer to clean prices, that is, those that do not include accrued but unpaid interest.

Results

Article 13.- The Bank will inform each bidder individually, through the SIAC-BANXICO, no later than ninety minutes after the deadline for the presentation of bids for the auctions, the quantity of BPAs and/or BPAT that must be delivered, as well as the quantity of BPAG28 and/or BPAG91 that it will receive, indicating the amounts in both cases.

Likewise, the Bank will make available to the bidders through the Bank of Mexico's electronic page on the Internet or through any other electronic, computing or telecommunication medium authorized for this effect by the Bank itself, the general results of the auctions no later than sixty minutes after the deadline for the presentation of bids.

CHAPTER IV GENERAL PROVISIONS

Fortuitous event or force majeure

Article 14.- In the event that due to fortuitous event or force majeure the calls or the results of the auctions cannot be made known in accordance with what is stated in Articles 4 and 13, the Bank will timely communicate the applicable procedure to make known the calls or the results of the corresponding auctions.

Electronic Signature

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Article 15.- The access, identification and, if applicable, operation keys established for the use of the SIAC-BANXICO or any other electronic, computing or telecommunication medium, that are used for the effect of these Rules, will substitute the autograph signature with one of an electronic character, so that the documentary or technical records in which they appear will have full legal validity and will produce the same effects that the laws grant to documents signed by the parties and, consequently, will have equal probative value.

CHAPTER V DELIVERY OF SECURITIES AND SETTLEMENT

Retention of ownership

Article 16.- The Bank, based on Article 2312 of the Federal Civil Code, will retain ownership of the BPAG28 and/or BPAG91 that it must deliver as a result of the auctions, until the moment the Bank receives from the bidder in question the BPAs and/or BPAT that correspond.

Calculation of the settlement amount

Article 17.- The settlement of Securities issued prior to the settlement date of the auctions must be carried out by adding to the assigned or requested unit price, the accrued but unpaid interest, from the date of their issuance or last interest payment, as appropriate, until the settlement date, according to the following formula:

I_dev = VN * (c * d) / 36000 (1)

Where:

I_dev = Accrued interest.

VN = Nominal value of the title.

d = Natural days elapsed between the date of issuance or last interest payment, as appropriate, and the settlement date.

c = Annual interest rate of the title expressed in percentage terms and rounded to two decimals.

Delivery of Securities

Article 18.- For each assigned bid within call i, bidders will deliver the quantity of BPAs or BPAT of series j corresponding (Nj,i) and will receive from the Bank the quantity of BPAG28 or BPAG91 of series k requested (Nk,i). Nk,i is determined by:

Nk,i = (Pj,i * Nj,i + Ij,i) / (Pk,i + Ik,i) (2)

Where:

Pj,i Is the price assigned or requested for the BPAs or BPAT of series j that the bidder offers to sell in call i.

Ij,i Is the quantity of accrued but unpaid interest of the BPAs or BPAT of series j that the bidder offers to sell in call i, calculated according to formula (1) above.

Pk,i Is the price fixed by the IPAB for the BPAG28 or BPAG91 of series k offered in call i.

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Ik,i Is the quantity of accrued but unpaid interest of the BPAG28 or BPAG91 of series k offered in call i and calculated according to formula (1) above.

Nj,i Is the quantity of BPAs or BPAT of series j to be delivered by the bidders for each assigned bid in call i.

Nk,i Is the quantity of BPAG28 or BPAG91 of series k to be received by the bidders for each assigned bid in call i. Nk,i will be truncated to the nearest lower integer.

Settlement of the auctions

Article 19.- The settlement date of the simultaneous purchase and sale operations will be the Banking Business Day established in the call. The settlement of the price of the referred operations will be carried out through the compensation of the obligations owed by the IPAB and the bidder in question.

For the above, the Bank will instruct the institution for the deposit of securities to carry out free delivery transfers of securities as follows:

I. Debit the own securities account of the credit institution or brokerage house in question the total of BPAs and/or BPAT that must be delivered to the Bank, in terms of what is provided in the following paragraphs, and

II. Credit the cited account the total of BPAG28 and/or BPAG91 that the bidder must receive.

For the purposes of the above, the bidders mentioned in fractions I and II of Article 2 must send to the Operations Management of the Bank of Mexico a mandate in terms of Annex 2, which must be signed by whoever has faculties to exercise acts of domain.

Additionally, they must present certified and simple copies of the deeds in which the aforementioned faculties are stated, as well as a simple copy of their official identifications.

The bidders referred to in fractions III and IV of Article 2 must deliver and receive the corresponding Securities, through a credit institution or brokerage house. To this effect, the credit institution or brokerage house that the bidders have designated must send to the Operations Management of the Bank of Mexico a communication in terms of Annex 3, which must be signed by whoever has faculties to exercise acts of domain. Additionally, they must present certified and simple copies of the deeds in which the aforementioned faculties are stated, as well as a simple copy of their official identifications.

The documentation mentioned in the two preceding paragraphs must be presented with an advance of at least three Banking Business Days to the date on which they intend to start participating in the auctions.

Likewise, the cited entities must send a copy of the aforementioned mandate to the corresponding institution for the deposit of securities.

In the case that the total price of the Securities to be delivered or received by the bidder is greater or less than the total price of the Securities to be received or delivered in the simultaneous purchase and sale operations, the Bank will carry out a compensation and the difference in favor or charge of the bidders mentioned in fractions I and II of Article 2, as appropriate, will be paid on the day of the settlement of the simultaneous purchase and sale by credit or debit in the account that the Bank of Mexico holds for them. Regarding the bidders indicated in fractions III and IV of the cited Article 2, the corresponding credits or debits will be made in the account that the Bank of Mexico holds for the credit institution or brokerage house that they have designated according to Annex 3.

For the purposes of the above, all of the Securities that the bidders who have received assignment are obliged to deliver, must be deposited in their own securities account in the institution for the deposit of securities corresponding at least ten minutes before the closing of operations of the Banking Business Day on which the auctions are settled.

In case that a bidder does not have the total of the Securities that must be delivered in the account designated in the referred schedule, the Bank may, without the need for a judicial declaration, rescind the purchase of Securities for the missing amount and the sale of Securities for the respective amount, so no credits and

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corresponding debits will be made for the missing amount in the securities accounts in the institution for the deposit of securities corresponding.

In the event that the situation provided for in the previous paragraph occurs, the bidder must pay an amount equivalent to one percent of the nominal amount of the Securities that have not been delivered. The Banking Business Day following the date of settlement of the auctions, the cited amount will be charged by the Bank in the account that the Bank of Mexico holds for the defaulting bidder or to the credit institution or brokerage house authorized by said bidder in terms of Annex 3.

ANNEX 1

MODEL OF REQUEST TO PARTICIPATE IN THE SIMULTANEOUS PURCHASE AND SALE AUCTIONS OF IPAB SECURITIES

(LETTERHEAD OF THE FINANCIAL ENTITY)

BANK OF MEXICO

NATIONAL OPERATIONS MANAGEMENT

5 de Mayo Avenue, No. 6,

Col. Centro, C.P. 06059, Mexico D.F.

Present

REQUEST ON OWN ACCOUNT

Mexico, D.F., on _____ of __________ of ______.

Bidder Name: _____________________________

Bidder Key at the Bank of Mexico: _____________________________

Key of the BPAs or BPAT to sell (by the institution): I(P or T)AAMMDD

Key of the BPAG28 or BPAG91 to buy (by the institution): I(M or Q)AAMMDD

BIDS:

Clean Price of the BPAs or BPAT: Amount of the BPAs or BPAT to sell (by the institution)

.____ __________________ thousands of pesos

.____ __________________ thousands of pesos

.____ __________________ thousands of pesos

.____ __________________ thousands of pesos

The AMOUNTS must be expressed in multiples of five thousand pesos (at nominal value).

The PRICES must be expressed up to FIVE decimals.

The PRICES do not include accrued interest.

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The aforementioned bids are binding and irrevocable, will produce the broadest effects allowed by law, and imply our acceptance of the call for bids and all of the "Rules for Simultaneous Purchase and Sale Auctions of IPAB Securities," issued by the Bank of Mexico.

Sincerely,

(Bidder's Name) (Name, position, and signature of authorized officials)

NOTE: Unused spaces must be cancelled.

ANNEX 2 MODEL OF POWER OF ATTORNEY IN FAVOR OF THE BANK OF MEXICO TO CHARGE BIDDERS' ACCOUNTS

(INSTITUTION OF CREDIT OR SECURITIES HOUSE LETTERHEAD)

Mexico, D.F., on _____ of __________ of ______.

BANK OF MEXICO OPERATIONS MANAGEMENT DEPARTMENT 5 de Mayo Avenue, No. 6, Centro Neighborhood, C.P. 06059, Mexico, D.F.

Present

(Name of the institution of credit or securities house), hereby grants a special and irrevocable power of attorney to the Bank of Mexico to, on its behalf, instruct the (Full name of the securities depository institution) to make all charges and credits corresponding to the Securities Settlement Accounts it holds for us, with respect to operations carried out under the "Rules for Simultaneous Purchase and Sale Auctions of IPAB Securities," issued by the aforementioned Bank of Mexico. For these purposes, that Central Bank will send the aforementioned instructions to the said securities depository institution, so that the respective records are made.

(Name of the institution of credit or securities house) will be responsible for the charge and credit requests referred to in the previous paragraph that the Bank of Mexico carries out in compliance with the instructions issued by this intermediary and/or that the Bank of Mexico itself requests.

Likewise, that Central Bank is irrevocably authorized and instructed to make charges in the Single National Currency Account it holds for us, for amounts that (Name of the institution of credit or securities house) must cover, in accordance with what is provided in article 19 of the aforementioned "Rules for Simultaneous Purchase and Sale Auctions of IPAB Securities."

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Sincerely,

(Name of the institution of credit or securities house) (Name, position, and signature of persons with authority to exercise acts of dominion)

C.c.p.: (Full name of the securities depository institution). For your information.

ANNEX 3 MODEL OF INSTRUCTION LETTER IN FAVOR OF THE BANK OF MEXICO TO CHARGE THE ACCOUNTS OF INSTITUTIONS OF CREDIT OR SECURITIES HOUSES ON BEHALF OF OTHER BIDDERS

(INSTITUTION OF CREDIT OR SECURITIES HOUSE LETTERHEAD)

Mexico, D.F., on _____ of __________ of ______.

BANK OF MEXICO OPERATIONS MANAGEMENT DEPARTMENT 5 de Mayo Avenue, No. 6, Centro Neighborhood, C.P. 06059, Mexico, D.F.

Present

(Name of the institution of credit or securities house) authorizes and instructs the Bank of Mexico in an irrevocable manner to process on our behalf, in the Securities Settlement Accounts it holds for us (Full name of the securities depository institution), the settlement of the simultaneous purchase and sale operations of IPAB Securities that, as a result of the respective auctions, are assigned to (Bidder's Name).

Likewise, that Central Bank is irrevocably authorized and instructed to make charges in the Single National Currency Account it holds for us, for amounts that (Bidder's Name) must cover, as a result of the compensation of payment obligations for said operations, in accordance with what is provided in article 19 of the "Rules for Simultaneous Purchase and Sale Auctions of IPAB Securities," issued by the Bank of Mexico.

Finally, we inform you that this communication can only be modified or cancelled through written communication addressed to that Central Bank and presented with at least three banking business days' advance notice prior to the date on which the modification or cancellation is intended to take effect.

Sincerely,

(Name of the institution of credit or securities house) (Name, position, and signature of persons with authority to exercise acts of dominion)

C.c.p.: (Full name of the securities depository institution). For your information. C.c.p.: (Bidder's Name). For your information.

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TRANSITORY SINGLE. This Circular shall enter into force on the next banking business day following its publication in the Official Gazette of the Federation.

Mexico, D.F., on September 28, 2012.- BANK OF MEXICO: The General Legal Director, Héctor Reynaldo Tinoco Jaramillo.- Initials.- The Manager of National Operations, Alfredo Sordo Janeiro.- Initials.

For any queries regarding the content of this Circular, please contact the Authorizations, Consultations, and Legal Control Department, at phones 5237-2308, 5237-2317, or 5237-2000 Ext. 3200.