Circular 18/2023 — Modifies Circular 2/2023

Wednesday, December 13, 2023 OFFICIAL GAZETTE 1 BANK OF MEXICO CIRCULAR 18/2023 addressed to Credit Institutions, Brokerage Houses, Investment Funds, Multiple-Object Financial Societies that have equity links with Multiple Banking Institutions, General Warehouses of Deposit, Insurance Institutions, and the National Financial Institution for Agricultural, Rural, Forestry and Fisheries Development, regarding the Modifications to Circular 2/2023 (initial and variation margins).

At the margin a logo, which says: Bank of Mexico.- “2023, Year of Francisco Villa, the revolutionary of the people”.
CIRCULAR 18/2023
TO CREDIT INSTITUTIONS, BROKERAGE HOUSES,
INVESTMENT FUNDS, MULTIPLE-OBJECT FINANCIAL SOCIETIES THAT HAVE EQUITY LINKS WITH MULTIPLE BANKING INSTITUTIONS, GENERAL WAREHOUSES OF DEPOSIT, INSURANCE INSTITUTIONS AND THE NATIONAL FINANCIAL INSTITUTION FOR AGRICULTURAL, RURAL, FORESTRY AND FISHERIES DEVELOPMENT:
SUBJECT: MODIFICATIONS TO CIRCULAR
2/2023 (INITIAL AND VARIATION MARGINS)

The Bank of Mexico, with the purpose of continuing to promote the sound development and stability of the financial system, considers it convenient to modify some guidelines used in the determination of bilateral initial and variation margin requirements for non-centrally cleared derivative operations, with the objective of harmonizing their treatment with international practices, as well as to provide greater clarity and certainty regarding the application of certain elements of the rule; without submitting these modifications to public consultation, since their purpose is to facilitate the implementation of the guidelines established by the Bank of Mexico for the determination of margin requirements in derivative operations, which makes it necessary for entities subject to regulation to know as soon as possible the definitive elements that will be established in the regulation.

For the above, based on articles 28, paragraphs sixth and seventh of the Political Constitution of the United Mexican States; 24, 26, 27 and 36 of the Bank of Mexico Law; 46, section XXV, and 46 Bis 5, section II, of the Credit Institutions Law; 176, first paragraph, of the Securities Market Law; 15, second paragraph, of the Investment Funds Law; 11 Bis 2, section XII, and 87-D, fourth paragraph, of the General Law of Organizations and Auxiliary Credit Activities; 9, second paragraph, of the Organic Law of National Financiera; 6 of the Organic Law of Federal Mortgage Society; 9 of the Organic Law of the Bank of Well-being; 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; 22 of the Law for Transparency and Ordering of Financial Services; 4th, first paragraph, 8th, paragraphs fourth and eighth, 10, first paragraph, 12, first paragraph, in relation to 19 Bis, section V, 14, first paragraph, in relation to 25 Bis, section VII, 14 Bis 1, first paragraph, in relation to article 25 Bis 1, section IV, 17, section I, and 20 Quáter, section IV, 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, the General Directorate of Financial Stability, the General Directorate of Financial System Affairs, the Directorate of Central Banking Provisions and the Management of Payment Systems and Market Infrastructures Policy and Surveillance, respectively, Second sections I, IV, VI, X, and XVII of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, as well as numeral 13, section IV, of the Policies for public consultation of general provisions issued by the Bank of Mexico, has resolved to modify the Transitional Articles Second

2 OFFICIAL GAZETTE Wednesday, December 13, 2023 and Third, of Circular 2/2023 (modifications to the “Rules for the carrying out of derivative operations”, contained in Circular 4/2012), to remain in the following terms:

“CIRCULAR 2/2023
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TRANSITIONAL ARTICLES
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“SECOND.- Derivative Operations whose clearing and settlement is not carried out through clearing houses or institutions abroad acting as central counterparties, that were entered into before the dates indicated in the following paragraphs, as applicable, will not be subject to the exchange of Margins provided for in these Rules.

Entities and Investment Funds, without prejudice to what is established in the following paragraph, by December 31, 2024 at the latest, must modify their master agreements so that these instruments establish the manner in which they will carry out the exchange of Margins referred to in these Rules, regarding those Derivative Operations they enter into in over-the-counter markets, whose clearing and settlement is not carried out through clearing houses or institutions abroad acting as central counterparties and which are subject to margin exchange in accordance with numerales 6.2.5.1 and 6.2.6 of these Rules.

Regarding Non-Centrally Cleared Over-the-Counter Derivative Operations entered into by development banking institutions, or with national or foreign non-financial entities, the obligation to modify the master agreements so that these instruments establish the manner in which they will carry out the exchange of Margins referred to in these Rules, will enter into force on September 30, 2025.”

“THIRD.- What is provided in the last paragraph of numeral 6.2.8 of these Rules, regarding the obligation to liquidate collateral assets within a period not exceeding one Business Day, will enter into force on December 31, 2024, without prejudice to what is provided in the following paragraph.

Regarding Non-Centrally Cleared Over-the-Counter Derivative Operations entered into by development banking institutions, or with national or foreign non-financial entities, the obligation to liquidate the collateral assets referred to in the preceding paragraph will enter into force on September 30, 2025.”

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TRANSITIONAL ARTICLE
SINGLE.- What is provided in this Circular will enter into force on the next Business Day following its publication in the Official Gazette of the Federation.

Mexico City, December 5, 2023.- BANK OF MEXICO: General Director of Central Banking Operations, Gerardo Israel García López.- Initials.- General Director of Financial Stability, Fabrizio López Gallo Dey.- Initials.- General Director of Financial System Affairs, José Luis Negrín Muñoz.- Initials.- Director of Central Banking Provisions, María Teresa Muñoz Arámburu.- Initials.- Manager of Payment Systems and Market Infrastructures Policy and Surveillance, Daniel Garrido Delgadillo.- Initials.

Wednesday, December 13, 2023 OFFICIAL GAZETTE 3 For any inquiries regarding the content of this Circular, the Bank of Mexico is at your disposal through the Directorate of Central Banking Authorizations and Sanctions at telephone (55) 5237-2000 extension 3200.