Circular 26/2020 — Modifications to Circular 8/2009

Friday, June 19, 2020 OFFICIAL GAZETTE 1 BANK OF MEXICO CIRCULAR 26/2020 addressed to Multiple Banking and Development Banking Institutions, regarding modifications to Circular 8/2009, Rules applicable to US Dollar credit auctions. At the margin a logo, which says: Bank of Mexico.- "2020, Year of Leona Vicario, Meritorious Mother of the Fatherland". CIRCULAR 26/2020 TO MULTIPLE BANKING AND DEVELOPMENT BANKING INSTITUTIONS: SUBJECT: MODIFICATIONS TO CIRCULAR 8/2009, RULES APPLICABLE TO US DOLLAR CREDIT AUCTIONS. The Bank of Mexico, considering the effects that the COVID-19 pandemic has had on the global economy and on the behavior of our country's financial markets, as well as on the foreign exchange and fixed income markets that continue to show little depth, lower liquidity, and a deterioration of operating conditions, with the object of continuing to promote the sound development of the financial system and safeguard its stability, as well as to promote the proper functioning of payment systems and avoid disturbances in them, has considered it necessary to maintain the provision of US dollar liquidity to credit institutions, in order to promote the orderly behavior of our country's debt and exchange markets. With this, this Central Institute will contribute to the existence of conditions that facilitate credit institutions to fulfill their priority function of providing financing to the economy, and therefore has resolved to modify the "Rules applicable to US Dollar credit auctions," in order to offer said institutions the celebration of credit and securities repurchase operations, expanding the eligible collateral, with the objective of allowing multiple banking and development banking institutions to obtain US dollar liquidity. For the above, based on articles 25, second paragraph, 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 7, fraction X, 8, 14, first paragraph, 24 and 32, of the Bank of Mexico Law, 22 of the Law for Transparency and Order of Financial Services, 4, first paragraph, 8, paragraphs fourth and eighth, 10, 12, first paragraph, in relation to 19 Bis, fraction V, and 14 Bis, first paragraph, in relation to 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 Central Bank Operations and the General Legal Directorate, respectively, as well as Second, fractions VI and X, of the Agreement on the Assignment of Administrative Units of the Bank of Mexico, has resolved to modify the denomination of the Rules, numerals 1, first paragraph and the definitions "BONDE", "BPA", "BREM", "CETE", "Deposits", "Business Day(s)", "Guarantee", "US Dollar Credit Auction(s)" and "Securities", 2, 3, first and second paragraphs, subsections a), b), d), e) and f), 4, 5, 6.1, 6.2, 6.3, second and third paragraphs, 7, second and third paragraphs, 8, 9, 9.1, 9.2, 9.3, 9.4, 9.5, 9.6, 10.1, 10.2, 10.3 and Annexes 1, 2 and 3, add to numeral 1 the definitions "Global Credit Quality Criterion", "National Credit Quality Criterion", "Single Account", "Operating Provisions", "Eligible Currency", "State Productive Enterprises", "Financing", "FIRA", "Indeval", "Institutions", "Securities Rating Agency", "Development Banking Institutions", "SAGAPL", "SUBCAM-BANXICO", "Titles" and "UDIS", a numeral 9.7 and Annexes 4 and 5, as well as repeal from numeral 1 the definitions "Instruments of the Treasury of the United States of America", "Financial Network", "SIAC-BANXICO" and "UDIBONO", from the "Rules applicable to US Dollar credit auctions", contained in Circular 8/2009, to remain in the following terms: RULES APPLICABLE TO DOLLAR FINANCING AUCTIONS "1. Definitions. For the purposes of these Rules, the terms used in them, in singular or plural, shall have the meanings indicated below, without prejudice to the different treatment given to similar terms in other regulations: BONDES: to the Development Bonds issued by the Federal Government of the United Mexican States in the national market, denominated in national currency, both at fixed interest rate, also known as "BONOS M", and at variable interest rate, also known as "BONDES D", and denominated in UDIS at fixed interest rate, also known as "UDIBONOS". … BPAS: to the Savings Protection Bonds issued by the Institute for the Protection of Bank Savings with respect to which the Bank of Mexico acts as financial agent for their issuance and placement in the national market. BREMS: to the Monetary Regulation Bonds issued by the Bank of Mexico in the national market. CETES: to the Certificates of the Treasury of the Federation issued by the Federal Government of the United Mexican States in the national market, excluding those issued under programs for restructuring UDIS credits (Special CETES). Global Credit Quality Criterion: to that applicable to the Titles offered for repurchase in accordance with these Rules, according to which they must have, at least, two ratings, on a global scale, issued by the Securities Rating Agencies Moody’s, S&P Global Ratings, Fitch Ratings and HR Ratings equal to or higher than Ba1 / BB+/ BB+/ HR BB+ (G), respectively or, in the case of short-term Titles, to the respective ratings equal to or higher than P-2 / A-2 / F2 / HR2 (G), or to a rating equivalent to the above that any other Securities Rating Agency assigns. National Credit Quality Criterion: to that applicable to the Titles offered for repurchase in accordance with these Rules, according to which they must have, at least, two ratings, on a national scale, issued by the Securities Rating Agencies Moody’s, S&P Global Ratings, Fitch Ratings and HR Ratings equal to or higher than A2.mx / mxA / A(mex) / HR A, respectively or, in the case of short-term Titles, to the respective ratings equal to or higher than MX-2 / mxA-2 / F2(mex) / HR2 or to a rating equivalent to the above that any other Securities Rating Agency assigns. Single Account: to the national currency demand deposit bank account that the Bank of Mexico maintains for each of the Institutions in accordance with what is established in the Operating Provisions. Deposits: to the following money deposits constituted in the Bank of Mexico by the Institutions as depositors: i) the monetary regulation deposits referred to in article 28 of the Bank of Mexico Law; ii) term deposits constituted as a result of the assignments of the auctions that the Bank of Mexico carries out for that purpose; iii) term deposits celebrated in accordance with the procedure for determining the TIIE for terms greater than one Banking Business Day provided for in the Operating Provisions, and iv) Dollar deposits, constituted in the Bank of Mexico in accordance with the Operating Provisions. Banking Business Days: to the days on which Institutions are not obliged to close their doors or suspend their operations, in terms of the general provisions, for such effect, issued by the National Banking and Securities Commission. Operating Provisions: to the Applicable Provisions to the Operations of Credit Institutions, Regulated Multiple-Object Financial Companies that Maintain Patrimonial Links with Credit Institutions and the National Financial Development Company for Agriculture, Rural, Forestry and Fisheries, issued by the Bank of Mexico through Circular 3/2012, published in the Official Gazette of the Federation on March 2, 2012, as they have been modified by subsequent resolutions.

Friday, June 19, 2020 OFFICIAL GAZETTE 3 Eligible Currency: to the Australian Commonwealth dollar, Canadian dollar, United States of America dollar, New Zealand dollar, Euro of the European Union, Pound Sterling of the United Kingdom of Great Britain and Northern Ireland and Yen of Japan. … State Productive Enterprises: to Petróleos Mexicanos and the Federal Electricity Commission, as well as their respective subsidiary productive enterprises. Financing: to the operations denominated in Dollars consisting of simple credits with pledge guarantee or repurchases that the Bank of Mexico celebrates with the Institutions that meet the requirements established for that effect in these Rules. FIRA: to the Trusts Established in Relation to Agriculture, in which the Bank of Mexico acts as trustee institution and which correspond to the following: Guarantee and Promotion Fund for Agriculture, Livestock and Poultry, Special Fund for Agricultural Financing, Special Technical Assistance and Guarantee Fund for Agricultural Credits and Guarantee and Promotion Fund for Fishing Activities. Guarantee: to the pledge constituted on the resources of the Deposits, as well as to the stock pledge with transmission of ownership on the Titles, that the Institutions must constitute to guarantee, in terms of numeral 9.2, the Dollar Financing, under credit operations, that have been assigned to them. Indeval: to the S.D. Indeval, Securities Deposit Institution, S.A. de C.V. Institutions: to multiple banking or development banking institutions, as applicable. Securities Rating Agency: to any of the anonymous societies authorized by the National Banking and Securities Commission to act with such character, in terms of what is provided by the Securities Market Law, as well as to their subsidiaries abroad that grant credit ratings to the Titles object of repurchase in accordance with these Rules. Development Banking Institutions: to those credit institutions constituted with such character in accordance with the Credit Institutions Law and the organic laws relative to each of them. SAGAPL: to the Guarantee and Repurchase Administration System. SUBCAM-BANXICO: to the auction system through which the Bank of Mexico offers the Dollar Financing to which these Rules refer. Dollar Financing Auctions: to those that the Bank of Mexico carries out in accordance with these Rules, to grant Financing to the Institutions. Titles: to the Government Securities and other titles susceptible to being the object of the repurchases, indicated in numeral 9.3 of these Rules. UDIS: to the investment units referred to in the Decree by which the obligations that may be denominated in Investment Units are established and Reform and Adds various provisions of the Federal Tax Code and of the Income Tax Law published in the Official Gazette of the Federation on April 1, 1995. Government Securities: to the CETES and BONDES, including the coupons segregated from BONDES with fixed interest rate in pesos or in UDIS to which the "Rules for the Segregation and Reconstitution of Titles" issued by the Secretariat of Finance and Public Credit refer, the BONOS UMS, as well as the BPAS and the BREMS, denominated in national currency, in UDIS or Eligible Currencies."

4 OFFICIAL GAZETTE Friday, June 19, 2020 "2. BIDDERS Only Institutions acting on their own account may present bids for the purposes of these Rules. The Bank of Mexico may limit the participation of one or more Institutions when, in its judgment, the bids they present do not comply with applicable provisions or do not conform to sound market uses or practices." "3. CALLS The Bank of Mexico will make known to the Institutions the calls for the Dollar Financing Auctions with, at least, one Banking Business Day of advance notice to the date on which they are held. Such calls will be made known through SUBCAM-BANXICO or through any other electronic, computing or telecommunications medium authorized for that effect by the Bank of Mexico. In the aforementioned calls, the Bank of Mexico will make known the characteristics of the Dollar Financing Auctions, such as: a) Date and time when the Dollar Financing Auction will be held; b) The type of Dollar Financing Auction; c) … d) The term of the Financing and the interest periods; e) The minimum interest rate at which the Bank of Mexico is willing to celebrate the Financing operations object of the respective Dollar Financing Auction, and f) Date of delivery of the Dollars object of the Dollar Financing Auction." "4. TYPES OF DOLLAR FINANCING AUCTIONS The Dollar Financing Auctions may be: a) Traditional: those in which Institutions will present their bids without knowing the other bids presented or any related information. In this case, the bidding Institution will receive information about the other bids until the Bank of Mexico makes known to all bidding Institutions the results of the Dollar Financing Auction in accordance with what is provided in numeral 8, or b) Interactive: those in which the Institutions that present their bids can know the marginal assignment rate of the Dollar Financing Auction from the moment when the total amount of the bids presented by all bidding Institutions is equal to the amount offered in the Auction in question. Both types of auctions may be assigned to: i) Single interest rate: those in which the auctioned amount will be assigned starting from the highest spread and the bids that result with assignment will be attended to the spread of the last bid that receives assignment, even if they have been partially attended. ii) Multiple interest rate: those in which the auctioned amount will be assigned starting from the highest spread and the bids that result with assignment will be attended to the requested spread, even if they have been partially attended." "5. INTEREST RATE The interest rate that will apply for the calculation of the yields of the guaranteed credits or the premiums of the repurchases referred to in these Rules, during each respective period of the Financing, will be determined according to the following formulas: … where: S1= Annual spread expressed in percentage terms with rounding to four decimals, that the bidder will pay in the Interest period where S1 = 0. The spread will remain unchanged during the term of the Financing. … On the start dates of each interest period indicated in the calls, the Bank of Mexico will make known the minimum applicable interest rate through the website located at <http://webdgobc>."

Friday, June 19, 2020 OFFICIAL GAZETTE 5 "6.1 Types of bids "The bids will be competitive and must be presented in increments of one million Dollars or its multiples. The bidder must indicate the amount of Dollars for which they wish to celebrate the Financing operation(s) object of the Dollar Financing Auction, as well as the annual interest spread at which they are willing to celebrate them. The annual interest rate will be equivalent to the result of the sum of the spread plus the minimum interest rate, in terms of what is provided in numeral 5 of these Rules." "6.2 Bid Limits The sum of the amounts of the bids presented by each bidder, for the Dollar Financing Auction defined in each call, must not exceed twenty-five percent of the maximum amount offered for said auction. In the case of interactive auctions, it will be understood that this limit applies to the bids that have assignment during the auction. For the purposes of applying the limit mentioned in the previous paragraph, the bids presented by multiple banking institutions that are part of the same financial group or are controlled by the same shareholder, will be considered in an aggregated manner. In this sense, it will be understood that the same shareholder controls two or more multiple banking institutions when they have the capacity to impose, directly or indirectly, decisions in the general shareholders' meetings of the institution; maintains the ownership of rights that allow, directly or indirectly, to exercise the vote with respect to more than fifty percent of the social capital of the institution, direct, directly or indirectly, the administration, the strategy or the main policies of the institution, either through the ownership of securities or by any other legal act." "6.3 Presentation of bids … Interested Institutions must present their bids on the date and time indicated in the respective call, through SUBCAM-BANXICO or through any other electronic, computing or telecommunications medium authorized for that effect by the Bank of Mexico. The access, identification and, if applicable, operation keys established for the use of SUBCAM-BANXICO will substitute the autograph signature with one of an electronic character, so that documentary or technical records where they appear will produce the same effects that the laws grant to documents signed by the parties and, consequently, will have equal probative value. In case an Institution could not present its bids through SUBCAM-BANXICO, it may present them by telephone communication with the staff of the Sub-Department of National Exchanges or through any other electronic, computing or telecommunications medium authorized for that effect by the Bank of Mexico, as it will make known to the Institutions in due course, and must confirm them in writing delivered to the National Operations Department, no later than 17:00:00 hours of the same Banking Business Day, using the model attached as Annex 1, in a closed envelope, accompanied by a cover letter. Both documents must be duly signed by the same authorized representatives of the participating Institutions and the letter must show the knowledge of signatures granted by the Bank of Mexico, so that the signatures must be previously registered in the Bank of Mexico." "7. ASSIGNMENT … In case of tied bids and the amount to be assigned is not sufficient to attend to such bids, they will be attended pro rata with respect to their amount, except when it comes to Interactive Dollar Financing Auctions, in which case the bids will be attended in the order in which they were received. With respect to those bids that have received assignment in terms of this numeral, the Bank of Mexico will formalize the corresponding Financing operations in accordance with what is provided in numeral 9." "8. RESULTS OF DOLLAR FINANCING AUCTIONS The Bank of Mexico will inform the result of said auctions to each bidder individually, on the same Banking Business Day on which the respective auction is held, through SUBCAM-BANXICO or by any other electronic, computing or telecommunications medium authorized for that effect by the Bank of Mexico itself. Additionally, on the same Banking Business Day on which the Dollar Financing Auction is held, the Bank of Mexico will publish the general results of said auction, on its internet electronic page identified with the domain name <<www.banxico.org.mx>> or through any other electronic, computing or telecommunications medium that, for that effect, the Bank of Mexico itself determines."

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“9. FORMALIZATION OF DOLLAR FINANCING

To participate in the Dollar Financing Auctions, interested Institutions must enter into the corresponding contracts with the Bank of Mexico that encompass the Financing operations, at least one Banking Day in advance of the date on which the respective auction will take place.

For these purposes, Institutions must present to the Operations Instrumentation Management a certified simple copy of the public deed in which the powers to exercise acts of dominion of the person(s) who intend(s) to sign the referred contracts are stated, as well as a simple copy of the official identification(s), at least three Banking Days in advance of when they intend to sign the referred contracts.

The Financing subject to the Dollar Financing Auctions may be formalized, at the choice of the Institution, as any of the following operations or combination thereof: (i) a simple credit initially secured by a pledge over the resources subject to the Deposits, subject to what is provided in section 9.2 below, and, partially, by a stock pledge over Securities in accordance with what is provided in section 9.7 below, or (ii) repos over Securities, subject to what is provided in section 9.3.

Institutions must make available to the Bank of Mexico the Deposits subject to the applicable Guarantees or the Securities subject to repos sufficient to formalize the Financings that have been assigned to them in accordance with the procedure referred to in these Rules. For this purpose, Institutions that have received an assignment must send, no later than the Banking Day immediately preceding the date of delivery of the Dollar amounts scheduled in the respective call, to the Operations Management of the Bank of Mexico, a communication in terms of Annex 2 of this Circular.

Only the Financing operations corresponding to bids that have received assignment will be formalized for the amount that is effectively guaranteed with Deposits, in the case of credits, or that is effectively covered with Securities subject to repo, as the case may be. Consequently, in the case of Financings instrumented as credits, if a bidder does not have sufficient Deposits to guarantee the total amount of the credit assigned to them, the Bank of Mexico may, without the need for a judicial declaration, resolve the respective operation for the unguaranteed amount. On the other hand, in the case of repos, if a bidder does not have sufficient Securities to cover the total amount of the repo assigned to them, the Bank of Mexico will enter into the respective operation only for the amount covered by the Securities that are transferred to their respective accounts in accordance with what is provided in section 9.3 below.

In the case of Financings formalized as credits, if the Institution does not constitute Guarantees for the total assigned amount of the credit in question, as well as the estimated interest in accordance with section 9.6 below and other agreed expenses, the Bank of Mexico will only credit the credit amount for the amount that is guaranteed, and the remainder will be credited once the Institution constitutes the missing Guarantees. On the other hand, in the case of Financings formalized as repos, if the Institution does not transfer to the respective accounts of the Bank of Mexico the Securities subject to the repo in question, for a value, determined in accordance with section 9.3 of these Rules, equivalent to the sum of the total assigned amount of said repo plus the estimated Premium corresponding in accordance with section 9.6 below, and, if applicable, other agreed expenses, such operation will only be entered into for the amount that is covered by the value of the referred Securities, and, in the event that the Institution subsequently transfers additional Securities for the remaining amount, new repos will be entered into with said Securities for the remaining term to maturity.

In any case, the Institution, upon maturity of the referred Financing, in addition to being obligated to pay all obligations derived from the amount of the Financing that it has effectively disposed of, from the beginning, equivalent to that which has been properly guaranteed with Deposits, in the case of credits, or covered with the respective Securities, in the case of repos, as the case may be, will be obligated to make payment for the sum of the total amount that the Bank of Mexico has made available to it by reason of the corresponding assignment, plus the interest or Premium that such amount would have accrued from the first day of the validity of the Financing operation, regardless of whether the total assigned amount was not disposed of by the Institution from the beginning of the validity of the Financing operation, due to not being fully covered with Guarantees of the credits or with Securities of the respective repos, as well as any other expense that may have been generated. The foregoing will proceed without prejudice to the conventional penalty that arises for the amount not covered in time.”

“9.1 Deposit Accounts of Institutions

The Bank of Mexico will credit the assigned amount of resources in Dollars to the accounts that Institutions have in the United States of America and that are registered with the Bank of Mexico. Institutions may modify said accounts through a request presented at least three Banking Days in advance of the date on which they intend to carry out the operations provided for in these Rules, using the format contained in Annex 3.”

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“9.2 Characteristics of credit operations

… a) … b) Credited: The Institution whose bids have received assignment. c) Term: That established by the Bank of Mexico in the call for the respective Dollar Financing Auction. d) Amount: The amount of Dollars assigned by the Bank of Mexico as a result of the Dollar Financing Auction, which are matched by Guarantees specified in subsection g).

… f) Interest Periods: The payment of interest will be made at the maturity of the credit. In the event that the interest rate of the Dollar Financing Auctions corresponding to the interest period that results applicable, if applicable, is reviewed, it will be indicated in the respective call. g) Guarantees: The pledge that is constituted over the Deposits from the beginning of the validity of the credit operation and, subsequently, by a stock pledge over Securities for the case of amounts resulting from the daily valuations referred to in sections 9.6 and 9.7 below.

The value of the Deposits, once their equivalence to Dollars is calculated in accordance with these Rules, as the case may be, must cover both the principal amount and the interest that the credit will accrue, as well as any other agreed expense.

To carry out the calculation of the equivalence of the Deposits to Dollars, in applicable cases, the exchange rate published by the Bank of Mexico in the Official Gazette of the Federation on the date of constitution of the credit operation in question will be used, applying the discount factor that will be made known to Institutions through the internet site located at the address << http://webdgobc>> and, for each Banking Day that passes subsequently from that date, the value of the Guarantee will be adjusted in accordance with the referred exchange rate published on that day multiplied by the mentioned discount factor.

In the case of the pledge constituted with the resources of the Deposits in Dollars, Institutions must request the respective withdrawal through the SAGAPL or any other electronic, computing, or telecommunications medium authorized for such purpose by the Bank of Mexico, during the hours of 08:30:00 to 16:30:00, or, when these are not available, in requests prepared in terms of Annex 4 of these Rules. The released Dollars will be credited to their Dollar account on the same Banking Day of the request.”

“9.3 Characteristics of repos

The repos that Institutions that obtain assignments from the Dollar Financing Auctions may enter into will have the following characteristics: a) Repo Provider: The Bank of Mexico. b) Repo Taker: The Institution that has received assignment. c) Term: That established by the Bank of Mexico in the call for the respective auction. d) Securities subject to repo: i) Government Securities; ii) Debt securities denominated in national currency or UDIS, deposited in Indeval, that meet the National Credit Quality Scale Criteria and have been issued by: a. Entities of the Federal Public Administration, including Development Banking Institutions other than the Repo Taker and FIRA; b. State-Owned Enterprises; c. Multiple banking institutions, other than the Repo Taker and that do not form part of the same financial group, business group, or consortium to which the latter belongs; d. Federal Entities; e. Municipalities;

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f. International financial organizations and multilateral entities; g. Non-financial legal entities resident in Mexico that do not form part of the same financial group, business group, or consortium to which the Repo Taker belongs; h. Fiduciary institutions of trusts that issue said debt securities in the form of fiduciary stock certificates that represent: 1) rights over mortgage credit portfolios that are affected in said trusts or others linked to them and have been granted by financial entities resident in Mexico, except for credits that have been granted by the Repo Taker or by financial entities of the same financial group, business group, or consortium to which it belongs, or 2) rights in favor of any State-Owned Enterprise; and i. Fiduciary institutions of trusts through which the persons indicated in sub-subsections “a.” to “g.” of this subsection ii) issue said debt securities in the form of fiduciary stock certificates that represent the right of their holders to receive the payment of capital and, if applicable, interest or returns, and iii) Debt securities denominated in Eligible Currencies that meet the Global Credit Quality Scale Criteria and have been issued by any of the following persons: a. Governments or central banks of the exterior or entities of the exterior that perform similar functions. b. The persons indicated in subsection ii) above.

The trusts referred to in sub-subsections “h.” and “i.” of subsection ii) above must be constituted in accordance with the Securities Market Law and must meet the following characteristics: a. The holders of the respective stock certificates must be placed in the first place of priority for the payment of the respective certificates and no holder will be subordinated to the payment of other holders. b. The trusts must be irrevocable. c. The trust does not include credit derivative products in its structure or, in any other way, contemplate the use of said products for the payment of the respective fiduciary stock certificates.

Additionally, Securities issued abroad through any legal figure that produces the effects of a special purpose vehicle, in accordance with the laws of the respective jurisdiction, may also be Securities subject to the repos provided for in these Rules, provided that they meet the characteristics previously established and, exceptionally, in the event that the special purpose vehicle is not subject to an express clause of irrevocability, the legal instrument of its constitution must expressly provide that any modification to said instrument or to the conditions of the vehicle or the issued securities will only be for the benefit of the holders of said securities.

In the event of an early liquidation of the Securities referred to in sub-subsection “h.” of subsection ii) of this section 9.3, the issuance instruments must expressly stipulate that the holders of said securities will have the right to receive the full payment of the amounts covered by said securities.

In the case of the Securities corresponding to the trusts indicated in sub-subsection “i.” of subsection ii), of this section 9.3, the instruments of their issuance must include an express clause by which the entities in charge of whom the collective credit object of said Securities has been constituted is also obligated to cover the amounts of the debts covered by said Securities that are not paid by the respective trust and other parties that, if applicable, have assumed said obligation.

On the other hand, the Securities referred to in subsection ii) of this section 9.3 must not comprise structured banking securities provided for in Title Two, Chapter I, Section I, Subsection G, of the Operations Provisions, as well as other securities instrumented with similar characteristics.

The Institution that presents the Securities subject to repo provided for in this section must verify that they meet the characteristics previously established for each of them, without prejudice to the review that the Bank of Mexico must carry out.

The maturity of the Securities subject to repo must be subsequent to that corresponding to the term of the repo. Likewise, the value of said Securities, determined in accordance with what is provided in the following paragraph, must be equal to or greater than the sum of the Price plus the Premium of the operation in accordance with what is indicated in this section.

The Bank of Mexico will make known daily to Institutions, the valuation of the Securities subject to repo and the corresponding discount factors, through the address <http://webdgobc>.

In any case, the Bank of Mexico, taking into account the date of issuance and placement of the Securities, as well as the depth and conditions prevailing in the market in which said Securities are traded, may not accept Securities in repo operations, as well as those that do not have an updated valuation at market prices, that have not been placed among several investors, or that have not been placed through a public offering. For the case of Securities denominated in Eligible Currencies, the Bank of Mexico may not accept those with which it is not able to carry out the corresponding operations within the term to perfect the respective repo.

In the event that an Institution identifies Securities subject to repo that are not on the list that, for this purpose, the Bank of Mexico makes known, the Institution must inform the Bank of Mexico, at least two Banking Days in advance of the date on which it intends to formalize the repo, and must include all the characteristics of the Securities specified in the table of Annex 2, as well as the information prospectus of each Security or an equivalent documentary support where the indicated characteristics are verified. In the event that the Institution does not provide this information with the required advance notice, the Bank of Mexico may not accept said Securities. e) Price: The amount in Dollars equivalent to the value of the Securities subject to repo, assigned in each bid of the auction, made known by the Bank of Mexico at the moment of its perfection, adjusted by the discount factors that the Bank itself determines and makes known through the internet portal that it maintains at the address: <http://webdgobc>. f) Premium: That resulting from the following formula:

Where: Interest Rate: will be equivalent to the interest rate determined in accordance with what is provided in section 5 of these Rules, during each day of the validity of the repo. In the event that the interest rate of the Dollar Financing Auctions corresponding to the interest period that results applicable, if applicable, is reviewed, it will be indicated in the respective call. Amount: to the amount agreed for the corresponding repo, equivalent to the Price of the repo. Days: to the number of natural days that pass between the day on which the repo is perfected and the Banking Day on which the operation is settled.

The repos will be formalized once the Securities subject to said operation have been deposited in the account of the Bank of Mexico in Indeval or in the custody accounts abroad that, if applicable, the Bank of Mexico determines.

Once the mentioned Securities have been credited to the account of the Bank of Mexico in Indeval or in those other custody accounts abroad, it will credit, on the next Banking Day, the amount of the corresponding Dollars, without the accumulated amount of such credits exceeding the amount of the principal of the Financings assigned in the respective Dollar Financing Auction. In the case of Securities denominated in Eligible Currencies, the Institution must notify the Bank of Mexico about the transfer it intends to make of such Securities to the respective accounts of the latter, at least, one Banking Day in advance of the date on which the repo must be formalized, in accordance with what is indicated in this section. The foregoing must be observed in order that, on the next Banking Day, the referred Securities are received in the account of the correspondent abroad that the Bank of Mexico has determined and that has been defined through the internet site located at <http://www.webdgobc>.”

“9.4 Payment of Financing

In the case of Financings that have been entered into as credits, the respective interest will be payable at the agreed maturity of the credit.”

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On the maturity date of the respective Financing operation, once the Bank of Mexico confirms that it has received payment of the principal, Price, Premium or interest, as applicable, it shall carry out the release of the respective Guarantees or the transfer of the Securities subject to the respective repos, either in the Institution's own accounts at the Bank of Mexico, at Indeval or at the custodian abroad. In the case of the custodian abroad, the transfer of the Securities shall be carried out no later than the next Banking Business Day following the confirmation of payment of the principal, Price, Premium and/or interest corresponding.

Likewise, in the event that, on the maturity date of the Financing operation in question, the payment of the obligations owed by the Institution is not made in full, the obligation to pay the respective credit or repo shall be considered in default up to the amount not covered by said Institution.”

“9.5 Substitution of Guarantees for credits or Securities subject to repos

Institutions may substitute the Deposits or Securities subject to the Guarantees or repos they have entered into with the Bank of Mexico, in accordance with these Rules, as applicable, for which the latter shall allow them to mature these Financing operations or other repo and credit operations in force in advance, provided that they enter into new credit or repo operations under the same terms as originally established at the beginning of the Financing. In particular, the new operations must be entered into for the amount of the operation maturing in advance and will generate the same amount of interest and Premium, subject to the same estimated interest and Premium in accordance with the following paragraphs 9.6 and 9.7, as well as the same maturity date.

In the case contemplated in the preceding paragraph, regarding Deposits in national currency or Dollars and Securities denominated in national currency or UDIS, Institutions must request the Bank of Mexico for the substitution they intend to carry out through the SAGAPL, no later than 13:30:00 hours on the Banking Business Day immediately preceding the one on which they intend to carry out the substitution, indicating the Deposits in national currency or Dollars and the Securities in national currency or UDIS they intend to substitute, as well as the new Deposits in national currency or Dollars and Securities in national currency or UDIS they intend to deliver to the Bank of Mexico, provided that the amounts resulting from the valuation corresponding to said Deposits in national currency or Dollars and Securities in national currency or UDIS are equivalent. In the event that the SAGAPL is not available, Institutions must submit the aforementioned requests by the electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico itself. In this case, Institutions must submit the requests in accordance with the format attached to these Rules as Annex 5.

Regarding Securities denominated in Eligible Currencies, the corresponding request must be submitted through the system determined by the Bank of Mexico for this purpose, no later than 14:15:00 hours on the previous Banking Business Day on which they intend to substitute said Securities. In the event that the return corresponds to Securities in Eligible Currencies, the Bank of Mexico must transfer them, no later than the Banking Business Day following the day it receives the substitute Securities, to the custody account. In the request in question, they must indicate the Securities to be substituted, as well as the new Securities they intend to deliver to the Bank of Mexico, provided that the amounts resulting from the valuation corresponding to said Securities are equivalent. In the event that the system is not available, Institutions must submit the aforementioned requests by the electronic medium authorized by the Bank of Mexico itself. In this case, they must submit the requests in accordance with the format attached to these Rules as Annex 5.

In the cases referred to in this paragraph, the Bank of Mexico reserves the right to reject or accept the requests in question.”

“9.6 Review of the value of Credit Guarantees and Securities subject to repos

The Bank of Mexico will review, every Banking Business Day, that the value of the Deposits and Securities subject to the respective repo is sufficient to cover the amount of the obligations owed by the Institution in virtue of the Financing operation in question, in accordance with what is established in paragraphs 9.2 and 9.3, including the estimated interest of the credits and the estimated Premiums of the repos, as applicable.

For the case provided for in the preceding paragraph, the estimated interest of the credits and the estimated Premiums of the repos corresponding to the Financing operation in question shall be calculated as follows:

On the day of perfection of the respective Financing operation, the estimated interest and Premiums, if applicable, shall be those resulting from applying the methodology indicated in paragraphs 9.2 and 9.3, as applicable, for which the interest rate contemplated in paragraph

Friday, June 19, 2020 OFFICIAL GAZETTE 11

5 above, from the date of perfection and until the valuation date, assuming, for the purposes of this calculation, that said rate will remain constant during the remaining term of the Financing operation. Additionally, in the event that, from the day of perfection of the Financing operation and until the agreed date of maturity or expiration of the term of the operation in question, the aforementioned target interest rate is reviewed in the interest period applicable in accordance with what is indicated in the respective call, the value of said rate shall be taken as applicable for each of the days from the date it was made known until the agreed date of maturity or expiration of the term of the Financing operation. Without prejudice to the foregoing, the amount of interest or Premium that the accredited Institution must pay to the Bank of Mexico shall be that resulting from the calculation performed at the maturity or expiration of the Financing operation, in accordance with what is indicated in paragraph 9.2 or 9.3 above, as applicable.”

“9.7 Information on the value of Credit Guarantees and Securities subject to repos

The Bank of Mexico, every Banking Business Day, will inform each of the Institutions, through the website located at <http://www.webdgobc> or through any other electronic, computing or telecommunications medium that the Bank of Mexico has authorized for this purpose and previously made known to the Institutions, the total value of the Deposits or Securities subject to repos, as applicable, that they must have constituted in accordance with what is established in the preceding paragraph.

In the event that the value of the Guarantees or Securities subject to repo, calculated in accordance with these Rules, is not sufficient to cover the obligations owed by the Institution in question for the corresponding Financing operation, the Institution must provide additional resources in Deposits or Securities, to cover the amount of the difference, in the accounts it has defined through the website located at <http://www.webdgobc> and until 14:30:00 hours, on the same Banking Business Day on which it notifies the Institution of the applicable shortfall.

Regarding Securities denominated in Eligible Currencies, the Institution must notify the Bank of Mexico about the transfer it intends to make of such Securities to the respective accounts of the latter, at least one Banking Business Day in advance of the date on which the repo must be formalized, in accordance with what is stated in this paragraph. The foregoing must be observed so that on the following Banking Business Day, the aforementioned Securities are received in the account of the correspondent abroad determined by the Bank of Mexico and defined through the website located at <http://www.webdgobc>.

In the event that the Institution does not provide sufficient Guarantees indicated in the preceding paragraph, on the Banking Business Day following the one on which it became obligated to do so, it must make a payment for the uncovered amount and any other expenses. The foregoing shall be applicable, without prejudice to the conventional penalty corresponding on the uncovered amount and any other expenses agreed upon.

If, as a result of the valuation indicated in this paragraph, the value of the Guarantees provided is higher than the amount to be guaranteed, the Institution may request the Bank of Mexico, through the SAGAPL, or any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico, the return of the resources corresponding to the Deposits or Securities on which the respective pledge was constituted up to the excess amount of those resources from the Deposits or Securities initially provided as Guarantees.”

“10.1 The Bank of Mexico may declare a Financing Auction in Dollars totally or partially void when, in its opinion, it considers that the bid or bids do not adequately represent market conditions or could produce undesirable effects in the same or go against sound market practices.”

“10.2 The Bank of Mexico may suspend the participation of Institutions in the Financing Auctions in Dollars when they fail to comply with what is provided in these Rules and/or in the contract referred to in paragraph 9 of these Rules.”

“10.3 For information of the market, the Bank of Mexico will make known to the general public the characteristics and results of the Financing Auctions in Dollars, through its internet electronic page identified with the domain name <<www.banxico.org.mx>> or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico itself.”

“ANNEX 1 MODEL OF REQUEST TO PARTICIPATE IN THE FINANCING AUCTIONS IN DOLLARS

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Mexico City, __ of ___________________ of ______ BANK OF MEXICO National Operations Management 5 de Mayo Avenue No. 6, 1st floor, Col. Centro, Cuauhtémoc, Postal Code 06000, Mexico City Bidder Name: ______________________________ Bidder Key at Bank of Mexico: __________________ BIDS: Interest Surplus Amount _____ . ______ _________ million US dollars. _____ . ______ _________ million US dollars. _____ . ______ __________ million US dollars. The INTEREST SURPLUSES must be expressed up to FOUR decimals. The bids cited are mandatory and irrevocable; they will produce the broadest effects in law corresponding, and imply our acceptance to all and each of the “Rules applicable to financing auctions in US dollars”, contained in Circular 8/2009 and its modifications, to the contract entered into with the Bank of Mexico referred to by the cited Rules, as well as to the terms and conditions of the call dated _______ of ______________ of 20___. Sincerely, (Name of the bidder) (Name and signature of representatives of the credit institution with signatures previously registered at the Bank of Mexico) NOTE: Unused spaces must be cancelled.”

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“ANNEX 2 MODEL OF COMMUNICATION REGARDING THE DEPOSITS AND SECURITIES TO BE DELIVERED TO BANK OF MEXICO TO FORMALIZE THE FINANCING ASSIGNED IN THE FINANCING AUCTIONS IN DOLLARS

Mexico City, __ of ___________________ of ______ BANK OF MEXICO Operations Management Management 5 de Mayo Avenue No. 6, 4th floor, Col. Centro, Cuauhtémoc, Postal Code 06000, Mexico City (FULL NAME OF THE CREDIT INSTITUTION, INCLUDING, IF APPLICABLE, THE FINANCIAL GROUP TO WHICH IT BELONGS) received assignment in the Financing Auction in Dollars held on ____ of ________________ of 20__, in terms of the “Rules applicable to financing auctions in US dollars”, contained in Circular 8/2009 and its modifications, for an amount of $ _____________ US dollars (AMOUNT IN LETTERS). Regarding this, this institution requests from the Bank of Mexico that the Financing derived from the aforementioned assignment be formalized with the Deposits and/or Securities as follows:

TYPE OF DEPOSIT AMOUNT Regulatory deposits: $___________________ pesos, N.M. Time deposits constituted as a result of the assignments of the auctions that the Bank of Mexico: $___________________ pesos, N.M. Time deposits celebrated in accordance with the procedure for determining the TIIE: $___________________ pesos, N.M. US Dollar account deposits: [To determine this amount, the exchange rate and the corresponding discount factor must be considered.] $___________________ US dollars. Securities 1: [For each of the Securities considered, indicate the following fields] ISIN* NUMBER SECURITIES* NOMINAL VALUE* SECURITY TYPE ISSUER SERIES* CURRENCY MATURITY DATE CREDIT RATINGS AND RATING INSTITUTION LAST PRICE OR AVAILABLE VALUATION

• Mandatory fields Sincerely, (NAME AND SIGNATURE OF AUTHORIZED OFFICIALS) c.c.p. Sub-management of Operations Management with Account Holders.2

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1 The list of the securities subject to repo is attached to this document, in electronic format [only text files with comma-separated values (.csv) or Excel files (.xlsx) will be accepted]. This list includes the following information for each of the securities considered: ISIN (mandatory), NUMBER OF SECURITIES (mandatory), NOMINAL VALUE (mandatory), SECURITY TYPE, ISSUER, SERIES (mandatory), CURRENCY, MATURITY DATE, CREDIT RATINGS, LAST PRICE OR AVAILABLE VALUATION, COUPON PAYMENT FREQUENCY (mandatory) and NEXT COUPON PAYMENT DATE (mandatory).

2 When this communication is sent by email, it must be addressed to ncastro@banxico.org.mx; gtorresn@banxico.org.mx; ggo-ovg@banxico.org.mx”

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“ANNEX 3 MODEL OF COMMUNICATION FROM THE INSTITUTION TO BANK OF MEXICO TO REQUEST THE CHANGE OF ACCOUNT TO CREDIT THE DOLLARS SUBJECT TO THE FINANCING DERIVED FROM THE FINANCING AUCTION IN DOLLARS

Mexico City, __ of ___________________ of ______ BANK OF MEXICO Operations Management Management 5 de Mayo Avenue No. 6, 4th floor, Col. Centro, Cuauhtémoc, Postal Code 06000, Mexico City By these presents, I allow myself to request from the Bank of Mexico on behalf of (FULL NAME OF THE CREDIT INSTITUTION, INCLUDING, IF APPLICABLE, THE FINANCIAL GROUP TO WHICH IT BELONGS), that the Dollars, if applicable, assigned to my represented party, in terms of what is provided in the “Rules applicable to financing auctions in US dollars” contained in Circular 8/2009 and its modifications, be deposited in account number ________________ in its name at _____________ (FULL NAME OF THE FOREIGN FINANCIAL ENTITY THAT HOLDS THE ACCOUNT), with BIC _________. Likewise, we inform you that the instruction referred to in the preceding paragraph can only be modified or revoked, by written communication addressed to the Bank of Mexico and presented with an advance of at least three Banking Business Days from the date on which the modification or revocation is intended to take effect. Sincerely, Name and signature of the representative(s) of the credit institution with powers of domain 1 c.c.p. Sub-management of Operations Management with Account Holders.

1 This communication must be sent at least three Banking Business Days in advance of the date on which it is intended to take effect, within the time frame between 9:30:00 and 14:30:00 hours, attaching a certified and simple copy of the public deed in which the powers of the representative(s) to exercise acts of domain that subscribe(s) them are stated, as well as a simple copy of their official identification(s).”

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“ANNEX 4 MODEL OF REQUEST FOR WITHDRAWAL OF DOLLAR DEPOSITS PROVIDED AS GUARANTEE

Mexico City, __ of ___________________ of ______ BANK OF MEXICO Operations Management Management 5 de Mayo Avenue No. 6, 4th floor, Col. Centro, Cuauhtémoc, Postal Code 06000, Mexico City By these presents, I allow myself to request from the Bank of Mexico, on behalf of (FULL NAME OF THE CREDIT INSTITUTION, INCLUDING, IF APPLICABLE, THE FINANCIAL GROUP TO WHICH IT BELONGS), that on this date it carry out the actions that are necessary so that my represented party withdraws, in accordance with what is provided in the “Rules applicable to financing auctions in dollars de los EE.UU.A.” contained in Circular 8/2009 and its modifications, the Dollar Deposits given as Guarantee that on the date of this request are not guaranteeing any obligation owed by my represented party and in favor of the Bank of Mexico. The aforementioned deposits are for the amount of $______ dollars US DOLLARS (AMOUNT IN LETTERS). Sincerely, (Name and signature of persons with signatures previously registered at Bank of Mexico) c.c.p.: Direction of Support to Operations National Operations Management Sub-management of Operations Management with Account Holders”

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“ANNEX 5 COMMUNICATION TO THE OPERATIONS MANAGEMENT MANAGEMENT TO REQUEST THE SUBSTITUTION OF DEPOSITS AND SECURITIES

Mexico City, __ of ___________________ of ______ BANK OF MEXICO Operations Management Management 5 de Mayo Avenue No. 6, 4th floor, Col. Centro, Cuauhtémoc, Postal Code 06000, Mexico City By means of this, for the purposes of what is established in paragraph 9.5 of the “Rules applicable to the dollar financing auctions” contained in Circular 8/2009 and its modifications, on behalf and for the account of my represented party, (FULL NAME OF THE CREDIT INSTITUTION, INCLUDING, IF APPLICABLE, THE FINANCIAL GROUP TO WHICH IT BELONGS), I request that those Deposits and/or Securities that this institution gave as Guarantee for the Financing operation as a result of the assignment of the bids presented by this same institution in the auctions carried out in accordance with the cited Rules and that correspond to the excess amount of that referred to the Guarantees calculated in accordance with those same Rules be returned. To this effect, the Deposits and Securities that this institution requests be returned are the following: 1 Deposits:

TYPE OF DEPOSIT AMOUNT Regulatory deposits: $___________________ pesos, N.M. Time deposits constituted as a result of the assignments of the auctions that the Bank of Mexico: $___________________ pesos, N.M. Time deposits celebrated in accordance with the procedure for determining the TIIE: $___________________ pesos, N.M. US Dollar account deposits: [To determine this amount, the exchange rate and the corresponding discount factor must be considered.] $___________________ US dollars. Securities: For each of the Securities considered, indicate the following fields ISIN* NUMBER SECURITIES* NOMINAL VALUE* SECURITY TYPE ISSUER SERIES* CURRENCY MATURITY DATE CREDIT RATINGS AND RATING INSTITUTION LAST PRICE OR AVAILABLE VALUATION

• Mandatory fields The Deposits and Securities to be delivered in substitution are the following: 1 Deposits:

TYPE OF DEPOSIT AMOUNT Regulatory deposits: $___________________ pesos, N.M. Time deposits constituted as a result of the assignments of the auctions that the Bank of Mexico: $___________________ pesos, N.M.

Friday, June 19, 2020 OFFICIAL GAZETTE 17 Deposits at term concluded in accordance with the procedure for determining the TIIE: $___________________ pesos, M.N. Deposits in US dollars accounts: [To determine this amount, the corresponding exchange rate and discount factor must be considered.] Titles: $___________________ US dollars For each of the Titles considered, indicate the following fields ISIN* NUMBER TITLES* NOMINAL VALUE* TYPE OF VALUE ISSUER SERIES* CURRENCY MATURITY DATE CREDIT RATINGS AND RATING AGENCY LAST PRICE OR AVAILABLE VALUATION *Mandatory fields Sincerely

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(Institution's Name) (Name and signature of persons with signatures previously registered at the Bank of Mexico)

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1 Attached to this document is the list of titles subject to repurchase agreements, in electronic format [only text files with comma-separated values (.csv) or Excel files (.xlsx) will be accepted]. This list includes the following information for each of the titles considered: ISIN (mandatory), NUMBER OF TITLES (mandatory), NOMINAL VALUE (mandatory), TYPE OF VALUE, ISSUER, SERIES (mandatory), CURRENCY, MATURITY DATE, CREDIT RATINGS, LAST PRICE OR AVAILABLE VALUATION, COUPON PAYMENT FREQUENCY (mandatory) and NEXT COUPON PAYMENT DATE (mandatory).” TRANSITORY PROVISIONS FIRST. These Rules shall enter into force on the day of their publication in the Official Journal of the Federation. SECOND. The provisions of Rule 1. Definitions. “Global Credit Quality Criteria” and “National Credit Quality Criteria”, as well as in Section 9.3 Characteristics of repurchase agreements, subsection d), shall only be applicable during the period elapsed from the entry into force of this Circular until September 30, two thousand twenty. THIRD. The Rules applicable to US dollar credit auctions provided for in Circular 8/2009, as well as the modifications thereto made known in Circular 3/2020, shall remain in force with respect to credits concluded under the authority of said Rules. Mexico City, June 16, 2020.- BANK OF MEXICO: The General Director of Central Banking Operations, Gerardo Israel García López.- Initials.- The General Legal Director, Luis Urrutia Corral.- Initials. For any inquiries regarding the content of this Circular, the Bank of Mexico is available through the Directorate of Authorizations and Sanctions of Central Banking at telephone (55) 5237-2000 extension 3200.