Circular 22/2011 — Modifies Circular 5/2011

(First Section) OFFICIAL GAZETTE Monday, November 28, 2011 BANK OF MEXICO CIRCULAR 22/2011, addressed to credit institutions and brokerage houses regarding modifications to the procedure for acting as market makers for government securities.

At the margin a logo, which says: Bank of Mexico. CIRCULAR 22/2011 TO CREDIT INSTITUTIONS AND BROKERAGE HOUSES: SUBJECT: MODIFICATIONS TO THE PROCEDURE TO ACT AS MARKET MAKERS FOR GOVERNMENT SECURITIES

The Bank of Mexico, in its capacity as financial agent of the Federal Government, with the objective of complying with the instruction of the Ministry of Finance and Public Credit to make known to these entities various modifications to the procedure for acting as market makers for government securities in order to promote transparency in the measurement of their activity, attaches a copy of Office No. 305.-178/2011, issued by said Ministry, which will enter into force on January 16, 2012.

The foregoing, based on what is provided in articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 3, fraction III, 7, fraction I and 10 of the Bank of Mexico Law; 22 of the Law for Transparency and Regulation of Financial Services; as well as 4, first paragraph, 8, fourth and seventh paragraphs, 10, first paragraph, 14 Bis in relation to 17, fraction I and 19, fraction VII, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Legal Directorate and the Operations Directorate, respectively; as well as Second of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, fractions VII and XI.

Mexico, D.F., November 23, 2011.- BANK OF MEXICO.- The General Legal Director, Héctor Reynaldo Tinoco Jaramillo.- Rubric.- The Director of Operations, Jaime José Cortina Morfín.- Rubric.

"At the margin a seal with the National Coat of Arms, which says: United Mexican States.- Ministry of Finance and Public Credit.- Undersecretariat of Finance and Public Credit.- Public Credit Unit.- Office No. 305.- 178/2011.

Mexico, D.F., November 18, 2011. Lic. Francisco Javier Duclaud González de Castilla General Director of Central Banking Operations Bank of Mexico Present.

The Ministry of Finance and Public Credit, through the Public Credit Unit, based on articles 4, fractions I and V of the General Public Debt Law; 3, fraction III, 7, fraction I, 8 and 10 of the Bank of Mexico Law; 17, fractions VIII, X and XXI of the Internal Regulations of the Ministry of Finance and Public Credit; Single, fractions V and VII of the Decree authorizing the Federal Executive to issue Treasury Certificates, published in the Official Gazette of the Federation (DOF) on July 8, 1993; 1, fraction VI, 2 and 3 of the Decree authorizing the Ministry of Finance and Public Credit to issue Federal Government Development Bonds, published in the DOF on September 22, 1987, modified by Decree published in the DOF on September 9, 1998; the Decree establishing obligations that may be denominated in Investment Units and reforming and adding various provisions of the Federal Tax Code and the Income Tax Law, published in the DOF on April 1, 1995, modified by Decree published in the DOF on December 7, 2009 and article 20 Ter of the Federal Tax Code, and considering that it is convenient to promote sound market practices among Market Makers and UDIBONOS Market Makers.

Monday, November 28, 2011 OFFICIAL GAZETTE (First Section) It has resolved to modify Office 305.-027/2011, dated January 27, 2011, modified by Office 305.- 105/2011, dated July 26, 2011, in its section 1, and add sections 4.2.7 and 7.2.6, to remain in the following terms:

"1. DEFINITIONS ... XIX.- Net Long Position: the result of the sum of the own position plus the securities to be received by direct purchases, repurchase agreements or securities lending minus the securities to be delivered by direct sales, repurchase agreements or securities lending defined for each issuance of BONOS and UDIBONOS in particular. XX.- Proportional Net Long Position: Percentage of the Placed Balance from Primary Operations that the Net Long Position of a Market Maker represents of any issuance of BONOS or UDIBONOS. XXI.- Placed Balance from Primary Operations: the nominal amount of the total securities that have been placed through Auctions, swaps, or any operation other than securities lending to Market Makers, minus those that have been withdrawn from circulation by any transaction resulting in their early maturity such as repurchase and swap. XXII.- Ministry: the Ministry of Finance and Public Credit. XXIII.- Trading Systems with the Clientele: mechanisms aimed at facilitating operations with securities by Financial Intermediaries with the investing public. XXIV.- Auctions: the auctions for the placement of CETES, BONOS and UDIBONOS, as applicable, which are carried out in accordance with the provisions provided in Annex 6 of Circular 2019/95, Annex 3 of Circular 1/2006 and section CB.5 of Circular 115/2002, or those that replace them, issued by the Bank of Mexico, addressed to multiple banking institutions, development banking institutions and brokerage houses, respectively. XXV.- UCP: the Public Credit Unit of the Ministry. XXVI.- UDIBONOS: the Federal Government Development Bonds denominated in Investment Units."

4. RIGHTS OF MARKET MAKERS "4.2.7 The right to carry out securities lending operations on CETES and BONOS with the Bank of Mexico will be suspended for those Market Makers whose Proportional Net Long Position in any of the issuances of BONOS and UDIBONOS averages 40% (forty percent) or more of this percentage in monthly periods in accordance with what is stated in section 4.2.6 of this office. Market Makers who exceed this limit will be notified by the Bank of Mexico. The suspension will take effect on the third Business Day counted from the Business Day following that on which the Market Makers in question receive the aforementioned notification through any electronic medium authorized for such effect by said Bank. The suspension will be lifted on the first Business Day of the month immediately following that in which it maintains for two consecutive measurement periods an average less than 40% (forty percent) in the Proportional Net Long Position in all issuances of BONOS and UDIBONOS."

5. RIGHTS OF UDIBONOS MARKET MAKERS "7.2.6 The right to carry out securities lending operations on UDIBONOS with the Bank of Mexico will be suspended for those UDIBONOS Market Makers whose Proportional Net Long Position in any of the issuances of BONOS and UDIBONOS averages 40% (forty percent) or more of this percentage in monthly periods in accordance with what is stated in section 4.2.6 of this office. UDIBONOS Market Makers who exceed this limit will be notified by the Bank of Mexico. The suspension will take effect on the third Business Day counted from the Business Day following that on which the Market Makers in question receive the aforementioned notification through any electronic medium authorized for such effect by said Bank. The suspension will be lifted on the first Business Day of the month immediately following that in which it maintains for two consecutive measurement periods an average less than 40% (forty percent) in the Proportional Net Long Position in all issuances of BONOS and UDIBONOS."

TRANSITIONAL PROVISIONS FIRST.- The provisions of this Office will enter into force on January 16, 2012. SECOND.- Valid contracts signed between the Bank of Mexico and Market Makers will retain their validity, so no new contracts need to be signed due to the provisions of this Office.

Finally, we instruct the Bank of Mexico to, in its capacity as financial agent of the Federal Government, make known to Financial Intermediaries the provisions of this Office.

Without further particular, I renew to you the assurances of my most distinguished consideration. EFFECTIVE VOTE. NO RE-ELECTION. The Head, Lic. Alejandro Díaz de León Carrillo Rubric c.c.p. Lic. Gerardo Rodríguez Regordosa.- Undersecretary of Finance and Public Credit.- Present. Lic. Juan Pablo Newman Aguilar.- Deputy General Director of Collection.- Present.".