Circular 2/2009 — Modifies Circular 2/2005

CIRCULAR 2/2009 Mexico, D.F. on February 9, 2009 TO CREDIT INSTITUTIONS, SECURITIES COMPANIES, INVESTMENT COMPANIES AND SPECIALIZED INVESTMENT COMPANIES FOR RETIREMENT FUNDS: SUBJECT: MODIFICATIONS TO THE RULES FOR THE EXCHANGE OF FIXED-RATE DEVELOPMENT BONDS OF THE FEDERAL GOVERNMENT AND DEVELOPMENT BONDS OF THE FEDERAL GOVERNMENT DENOMINATED IN INVESTMENT UNITS

The Bank of Mexico, in its capacity as financial agent of the Federal Government, based on the provisions of Article 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States; Articles 3, fractions III and IV, 7, fraction I, 8, 10, 12, 14 and 24 of the Bank of Mexico Law; Article 22 of the Law for Transparency and Order of Financial Services; Articles 8, paragraphs third and sixth, 10, 17, fraction I and 19, fraction IX of the Internal Regulations of the Bank of Mexico, which provide for the attribution of the Central Bank, through the Directorate of Central Banking Regulations and the Directorate of Operations, respectively, to issue provisions; Article 1 of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, fractions I and IV; and in terms of Office 305.-IV.-003/2009 of February 6, 2009, through which the Ministry of Finance and Public Credit, through the Public Credit Unit, instructs this Central Bank to, in its referred capacity, carry out the necessary acts so that in the “Rules for the Exchange of Fixed-Rate Development Bonds of the Federal Government and Development Bonds of the Federal Government Denominated in Investment Units”, contained in Circular 2/2005 of September 29, 2005 and its modifications, the possibility is added that auctions may be held in which the Ministry, hearing the opinion of the Bank of Mexico, sets the price of the target issuance(s) or the corresponding price for the liquidation issuance(s), has resolved to modify sections 2, 5.1, 5.2, 6.1, 6.2, 6.3, 8.3, Appendix 1 and Appendix 3, all of the aforementioned “Rules for the Exchange of Fixed-Rate Development Bonds of the Federal Government and Development Bonds of the Federal Government Denominated in Investment Units”, to read as follows:

“RULES FOR THE EXCHANGE OF FIXED-RATE DEVELOPMENT BONDS OF THE FEDERAL GOVERNMENT AND DEVELOPMENT BONDS OF THE FEDERAL GOVERNMENT DENOMINATED IN INVESTMENT UNITS”

2. Call for Bids

“... Such calls for bids shall disclose the characteristics of the Auctions, such as: a) ... b) ... c) ... d) The maximum amount of Bonds or Udibonos that the Federal Government is willing to offer in the exchange; e) The keys of the Bond or Udibono issuances that the Federal Government will offer in the Auctions for exchange, and f) The date and time when the prices of the Bonds or Udibonos subject to the exchange will be disclosed.”

5. Bids

5.1 Types of Bids

“Each bid must be competitive and indicate, as appropriate: a) the issuance key, amount and unit price of the Bond or Udibono that the bidder is willing to deliver and the key of the Bond or Udibono that they wish to receive as a result of the exchange, or b) the issuance key, amount and unit price of the Bond or Udibono that the bidder is willing to receive and the key of the Bond or Udibono that they are willing to deliver as a result of the exchange.

The amounts at par value must be expressed in thousands of pesos or UDIS, rounded to five thousand pesos or UDIS or their multiples. The prices must be expressed up to five decimal places.”

5.2 Limits of Bids

“The sum of the amounts of the bids presented by each bidder, for each call for bids, must not exceed the maximum amount of Bonds or Udibonos that the Federal Government is willing to accept from bidders. . . .”

6. Allocation

6.1 Single-price Auction

“Bids will be allocated in ascending or descending order, as appropriate, of the respective unit prices, without exceeding the maximum amount indicated in the call for bids. . . .”

6.2 Multiple-price Auction

“Bids will be allocated in ascending or descending order, as appropriate, of the respective unit prices, without exceeding the maximum amount indicated in the call for bids. In the event of receiving allocation, the Bonds or Udibonos of each bid will be allocated precisely at the unit price indicated in the bid in question.”

6.3 Common Provisions

“... The Federal Government may determine, in any Auction, the maximum or minimum unit price at which it is willing to allocate the Bonds or Udibonos subject to the exchange. In these cases, bids with prices higher or lower, as appropriate, will not be attended to. . . .

The amounts of Bonds or Udibonos to be delivered or received by each bidder whose bid has been allocated will be at par value, closed to thousands of pesos or UDIS.”

8. Settlement of Auctions

8.3 “The settlement of Bonds or Udibonos, as appropriate, issued prior to the placement date must be carried out by adding to the allocated unit price the accrued unpaid interest, from the date of their issuance or from the last interest payment, as appropriate, up to the settlement date, according to the following formula:

(1)

Where: = Accrued Interest VN = Nominal value of the title. d = Days elapsed between the date of issuance or last interest payment, as appropriate, and the settlement date. c = Annual interest rate of the Bond or Udibono expressed in percentage terms.

For each bid allocated within call i, bidders will deliver or receive the quantity of Bonds or Udibonos allocated in the exchange, Ni, and will receive or deliver to the Federal Government Ni,j Bonds or Udibonos in exchange of series j requested. Ni,j is determined by:

(2)

Where: Pi is the price assigned for the Bond or Udibono that bidders offer or request in call i. Idev,i is the amount of accrued unpaid interest of the Bonds or Udibonos offered or requested in exchange by bidders in call i and calculated according to formula (1) above. Pi,j is the price for the Bond or Udibono of series j that the Federal Government offers or receives in call i. Idev,i,j is the amount of accrued unpaid interest of the Bond or Udibono of series j offered in exchange by the Federal Government and calculated according to formula (1). Ni is the quantity of Bonds or Udibonos to be delivered or received by bidders for each bid allocated in call i. Ni,j is the quantity of Bonds or Udibonos of series j to be received or delivered by bidders for each bid allocated in call i. It will be truncated to the nearest lower integer. In the event that the total value of the Bonds or Udibonos to be delivered or received by the bidder is greater or less than the total value of Bonds or Udibonos to be received or delivered in exchange, the difference in favor or to the charge of the bidders mentioned in items a) and b) of section 1., as appropriate, will be paid on the settlement day of the exchange by credit or debit to the account that the Bank of Mexico holds for them. Regarding the bidders referred to in items c), d) and e) of the aforementioned section 1., the cash differences in their favor or against them will be deposited or charged, as appropriate, to the account that the Bank of Mexico holds for the credit institution or securities company they designate in accordance with “Appendix 2” of these Rules.”

APPENDIX 1 MODEL OF APPLICATION TO PARTICIPATE IN THE AUCTION FOR EXCHANGE OF FIXED-RATE DEVELOPMENT BONDS OF THE FEDERAL GOVERNMENT (BONOS) APPLICATION ON OWN ACCOUNT

Mexico, D.F., on ____ of ____________ of 20__. Bidder Name: _____________________________ Bidder Key at the Bank of Mexico: _____________________________ Issuance Key of the Bond for which bids are presented: ______________________

BIDS: Unit Price: Total Amount Issuance to receive or deliver in the exchange .___ ________________ thousands of pesos __________________ .___ ________________ thousands of pesos __________________ .___ ________________ thousands of pesos __________________

PRICES must be expressed up to FIVE decimal places. PRICES are without accrued interest. The cited bids are mandatory and irrevocable; they will produce the broadest effects in law, and imply our acceptance of all and each of the “Rules for the Exchange of Fixed-Rate Development Bonds of the Federal Government and Development Bonds of the Federal Government Denominated in Investment Units” in force, as well as the terms and conditions of the call for bids of date ____ of _____________ of 20__.

Sincerely,

(bidder name) (name and signature of authorized officials)

NOTE: Unused spaces must be cancelled.

APPENDIX 3 MODEL OF APPLICATION TO PARTICIPATE IN THE AUCTION FOR EXCHANGE OF DEVELOPMENT BONDS OF THE FEDERAL GOVERNMENT DENOMINATED IN INVESTMENT UNITS (UDIBONOS) APPLICATION ON OWN ACCOUNT

Mexico, D.F., on ____ of ____ of 20__. Bidder Name: _____________________________ Bidder Key at the Bank of Mexico: _____________________________ Issuance Key of the Udibono for which bids are presented: ___________________

BIDS: Unit Price: Total Amount Issuance to receive or deliver in the exchange .___ ________________ thousands of pesos __________________ .___ ________________ thousands of pesos __________________ .___ ________________ thousands of pesos __________________

PRICES must be expressed up to FIVE decimal places. PRICES are without accrued interest. The cited bids are mandatory and irrevocable; they will produce the broadest effects in law, and imply our acceptance of all and each of the “Rules for the Exchange of Fixed-Rate Development Bonds of the Federal Government and Development Bonds of the Federal Government Denominated in Investment Units” in force, as well as the terms and conditions of the call for bids of ____ of _____________ of 20__.

Sincerely,

(bidder name) (name and signature of authorized officials)

NOTE: Unused spaces must be cancelled.

TRANSITIONAL PROVISION SINGLE.- This Circular enters into force on February 9, 2009.