Circular 16/2015 — Modifications to Circular 8/2014

Tuesday, November 3, 2015 OFFICIAL GAZETTE (First Section) BANCO DE MEXICO CIRCULAR 16/2015, addressed to Credit Institutions, Brokerage Houses, Investment Funds, Specialized Investment Societies for Retirement Funds and the National Financial Institution for Agricultural, Rural, Forestry and Fisheries Development, regarding the Modifications to Circular 8/2014 (Rules for the swap of government securities carried out by the Bank of Mexico on its own account).

A logo appears at the margin, which says: Bank of Mexico.

CIRCULAR 16/2015
TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT FUNDS, SPECIALIZED INVESTMENT SOCIETIES FOR RETIREMENT FUNDS AND THE NATIONAL FINANCIAL INSTITUTION FOR AGRICULTURAL, RURAL, FORESTRY AND FISHERIES DEVELOPMENT:

SUBJECT: MODIFICATIONS TO CIRCULAR 8/2014 (RULES FOR THE SWAP OF GOVERNMENT SECURITIES CARRIED OUT BY THE BANK OF MEXICO ON ITS OWN ACCOUNT)

The Bank of Mexico, in order to continue promoting the sound development of the financial system, considers it convenient to reduce the revolving nature of the Federal Government Development Bonds of the United Mexican States, and thus ensure a longer average maturity in the amount placed by the Bank of Mexico, which allows mitigating the monetary effect of the amortization profile of government debt and making the sterilization strategy carried out by the Central Institute itself for monetary policy purposes more efficient.

For the above, the Bank of Mexico, based on articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 7, fraction I, 8, 14 and 24 of the Bank of Mexico Law, 9 of the Organic Law of National Financiera, 6 of the Organic Law of Federal Mortgage Society, 9 of the Organic Law of the National Savings Bank and Financial Services, 9 of the Organic Law of the National Bank of Foreign Trade, 10 of the Organic Law of the National Bank of Public Works and Services, 8 of the Organic Law of the National Bank of the Army, Air Force and Navy, 19 of the Organic Law of the National Financial Institution for Agricultural, Rural, Forestry and Fisheries Development, 22 of the Law for Transparency and Ordering of Financial Services, 4, first paragraph, 8, paragraphs fourth and seventh, 10, first paragraph, 12, first paragraph, in relation to 19 Bis, fractions I and V, and 19 Bis 1, fractions I and XI, as well as 14 Bis, first paragraph, in relation to 17, fraction I, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Directorate of Central Bank Operations and the General Legal Directorate, respectively, as well as in Article Second, fractions VI and X, of the Agreement on the Attachment of the Administrative Units of the Bank of Mexico, has resolved to modify articles 1, in the definitions of "BONDS" and "Government Securities", 4, subsections a) and b), 5, first paragraph, 6, 7, 10, 12, second paragraph, 14, 15, third paragraph, 20, second, third, fourth and fifth paragraphs, and annexes 2 and 3, as well as add the definition of "UDIS" to article 1, a subsection c) to article 4, and two request models to annex 1, of the "Rules for the swap of government securities carried out by the Bank of Mexico on its own account", contained in Circular 8/2014, to remain in the following terms:

RULES FOR THE SWAP OF GOVERNMENT SECURITIES CARRIED OUT BY THE BANK OF MEXICO ON ITS OWN ACCOUNT

"Article 1. For the purposes of these Rules, the following shall be understood, in singular or plural:
...
BONDES: Federal Government Development Bonds of the United Mexican States, denominated in national currency or in UDIS, both at fixed interest rate and at variable interest rate.

(First Section) OFFICIAL GAZETTE Tuesday, November 3, 2015 UDIS: accounting units, whose value in national currency is published by the Bank of Mexico in the Official Gazette of the Federation, in accordance with the Third Article of the "Decree by which obligations that may be denominated in investment units are established and reforming and adding various provisions of the Federal Tax Code and the Income Tax Law" and 20 Ter of the Federal Tax Code. Government Securities: BONDES and CETES, jointly or separately."

"Article 4. ... a) At a single rate or price: those in which the Government Securities will be assigned starting from the most convenient bid in terms of rate or price for the Bank, and all bids that result in assignment will be attended to at the same rate or price, as appropriate, from the last bid that receives assignment, even if it has been attended partially in its amount; b) At a multiple rate or price: those in which the Government Securities will be assigned starting from the most convenient bid in terms of rate or price for the Bank, and all bids that result in assignment will be attended to at the requested rate or price, or c) At a fixed rate or price: those in which the Government Securities will be assigned to the rate or price determined by the Bank, and all bids that result in assignment will be attended to at the said rate or price."

"Article 5. The Bank will make known to the bidders the rates of the CETES or the prices of the BONDES that it offers for their swap, through its referred electronic page on the internet or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank. ..."

"Article 6. For the case of the Auctions referred to in subsections a) and b) of article 4 of these Rules, bids may only be competitive and must indicate: the issuance key, the rate of the CETE or the price of the BONDE and, as appropriate, the amount that the bidder is willing to deliver or receive and the key of the CETE or BONDE that it wishes to deliver or receive as a result of the swap, as the case may be. For the case of the Auctions referred to in subsection c) of article 4 of these Rules, bids must indicate: the issuance key, the amount that the bidder is willing to deliver or receive and the key of the CETE or BONDE that it wishes to deliver or receive as a result of the swap, as the case may be. The Bank may determine, for the case of any of the Auctions referred to in subsections a) and b) of article 4 of these Rules, the minimum or maximum rate or price at which it is willing to assign the Government Securities subject to the swap. In this case, bids with rates or prices lower or higher, as appropriate, will not be attended. The amounts at nominal value must be expressed in thousands of pesos, rounded to multiples of five thousand pesos. With respect to CETES, the rate expressed in annual percentage terms, rounded to hundredths and based on three hundred sixty-day years, must be indicated. In the case of BONDES, the unit price must be indicated, rounded to hundred-thousandths and must not include accrued but unpaid interest during the current interest period."

"Article 7. The sum of the amounts of the bids presented by each bidder, for each call, must not exceed the maximum amount of CETES or BONDES announced by the Bank in the call."

"Article 10. ...
In the Auctions referred to in subsection a) of article 4 of these Rules, the rate or price at which the Government Securities in question will be assigned will be that corresponding to the last bid that receives assignment, even if this is attended partially in its amount.

Tuesday, November 3, 2015 OFFICIAL GAZETTE (First Section) In the Auctions referred to in subsection b) of article 4 of these Rules, bids will be attended to at the requested rates or prices.
In the Auctions referred to in subsection c) of article 4 of these Rules, bids will be attended to at the rate or price determined by the Bank and up to the amount indicated in the bid itself.
In all cases, bids will be attended to without exceeding the maximum amount indicated in the call.
The amounts of the Government Securities to be delivered or received by each bidder whose bid has an assignment will be at nominal value, closed to thousands of pesos."

"Article 12. ...
The Bank will inform each bidder individually, through the SIAC-BANXICO or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank, no later than sixty minutes after the deadline for the presentation of bids for the Auction in question, the amount of Government Securities that, if applicable, have been assigned to it and the amount of Government Securities that, if applicable, will be delivered."

"Article 14. The settlement of the swap operations of Government Securities referred to in these Rules will be carried out through the DALÍ under the terms established in the internal regulations of INDEVAL, on the date fixed in the corresponding call. On the settlement day, the Bank will instruct INDEVAL to:
I. Make the charge in the securities account of the Credit Institution or brokerage house in question for the total of the Government Securities that must be delivered to the Bank, in terms of what is provided in the following paragraph, and
II. Credit in the cited account the total of the Government Securities that must be received.
The persons referred to in fractions III, IV and V of article 2 must receive and deliver the corresponding Government Securities, through a Credit Institution or brokerage house.
For the purposes of the foregoing, the entire amount of Government Securities that the bidders who have received assignment are obligated to deliver must be deposited in the corresponding securities accounts, before the closing of DALÍ operations.
In the event that the total value of the Government Securities to be received by the bidder is greater or less than the total of the Government Securities to be delivered in the swap, the difference in favor or to the charge of the bidders mentioned in fractions I and II of article 2 must be paid on the settlement day of the swap by credit or charge in the national currency account that the Bank holds for them. The settlement referred to in the first paragraph of this article will be carried out as follows:
A. Regarding BONDES with fixed interest rate, the settlement must be carried out by adding to the unit price, the accrued but unpaid interest, from the date of its issuance or last interest payment, as appropriate, up to the settlement date, according to the following formula:

(First Section) OFFICIAL GAZETTE Tuesday, November 3, 2015 In the event of an inactive day, the rate that was announced on the immediately preceding Banking Business Day will be used.
In the event that it cannot be determined or that the rate referred to in element ri ceases to be announced, the Bank will request in writing from two societies that administer systems to facilitate operations with securities (brokerage houses) selected by proposal from the Mexican Bank Association, A.C., the average of the purchase and sale and repurchase operations of a Banking Business Day with bank securities. The Bank will calculate the average of the two interest rates thus obtained for its determination and will announce the result in the form and means mentioned, as an interest rate substitute for that referred to in the definition of the previous element ri.

Tuesday, November 3, 2015 OFFICIAL GAZETTE (First Section) For each bid assigned within the corresponding call on day i, bidders will receive or deliver the amount of Government Securities assigned in the swap Ni and will deliver to the Bank or receive from it the amount Ni,j of Government Securities in swap of series j requested. For the purposes of what is stated in this paragraph, Ni,j will correspond to the result of applying the following formula:

"Article 15. ...
...
The amount referred to in the previous paragraph will be charged in the national currency account that the Bank holds for the bidder who has defaulted or in the account that the Credit Institution or brokerage house that authorized it holds in terms of the authorization model that it presents to the Bank in accordance with the format included in Annexes 2 or 3, as appropriate."

"Article 20. ...
For this purpose, Credit Institutions and brokerage houses must grant an authorization in favor of the Bank, prepared in terms of the format included in Annex 2, a copy of which must be delivered to INDEVAL.
The persons referred to in fractions III, IV and V of the first paragraph of article 2 must deliver and receive the corresponding Government Securities through a Credit Institution or brokerage house, who must grant an authorization model to the Bank, prepared in terms of the model contained in Annex 3. The authorization and the authorization model that must be delivered to the Bank must be signed by whoever has the authority to exercise acts of domain on behalf and in the name of the Credit Institution or brokerage house, and must be accompanied by certified and simple copies of the public instrument in which the referred powers are recorded, as well as a simple copy of the official identification of the attorney(s). The documentation that must be sent to the Bank in accordance with what is provided in this article must be delivered to the Operations Management Department of the Bank with an advance of at least three Banking Business Days to the date on which they intend to begin participating in the Auctions."

(First Section) OFFICIAL GAZETTE Tuesday, November 3, 2015 "ANNEX 1 ...
REQUEST MODEL TO PARTICIPATE IN THE AUCTION FOR THE SWAP OF FEDERAL GOVERNMENT DEVELOPMENT BONDS WITH REVISABLE INTEREST RATE (BONDES D) CARRIED OUT BY THE BANK OF MEXICO ON ITS OWN ACCOUNT

BANK OF MEXICO
NATIONAL OPERATIONS DEPARTMENT
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: ____________ Issuance Key of the BONDE D for which bids are presented: ____________ (LDAAMMDD) Term in days of the issuance of the BONDE D for which bids are presented: _________ days

BIDS:
Clean Price Total Amount Issuance to be delivered or received in the swap . _______________ thousands of pesos _________________________ . _______________ thousands of pesos _________________________ . _______________ thousands of pesos _________________________

Prices must be expressed up to FIVE decimals.
The cited bids are mandatory and irrevocable; they will produce the broadest effects that correspond in law, and imply our acceptance of the "Rules for the swap of Government Securities carried out by the Bank of Mexico on its own account" in force, as well as the terms and conditions of the call dated ______ of ______________________ of ______.

Sincerely,
(BIDDER NAME)
(NAME AND SIGNATURE OF AUTHORIZED OFFICIALS)

NOTE: Unused spaces must be cancelled.

Tuesday, November 3, 2015 OFFICIAL GAZETTE (First Section) REQUEST MODEL TO PARTICIPATE IN THE AUCTION FOR THE SWAP OF FEDERAL GOVERNMENT DEVELOPMENT BONDS DENOMINATED IN INVESTMENT UNITS (UDIBONOS) CARRIED OUT BY THE BANK OF MEXICO ON ITS OWN ACCOUNT

BANK OF MEXICO
NATIONAL OPERATIONS DEPARTMENT
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: ____________ Issuance Key of the UDIBONO for which bids are presented: ____________ (S AAMMDD) Term in days of the issuance of the UDIBONO for which bids are presented: __________ days

BIDS:
Clean Price Total Amount Issuance to be delivered or received in the swap . _______________ thousands of UDIS _________________________ . _______________ thousands of UDIS _________________________ . _______________ thousands of UDIS _________________________

Prices must be expressed up to FIVE decimals.
The cited bids are mandatory and irrevocable; they will produce the broadest effects that correspond in law, and imply our acceptance of the "Rules for the swap of Government Securities carried out by the Bank of Mexico on its own account" in force, as well as the terms and conditions of the call dated ______ of ______________________ of ______.

Sincerely,
(BIDDER NAME)
(NAME AND SIGNATURE OF AUTHORIZED OFFICIALS)

NOTE: Unused spaces must be cancelled."

(First Section) OFFICIAL GAZETTE Tuesday, November 3, 2015 "ANNEX 2 AUTHORIZATION MODEL IN FAVOR OF THE BANK OF MEXICO TO MAKE CHARGES AND CREDITS IN THE ACCOUNTS OF CREDIT INSTITUTIONS AND BROKERAGE HOUSES THAT PRESENT BIDS

(LETTERHEAD OF THE CREDIT INSTITUTION OR BROKERAGE HOUSE)

Mexico, D.F., on ___ of _______________ of ______.

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

(FULL NAME OF THE CREDIT INSTITUTION OR BROKERAGE HOUSE) hereby authorizes and instructs irrevocably the Bank of Mexico to make the necessary charges and credits in the securities account that the S.D. INDEVAL Securities Deposit Institution, S.A. de C.V. holds for us, derived from the settlement of the swap operations of CETES or BONDES celebrated by this society under the "Rules for the swap of Government Securities carried out by the Bank of Mexico on its own account". For such purposes, that Central Bank will send to said securities deposit institution the corresponding instructions so that the respective records are made.

Likewise, that Central Bank is authorized and instructed irrevocably to make charges and credits in the national currency account that the Bank of Mexico itself holds for us, up to the amounts of cash differences resulting in favor or against this society derived from the swap operations mentioned in the previous paragraph, as well as for any other amount that this society must cover by virtue of any default to what is established in the aforementioned Rules.

Finally, we make known to you that the authorizations and instructions referred to in this document can only be modified or revoked through written communication addressed to that Central Bank presented with, at least, one banking business day in advance to the date on which the respective modification or revocation is intended to take effect. It being understood that the modification or revocation will not be applicable with respect to charges and credits resulting from bids presented by this society prior to such communication taking effect.

Sincerely,
(NAME OF THE CREDIT INSTITUTION OR BROKERAGE HOUSE) (NAME, POSITION AND SIGNATURE OF PERSON(S) WITH AUTHORITY TO EXERCISE ACTS OF DOMAIN)

c.c.p.: S.D. INDEVAL Securities Deposit Institution, S.A. de C.V.
For your information."

Tuesday, November 3, 2015 OFFICIAL JOURNAL (First Section)

“ANNEX 3
MODEL OF AUTHORIZATION IN FAVOR OF THE BANK OF MEXICO TO MAKE CHARGES AND CREDITS IN THE ACCOUNTS OF A CREDIT INSTITUTION OR BROKERAGE HOUSE ON BEHALF OF ANOTHER BIDDER (LETTERHEAD OF THE CREDIT INSTITUTION OR BROKERAGE HOUSE) Mexico, D.F., on ___ of _______________ of ______.
BANK OF MEXICO
OPERATIONS MANAGEMENT DEPARTMENT
5 de Mayo Avenue, No. 6
Centro Neighborhood, Postal Code 06059, Mexico, D.F.
(NAME OF THE CREDIT INSTITUTION OR BROKERAGE HOUSE) hereby authorizes and instructs irrevocably the Bank of Mexico to make the necessary charges and credits in the securities account that the S.D. INDEVAL Institution for the Deposit of Securities, S.A. de C.V. holds for us, derived from the settlement of swap operations of CETES or BONDES carried out by (NAME OF THE BIDDER) under the “Rules for the swap of Governmental Securities carried out by the Bank of Mexico on its own account”. For these purposes, that Central Bank will send to said institution for the deposit of securities the corresponding instructions so that the respective records are made. Likewise, we irrevocably authorize and instruct that Central Bank to make charges and credits in the national currency account that the Bank of Mexico itself holds for us, up to the amounts of the cash differences resulting in favor of or against (NAME OF THE BIDDER) derived from the swap operations mentioned in the previous paragraph, as well as for any other amount that (NAME OF THE BIDDER) must cover by virtue of any non-compliance with the provisions of the aforementioned Rules. Finally, we inform you that the authorizations and instructions referred to in this document may only be modified or revoked through written communication addressed to that Central Bank presented with, at least, one banking business day in advance of the date on which the respective modification or revocation is intended to take effect. This is understood to mean that the modification or revocation will not apply with respect to the charges and credits resulting from bids presented by (NAME OF THE BIDDER) prior to such communication taking effect. Sincerely, (NAME OF THE CREDIT INSTITUTION OR BROKERAGE HOUSE) (NAME, POSITION AND SIGNATURE OF PERSON(S) WITH AUTHORITY TO PERFORM ACTS OF DOMINION) C.c.p.: S.D. INDEVAL Institution for the Deposit of Securities, S.A. de C.V. For its knowledge. C.c.p.: (NAME OF THE BIDDER). For its knowledge.” TRANSITORY SINGLE.- This Circular shall enter into force on the day of its publication in the Official Journal of the Federation. As an exception to the period provided in the last paragraph of article 20 of the Rules, intermediaries who wish to participate in the first Auction to be held from the entry into force of this Circular, must deliver to the Bank of Mexico the corresponding authorizations in terms of Annex 2 and 3, no later than November 3, 2015. Mexico, D.F., on October 29, 2015.- The General Director of Central Banking Operations, Jaime José Cortina Morfín.- Initials.- The General Legal Director, Luis Urrutia Corral.- Initials. For any inquiries regarding the content of this Circular, please contact the Authorizations, Inquiries and Legal Control Department, at the phones (55) 5237-2308, (55) 5237-2317 or (55) 5237-2000, extension 3200.