Circular 18/2015 — Auctions for the Swap of Limited Negotiability Monetary Regulation Bonds (BREMS L) for Reportable Monetary Regulation Bonds (BREMS R)

(First Section) OFFICIAL GAZLETHURSDAY, NOVEMBER 26, 2015 BANCO DE MEXICO CIRCULAR 18/2015, addressed to Credit Institutions, regarding the Rules for the auctions for the swap of Limited Negotiability Monetary Regulation Bonds (BREMS L) for Reportable Monetary Regulation Bonds (BREMS R).

A logo is placed at the margin, which reads: Bank of Mexico.

CIRCULAR 18/2015
TO CREDIT INSTITUTIONS:
SUBJECT: Rules for the auctions for the swap of Limited Negotiability Monetary Regulation Bonds (BREMS L) for Reportable Monetary Regulation Bonds (BREMS R)

The Bank of Mexico, with the purpose of continuing to promote the sound development of the financial system and making the implementation of monetary policy more efficient, has considered it convenient that credit institutions may make use of the additional repo facilities that, due to their characteristics, Reportable Monetary Regulation Bonds (BREMS R) provide compared to Limited Negotiability Monetary Regulation Bonds (BREMS L), issued by the Bank of Mexico. For this purpose, it has resolved to allow interested institutions to carry out swaps of BREMS L placed in accordance with Circular 10/2014 “Rules for the auctions of limited negotiability monetary regulation bonds (BREMS L) carried out by the Bank of Mexico” for BREMS R, through auctions.

Therefore, 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 National Financiera Organic Law; 6 of the Federal Mortgage Society Organic Law; 9 of the National Savings and Financial Services Bank Organic Law; 9 of the National Foreign Trade Bank Organic Law; 10 of the National Public Works and Services Bank Organic Law; 8 of the National Bank of the Army, Air Force and Navy Organic Law; 22 of the Law for Transparency and Ordering of Financial Services; 4, first paragraph, 8, paragraphs fourth and seventh, 10, first paragraph, 12, in relation to 19 Bis, fraction V, and 19 Bis 1, fraction XI, as well as 14 Bis, 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 Banking Operations and the General Legal Directorate, respectively; as well as on Article Second, fractions VI and X, of the Agreement on the Assignment of Administrative Units of the Bank of Mexico, it has resolved to issue the following:

RULES FOR THE AUCTIONS FOR THE SWAP OF LIMITED NEGOTIABILITY MONETARY REGULATION BONDS (BREMS L) FOR REPORTABLE MONETARY REGULATION BONDS (BREMS R)

CHAPTER I
PRELIMINARY PROVISIONS

Definitions
Article 1.- For the purposes of these Rules, the following shall be understood, in singular or plural:
Bank: the Bank of Mexico.
BREMS L: Limited Negotiability Monetary Regulation Bonds issued by the Bank of Mexico.
BREMS R: Reportable Monetary Regulation Bonds issued by the Bank of Mexico.
Unique Account: the national currency deposit account that Credit Institutions must open and maintain at the Bank of Mexico.

THURSDAY, NOVEMBER 26, 2015 OFFICIAL GAZETTE (First Section) DALÍ: the System for the Deposit, Administration and Settlement of Securities administered by INDEVAL.
Banking Business Days: the days on which financial entities are not obliged to close their doors or suspend operations, in terms of the general provisions issued for such effect by the National Banking and Securities Commission.
INDEVAL: S.D. INDEVAL Securities Depository Institution, S.A. de C.V.
Development Banking Institutions:
the National Foreign Trade Bank, S.N.C., Development Banking Institution; the National Bank of the Army, Air Force and Navy, S.N.C., Development Banking Institution; the National Savings and Financial Services Bank, S.N.C., Development Banking Institution; National Financiera, S.N.C., Development Banking Institution; the Federal Mortgage Society, S.N.C., Development Banking Institution; and the National Public Works and Services Bank, S.N.C., Development Banking Institution. Multiple Banking Institutions:
legal persons authorized to act with such status in terms of what is provided in the Credit Institutions Law.
Credit Institutions: Multiple Banking Institutions and Development Banking Institutions.
SIAC-BANXICO: the Bank of Mexico Account Holder Attention System.
Auction: the auction for the swap of BREMS L for BREMS R in terms of these Rules.
Securities: BREMS L and BREMS R, jointly or separately.

Bidders
Article 2.- Only Credit Institutions that hold BREMS L assigned to them by the Bank of Mexico in the auction of June 18, 2014 in accordance with Circular 10/2014, “Rules for the auctions of limited negotiability monetary regulation bonds (BREMS L) carried out by the Bank of Mexico,” may submit bids in the Auctions.

Auction Calls
Article 3.- The Bank shall make known to Credit Institutions the call for each Auction starting at 11:30:00 hours on the last Banking Business Day of the week immediately preceding that in which the respective Auction will take place, through its internet website identified by the domain name: www.banxico.org.mx, through SIAC-BANXICO, or through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank.

In each of the calls referred to in this Rule, the Bank shall make known the necessary characteristics for the conduct of the corresponding Auction.

CHAPTER II
TYPE OF AUCTIONS

Characteristics
Article 4.- The Auctions shall be at a fixed price of $100.00 (one hundred pesos 00/100 M.N.), both for BREMS L and for BREMS R, and all bids resulting in an allocation will be served at said price.

CHAPTER III
PRICE

(First Section) OFFICIAL GAZETTE THURSDAY, NOVEMBER 26, 2015
Article 5.- The references to prices included in these Rules correspond to clean prices, that is, those that do not include accrued but unpaid interest, rounded to the nearest cent.

CHAPTER IV
BIDS

Type of bid
Article 6.- The bid of each Credit Institution must indicate: a) the issuance key, the term in days of the issuance, and the amount in pesos at nominal value of the BREMS L that said bidding Credit Institution is willing to deliver, and b) the issuance key and the term in days of the issuance of the BREMS R that the bidder intends to receive as a result of the swap auction.

Bid Limits
Article 7.- The bid submitted by each bidding Credit Institution for each Auction must not exceed the total amount of BREMS L held by said Credit Institution, nor the maximum amount of BREMS R announced by the Bank in the corresponding call.

Submission of bids
Article 8.- Each bidding Credit Institution must submit bids by writing addressed to the National Operations Management of the Bank, delivered in a sealed envelope, on the Banking Business Day of the Auction and during the schedule established in the call. The aforementioned writing must adhere to the model attached as Annex 1 to these Rules and must be accompanied by a cover letter.

The documents mentioned in the preceding paragraph must be signed by the same representatives, duly authorized by the bidding Credit Institution. Additionally, the letter must show the signature knowledge granted by the Bank, so said signatures must be previously registered at the Bank itself.

Effects of bids
Article 9.- The bids submitted to the Bank will produce the broadest effects corresponding in law and will imply the acceptance by the bidding Credit Institution of all and each of these Rules, as well as the terms and conditions established in the call in which the Bank communicates the particular characteristics of each Auction.

The bids will be binding for the bidding Credit Institution that submits them and will be irrevocable.

The Bank may cancel the request 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.

CHAPTER V
ALLOCATION

Criteria for allocation
Article 10.- Bids will be served without exceeding the maximum amount of BREMS R indicated in the call, at the fixed price determined in accordance with what is provided in Article 4.

The amounts of the Securities to be delivered and received by each bidding Credit Institution whose bid has an allocation will be at nominal value in pesos.

CHAPTER VI
RESULTS

Report of the results of the Auctions
Article 11.- The Bank will make available to bidding Credit Institutions, through its internet website referred to in Article 3 or through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank, the general results of the Auction no later than thirty minutes after the deadline for the submission of bids. This information will remain available to bidding Credit Institutions through the mentioned medium, until the general results of a new Auction are incorporated.

The Bank will inform each bidding Credit Institution individually that has obtained an allocation in the respective Auction, through written communication that it will make physically available at the National Operations Management of the Bank no later than sixty minutes after the deadline for the submission of bids, the amount of BREMS R assigned to it and the amount of BREMS L it must deliver.

CHAPTER VII
SETTLEMENT OF THE AUCTIONS

Reservation of ownership
Article 12.- The Bank, based on what is provided in Articles 2312 and 2331 of the Federal Civil Code, reserves the ownership of the BREMS R assigned that it must deliver as a result of the swap, until the moment it receives from the respective bidding Credit Institution the BREMS L subject to the corresponding Auction.

Calculation of the amount for settlement
Article 13.- The Bank, for the settlement of the swap operations of the Securities referred to in these Rules, will proceed as follows:

I. It will receive the BREMS L subject to the operation, by acquiring the ownership of said Securities through DALÍ, in terms of what is established in the internal regulations of INDEVAL, on the date indicated in the corresponding call. For this purpose, on the day of settlement, the Bank will instruct INDEVAL to charge the total of the BREMS L to be received from the Credit Institution in question, in the securities deposit account that INDEVAL itself holds for it;

II. It will deliver the BREMS R subject to the operation, by transmitting the ownership of said Securities through DALÍ, in terms of what is established in the internal regulations of INDEVAL, on the date indicated in the corresponding call. For this purpose, on the day of settlement, the Bank will instruct INDEVAL to credit the total of the BREMS R assigned to the Credit Institution in question, in the securities deposit account that INDEVAL itself holds for it;

III. It will credit to the Unique Account of the Credit Institution in question, the amount equivalent to the accrued but unpaid interest corresponding to the total nominal value of the BREMS L to be received, from the date of their issuance or last interest payment until the settlement date of the Auction, calculated in the terms provided by this Article; and

IV. It will charge to the Unique Account of the Credit Institution in question, the amount equivalent to the accrued but unpaid interest corresponding to the total nominal value of the BREMS R to be delivered, from the date of their issuance or last interest payment until the settlement date of the Auction, calculated in the terms provided by this Article.

For the purposes of the above, all BREMS L that bidding Credit Institutions that have received an allocation are obligated to deliver must be deposited in the corresponding securities accounts, before the closing of DALÍ operations.

The accrued but unpaid interest of the Securities subject to the operation, from the date of their issuance or last interest payment, as applicable, until the settlement date of the Auction, will be calculated according to the following formula:

(1)

Where:

Idev = Accrued interest in pesos.
VN = Nominal value of the Securities.
N = Natural days elapsed between the date of issuance of the Securities or last interest payment, as applicable, and the settlement date.
R = Annual interest rate of the title, expressed in percentage terms and rounded to two decimals, calculated according to the following formula:

Where:

i = Each of the natural days between the date of issuance of the Securities or the last interest payment, as applicable, and the settlement date, will take values from 1 to N.
= Operator meaning to perform the multiplication of the factors between parentheses. ri = The one-day interbank interest rate that the Bank's Governing Board has determined as the target rate for monetary policy purposes, expressed annually and in percent with rounding to two decimals, valid on each of the days of the interest calculation period (each day “i”) according to the most recent monetary policy bulletin published by the Bank through its internet website www.banxico.org.mx or through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank itself. In the latter case, the Bank will timely inform the medium through which said rate will be disseminated.

In the event that, for any cause, the publication of the monetary policy bulletin cannot be made, the target rate given in the monetary policy bulletin published on the date closest to the interest calculation period will be taken as reference for the interest calculation.

In the event that this rate ceases to be made known permanently, the Bank will make known the rate that replaces it for the purposes of calculating the interest referred to in this Circular.

For each bid allocated within the call, bidding Credit Institutions will receive or deliver the quantity of Securities assigned in the swap NL and will deliver to the Bank or receive from it the quantity NR of Securities in swap of the requested series. For the purposes of what is stated in this paragraph, NR will correspond to the result of applying the following formula:

(2)

Where:

PL = Fixed price of the BREMS L that bidding Credit Institutions offer in swap, rounded to the nearest cent.
Idev,L = Amount of accrued but unpaid interest of the BREMS L offered in swap by bidding Credit Institutions and calculated according to formula (1) rounded to twelve decimals.
NL = Quantity of BREMS L to be delivered by bidding Credit Institutions, for each allocated bid.
PR = Fixed price of the BREMS R that bidding Credit Institutions request in swap, rounded to the nearest cent.
Idev,R = Amount of accrued but unpaid interest of the BREMS R requested in swap by bidding Credit Institutions and calculated according to formula (1) rounded to twelve decimals.
NR = Quantity of BREMS R to be received by bidding Credit Institutions for each allocated bid. It will be truncated to the nearest lower integer.

Default
Article 14.- In the event that a Credit Institution that has obtained an allocation in an Auction does not have the total amount of BREMS L it must deliver registered in the designated account before the closing of DALÍ operations in accordance with what is stated in the previous article, the Bank may, without the need for a judicial declaration, rescind the swap for the missing amount, so that the corresponding credits and charges will not be made in the securities accounts in DALÍ, nor in the Unique Account, in accordance with what is provided in Article 13.

In the case referred to in the preceding paragraph, the Credit Institution must cover to the Bank the equivalent to one percent of the nominal value amount of the BREMS L that were not delivered to the Bank in a timely manner.

The amount referred to in the preceding paragraph will be charged to the Unique Account of the Credit Institution in question, on the next Banking Business Day after the date on which the default occurred.

Without prejudice to the foregoing, the Bank may disqualify the bidding Credit Institution in question from participating in the Auctions.

CHAPTER VIII
GENERAL PROVISIONS

Publication of the characteristics of the Auctions
Article 15.- For market information, the Bank will make known to the general public the characteristics of the Auctions, through its aforementioned internet website or through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank.

Time zone
Article 16.- The schedules mentioned in these Rules refer to the time zone of Mexico City.

Force majeure or fortuitous event
Article 17.- In the event that, due to force majeure or fortuitous event, the Bank's internet website referred to in Article 3 cannot be used to make known the calls or inform the results of the Auctions, the Bank will timely communicate the procedure that will be followed for such purposes.

Payment of Securities
Article 18.- Credit Institutions must authorize the Bank to instruct INDEVAL to make charges or credits, as applicable, for the amount of Securities corresponding, in the securities deposit account held by INDEVAL itself. Likewise, they must authorize the Bank to charge or credit the cash settlement in the Unique Account held for them for the amount resulting in terms of what is provided by these Rules.

For this purpose, Credit Institutions 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 authorization granted to the Bank must be signed by whoever has the authority to exercise acts of dominion in the name and representation of the Credit Institution, and must be accompanied by certified and simple copies of the public instrument in which the aforementioned 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 Bank's Operations Management Department, at least three Banking Business Days in advance of the date on which the Credit Institution intends to participate in the Auctions.

Modifications to the Auction

Article 19.- The Bank may modify the dates, schedules, and deadlines mentioned in these Rules in the event that circumstances occur that prevent strict observance of the procedure and other acts related to the Auction in question. In such an event, the Bank will inform the aforementioned modifications through its aforementioned internet website or through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank.

ANNEX 1
MODEL OF REQUEST TO PARTICIPATE IN THE AUCTION FOR THE SWAP OF LIMITED NEGOTIABILITY MONETARY REGULATION BONDS (BREMS L) FOR REPORTABLE MONETARY REGULATION BONDS (BREMS R)

BANCO DE MÉXICO
NATIONAL OPERATIONS MANAGEMENT
5 de Mayo Avenue, No. 6
Col. Centro, C.P. 06059, Mexico, D.F.

Present:

Mexico, D.F., on _____ of ___________________ of _________.

Full Name of the Credit Institution: _____________________________________

Key of the bidding Credit Institution at the Bank of Mexico:

---

a) Regarding the BREMS L to be delivered:
Issuance Key: .
Term in days of the issuance: _______ days.
Total amount (in pesos at nominal value)__________________

b) Regarding the BREMS R to be received:
Issuance Key: ___________.
Term in days of the issuance: _____ days

The Fixed Allocation Price is $100.00 (ONE HUNDRED PESOS 00/100 M.N.)

The cited bid is binding and irrevocable; it will produce the broadest effects corresponding in law, and imply our acceptance to the “Rules for the auctions for the swap of Limited Negotiability Monetary Regulation Bonds (BREMS L) for Reportable Monetary Regulation Bonds (BREMS R)” in force, as well as to the terms and conditions of the call dated ______ of ___________________ of ______.

Sincerely,

(NAME OF THE BIDDING CREDIT INSTITUTION)
(NAME AND SIGNATURE OF AUTHORIZED OFFICIALS)

Thursday, November 26, 2015 OFFICIAL GAZETTE (First Section) NOTE: Unused spaces must be cancelled.
ANNEX 2
MODEL OF AUTHORIZATION IN FAVOR OF THE BANK OF MEXICO TO MAKE CHARGES AND CREDITS IN THE ACCOUNTS OF CREDIT INSTITUTIONS (LETTERHEAD OF THE CREDIT INSTITUTION) 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.
(FULL NAME OF THE CREDIT INSTITUTION) hereby authorizes and instructs in an irrevocable manner the Bank of Mexico to make the necessary charges and credits in the securities account that the S.D. INDEVAL Securities Depository Institution, S.A. de C.V. holds for us, derived from the settlement of swap operations of BREMS L and BREMS R carried out by this institution under the "Rules for the auctions of swaps of Limited Negotiability Monetary Regulation Bonds of the Bank of Mexico (BREMS L) for Reportable Monetary Regulation Bonds of the Bank of Mexico (BREMS R)". For these purposes, that Central Bank will send the corresponding instructions to said securities depository institution 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 called the Single Account that the Bank of Mexico itself holds for us, up to the amounts that result in favor or against this institution derived from the swap operations mentioned in the previous paragraph, as well as for any other amount that this institution must cover due to 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 and 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. It is understood that the modification or revocation will not apply with respect to the charges and credits resulting from bids submitted by this institution prior to such communication taking effect. Sincerely, (FULL NAME OF THE CREDIT INSTITUTION) (NAME, POSITION AND SIGNATURE OF PERSON(S) WITH AUTHORITY TO PERFORM DOMINION ACTS) C.c.p. : S.D. INDEVAL Securities Depository Institution, S.A. de C.V. For your information. TRANSITORY SINGLE.- These Rules shall enter into force on the Banking Business Day following their publication in the Official Gazette of the Federation.

(First Section) OFFICIAL GAZETTE Thursday, November 26, 2015 Mexico, D.F. on November 24, 2015.- The General Director of Central Bank Operations, Jaime José Cortina Morfín.- Rubric.- The General Legal Director, Luis Urrutia Corral.- Rubric.
For any inquiries regarding the content of this Circular, please contact the Authorizations, Queries and Legal Control Department, at the phones (55) 5237-2308, (55) 5237-2317 or (55) 5237-2000, extension 3200.