Circular 19/2022 — Rules Applicable to the Unique Product Identifier (UPI) and Unique Transaction Identifier (UTI) in Over-the-Counter Derivative Transactions

Wednesday, December 14, 2022 OFFICIAL GAZETTE 153 BANCO DE MEXICO CIRCULAR 19/2022 addressed to Credit Institutions, Brokerage Houses, Investment Funds, Multiple-Object Financial Societies that maintain equity links with a Multiple Banking Institution, General Warehouses of Deposit, and the National Financial Institution for Agricultural, Rural, Forestry and Fisheries Development, regarding the Rules Applicable to the Unique Product Identifier (UPI) and the Unique Transaction Identifier (UTI) in over-the-counter derivative transactions.

A logo is placed at the margin, which says: Bank of Mexico.- “2022, Year of Ricardo Flores Magón”.

CIRCULAR 19/2022
TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT FUNDS, MULTIPLE-OBJECT FINANCIAL SOCIETIES THAT MAINTAIN EQUITY LINKS WITH A MULTIPLE BANKING INSTITUTION, GENERAL WAREHOUSES OF DEPOSIT, AND THE NATIONAL FINANCIAL INSTITUTION FOR AGRICULTURAL, RURAL, FORESTRY AND FISHERIES DEVELOPMENT:

SUBJECT: RULES APPLICABLE TO THE UNIQUE PRODUCT IDENTIFIER (UPI) AND THE UNIQUE TRANSACTION IDENTIFIER (UTI) IN OVER-THE-COUNTER DERIVATIVE TRANSACTIONS

The Bank of Mexico, with the objective of continuing to promote the sound development of the financial system, and considering:
a) That financial authorities in various jurisdictions, within the framework of policies and recommendations promoted by the countries that make up the group known as the Group of Twenty (G-20), of which Mexico is a member, as well as the international association known in English as the “Financial Stability Board” (FSB), have pointed out the relevance of adopting various identifiers applicable to over-the-counter derivative transactions; b) That in August 2011, the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) jointly pointed out the relevance of international coordination to facilitate the aggregation of risks in the over-the-counter derivatives market when transactions are recorded in different infrastructures. In this sense, the FSB has pointed out the convenience of adopting global identifiers corresponding to transactions and products that allow the data of such operations to be aggregated and improve the quality of the corresponding reporting information, and c) That the Unique Product Identifier (UPI) and the Unique Transaction Identifier (UTI) are internationally accepted to identify financial transactions, whose use reduces the risk that the same transaction is recorded more than once, which facilitates adequate identification of exposures and risks.

Based on Articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 2nd, 3rd, fraction I, 24, 26, and 36 of the Bank of Mexico Law, 46, fraction XXV, and 48 of the Credit Institutions Law, 176, first paragraph, of the Securities Market Law, 15, second paragraph, of the Investment Funds Law, 11 Bis 2, fraction XII, and 87-D, fourth paragraph, of the General Law of Organizations and Auxiliary Credit Activities, 9, second paragraph, of the Organic Law of Nacional Financiera, 19 of the Organic Law of the National Financial Institution for Agricultural, Rural, Forestry and Fisheries Development, 6, second paragraph, of the Organic Law of the Federal Mortgage Society, 9, second paragraph, of the Organic Law of the National Foreign Trade Bank, 9, second paragraph, of the Organic Law of the Banco del Bienestar, 8, second paragraph, of the Organic Law of the National Bank of the Army, Air Force and Navy, 10, second paragraph, of the Organic Law of the National Bank of Public Works and Services, 22, first paragraph, of the Law for Transparency and Ordering of Financial Services, 4th, first paragraph, 8th, paragraphs fourth and eighth, 10, first paragraph, 14, first paragraph, in relation to 25 Bis, fraction VII, and 14 Bis, first paragraph, in relation to Article 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 Financial Stability and the General Legal Directorate, respectively, as well as Second, fractions IV and X, of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, has resolved to issue the following:

RULES APPLICABLE TO THE UNIQUE PRODUCT IDENTIFIER (UPI) AND THE UNIQUE TRANSACTION IDENTIFIER (UTI) IN OVER-THE-COUNTER DERIVATIVE TRANSACTIONS

1. Definitions
   For the purposes of these Rules, without prejudice to the meanings that may correspond to the terms indicated below in other regulations, the following shall be understood, in singular or plural:

General Warehouses of Deposit: legal entities authorized to be constituted and operate as such, in terms of what is provided in the General Law of Organizations and Auxiliary Credit Activities.
Clearing Houses: those constituted as such in terms of the “Rules to which participants in the derivatives contracts market must be subject”, issued jointly by the Bank of Mexico, the Ministry of Finance and Public Credit, and the National Banking and Securities Commission, as well as foreign central counterparties recognized by the Bank of Mexico in accordance with what is provided in the Derivatives Rules. Brokerage Houses: legal entities authorized to organize and operate as such in terms of what is provided in the Securities Market Law. LEI Code: the code referred to in the LEI Code Rules. Confirmation: the physical or electronic writing that contains the characteristics of the Derivative Transaction, which one party to the transaction sends or makes available to the other party, as well as the physical or electronic writing by which the latter manifests its agreement with the terms of that Derivative Transaction sent by its Counterparty. Counterparties: natural persons or legal entities, national or foreign, that enter into any Derivative Transaction with an Entity. Entity: Credit Institutions, Brokerage Houses, General Warehouses of Deposit, the Financial Institution, Investment Funds, and Multiple-Object Financial Societies, jointly or separately. Generating Entity: the Entity, Foreign Financial Entity, Clearing House, exchange connection mechanism, society that administers systems to facilitate securities transactions in terms of what is provided in the Securities Market Law, or any other legal entity, that gives rise to the creation of the UTI. Foreign Financial Entities: those authorized to act as financial entities by the competent authorities of the countries in which they are constituted. Financial Institution: the decentralized organism of the Federal Public Administration provided for in the Organic Law of the National Financial Institution for Agricultural, Rural, Forestry and Fisheries Development. Investment Funds: anonymous societies authorized to organize and function as such in terms of the Investment Funds Law. Identifiers: the UPI and UTI identifiers, jointly or separately. Credit Institutions: multiple banking institutions authorized to organize and operate as such in terms of the Credit Institutions Law, as well as development banking institutions constituted in terms of said Law and their corresponding organic laws. Derivative Transactions: derivative transactions as defined in the Derivatives Rules entered into in over-the-counter markets.

Wednesday, December 14, 2022 OFFICIAL GAZETTE 155 Provider: the legal entity established within or outside the national territory, that is designated by the association of the Swiss Confederation known as the Financial Stability Board (FSB), to supply UPI issuance services, and that has the recognition of the Bank of Mexico, in accordance with what is established in these Rules. LEI Code Rules: the Rules applicable to the Legal Entity Identifier Code (LEI Code), issued by the Bank of Mexico through Circular 14/2015, published in the Official Gazette of the Federation on September 15, 2015, as they have been modified by subsequent resolutions. Derivatives Rules: the Rules for the conduct of derivative transactions, issued by the Bank of Mexico through Circular 4/2012, published in the Official Gazette of the Federation on March 2, 2012, as they have been modified by subsequent resolutions. Multiple-Object Financial Societies (Sofomes): multiple-object financial societies, considered as such in accordance with the General Law of Organizations and Auxiliary Credit Activities, that maintain equity links with multiple banking institutions. Underlyings: the underlyings, as defined in the Derivatives Rules, that may be the object of a Derivative Transaction. UPI: the Unique Product Identifier (denominated in English as “Unique Product Identifier”), which functions as a reference code to uniquely identify: 1) the type of Derivative Transaction; 2) its characteristics, and 3) the Underlying information. UTI: the Unique Transaction Identifier (denominated in English as “Unique Transaction Identifier”), which functions as a reference code to uniquely identify Derivative Transactions and avoid duplication when aggregating them, that is, the compilation of information of said Derivative Transactions.

2. Objective
   Each Entity, when entering into any of the Derivative Transactions, must have the corresponding Identifiers, in accordance with the terms and conditions provided in these Rules. With respect to the UPI, this Identifier must be available at the time of reporting its information to the Bank of Mexico, with the objective of uniquely identifying the type of Derivative Transaction; its characteristics, and the Underlying information. On the other hand, with respect to the UTI, this Identifier must be available in order to improve the identification of the Entities involved in Derivative Transactions; facilitate their aggregation, and avoid duplication in said process.

Entities, in the Derivative Transactions they enter into, as well as in their obligations to report various information to the Bank of Mexico, must observe the terms and conditions established in the Derivatives Rules, in relation to the Identifiers.

3. UTI
   3.1 Structure and general conditions
   The UTI will be issued in accordance with the international standard ISO 23897 and must have a maximum length of 52 characters, as a result of the concatenation of the following elements:
   (i) the LEI Code of the Generating Entity, which will occupy the first 20 characters of the UTI, and (ii) a consecutive number or value assigned by the Generating Entity, which must be unique, consist of up to 32 characters, and may contain uppercase letters from “A” to “Z”, excluding “Ñ”, digits from 0 to 9, or both types of characters.

In the event that the LEI Code of the Generating Entity used to generate a UTI loses its validity or validity after the generation of the Identifier, it will not be necessary to update the UTI in question.

3.2 Applicability
Entities must have a UTI in all Derivative Transactions they carry out. The UTI of each Derivative Transaction cannot be reused, even if the Derivative Transaction to which it refers is no longer in force.

In the case of transactions that involve simultaneously trading a set of Derivative Transactions in which each Derivative Transaction of the set can be identified, Entities must assign a different UTI to each of them. In the event that Entities cannot identify each of the Derivative Transactions of a set in order to assign a UTI to each of them, Entities must assign a single UTI for that set of Derivative Transactions.

3.3 Generation, validity, and storage
The Entity must generate the corresponding UTI at the time of the celebration of the Derivative Transaction or, if applicable, at the time of generating the Confirmation. The aforementioned UTI will be valid from the celebration until the expiration or exercise corresponding to said Derivative Transaction.

However, Entities must generate a new UTI when any of the following situations occur:
a) Substitution of any of the Counterparties of the respective Derivative Transaction; b) If, as a result of any Derivative Transaction restructuring process, a novation of the original Derivative Transaction takes place, or compression or division (Split) into multiple new Derivative Transactions, in substitution of the original Derivative Transaction, or c) By the substantial modification of the contract governing the Derivative Transaction, such that these modifications imply a change in the value of the resulting Derivative Transaction, resulting in a novation thereof.

Entities must retain the information of all Derivative Transactions and their respective UTI for a minimum period of five years following the expiration or exercise, as applicable, of the respective Derivative Transaction.

3.4 Generating Entity
For the generation of a UTI, the LEI Code of the Generating Entity must be valid, in accordance with what is established for this purpose in the LEI Code Rules, on the date of celebration of the Derivative Transaction.

Entities must observe the following criteria in order to determine the Entity responsible for generating the UTI corresponding to the Derivative Transaction:
a) In Derivative Transactions cleared in a Clearing House, each Entity may use the transaction identifier generated by said Clearing House or foreign central counterparty, provided that it complies with the structure provided in 3.1 of these Rules. Otherwise, each Entity must generate the UTI; b) In Derivative Transactions where one Counterparty is a Foreign Financial Entity obliged to report its Derivative Transactions in its respective jurisdiction, the parties involved in the celebration of the Derivative Transaction may agree which of the two will be responsible for generating the UTI. In the event that no agreement is reached, the Counterparty with the shorter deadline to report its Derivative Transactions will be chosen. If this distinction cannot be made, the Entity will be responsible for generating the UTI; c) In Derivative Transactions where both parties are Entities, they may agree on the Entity responsible for generating the UTI. In the event that they do not reach an agreement, the Generating Entity will be that Entity whose LEI Code is first in alphanumeric order, taking into consideration the characters that make up said code in reverse order, and d) In any other case, the Entity will be responsible for generating the UTI.

3.5 Delegation of UTI generation
The Entity that is responsible for generating the UTI, in accordance with what is established in 3.4 of these Rules, may delegate the generation of the UTI to any of the Generating Entities, provided that such persons have a valid LEI Code in accordance with what is established in the LEI Code Rules, which will be used in the UTI.

The Generating Entities to which the generation of the UTI is delegated in accordance with the above paragraph, must be able to generate said Identifier in accordance with the characteristics specified in these Rules.

3.6 Inclusion in Confirmation and communication

Wednesday, December 14, 2022 OFFICIAL GAZETTE 157 Confirmations must contain the UTI of the corresponding Derivative Transaction. For this purpose, the Generating Entity must include the UTI of the Derivative Transaction in the corresponding Confirmation, or make it known to the Counterparty responsible for generating said Confirmation so that it includes the respective UTI.

Likewise, the Generating Entity must communicate, if applicable, the UTI to the Counterparties that enter into the Derivative Transaction.

The Entity that delegates the generation of the UTI in accordance with what is established in 3.5 of these Rules, will be responsible for ensuring that the delegated legal entity communicates the UTI to the Counterparties.

3.7 Reports to the Bank of Mexico
Entities are obliged to include the UTI in relation to each of the Derivative Transactions that must be reported to the Bank of Mexico, in accordance with what is provided for this purpose in the Derivatives Rules.

4. UPI
   4.1 General characteristics of the UPI
   Entities must have a UPI in all Derivative Transactions they carry out, in accordance with what is indicated for such purposes in the Derivatives Rules, which must be issued by a Provider.

Entities may obtain from any Provider the UPI that corresponds to the Derivative Transactions they carry out, at any time prior to the report they must make to the Bank of Mexico in accordance with 4.3 of these Rules.

The UPI must comply with what is established in the international standard ISO 4914 and consist of 12 alphanumeric characters, in order to identify the type, as well as the Underlying information and the respective Derivative Transaction.

Entities must retain the information of all Derivative Transactions and their respective UPI for a minimum period of five years following the expiration or exercise, as applicable, of the respective Derivative Transaction.

4.2 Recognition of Providers by the Bank of Mexico
The Bank of Mexico will publish on its website located at <https://www.banxico.org.mx> the name of those legal entities that it recognizes as Providers, in accordance with what is contemplated in this Rule. The aforementioned recognition will be issued by the Bank of Mexico without the need for a request from the Provider to obtain it. This, in accordance with the official communications published for this purpose by the FSB.

4.3 Reports to the Bank of Mexico
Entities are obliged to include the UPI in relation to each of the Derivative Transactions that must be reported to the Bank of Mexico, in accordance with what is indicated in the Derivatives Rules.

5. Sanctions
   The Bank of Mexico will sanction, in terms of its Law and other applicable provisions, the Entities that:
   I. Enter into Derivative Transactions, in accordance with what is indicated in the Derivatives Rules, without having the Identifiers, which must comply with what is provided in these Rules;
   II. Omit to include the UTI in the Confirmation;
   III. Omit to generate a new UTI in cases where, in accordance with these Rules, it is applicable;
   IV. Omit to retain information related to the Identifiers, in accordance with what is established in these Rules;
   V. Omit to send the Bank of Mexico the information related to the Identifiers in the corresponding information reports of the Derivative Transactions, in accordance with what is indicated in the Derivatives Rules, or
   VI. Fail to comply with any of the obligations incumbent upon them provided in these Rules.

TRANSITIONAL PROVISIONS
FIRST. This Circular will enter into force on the next business day following its publication in the Official Gazette of the Federation.

158 OFFICIAL GAZETTE Wednesday, December 14, 2022 SECOND. The Identifiers that have been generated by Entities prior to the entry into force of these Rules will retain their validity for the purposes of the information reports they must present to the Bank of Mexico, until December 1, 2023. From that date, Entities must comply with what is provided in these Rules and in the Derivatives Rules.

Mexico City, December 6, 2022.- BANCO DE MÉXICO: Director General of Financial Stability, Fabrizio López Gallo Dey.- Rubric.- General Legal Director, Luis Urrutia Corral.- Rubric.

For any queries regarding the content of this Circular, the Bank of Mexico is at your disposal through the Central Bank Authorizations and Sanctions Directorate at telephone (55) 5237-2000 extension 3200.