Circular 16/2012 — Auctions for the Placement of Segregated Coupons of UDIBONOS (Market Makers)

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CIRCULAR 16/2012 addressed to credit institutions, regarding auctions for the placement of segregated coupons of UDIBONOS.

At the margin a logo, which says: Bank of Mexico.

CIRCULAR 16/2012

TO CREDIT INSTITUTIONS:

SUBJECT: AUCTIONS FOR THE PLACEMENT OF SEGREGATED COUPONS OF UDIBONOS

The Bank of Mexico, acting as the financial agent of the Federal Government, in order to address the need that arises in the securities market by various investors, to trade separately the principal of a title and its interest to cover their long-term and intermediate-term liabilities for different amounts, as well as to strengthen the liquidity of the Development Bonds of the Federal Government denominated in Investment Units, has resolved to hold auctions for the placement of segregated principal and interest coupons of these securities.

For the above, in accordance with what is provided by the Secretariat of Finance and Public Credit in the respective office, the Bank of Mexico, based on articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 3rd, fraction III, 7th, fraction I, 8th, 10, 14 and 24 of the Bank of Mexico Law; 22 of the Law for the Transparency and Ordering of Financial Services; 4th, first paragraph, 8th, fourth and seventh paragraphs, 10, first paragraph, 12, first paragraph, in relation to 19, fraction VII, and 14 Bis, first paragraph, in relation to 17, fraction I, of the Internal Regulations of the Bank of Mexico, which provide for its attributes to issue provisions through the General Directorate of Central Bank Operations and the General Legal Directorate, respectively, as well as Second of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, fractions VII and XI; has resolved to issue the following:

RULES OF THE AUCTIONS FOR THE PLACEMENT OF SEGREGATED COUPONS OF DEVELOPMENT BONDS OF THE FEDERAL GOVERNMENT DENOMINATED IN INVESTMENT UNITS

CHAPTER I PRELIMINARY PROVISIONS

Definitions Article 1st.- 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 Federal Government.

Segregated Coupons: the instruments representing the principal and interest that result from the process of Segregation of a UDIBONO, which grant the holder the right to receive a single payment at maturity.

Banking Business Days: the days on which credit institutions are not obliged to close their doors or suspend operations, in terms of the general provisions, for such effect, issued by the National Banking and Securities Commission.

Lot: the number of Segregated Coupons that are grouped for the purpose of carrying out the respective auctions, which is established as a function of the fixed annual interest rate paid by the corresponding UDIBONOS.

Segregation: the operation consisting of separating the interest to be paid and the principal of a UDIBONO, generating the respective Segregated Coupons.

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

UDIBONOS: the Development Bonds of the Federal Government of the United Mexican States, denominated in UDIS, for terms of ten and thirty years.

UDIS: the units of account, whose value in national currency publishes the Bank of Mexico in the Official Gazette of the Federation, in accordance with the articles Third of the "Decree by which the obligations that may be denominated in investment units and reform and adds various provisions of the Federal Tax Code and of the Income Tax Law" and 20 Ter of the Federal Tax Code.

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Characteristics of Segregated Coupons Article 2nd.- The Segregated Coupons referred to in these Rules, will be fungible with those that have been segregated or will be segregated at the request of the participants in the securities market in accordance with what is established in the "Rules for the Segregation and Reconstitution of Titles", issued by the Secretariat of Finance and Public Credit and made known by the Bank through Circular 2/2004 and those that, if applicable, modify or replace them. Once the Segregated Coupons are placed, their holders may carry out their reconstitution in accordance with the procedure established in the aforementioned Rules.

Bidders Article 3rd.- Only credit institutions authorized by the Secretariat of Finance and Public Credit to act as market makers may be bidders and, therefore, acquire Segregated Coupons in primary placement.

Time zone Article 4th.- All times mentioned in these Rules and in the calls are referred to the time zone of Mexico City, that is, to the Center Zone established in fraction I of article 3rd of the Law of the Time System in the United Mexican States.

Calls for auctions Article 5th.- The Bank will make known the calls for auctions from 11:30:00 hours on the last Banking Business Day of the week prior to that in which the auctions in question will be held, through its electronic page on the worldwide network (Internet) identified with the domain name: www.banxico.org.mx or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank. In these calls, the characteristics of the auctions and of the Segregated Coupons to be auctioned will be made known.

The Bank may make known another date or time for a particular call.

CHAPTER II BIDS

Characteristics Article 6th.- Bids may only be competitive and refer to the Lots that the bidder is willing to acquire. To this effect, the Lots are integrated by the number of Segregated Coupons mentioned in Annex 1 of these Rules.

Presentation Article 7th.- Each bidder may present one or more bids in relation to the same call. The bids presented in each application must refer exclusively to the same issuance.

The bids must comply with the following:

I. Be presented through the SIAC-BANXICO or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico or, in applications that are prepared in accordance with any of the models attached in Annex 2 of these Rules, which 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 letter must show the signature knowledge granted by the Bank of Mexico, so that these signatures must be previously registered in the Central Institute itself.

II. Indicate the number of Lots that the bidder wishes to acquire.

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III. Indicate the total price at which the bidder is willing to acquire the Lots, expressing these prices up to seven decimals.

IV. Be presented in the form, terms and conditions indicated in the respective calls.

V. Be presented two immediate previous Banking Business Days to the placement date, from 11:00:00 to 11:30:00 hours. The Bank may make known another date or time for a particular auction.

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

Effects Article 8th.- The bids presented to the Bank will produce the widest effects that correspond in law and will imply the acceptance of the bidder to all and each of these Rules, as well as to the terms and conditions established in the call in which the Bank communicates the particular characteristics of each auction. Every bid will be mandatory for the bidder who presents it and will be irrevocable.

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

The Bank may reject bids regarding one or more issuances if, in its judgment, the participation of such bids, due to their characteristics, could produce inconvenient effects in the objectives of credit regulation, financing to the issuer or of the sound development of the securities market in particular or the financial system in general.

The Bank will inform the Secretariat of Finance and Public Credit about the bids that, in terms of the immediate preceding paragraph, do not participate in the auctions referred to in these Rules.

CHAPTER III PROCEDURE AND RESULTS OF THE AUCTIONS

Types Article 9th.- The auctions will be at a single price, that is, the Lots will be assigned starting from the best bid for the issuer and the bids that result with assignment will be attended to the same price, as appropriate, of the last bid that receives assignment.

Assignment Article 10th.- The Lots will be assigned according to the descending order of the corresponding unit prices. The single price of the auction to which they will be assigned, will be that corresponding to the last bid that receives assignment, even though it has not been fully attended.

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 in the order in which they were received.

The assignment of the Lots of Segregated Interest Coupons will not exceed that of the Lots of Segregated Principal Coupons.

To this effect, first the assignment of the Lots of Segregated Principal Coupons will be carried out and, subsequently, that of the Lots of Segregated Interest Coupons. In both cases, the assignments will be carried out in amounts at nominal value in UDIS.

The Federal Government reserves the right to declare any auction completely void, in which case no bid will receive assignment. In the event that the auction of Segregated Principal Coupons is declared void, there will be no assignment of Segregated Interest Coupons.

Results

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Article 11th.- The Bank will make available to the bidders through its electronic page on the Internet or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank itself, the general results of the auctions no later than ninety minutes after the deadline for the presentation of all bids.

The Bank will inform each bidder individually through the SIAC-BANXICO, no later than one hundred twenty minutes after the deadline for the presentation of the bids of the auction in question, the number of Lots that, if any, have been assigned to them and the total prices that they must cover for said Lots.

The information corresponding to the general results of an auction referred to in the first paragraph of this article, will be kept available to the bidders through the medium by which they have been made known, until the results of a new auction are incorporated in the terms indicated above.

CHAPTER IV GENERAL PROVISIONS

Publication of the characteristics of the auctions Article 12th.- For the information of the market, the Bank of Mexico will make known to the general public the characteristics of the auctions, through its electronic page on the Internet or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico itself.

Fortuitous event or force majeure Article 13th.- 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 5th and 11 of these Rules, the Bank will timely communicate the applicable procedure to make known such calls or the results of the corresponding auctions.

Electronic signature Article 14th.- The access, identification and, if applicable, operation keys, established for the use of the SIAC-BANXICO or any other electronic, computing or telecommunications medium, that are used for the purpose of these Rules, will replace the autograph signature with one of an electronic nature, so that the documentary or technical records in which they appear will have full legal validity and produce the same effects that the laws grant to documents signed by the parties and, consequently, will have equal probative value.

CHAPTER V SETTLEMENT OF THE SEGREGATED COUPONS

Calculation of the settlement amount Article 15th.- The settlement of the price of the Segregated Coupons must be carried out in accordance with the following formulas:

For the settlement of the value of the Segregated Principal Coupons:

LiqSP = LSP * TSP * PSP / 10

where:

LiqSP = Settlement amount of the set of Segregated Principal Coupons in UDIS.

LSP = Lot of Segregated Principal Coupons (number of Segregated Principal Coupons) according to Annex 1.

TSP = Number of Lots assigned to the bidder.

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PSP = Single assignment price of the Segregated Coupons of the principal of a UDIBONO divided by the number of respective Segregated Coupons of principal.

For the settlement of the value of the set of Segregated Interest Coupons:

LiqSC = LSC * TSC * PSC

where:

LiqSC = Settlement amount of the set of Segregated Interest Coupons in UDIS.

LSC = Lot of Segregated Interest Coupons (number of Segregated Interest Coupons) according to Annex 1.

TSC = Number of Lots assigned to the bidder.

PSC = Single assignment price of the set of Segregated Interest Coupons of a UDIBONO.

The settlement of the Segregated Interest Coupons will be carried out using the net present value of each one of them, considering that the total price that the bidder offers to pay for all of them will be disaggregated for each series.

Regarding this, the Bank will use the methodology instructed by the Secretariat of Finance and Public Credit to generate a zero coupon curve and estimate the weighting of each of the Segregated Interest Coupons in the segregated valuation of the reference UDIBONO. These weighters will be applied to the assigned bid of the participants in the Segregated Interest Coupons auction, in order to have a disaggregated settlement value for each series.

Payment of Segregated Coupons Article 16th.- Bidders must make the payment of the Segregated Coupons on the second Banking Business Day following the auction, in terms of what is provided in the internal regulations of the institution for the deposit of corresponding securities.

For this reason, such bidders must authorize the Bank of Mexico to instruct the aforementioned institution for the deposit of securities to credit the accounts that said institution keeps for them, for the nominal amount of the Segregated Coupons that corresponds in accordance with the operations agreed. Likewise, they must authorize the charges in the cash account that they keep.

For the purposes of the above, bidders must present at the Operations Management Management, a communication in terms of Annex 3, which must be signed by whoever has powers to exercise acts of dominion. Additionally, they must present certified and simple copies of the deeds in which the aforementioned powers are recorded, as well as a simple copy of their official identifications.

The aforementioned documentation must be presented with an advance of at least two Banking Business Days to the date on which they intend to start participating in the auctions. Likewise, said bidders must send a copy of the aforementioned communication to the corresponding institution for the deposit of securities.

To determine the amount in national currency of the Segregated Coupons, as well as to carry out the charges related to operations carried out with them, the equivalence applicable to the UDIS on the settlement date of such values will be used.

Delivery of Segregated Coupons Article 17th.- Once the respective payment has been made, the delivery of the assigned Segregated Coupons will be through the institution for the deposit of securities that corresponds, on the second Banking Business Day following the auction, through the corresponding deposit in the account that said institution keeps for each bidder.

Insufficiency of resources to settle the Segregated Coupons

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Article 18th.- In the event that a bidder does not make the total payment of the Segregated Coupons that make up the Lots that have been assigned to them, the Bank may proceed in accordance with what is provided in the "Procedure to follow in case of insufficiency of resources of Institutions to settle the amount of government securities" provided for in Section III, Chapter III, of Title Third of the "Provisions applicable to the operations of credit institutions and of the Rural Financial Company" of the Bank of Mexico.

Without prejudice to the foregoing, the Bank may disqualify the bidder in question from participating in the auctions for the placement of Segregated Coupons.

ANNEX 1 Lot Table for Segregated Coupons

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(Fixed annual interest rate of the Title (%)) (Lot of Segregated Coupons *) (Number of Segregated Coupons of Principal) (Number of Segregated Coupons of Interest for a period of 180 days) (Number of Segregated Coupons of Interest for a period of 181 days) (Number of Segregated Coupons of Interest for a period of 182 days) (Number of Segregated Coupons of Interest for a period of 183 days) (Number of Segregated Coupons of Interest for a period of 184 days)

2.00 2,000 18,000 180 181 182 183 184 2.25 16,000 180 181 182 183 184 2.50 14,400 180 181 182 183 184 2.75 144,000 1,980 1,991 2,002 2,013 2,024 3.00 12,000 180 181 182 183 184 3.25 144,000 2,340 2,353 2,366 2,379 2,392 3.50 72,000 1,260 1,267 1,274 1,281 1,288 3.75 9,600 180 181 182 183 184 4.00 9,000 180 181 182 183 184 4.25 144,000 3,060 3,077 3,094 3,111 3,128 4.50 8,000 180 181 182 183 184 4.75 144,000 3,420 3,439 3,458 3,477 3,496 5.00 7,200 180 181 182 183 184 5.25 48,000 1,260 1,267 1,274 1,281 1,288 5.50 72,000 1,980 1,991 2,002 2,013 2,024 5.75 144,000 4,140 4,163 4,186 4,209 4,232 6.00 6,000 180 181 182 183 184 6.25 5,760 180 181 182 183 184 6.50 72,000 2,340 2,353 2,366 2,379 2,392 6.75 16,000 540 543 546 549 552 7.00 36,000 1,260 1,267 1,274 1,281 1,288 7.25 144,000 5,220 5,249 5,278 5,307 5,336 7.50 4,800 180 181 182 183 184 7.75 144,000 5,580 5,611 5,642 5,673 5,704 8.00 4,500 180 181 182 183 184 8.25 48,000 1,980 1,991 2,002 2,013 2,024 8.50 72,000 3,060 3,077 3,094 3,111 3,128 8.75 28,800 1,260 1,267 1,274 1,281 1,288 9.00 4,000 180 181 182 183 184 9.25 144,000 6,660 6,697 6,734 6,771 6,808 9.50 72,000 3,420 3,439 3,458 3,477 3,496 9.75 48,000 2,340 2,353 2,366 2,379 2,392 10.00 3,600 180 181 182 183 184 10.25 144,000 7,380 7,421 7,462 7,503 7,544 10.50 24,000 1,260 1,267 1,274 1,281 1,288 10.75 144,000 7,740 7,783 7,826 7,869 7,912 11.00 36,000 1,980 1,991 2,002 2,013 2,024 11.25 3,200 180 181 182 183 184 11.50 72,000 4,140 4,163 4,186 4,209 4,232 11.75 144,000 8,460 8,507 8,554 8,601 8,648 12.00 3,000 180 181 182 183 184 12.25 144,000 8,820 8,869 8,918 8,967 9,016 12.50 2,880 180 181 182 183 184 12.75 48,000 3,060 3,077 3,094 3,111 3,128 13.00 36,000 2,340 2,353 2,366 2,379 2,392 13.25 144,000 9,540 9,593 9,646 9,699 9,752 13.50 8,000 540 543 546 549 552 13.75 28,800 1,980 1,991 2,002 2,013 2,024 14.00 18,000 1,260 1,267 1,274 1,281 1,288 14.25 48,000 3,420 3,439 3,458 3,477 3,496 14.50 72,000 5,220 5,249 5,278 5,307 5,336 14.75 144,000 10,620 10,679 10,738 10,797 10,856 15.00 2,400 180 181 182 183 184

• Number of Segregated Coupons that are grouped for the purpose of carrying out the respective auctions, which is established as a function of the fixed annual interest rate paid by the corresponding UDIBONOS

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ANNEX 2 APPLICATION TO ACQUIRE SEGREGATED COUPONS OF PRINCIPAL OF DEVELOPMENT BONDS OF THE FEDERAL GOVERNMENT DENOMINATED IN INVESTMENT UNITS (UDIBONOS)

(CREDIT INSTITUTION LETTERHEAD)

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

Present

APPLICATION FOR OWN ACCOUNT

Mexico, D.F., on __ of _______ of __.

Bidder Name: _____________________________ Bidder Key at the Bank of Mexico: _____________________________ Key of the requested issuance: _____________________________ Term of the requested issuance: _______ days.

BIDS:

Clean Price Lots _. __________________

The PRICES must be expressed up to SEVEN decimals.

The cited bids are mandatory and irrevocable; they will produce the widest effects that correspond in law and imply our acceptance to the "Rules of the auctions for the placement of Segregated Coupons of Development Bonds of the Federal Government denominated in Investment Units" of the Bank of Mexico and to the terms and conditions of the call of date ____ of _____________ of _____.

Sincerely,

(BIDDER DENOMINATION) (NAME AND SIGNATURE OF AUTHORIZED OFFICIALS)

NOTE: Unused spaces must be cancelled.

Thursday, November 8, 2012 OFFICIAL GAZETTE (First Section) 89 APPLICATION TO ACQUIRE INTEREST COUPONS SEGREGATED FROM BONDS OF DEVELOPMENT OF THE FEDERAL GOVERNMENT DENOMINATED IN INVESTMENT UNITS (UDIBONOS) (LETTERHEAD OF THE CREDIT INSTITUTION) BANK OF MEXICO NATIONAL OPERATIONS MANAGEMENT 5 de Mayo Avenue, No. 6 Col. Centro, C.P. 06059, Mexico, D.F. Present APPLICATION ON OWN ACCOUNT Mexico, D.F., on __ of _______ of __. Bidder's Name: _____________________________ Bidder's Key at the Bank of Mexico: _____________________________ Key of the requested issuance: _____________________________ Term of the requested issuance: _______ days. BIDS: Clean Price Lots _. __________________ PRICES must be expressed up to SEVEN decimal places. The aforementioned bids are binding and irrevocable; they will produce the broadest effects corresponding in law and imply our acceptance of the “Rules of the auctions for the placement of Segregated Coupons of Bonds of Development of the Federal Government denominated in Investment Units” of the Bank of Mexico and the terms and conditions of the call of date ____ of _____________ of ____. Sincerely, (BIDDER'S DENOMINATION) (NAME AND SIGNATURE OF AUTHORIZED OFFICIALS) NOTE: Unused spaces must be cancelled.

Thursday, November 8, 2012 OFFICIAL GAZETTE (First Section) 90 ANNEX 3 MODEL OF AUTHORIZATION TO THE BANK OF MEXICO (LETTERHEAD OF THE CREDIT INSTITUTION) Mexico, D.F., on _____ of __________ of ______. BANK OF MEXICO OPERATIONS MANAGEMENT DEPARTMENT Av. 5 de Mayo, No. 6 Col. Centro, C.P. 06059, Mexico, D.F. Present (The denomination of the credit institution) hereby irrevocably authorizes the Bank of Mexico to instruct (Full denomination of the institution for the deposit of securities) to carry out all charges and credits corresponding to the accounts it holds with us, in connection with the operations that are carried out with that Central Bank, in accordance with the “Rules of the auctions for the placement of Segregated Coupons of Bonds of Development of the Federal Government denominated in Investment Units” of the Bank of Mexico. For such purposes, that Central Bank will send the aforementioned instructions to the said institution for the deposit of securities, so that the respective records are made. (The denomination of the credit institution) will be responsible for the requests for charge and credit referred to in the previous paragraph, which the Bank of Mexico carries out in compliance with the instructions formulated by this institution and/or which the Bank of Mexico itself requests. Sincerely, (NAME, POSITION AND SIGNATURE OF PERSONS WITH POWERS TO EXERCISE DOMINION) C.c.p.: (Full denomination of the institution for the deposit of securities). For your information. TRANSITORY SINGLE. This Circular will enter into force on the next banking day following its publication in the Official Journal of the Federation. Mexico, D.F., November 6, 2012.- BANK OF MEXICO: the General Director of Central Banking Operations, Francisco Javier Duclaud González de Castilla.- Rubric.- The General Legal Director, Héctor Reynaldo Tinoco Jaramillo.- Rubric. For any queries regarding the content of this Circular, please contact the Management of Authorizations, Consultations and Legal Control, at the phones 5237-2308, 5237-2317 or 5237-2000 Ext. 3200.

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