Regulatory Alerts2023-12-11 | Circular 17/2023Added · Updated
Circular 17/2023 — Modifications to the Rules for Derivatives Operations in Circular 4/2012 (Initial and Variation Margin Exchange)
The Bank of Mexico modifies sections 6.2.2, 6.2.4, 6.2.5.4, 6.2.5.5, 6.2.6, 6.2.6.1, 6.2.9.4, 6.2.9.5, and Annex 5 of Circular 4/2012 to align bilateral initial and variation margin requirements for non-centrally cleared derivatives with international practices. The amendments clarify counterparty exemptions, including foreign governments meeting specific credit rating thresholds, and establish detailed requirements for the custody of collateral through external financial market infrastructures or entities, mandating independent legal opinions and risk committee approval. Furthermore, the document updates the internal model authorization process by specifying historical data periods, confidence level calculations, and annual reporting obligations, while introducing penalties such as margin increases or revocation of authorization if retrospective testing fails to meet required confidence levels.
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