Circular 3/2003 — Electronic Submission of Provisions to Investment Funds

CIRCULAR 3/2003 Mexico City, May 9, 2003. TO THE SECURITIES COMPANIES: SUBJECT: MODIFICATIONS TO CIRCULAR 115/2002.

The Bank of Mexico, based on the provisions of articles 24 and 26 of its Law, and article 22, fraction IV of the Securities Market Law, and with the objective of: i) making clearer and simpler the valuation mechanism for fixed-income securities held in own position, as well as those securities with which these securities companies conduct repo operations to exercise the credits they are authorized to receive from credit institutions; ii) avoiding distortions in the valuation of the aforementioned securities; and iii) using for the valuation of the mentioned securities the same information sources that different financial intermediaries are obligated to apply, has resolved to modify paragraph CB.1.3, subsection d), and Annex 1 of Circular 115/2002 in the terms indicated below:

“CB.1.3 CREDITS TO SETTLE THE BALANCE OF THE CONTROL ACCOUNT THAT INDEVAL KEEPS FOR THE SECURITIES COMPANIES. … Securities companies will exercise the aforementioned credit lines through the celebration of automatic repo operations, which must have the following characteristics: … d) Price Amount: Except in the case of UMS BONDS, the collateral value of banking securities, securities issued or guaranteed by the Federal Government, and ordinary participation certificates guaranteed by Nacional Financiera, S.N.C., subject to the repo, shall be determined using the valuation established for such purposes in Annex 1 of this Circular. The banking securities, securities, and certificates mentioned above, which for any reason cannot be valued in accordance with the provisions of the cited Annex, shall not be subject to the aforementioned repo operations while such circumstance persists, and

2 …”

“ANNEX 1 VALUATION OF SECURITIES OR INSTRUMENTS FOR COLLATERAL PURPOSES

1. GENERAL VALUATION PROCEDURE. The Bank of Mexico shall carry out the valuation of the instruments indicated in the catalog that S.D. Indeval, S.A. de C.V., Securities Depository Institution, sends to it daily, using the valuation prices sent to it daily by the Price Providers (Providers) with which it has signed the respective agreement. With the purpose of determining the value of the instruments that will be used for the effect of granting guarantees to the Bank of Mexico, and for celebrating the repo operations referred to in section CB.1.3, said Central Bank may apply to each instrument a discount factor on the valuation price obtained in accordance with the procedure described in this Annex. In their case, said factors will be made known to these institutions by the Bank of Mexico itself. The valuation of fixed-income securities instruments will be carried out by calculating a weighted average of the prices of the Providers, using random weights. The weights are generated from a uniform distribution and subsequently normalized to ensure that the Bank of Mexico's valuation price is between the lowest and highest prices calculated by the Providers. For each outstanding issuance, its dirty and clean prices will be determined. The valuation prices will be calculated as follows: a) If for instrument x there are at least 2 valuations from the Providers, the Bank of Mexico will determine the clean valuation price of that instrument with the following formula:

PLx,t = Σ (from i=1 to k) wi * PLx,t,i (1)

where PLx,t,i is the price of the i-th Provider, the wi are random weights with values between 0 and 1, generated with a uniform distribution and where: Σ (from i=1 to k) wi = 1

For each instrument, on each valuation date, new weights must be determined. The dirty prices in this case will be calculated using the same weights as for the clean prices. b) If on the valuation date there is no information from any Provider for instrument x, the Bank of Mexico will determine the clean and dirty valuation prices of that instrument by repeating the value from the previous day.

2. PROCEDURE TO VALUE CETES; BONDES; UDIBONOS; BANK SAVINGS PROTECTION BONDS (BPAS) AND MONETARY REGULATION BONDS (BREMS) ON THE DATE OF THEIR FIRST PLACEMENT. The Bank of Mexico will value the titles mentioned under the heading when they are placed for the first time, using the unique prices or rates or the weighted average rates or prices resulting from the respective auction, provided that there are no valuation prices from the Providers for said titles.

3. PROCEDURE TO VALUE SPECIAL CETES, TITLES OF THE BANK SAVINGS PROTECTION FUND (FOBAPROA) AND PAYMENT INSTRUMENTS SUBSCRIBED BY THE BANK SAVINGS PROTECTION INSTITUTE (IPAB) REFERRED TO IN SUBSECTIONS (a) AND (f) OF SECTION M.73.61 OF CIRCULAR 2019/95. Considering that the Providers do not calculate valuation prices for special CETES, FOBAPROA titles, and payment instruments under IPAB, mentioned under the heading, to calculate the value as collateral for said titles, a discount equivalent to 1% for each year remaining until their maturity date will be applied to their capitalized value. Additionally, an extra 25% will be deducted from FOBAPROA titles, taking into account that they do not have the Federal Government's guarantee for 100%.”

4 TRANSITIONAL PROVISION Sole.- This Circular shall enter into force on May 19, 2003.