Circular 17/2020 — Rules Applicable to Government Securities Repo Operations with the Bank of Mexico to Cover Liquidity Needs

Tuesday, May 19, 2020 OFFICIAL GAZETTE BANK OF MEXICO CIRCULAR 17/2020 addressed to Multiple Banking and Development Banking Institutions, regarding Rules applicable to government securities repo operations with the Bank of Mexico to cover liquidity needs.

A logo appears on the margin, stating: Bank of Mexico.- "2020, Year of Leona Vicario, Meritorious Mother of the Fatherland".

CIRCULAR 17/2020 TO MULTIPLE BANKING AND DEVELOPMENT BANKING INSTITUTIONS: SUBJECT: RULES APPLICABLE TO GOVERNMENT SECURITIES REPO OPERATIONS WITH THE BANK OF MEXICO TO COVER LIQUIDITY NEEDS.

The Bank of Mexico, considering the impacts that the COVID-19 pandemic has had on the global economy and on the behavior of our country's financial markets, as well as on the foreign exchange and fixed-income markets which continue to show little depth, lower liquidity, and a deterioration of operating conditions, with the objective of continuing to promote the sound development of the financial system and safeguard its stability, as well as to foster the proper functioning of payment systems and avoid disruptions therein, has considered it necessary to maintain the provision of national currency liquidity to credit institutions, in order to improve the functioning of national markets, strengthen credit granting channels in the economy, and promote the orderly behavior of our country's debt and exchange markets. With this, this Central Institute will contribute to creating conditions that facilitate credit institutions in fulfilling their priority function of providing financing to the economy; therefore, it has resolved to offer credit institutions the ability to conduct government securities repo operations with the objective of providing liquidity to the government debt market, allowing multiple banking and development banking institutions to obtain liquidity without the need to sell their government securities under the stressful conditions prevailing in the markets.

For the above reason, based on Articles 25, second paragraph, 28, sixth and seventh paragraphs, of the Political Constitution of the United Mexican States; Articles 7, fractions I, II, and X, 8, 14, first paragraph, 15, 16, 24, 26, first paragraph, and 36, of the Bank of Mexico Law; Articles 54 and 96 Bis, of the Credit Institutions Law; Article 22, of the Law for Transparency and Ordering of Financial Services; Articles 4, first paragraph, 8, fourth and eighth paragraphs, 10, 12, first paragraph, in relation to Article 19 Bis, fractions I and V, 14, first paragraph, in relation to Article 25, fraction VII, 14 Bis, first paragraph, in relation to Article 17, fraction I, and 14 Bis 1, in relation to Article 25 Bis 1, fraction IV, 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, the General Directorate of Financial Stability, the General Legal Directorate, and the General Directorate of Affairs of the Financial System, respectively; as well as Article Second, fractions I, IV, VI, and X, of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, it has resolved to issue these Rules, in accordance with the following provisions:

RULES APPLICABLE TO GOVERNMENT SECURITIES REPO OPERATIONS WITH THE BANK OF MEXICO TO COVER LIQUIDITY NEEDS

1. Definitions. For the purposes of these Rules, the terms used herein, in singular or plural, shall have the meanings indicated below, without prejudice to any different treatment given to similar terms in other regulations:

BONDES: Bonds for Development issued by the Federal Government of the United Mexican States in the national market, denominated in national currency, both at fixed interest rates, also known as "BONOS M", and at variable interest rates, also known as "BONDES D", and denominated in UDIS at fixed interest rates, also known as "UDIBONOS".

BPAS: Savings Protection Bonds issued by the Institute for the Protection of Bank Savings with respect to which the Bank of Mexico acts as financial agent for their placement in the national market.

BREMS: Monetary Regulation Bonds issued by the Bank of Mexico in the national market.

CETES: Certificates of the Treasury of the Federation issued by the Federal Government of the United Mexican States in the national market, excluding those issued under programs for the restructuring of UDIS credits (Special CETES).

Single Account: The national currency demand deposit bank account that the Bank of Mexico maintains for each of the Institutions in accordance with the provisions of the Operating Provisions.

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

Operating Provisions: The provisions applicable to the Operations of Credit Institutions, Regulated Multiple-Object Financial Companies that Maintain Patrimonial Links with Credit Institutions, and the National Development Bank for Agricultural, Rural, Forestry, and Fisheries Development, issued by the Bank of Mexico through Circular 3/2012, published in the Official Gazette of the Federation on March 2, 2012, as modified by subsequent resolutions.

Indeval: S.D. Indeval, Institution for the Deposit of Securities, S.A. de C.V.

Institutions: Multiple banking or development banking institutions, as applicable.

Manual: The operating manual to implement the repo operations provided for in these Rules, which the Bank of Mexico makes known to Institutions through the internet portal located at the address: <http://webdgobc>.

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

UDIS: Investment units referred to in the Decree establishing the obligations that may be denominated in Investment Units and Reform and Additions to various provisions of the Federal Tax Code and the Income Tax Law, published in the Official Gazette of the Federation on April 1, 1995.

Government Securities: CETES and BONDES, including segregated coupons of BONDES with fixed interest rates in pesos or UDIS referred to in the "Rules for the Segregation and Reconstitution of Titles" issued by the Secretariat of Finance and Public Credit, as well as BPAS and BREMS.

2. General Terms and Conditions.

2.1 Conditions for granting financing. Institutions interested in entering into, in their capacity as the party receiving financing (reportada), repo operations with the Bank of Mexico in accordance with these Rules must submit their requests on the date and within the hours indicated in the calls for proposals that the Bank of Mexico will make known to them for these purposes. The Bank of Mexico will make known to Institutions each of the aforementioned calls for proposals at least one Business Day in advance of the date on which it will receive the indicated requests.

The calls for proposals will be made known through SIAC-BANXICO or on the Bank of Mexico's internet site located at the address << https://www.banxico.org.mx/ >>. In the event that said system is not available, the Bank of Mexico may make known the calls for proposals by any other authorized electronic, computing, or telecommunications medium for this effect, as it will make known to Institutions. Such calls for proposals will specify the date and time at which Institutions may request the execution of the repo operations subject to these Rules, as well as the available amount determined for said operations. The Bank of Mexico will issue the aforementioned calls for proposals at least once a week, during the validity of these Rules or until the maximum amount determined by it has been covered.

Institutions must submit the aforementioned requests through SIAC-BANXICO on the date and time indicated in the respective call for proposals. The access, identification, and, where applicable, operation keys established for the use of SIAC-BANXICO will substitute the autograph signature of the representative of the respective Institution with an electronic one; therefore, the documentary or technical records generated or presented as a result of the use of said data will produce the same effects that laws grant to documents signed by the parties and, consequently, will have equal probative value.

In the event that SIAC-BANXICO is not available, Institutions must submit the indicated requests through the electronic, computing, or telecommunications medium authorized for this effect by the Bank of Mexico, as it will make known in the respective call for proposals. In this case, Institutions must submit the requests in terms of the format attached to these Rules as Annex 1, on the date and time indicated in the respective call for proposals and in accordance with the procedure established in the Manual. Such request submitted through the medium referred to in this paragraph must bear the advanced electronic signature of the legal representative of the Institution who has the authority to exercise acts of dominion, whose data are susceptible of verification through the corresponding digital certificate issued by the Tax Administration Service, or alternatively, by means of a written document presented at the domicile of the Bank of Mexico containing the autograph signature of the legal representative of the Institution who has the authority to exercise acts of dominion.

The Bank of Mexico will attend to the requests submitted by Institutions in accordance with the provisions in the preceding paragraphs and will assign them the amount they have requested, which it will make known to Institutions through SIAC-BANXICO or any other electronic, computing, or telecommunications medium authorized for this effect by the Bank of Mexico, as it will make known in the respective call for proposals. In the event that the total amount of requests exceeds the available amount, the assignment will be carried out pro rata, that is, proportionally to the bids presented by each Institution. The disbursement of resources corresponding to the repos executed based on such assignment will be subject to the prior transfer of the titles subject to such repos into the respective securities deposit accounts that Indeval maintains at the Bank of Mexico. The applicable accounts, as well as the applicable hours, will correspond to those specified in the Manual. The titles subject to the repo must be deposited on the Business Day following the one in which the respective Institution has submitted the request that has been assigned in the terms provided in the Manual.

Regarding development banking institutions, only those authorized to do so in accordance with applicable regulations may execute the aforementioned repos.

Institutions that have executed repo operations in accordance with these Rules may submit new requests to the Bank of Mexico on the dates and times that it will make known in subsequent calls for proposals, even in cases where such operations remain in effect on the dates when the new operations are executed.

2.2 Repo Operations. For the respective Institution to be able to execute repos with the Bank of Mexico in accordance with these Rules, it must previously sign the respective contract with it, which shall have, at least, the following characteristics:

Repo Provider (Reportador): The Bank of Mexico. Repo Recipient (Reportada): The Institution that meets the requirements to execute repos with the Bank of Mexico in accordance with these Rules. Term for the execution of the repo operation: The Business Day immediately following the one in which the respective Institution has submitted its request to the Bank of Mexico, on the date indicated for this purpose in the respective call for proposals, subject to the delivery of the titles subject to the repo, in accordance with what is established in section 2.1. Term of the repo: Three months, which may not exceed 93 calendar days, in accordance with what is determined in the call for proposals referred to in section 2.1. Titles subject to the repo: Government Securities whose maturity date is subsequent to that corresponding to the expiration date of the repo term. Price of the repo: The amount in national currency equivalent to the value of the titles subject to the repo made known by the Bank of Mexico at the moment of its perfection, adjusted by the discount factors that the Bank itself determines and makes known through the internet portal it maintains at the address: << http://webdgobc >>. Premium: That resulting from the following formula:

Where: Interest Rate: shall be equivalent to the result of multiplying the factor 1.02 (one point zero two) by the average, during the Term of the repo, of the one-day interbank interest rate that the Government Board of the Bank of Mexico has determined as the target rate for monetary policy purposes, expressed annually and in percent with rounding to two decimal places, made known on the Bank's own internet electronic page during each day of the validity of the repo. Amount: the amount agreed upon for the corresponding repo, equivalent to the Price of the repo. Days: the number of calendar days that elapse between the one on which the repo is perfected and the Business Day on which it is settled.

The payment of the Premium will be made on the day of the operation's maturity, through a charge that the Bank of Mexico will make in the Single Account it maintains for the reporting Institution.

Funding Accreditation: Once the respective Institution has signed the contract and submitted the request to execute the corresponding repo in accordance with section 2.1 above, said Institution must transfer the titles subject to the repo, in accordance with what is indicated in this section, to the securities deposit account that Indeval maintains at the Bank of Mexico, in terms of what is established in the Manual.

Once the delivery of said titles has been carried out through the transfer referred to in the preceding paragraph, the Bank of Mexico, during the hours established in the Manual, will make the credit of the amount equivalent to the Price of the repo in question in the Single Account it maintains for the reporting Institution.

The value of the titles delivered by the reporting Institution to the Bank of Mexico, adjusted by the discount factors, must cover, in their entirety, both the Price of the repo and the estimated Premium and any other agreed expenses, in accordance with what is established in these Rules.

Valuation of the titles subject to the repo. The reporting Institution must deliver to the Bank of Mexico, by virtue of the respective repo, titles whose valuation adjusted by the discount factors must be equal to or greater, at all times, to the Price of the repo plus the estimated Premium for the repo operation and any other agreed expenses. For these purposes, the value of the titles will be determined in accordance with the prices and the corresponding discount factors that the Bank of Mexico will make known to Institutions, through the internet portal located at the address: <http://webdgobc>.

For the scenario provided in the preceding paragraph, the estimated Premium will be calculated as follows:

On the day of perfection of the respective repo, the estimated Premium will be that resulting from applying the formula indicated above, for which the target rate for monetary policy purposes made known on the Bank of Mexico's internet electronic page, from the date of perfection until the valuation date, will be taken, assuming, for the purposes of this calculation, that said rate will remain constant during the remaining term of the repo. Additionally, in the event that, from the day of perfection of the repo until the agreed date of expiration of the repo term, the aforementioned target interest rate is modified by decision of the Government Board of the Bank of Mexico, the value of said rate will be taken as applicable for each of the days from the one on which it has been made known until the agreed date of expiration of the repo term. Without prejudice to the foregoing, the Premium that the reporting Institution must pay to the Bank of Mexico will be that resulting from the calculation performed, at the expiration of the repo, in accordance with what is indicated in the Premium item of this section.

The value of the titles subject to the repo will be determined daily, until the repo is settled, in accordance with the valuation performed by the Bank of Mexico and, derived from such determination, the following will be done:

a) If the value of the titles, when applying the corresponding discount factor, results in less than the sum of the Price of the repo, the estimated Premium, and any other agreed expenses, the Bank of Mexico will notify said situation to the respective Institution, which must send a communication within the time limit and terms established for this effect in the Manual, in which it indicates the Government Securities it will grant to the Bank of Mexico to cover the amount of the corresponding difference. The Institution must carry out, on the same Business Day that the Bank of Mexico notifies that the shortfall is applicable, the transfer of said Government Securities to the securities deposit account that the Bank of Mexico maintains at Indeval that is applicable, within the hours that Institutions may consult in the Manual.

b) If the value of the titles, when applying the corresponding discount factor, results in greater than the sum of the Price of the repo, the estimated Premium, and any other agreed expenses, the Institution may request the Bank of Mexico to return the excess titles, through a communication sent to the Bank of Mexico in the terms of the Manual.

In the event that the Institution does not carry out the transfer of the titles in accordance with what is referred to in the preceding subsection a), on the following Business Day, the repo will be considered terminated in advance, in which case the Institution must make a payment for the uncovered amount derived from the corresponding difference between the sum of the Price of the repo, the estimated Premium, and any other agreed expenses, and the value of the titles, when applying the corresponding discount factor. Notwithstanding the foregoing, without prejudice to the corresponding conventional penalty for the uncovered amount, the Institution and the Bank of Mexico may execute a new repo with the remainder of the titles that the Institution had previously delivered to it for a term equal to the remaining term of the original operation.

3. General Provisions.

3.1 Execution of contracts. To execute the repo contract subject to these Rules, interested Institutions must submit to the Operations Instrumentation Management of the Bank of Mexico a certified copy of the deed in which the powers granted to their legal representatives to exercise acts of dominion are recorded, as well as the official identifications of said representatives who sign the aforementioned contracts and the other documents indicated therein.

3.2 Payment of the repo. The reporting Institution may, prior to the agreed expiration date for the repo it has executed in accordance with these Rules, pay in full or in part the amounts owed by it by virtue of said repo. In these scenarios, the reporting Institution must inform the Bank of Mexico of this, through a communication prepared for such effects in accordance with the format provided in Annex 2 of these Rules and during the hours indicated in the Manual.

Once the repos provided for in these Rules have been fully settled, the obligations of the parties will be extinguished.

As an exception to what is provided in Article 116 of the Operating Provisions, Institutions that execute the repo operations subject to these Rules may not incur overdrafts in their respective Single Accounts not covered by guarantees for the payment of said operations. By virtue of the foregoing, in the event that the Bank of Mexico cannot make the respective charge at the maturity of the respective repo operation, the payment obligation for the respective repo will be considered breached up to the amount not covered by the respective Institution.

The Bank of Mexico may abstain from executing a new repo operation with an Institution when this Institution does not comply with the conditions provided in these Rules, with what is stipulated in the respective repo contract, as well as when said Institution fails to comply with the conditions of other operations executed by it with the Bank of Mexico in accordance with the respective Rules issued by it to cover liquidity needs.

3.3 Information to the Bank of Mexico.

DIARIO OFICIAL Tuesday, May 19, 2020

Institutions shall carry out the acts provided for in these Rules, without prejudice to the Bank of Mexico's authority to require them, through the competent administrative units, the information it requires for the proper fulfillment of its functions. The aforementioned information must be submitted in the form and terms that the aforementioned administrative units shall notify them of for this purpose.

Annex 1 Format of the application that Institutions must present to the Bank of Mexico

Mexico City, on (DAY) of (MONTH) of (YEAR). Bank of Mexico Present: Attention: General Directorate of Central Banking Operations

Through this channel, the undersigned, [FULL NAME], in my capacity as [POSITION] of the credit institution named [FULL DESIGNATION OF THE CREDIT INSTITUTION, INCLUDING, IF APPLICABLE, THE FINANCIAL GROUP TO WHICH IT BELONGS], on behalf and for the account of said institution, requests that the Bank of Mexico grant my represented entity a temporary financing, under the terms provided in the "RULES APPLICABLE TO GOVERNMENT SECURITIES REPO OPERATIONS WITH THE BANK OF MEXICO TO COVER LIQUIDITY NEEDS", issued by this Central Institute through Circular 17/2020, published in the Official Journal of the Federation on May 19, 2020.

The amount of the referred financing that my represented entity requests is $________________ (amount in letters), pesos, national currency, and the date required for the disbursement of resources by my represented entity is [ DAY ] of [ MONTH ] of [ YEAR ], subject to the transfer of the titles subject to repo in the respective value deposit accounts that Indeval maintains at the Bank of Mexico. For these purposes, my represented entity accepts to celebrate the repo operations in the form and terms provided in the aforementioned Circular, as well as in the corresponding contracts.

Likewise, my represented entity expresses its conformity with any modifications that may have been made to Circular 17/2020, subsequent to the celebration of the contract documenting the repo operation with the Bank of Mexico. It also acknowledges that, in case of discrepancy between the terms and conditions established in the referred contract and those provided in the said Circular and its respective modifications, which are in force at the time of the present application, the terms and conditions provided in the Circular and its respective modifications shall prevail.

Additionally, with the purpose of having agile communication for clarifications or requests for additional information, the Institution designates the following contacts:

Name Position Phone Email

I declare, under oath, that the statements contained in this communication are true and reliable, for all legal effects that may apply.

Tuesday, May 19, 2020 DIARIO OFICIAL

Sincerely, [NAME AND SIGNATURE OF THE LEGAL REPRESENTATIVE WITH AUTHORITY TO PERFORM ACTS OF DOMINION]

Annex 2 Format of payment communication that Institutions must present to the Bank of Mexico

Mexico City, on (DAY) of (MONTH) of (YEAR). Bank of Mexico Present: Attention: Operations Management Department

Through this channel, I inform you that on [ DAY ] of [ MONTH ] of [ YEAR ], [FULL DESIGNATION OF THE CREDIT INSTITUTION, INCLUDING, IF APPLICABLE, THE FINANCIAL GROUP TO WHICH IT BELONGS], will make the early payment of the financing granted to it by the Bank of Mexico under Circular 17/2020 for:

The Repo Price equivalent to the amount of $ __________________ (amount in letters), pesos, national currency, plus the Repo Premium and, if applicable, corresponding accessories, or a partial payment of the Repo Price equivalent to the amount of $ __________________ (amount in letters), pesos, national currency, plus the Repo Premium and, if applicable, corresponding accessories,

for which I authorize and instruct that Central Institute to make the respective charge in the Single Account that it maintains for this institution under the contract.

Sincerely, (NAME AND SIGNATURE OF PERSONS PREVIOUSLY REGISTERED AT THE BANK OF MEXICO)

TRANSITORY PROVISIONS

FIRST. These Rules shall enter into force on the day of their publication in the Official Journal of the Federation and their validity shall expire on September 30, two thousand twenty.

DIARIO OFICIAL Tuesday, May 19, 2020

SECOND. In the event that, on the date of expiration of the validity indicated, repos celebrated by Institutions with the Bank of Mexico under these Rules remain in force, they shall remain in force until their liquidation date, subject to these provisions and the applicable contracts.

Mexico City, May 11, 2020.- BANK OF MEXICO: The General Director of Central Banking Operations, Gerardo Israel García López.- Initials.- The General Director of Financial Stability, Fabrizio López Gallo Dey.- Initials.- The General Legal Director, Luis Urrutia Corral.- Initials.- The General Director of Financial System Affairs, José Luis Negrín Muñoz.- Initials.

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 phone (55) 5237-2000 extension 3200. 5) 5237-2000 extension 3200.