Circular 14/2024 — Modifications to the Procedure for Acting as Market Makers for Government Securities

110 OFFICIAL GAZETTE Tuesday, November 26, 2024 BANCO DE MÉXICO CIRCULAR 14/2024 addressed to credit institutions and stock exchange houses, regarding the Modifications to the procedure for acting as Market Makers for Government Securities.

A logo appears on the margin, stating: Banco de México.- "2024, Year of Felipe Carrillo Puerto, Meritorious of the Proletariat, Revolutionary and Defender of the Mayab".

CIRCULAR 14/2024
TO CREDIT INSTITUTIONS AND STOCK EXCHANGE HOUSES:
SUBJECT: MODIFICATIONS TO THE PROCEDURE FOR ACTING AS MARKET MAKERS FOR GOVERNMENT SECURITIES

The Bank of Mexico, in its capacity as the financial agent of the Federal Government, and in response to the modifications that the Ministry of Finance and Public Credit, through Office Order No. 305.-292/2024 dated November 19, 2024, has resolved to carry out on the "Procedure to which credit institutions and stock exchange houses acting as market makers must adhere" regarding the possibility of requesting from said department the transmission of the status of market maker or UDIBONOs market maker as a result of the celebration and authorization of corporate acts of spin-off and merger, in accordance with Office Order No. 305.-027/2011 of said Ministry, made known by this Central Bank through its Circular 5/2011, published in the Official Gazette of the Federation on February 16, 2011, as well as the modifications to said procedure issued subsequently, annexes to this document a copy of the aforementioned Office Order No. 305.-292/2024, in order to make its content known to these entities, for the effects indicated therein.

The foregoing, based on Articles 28, paragraphs seventh and eighth, of the Political Constitution of the United Mexican States; 3, fraction III, 7, fraction I, 10 and 14 of the Bank of Mexico Law; 22 of the Law for Transparency and Ordering of Financial Services; 1, 4, first paragraph, 8, paragraphs fourth and eighth, 10, first paragraph, 17, fraction I, and 19 Bis, fractions II and V, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the Central Banking Provisions Directorate and the National Markets Development Management, respectively; as well as Second, fractions VI and X, of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico.

Mexico City, November 21, 2024.- BANCO DE MÉXICO: Director of Central Banking Provisions, María Teresa Muñoz Arámburu.- Signature.- Manager of National Markets Development, Lautaro José Silva Ibarguren.- Signature.

Tuesday, November 26, 2024 OFFICIAL GAZETTE 111 For any inquiries regarding the content of this Circular, the Bank of Mexico is at your disposal through the Central Banking Authorizations and Sanctions Directorate at telephone (55) 5237-2000 extension 3200.

A seal with the National Coat of Arms appears on the margin, stating: United Mexican States.- Finance.- Ministry of Finance and Public Credit.- Undersecretariat of Finance and Public Credit.- Public Credit and International Affairs Unit.- Office No. 305.-292/2024.

GERARDO ISRAEL GARCÍA LÓPEZ
GENERAL DIRECTOR OF CENTRAL BANKING OPERATIONS BANCO DE MÉXICO PRESENT

The Ministry of Finance and Public Credit, through the Public Credit and International Affairs Unit of Finance, based on Articles 31, fractions V and VI of the Organic Law of the Federal Public Administration; 4th, fractions I and V of the Federal Public Debt Law; 3rd, fraction III, 7th, fraction I, 8th and 10 of the Bank of Mexico Law; 13 fractions VIII, XI and XXII of the Internal Regulations of the Ministry of Finance and Public Credit; Sole, fractions V and VII of the Decree authorizing the Federal Executive to issue Certificates of the Treasury of the Federation, published in the Official Gazette of the Federation (DOF) on July 8, 1993; 1st, fraction VI, 2nd and 3rd of the Decree authorizing the Ministry of Finance and Public Credit to issue Bonds of Development of the Federal Government, published in the DOF on September 22, 1987, modified by Decree published in the DOF on September 9, 1998; the Decree establishing the obligations that may be denominated in Investment Units and reforming and adding various provisions of the Fiscal Code of the Federation and the Income Tax Law, published in the DOF on April 1, 1995 modified by Decree published in the DOF on December 7, 2009 and Article 20-Ter of the Fiscal Code of the Federation, with the aim of contributing to the healthy development of the securities market and in order to maintain continuity in the Market Makers program, considers it convenient to establish a procedure for the transmission of the status of Market Maker and UDIBONOs Market Maker, as applicable, as a result of the celebration and authorization of corporate acts of spin-off and merger of Financial Intermediaries.

Therefore, it has decided to add paragraphs third and tenth to section 2.1, shifting the current paragraphs third, fourth, fifth, sixth, seventh and eighth to become fourth, fifth, sixth, seventh, eighth and ninth, respectively, of said section 2.1, paragraph third to section 2.5, paragraph sixth to section 4.2.2, paragraph eighth to section 4.2.7 and paragraph third to section 8.2, as well as modify sections 1, fraction XXX, 2.1, paragraphs first, fourth, sixth and seventh, 2.2, 2.4, first paragraph, 4.2.6, second paragraph, 4.2.7, fifth paragraph, 8.2, second paragraph, 8.5, second paragraph, and 8.6 of Office Order 305.-027/2011 dated January 27, 2011, modified by Office Orders 305.-105/2011 dated July 26, 2011, 305.-178/2011 dated November 18, 2011, 305.-023/2012 dated February 9, 2012, 305.-085/2012 dated July 3, 2012, 305.-010/2014 dated February 7, 2014, 305.-035/2014 dated May 14, 2014, 305.-059/2015 dated July 1, 2015, 305.-033/2017 dated February 28, 2017, 305.-053/2017 dated March 30, 2017, 305.-156/2017 dated December 29, 2017, 305.-200/2020 dated March 25, 2020, and 305.-594/2021 dated December 20, 2021, to remain in the following terms:

“1. DEFINITIONS
…
I. to XXIX Bis …
XXX.- UCPAIH: the Public Credit and International Affairs Unit of Finance of the Ministry.
XXX Bis and XXXI …”

“2. MARKET MAKERS AND UDIBONOs MARKET MAKERS

112 OFFICIAL GAZETTE Tuesday, November 26, 2024
2.1 Financial Intermediaries intending to act as Market Makers or UDIBONOs Market Makers must submit a written request to the UCPAIH, located at Insurgentes Sur 1971, Tower 3, Floor 7, Guadalupe Inn Neighborhood, C.P. 01020, Mexico City.
…
Market Makers or UDIBONOs Market Makers intending to carry out corporate acts of spin-off and merger that result in the transmission of their Primary Market Operations, Clientele Operations, Intermediary Operations, and their respective accounting records, may request from the Ministry the transmission of the status of Market Maker or UDIBONOs Market Maker upon the celebration of such corporate acts, subject to these being duly authorized by the competent authority or authorities and that the final successor is, from the moment the aforementioned corporate acts take effect, a Financial Intermediary. For these purposes, the Market Maker and UDIBONOs Market Maker and the Financial Intermediary to which the status of Market Maker or UDIBONOs Market Maker is intended to be transmitted must jointly submit a written request to the UCPAIH, at the location referred to in the first paragraph of this section, which must contain, in addition to the express declaration of the intention to transmit and receive, respectively, the status of Market Maker or UDIBONOs Market Maker, a detailed description of the corporate acts and administrative procedures promoted before the competent authorities for this purpose, as well as the accounting records related to the Primary Market Operations, Clientele Operations and Intermediary Operations that will be transmitted. Likewise, the Financial Intermediary to which the status of Market Maker or UDIBONOs Market Maker is intended to be transmitted must attach to said request a declaration of commitment in the terms provided in the previous paragraph. The Ministry will determine the Applicants who, based on what is provided in sections 2.4 and 2.5 of this Office Order, may act as Market Makers or UDIBONOs Market Makers. Likewise, the Ministry will determine the Financial Intermediaries who, in accordance with the provisions of the previous paragraph, may receive by transmission the status of Market Maker or UDIBONOs Market Maker and, consequently, act as such, as applicable, from the date on which the corporate acts referred to in said paragraph take effect. … The Ministry may request Applicants at any time to confirm their interest in acting as Market Makers or UDIBONOs Market Makers. Those who do not confirm such interest, by presenting a written document to the UCPAIH at the location referred to in the first paragraph of this section, within a period of ten Business Days from when the notification of the Ministry's aforementioned request takes effect, will cease to be considered as Applicants. The Ministry may request Applicants, Market Makers and UDIBONOs Market Makers at any time to ratify their determination to adopt the Code of Conduct. Those who do not ratify said determination, by presenting at the location referred to in the first paragraph of this section the declaration of commitment referred to in the second paragraph of this section, within a period of ten Business Days counted from when the notification of the
Ministry's request takes effect, will cease to be considered as Applicants, Market Makers or UDIBONOs Market Makers. … … In the case established in the third paragraph of this section, the Ministry will notify the Bank of Mexico, through the electronic, computing or telecommunications medium determined by said Ministry, of the name of those Market Makers, UDIBONOs Market Makers and Financial Intermediaries who have submitted their request to transmit and receive, respectively, the status of Market Maker or UDIBONOs Market Maker, as applicable, in accordance with said paragraph, as well as the Ministry's determination regarding such request. To this effect, the Ministry will attach to the notification it makes to the Bank of Mexico, a simple copy of the aforementioned request, as well as of the declaration of commitment attached to it. From the receipt of the aforementioned notification with the positive determination of the Ministry, the Bank of Mexico may carry out all necessary acts for the transmission of the status of Market Maker or UDIBONOs Market Maker, as applicable, in terms of this Office Order.

2.2 The Bank of Mexico, in its capacity as the financial agent of the Federal Government, will calculate the IA of Market Makers and Applicants for Market Maker, in accordance with what is provided in Annex 1 of this Office Order, as well as incentives or penalties for diversification, for Positions on Trading Platforms and Trading Systems with the Clientele and for Positions and Operation in MexDer referred to in said Annex. Likewise, regarding Applicants for UDIBONOs Market Maker and UDIBONOs Market Makers, it will calculate the IAU in accordance with Annex 2. For these purposes, Applicants, Market Makers and UDIBONOs Market Makers must send to the Bank of Mexico, in the terms determined by said Central Institute, the necessary information to calculate their respective IA and IAU, as well as incentives and penalties for diversification and for Operations in MexDer. Regarding Market Makers or UDIBONOs Market Makers who have received such status by transmission in accordance with the third paragraph of section 2.1, the Bank of Mexico will consider the information related to the Market Maker or UDIBONOs Market Maker from whom they receive the Primary Market Operations, Clientele Operations, Intermediary Operations and their respective accounting records. For the calculation of incentives for Positions in MexDer, the Bank of Mexico will use the corresponding information on Points in MexDer sent by the latter in terms of said Annex 1.
Subsequently, the Bank of Mexico will send the results obtained to the Ministry, in the terms agreed upon, and it will be the aforementioned Ministry's responsibility to calculate the IFM and IFMU in accordance with what is provided in section 4.3. Finally, the UCPAIH will make the final results known individually to Market Makers and Applicants for Market Maker, or to UDIBONOs Market Makers and Applicants for UDIBONOs Market Maker, as applicable.

2.3 …

2.4 The measurement of the IA of Market Makers and Applicants for Market Maker, as well as the measurement of the IAU regarding UDIBONOs Market Makers and Applicants for UDIBONOs Market Maker, will be carried out monthly, considering for this purpose the information corresponding to measurement periods of six months. Each measurement period will include operations conducted between the 16th day of six months prior and the 15th day of the measurement month. In case any of the mentioned days is a non-business day for Financial Intermediaries, the immediate next Business Day will be taken into account for the start day and the immediate previous Business Day for the end day of the period. Regarding Market Makers or UDIBONOs Market Makers who have received such status by transmission in accordance with the third paragraph of section 2.1, the Bank of Mexico will consider the information related to the Market Maker or UDIBONOs Market Maker from whom they receive the Primary Market Operations, Clientele Operations, Intermediary Operations, and their respective accounting records, in the proportion necessary to carry out the measurement corresponding to periods of six months prior.
…

2.5 …
a) … b) …
…
Regarding Financial Intermediaries that receive the status of Market Maker or UDIBONOs Market Maker by transmission in accordance with the third paragraph of section 2.1, these may incorporate as such, as applicable, on the same Business Day that such transmission takes effect.”

114 OFFICIAL GAZETTE Tuesday, November 26, 2024 “4. RIGHTS …
4.1 to 4.2.1 …
4.2.2 …
…
…
…
…
The provisions in the two previous paragraphs will not apply in the case referred to in the third paragraph of section 2.1. In said case, the Market Maker or UDIBONOs Market Maker that transmits such status, as applicable, must liquidate the securities lending operations that are outstanding at the time of such transmission, within ten Business Days following the day on which the corporate acts of spin-off and merger in question take effect. Once these operations are liquidated, the Market Maker or UDIBONOs Market Maker that has received such status by transmission, as applicable, may conduct the respective operations again in accordance with what is provided in sections 4.2, 4.2.1 and the first paragraph of this section 4.2.2.
4.2.3 to 4.2.5 …
4.2.6 …
The Bank of Mexico, in its capacity as the financial agent of the Federal Government, will be responsible for calculating this factor monthly starting on the 16th day of each month and concluding on the 15th day of the following month, to be applied from the first Business Day of the next calendar month. In case any of the mentioned days is a non-business day for Financial Intermediaries, the immediate next Business Day will be taken into account for the start day and the immediate previous Business Day for the end day of the period. For these purposes, Applicants, Market Makers and UDIBONOs Market Makers must send to the Bank of Mexico, in the terms determined by it, the necessary information to measure the operability of each of them in the repo and securities lending markets. Regarding Financial Intermediaries that receive the status of Market Maker or UDIBONOs Market Maker in accordance with the third paragraph of section 2.1, the Bank of Mexico will consider the necessary information to measure the operability in the repo and securities lending markets of the Market Maker or UDIBONOs Market Maker from whom they receive such status, as applicable, in the proportion necessary to carry out the measurement for the corresponding period. Likewise, the Bank of Mexico will inform each Market Maker and UDIBONOs Market Maker monthly of the factor that will be applied to the weighted government funding rate during the following month to calculate the corresponding premium, at least three Business Days before the close of each month, through some electronic medium authorized for this purpose by said Bank. … …
4.2.7 …
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…
…
For this effect, the Market Maker or UDIBONOs Market Maker in question must send to the Ministry, at the latest three Business Days before the close of the month in which it received the notification, before 13:00 hours, a written request to the UCPAIH, in which:
a) … b) …

Tuesday, November 26, 2024 OFFICIAL GAZETTE 115 c) … … … The transmission of the status of Market Maker or UDIBONOs Market Maker referred to in the third paragraph of section 2.1 will also include the transmission of the exception referred to in this section, in the same terms in which it was granted by the Ministry, and the Market Maker or UDIBONOs Market Maker that receives such status by transmission, as applicable, will be subject to what is provided in this section.
4.2.8 to 4.3 …”

“8. GENERAL PROVISIONS
8.1 …
8.2 …
These names will be ordered in descending order according to the IFM or IFMU achieved by each Market Maker or UDIBONOs Market Maker, respectively, in the immediately preceding measurement period. Regarding Financial Intermediaries that receive the status of Market Maker or UDIBONOs Market Maker in accordance with the third paragraph of section 2.1, upon their incorporation as such, they will maintain the order that the Market Maker or UDIBONOs Market Maker from whom they received the Primary Market Operations, Clientele Operations, Intermediary Operations and their respective accounting records had. Likewise, the Ministry will attach information regarding the activities and conduct that it will incentivize and/or penalize during that measurement period, in accordance with what is provided in section 4.3, as well as the specific methods for each case. Incentives and/or penalties will be incorporated into the calculation of the IFM or IFMU as specified in Annexes 1 and 2 of this Office Order. For the case of the transmission of the status of Market Maker or UDIBONOs Market Maker through corporate acts provided in section 2.1, third paragraph, the Ministry may make the information referred to in the first paragraph of this section known at the moment that such transmission takes effect.
8.3 to 8.4 …
8.5 …
Likewise, said Ministry will determine which Financial Intermediary may act as Market Maker or as UDIBONOs Market Maker when any of the cases provided in section 2.1, paragraphs third and fifth, occur.
8.6 Market Makers and UDIBONOs Market Makers that decide to cease operating with such status must send a written cancellation notice to the UCPAIH, as well as a copy thereof to the National Operations Directorate of the Bank of Mexico located at 5 de Mayo Avenue number 6, first floor, Centro Neighborhood, C.P. 06000, Mexico City. The aforementioned cancellation notice will take effect from the Business Day following its receipt by the aforementioned authorities. The Ministry will remove the name of the respective Financial Intermediary or Intermediaries from the lists referred to in section 8.3 of this Office Order.”

“TRANSITIONAL
SOLE.- The provisions of this Office Order will enter into force on the Business Day following its publication in the Official Gazette of the Federation.”

Without any other particular matter, I take this opportunity to send you a cordial greeting.
Sincerely,

116 OFFICIAL GAZETTE Tuesday, November 26, 2024 Mexico City, November 19, 2024.- The Head of the Unit, María del Carmen Bonilla Rodríguez.

c.c.p. Mtro. Édgar Abraham Amador Zamora.- Undersecretary of Finance and Public Credit.- For your information.- Present.