Circular 19/2009 — Modifies Repo Rules

CIRCULAR 19/2009 Mexico, D.F. on August 31, 2009. TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT COMPANIES, SPECIALIZED RETIREMENT FUND SOCIETIES AND THE RURAL FINANCIAL INSTITUTION: SUBJECT: RESOLUTION MODIFYING THE REPO RULES

The Bank of Mexico, based on Article 28 of the Political Constitution of the United Mexican States, paragraphs sixth and seventh; Articles 24 and 26 of the Bank of Mexico Law; Article 53, fraction II and Article 81 of the Credit Institutions Law; Article 176 of the Securities Market Law; Article 15, second paragraph of the Investment Companies Law; Article 48, fraction VI of the Savings for Retirement Systems Law; Article 19 of the Organic Law of the Rural Financial Institution; Article 22 of the Law for Transparency and Ordering of Financial Services, as well as Articles 8, third and sixth paragraphs, 10, 14 in relation to Article 25, relation II; Article 17, fraction I, and Article 19, fraction IX, which provide the Bank of Mexico's authority to issue provisions through the General Directorate of Financial System Analysis, the Directorate of Central Banking Provisions, and the Directorate of Operations, respectively, all of the Internal Regulations of the Bank of Mexico, as well as the Single Agreement on the Assignment of Administrative Units of the Bank of Mexico, fractions I, III and IV, with the objective of promoting the healthy development of the financial system and protecting the interests of the public, considering that it is convenient to incentivize the celebration of repo operations, which can be achieved by: i) Expanding the securities that can be the subject of repos, and ii) Allowing the price and premium of securities subject to repos to be freely denominated, in order to decrease transaction costs and market segregation, taking into account that exchange rate risk can be efficiently managed through margin calls and appropriate appraisals.

It has resolved to modify the definition of "Securities" contained in numeral 1, as well as numeral 6.1 of the "Rules to which credit institutions; brokerage houses; investment companies, specialized retirement fund societies and the Rural Financial Institution must adhere in their repo operations", to read as follows:

"1. DEFINITIONS For the purposes of these Rules, the following shall be understood: ... Securities: any debt security with a secondary market -except subordinated obligations, other subordinated securities and Structured Securities- that: a) is registered in the RNV, or, when issued abroad, is registered, authorized or regulated for sale to the general public by the Securities Commissions or equivalent bodies of the Reference Countries, and b) is not included in any of the other definitions of these Rules. ... "

"6. PRICE AND PREMIUM 6.1 The price and premium of Repos may be freely denominated in national currency, Foreign Exchange or UDIS, regardless of the denomination of the Securities subject to the operation. In the case of repo operations with persons other than Entities where the currency in which the price and premium are denominated is different from that of the Securities subject to the operation, the Entities shall be responsible for keeping a record of the counterparty's consent to enter into the operations under these terms."

TRANSITORY SINGLE. This Resolution shall enter into force on August 31, 2009.