Circular 3/2020 — Modifications to Circular 8/2009, US Dollar Credit Auctions

Wednesday, April 1, 2020 OFFICIAL GAZETTE 1 BANCO DE MEXICO CIRCULAR 3/2020 addressed to Credit Institutions, regarding Modifications to Circular 8/2009, 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 3/2020 TO CREDIT INSTITUTIONS: SUBJECT: MODIFICATIONS TO CIRCULAR 8/2009, US DOLLAR CREDIT AUCTIONS

The Bank of Mexico, in order to continue promoting the sound development of the financial system and ensure its stability, as well as to foster the proper functioning of payment systems, has resolved to modify the "Rules applicable to US Dollar credit auctions", so that credit institutions can participate in the aforementioned auctions in accordance with an updated framework.

For the above, based on articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 7, fraction X, 14, 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, first paragraph, 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 Directorate of Legal Affairs, respectively, as well as Second, fractions VI and X, of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, has resolved to modify numerals 1, in the definition of "US Dollar Credit Auction(s)", 3, first paragraph, 4, first paragraph, items a) and b), 5, first paragraph, 6.1, 6.2, second paragraph, 6.3, third paragraph, 9, paragraphs second, third and fourth, 9.2, 9.3, third paragraph, 9.4, 9.5, and 10.4, as well as Annexes 1, 2 and 3, and add to numeral 1, the terms "BONDE", "Bonos UMS", "BPA", "BREM", "CETE", "Deposits", "Guarantee", "Instruments of the Treasury of the United States of America", "SIAC-BANXICO", "UDIBONO" and "Securities", and a numeral 9.6, to the "Rules applicable to the US Dollar credit auctions", contained in Circular 8/2009, to read as follows:

RULES APPLICABLE TO US DOLLAR CREDIT AUCTIONS

1. DEFINITIONS ... "BONDE: Development Bonds issued by the Federal Government of the United Mexican States, denominated in national currency or in UDIS, both at fixed interest rate and at variable interest rate. Bonos UMS: Debt titles denominated in foreign currency issued by the Federal Government of the United Mexican States in international markets. BPA: Savings Protection Bonds issued by the Institute for the Protection of Bank Savings, in accordance with the Federal Revenue Law for the corresponding fiscal year. BREM: Monetary Regulation Bonds issued by the Bank of Mexico. CETE: Certificates of the Federation Treasury issued by the Federal Government of the United Mexican States, excluding those issued under restructuring programs for credits denominated in UDIS (Special Cete).

2 OFFICIAL GAZETTE Wednesday, April 1, 2020 restructuring of credits denominated in UDIS (Special Cete). Deposits: The following money deposits constituted by credit institutions as depositors: i) monetary regulation deposits constituted in compliance with article 28 of the Bank of Mexico Law and other applicable regulations; ii) term deposits resulting from auctions that the Bank of Mexico conducts to receive them; iii) term deposits celebrated in accordance with the procedure for determining the TIIE of Funding in accordance with the Provisions applicable to 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, Forest 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 modified by subsequent resolutions, or iv) Dollars deposits constituted at the Bank of Mexico in accordance with the Provisions cited in item iii) above. ... Guarantee: That constituted on the Deposits, as well as the stock pledge with transfer of ownership over the Securities, which institutions must constitute to guarantee, in terms of numeral 9, the Dollar credit assigned to them. Instruments of the Treasury of the United States of America: titles issued by the Treasury of the United States of America, without any type of optionality, denominated in United States Dollars, at discount or paying a fixed or floating nominal rate or whose cash flows are adjusted by the inflation rate. ... SIAC-BANXICO: The Bank of Mexico Account Holder Attention System. US Dollar Credit Auction(s): Those that the Bank of Mexico conducts in accordance with these Rules, to grant Dollar credits to credit institutions. UDIBONO: Development Bonds issued by the Federal Government of the United Mexican States, denominated in investment units. Securities: BONDES, Bonos UMS, BPA, BREM, CETE, Instruments of the Treasury of the United States of America and UDIBONO."

Wednesday, April 1, 2020 OFFICIAL GAZETTE 3 ... 3. CALLS FOR BIDS "The Bank of Mexico will inform institutions of the calls for US Dollar Credit Auctions, at least one Business Day in advance of the date on which they are held, through the SIAC-BANXICO or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico." ... 4. TYPES OF US DOLLAR CREDIT AUCTIONS ... a) "Traditional: those in which credit institutions will submit their bids without knowing the other bids submitted or any related information. In this case, the bidding institution will receive information on the other bids until the Bank of Mexico informs all bidding credit institutions of the results of the US Dollar Credit Auction in accordance with numeral 8, or b) Interactive: those in which credit institutions that submit their bids can know the marginal assignment rate of the US Dollar Credit Auction from the moment the total amount of bids submitted by all bidding credit institutions is equal to the amount offered in the Auction in question." ... 5. INTEREST RATE ... min j i = "Minimum annual interest rate, expressed in percentage terms, established by the Bank of Mexico at the beginning of each interest period, determined based on a market reference rate for the term of the interest period plus a differential. The reference rate and the differential will be made known by the Bank of Mexico in the respective call. ... Last interest rate review period." ... 6.1 Types of bids "Bids will be competitive and must be submitted in amounts of one million Dollars or their multiples. The bidder must indicate the amount of Dollars for which they wish to celebrate the credit operation(s) subject to the US Dollar Credit Auction, as well as the annual interest premium to which they are willing to receive said credits. The annual interest rate will be equivalent to the result of the sum of the premium plus the minimum interest rate, in accordance with numeral 5 of these Rules." 6.2. Bid Limits ... "For these purposes, 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 ownership of rights that allow, directly or indirectly, to exercise voting rights regarding more than fifty percent of the social capital of the institution, direct, directly or indirectly, the administration, strategy or main policies of the institution, whether through the ownership of securities or by any other legal act." 6.3 Submission of bids ... "The access, identification and, where applicable, operation keys established for the use of the SIAC-BANXICO will substitute the autograph signature with an electronic one, so that documentary or technical records where they appear will produce the same effects that laws grant to documents signed by the parties and, consequently, will have equal probative value. In the event that any credit institution cannot submit its bids through the SIAC-BANXICO, they may submit them via telephone or fax and must confirm them in writing delivered to the National Operations Management, no later than three hours after the corresponding US Dollar Credit Auction, 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 credit institutions and the letter must show the knowledge of signatures granted by the Bank of Mexico, so that the signatures must be previously registered at the Bank of Mexico." 9. FORMALIZATION OF US DOLLAR CREDITS ... "For such purposes, credit institutions must present to the Operations Instrumentation Management, a certified and 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 contract are stated, as well as a simple copy of the official identification(s), at least three Business Days in advance of when they intend to sign said contract. Credit institutions must make sufficient Deposits or Securities available to the Bank of Mexico to guarantee the US Dollar credits 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 Business Day immediately preceding the date of delivery of the Dollars 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 credit will be formalized for the amount that is effectively guaranteed, so that if on the date and time indicated in the contract, a bidder does not have sufficient Deposits or Securities 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." 9.2 Characteristics of credit operations ... "f) Interest Periods: The payment terms for interest and, where applicable, review of the interest rate of the US Dollar Credit Auctions that, if the case arises, are indicated in the respective call. g) Guarantees: Those indicated in numeral 1 of these Rules." The value of the Guarantees referred to in this numeral, which credit institutions must initially constitute for the assigned amount, once converted to Dollars, must cover both the principal amount and the interest that the credit will accrue. To perform the conversion of Guarantees to Dollars, in applicable cases, the exchange rate determined by the Bank of Mexico in accordance with the "Provisions applicable to 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, Forest 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 modified by subsequent resolutions, and published on its electronic page on the date the corresponding US Dollar Credit Auction is held, will be used. The amount of Securities for the purpose of the Guarantee will correspond to the result of multiplying the number of titles by their unit value and by the applicable discount factor. The Bank of Mexico will inform credit institutions through the Financial Network, the following information: i) the list of Securities eligible to be delivered as guarantee, and ii) the discount factor applicable to said Securities. Likewise, on the date the corresponding US Dollar Credit Auction is held, the Bank of Mexico will make known to institutions that receive assignment the unit value of the Securities eligible to be delivered as guarantee. To access this information, institutions that have received assignment must request, on the same day they receive the assignment notice, the corresponding access passwords to the Financial Network from the Operations Management of the Bank of Mexico. Guarantees on Securities will be constituted once these have been deposited in the Bank of Mexico account at Indeval or in foreign accounts that the Bank of Mexico determines, where applicable. The Bank of Mexico will credit, on the Business Day following the date on which the Guarantees are constituted, in the account referred to in the previous numeral 9.1, the amount of Dollars corresponding, so that the accumulated amount of such credits does not exceed the amount of the principal of the credits assigned in the respective US Dollar Credit Auction. In the event that the credit institution does not constitute Guarantees for the total assigned amount, the Bank of Mexico will only credit the amount of Dollars for the amount that is guaranteed and the rest will be credited once the institution constitutes the missing Guarantees." 9.3 Payment of interest and principal of credits ... "On the maturity date of the credit, the Bank of Mexico will release the respective Guarantees once it confirms that it has received payment of the principal and corresponding interest, in accordance with the previous paragraph." ... 9.4 Substitution of Guarantees "Credit institutions may substitute the Guarantees they have granted to the Bank of Mexico, in accordance with what is stipulated in the contract referred to in numeral 9 of these Rules." 9.5 Review of the value of Guarantees "The Bank of Mexico will review each Business Day that the value of the Guarantees is sufficient to cover the amount of the Dollar credit granted to each institution, in accordance with what is established in the contract referred to in numeral 9." 9.6 Information on the value of Guarantees "The Bank of Mexico, each Business Day, will inform each of the credit institutions, through the Financial Network or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico and made known to credit institutions, the total value of the Guarantees that they must have constituted in accordance with what is established in the previous numeral. The value of the Guarantees that credit institutions must maintain in the reviews conducted by the Bank of Mexico, once converted to Dollars, must be equal to the principal amount as well as the interest that the credit will accrue. To perform the conversion of Guarantees to Dollars, the exchange rate indicated in the second paragraph of numeral 9.2 of these Rules, which the Bank of Mexico publishes on its electronic page on the date the review is carried out, will be used."

6 OFFICIAL GAZETTE Wednesday, April 1, 2020 9.2 of these Rules, which the Bank of Mexico publishes on its electronic page on the date the review is carried out." 10. GENERAL PROVISIONS "10.4 All times referred to in these Rules, in the calls and in the contract provided for in numeral 9 of these Rules, are referred to the time zone of Mexico City." ANNEX 1 MODEL OF REQUEST TO PARTICIPATE IN US DOLLAR CREDIT AUCTIONS (INSTITUTION LETTERHEAD) Mexico City, on ___ of __________ of 20__. BANCO DE MÉXICO National Operations Management 5 de Mayo Avenue No. 6, 1st floor, Centro Neighborhood, Cuauhtémoc, Postal Code 06000, Mexico City Bidder Name: ________________________________ Bidder Key at Bank of Mexico: __________________ BIDS: Interest Premium Amount __________ . __________ __________ million United States Dollars __________ . __________ __________ million United States Dollars __________ . __________ __________ million United States Dollars INTEREST PREMIUMS must be expressed up to FOUR decimal places. The cited bids are mandatory and irrevocable; they will produce the broadest effects that correspond in law, and imply our acceptance to all and each of the "Rules applicable to US Dollar credit auctions", contained in Circular 8/2009 and its modifications, to the contract signed 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,

Wednesday, April 1, 2020 OFFICIAL GAZETTE 7 (Bidder Name) (Name and signature of credit institution representatives with signatures previously registered at the Bank of Mexico) NOTE: Unused spaces must be cancelled. ANNEX 2 MODEL OF COMMUNICATION REGARDING DEPOSITS AND SECURITIES TO BE DELIVERED TO THE BANK OF MEXICO TO GUARANTEE THE CREDIT ASSIGNED IN THE US DOLLAR CREDIT AUCTIONS (INSTITUTION LETTERHEAD) Mexico City, on ____ of __________ of 20__. BANCO DE MÉXICO Operations Management 5 de Mayo Avenue No. 6, 4th floor, Centro Neighborhood, Cuauhtémoc, Postal Code 06000, Mexico City (NAME OF THE CREDIT INSTITUTION) received assignment in the US Dollar Credit Auction held on ____ of ________________ of 20__, in terms of the "Rules applicable to US Dollar credit auctions", contained in Circular 8/2009 and its modifications, for an amount of $ _____________ (AMOUNT IN LETTERS). Regarding this, this credit institution requests the Bank of Mexico that the credit derived from said assignment be guaranteed with the following deposits and/or Securities: Monetary regulation deposits $ ________ Deposits constituted in accordance with the procedure for determining the TIIE for terms greater than one Business Day, provided for in Circular 3/2012 $ ________ Term deposits resulting from deposit auctions referred to in Circular 3/2012 $ ________ Dollars deposits referred to in Circular 3/2012 $ ________ Securities: __________ Sincerely, (NAME AND SIGNATURE OF AUTHORIZED OFFICIALS)

8 OFFICIAL GAZETTE Wednesday, April 1, 2020 c.c.p. Sub-Management of Operations Management with Account Holders.1 ANNEX 3 MODEL OF COMMUNICATION OF THE CREDIT INSTITUTION TO THE BANK OF MEXICO TO REQUEST THE CHANGE OF ACCOUNT TO CREDIT THE DOLLARS SUBJECT TO THE CREDIT DERIVED FROM THE US DOLLAR CREDIT AUCTION (INSTITUTION LETTERHEAD) Mexico City, on ____ of __________ of 20___. BANCO DE MÉXICO Operations Management 5 de Mayo Avenue No. 6, 4th floor, Centro Neighborhood, Cuauhtémoc, Postal Code 06000, Mexico City Through this channel, I allow myself to request the Bank of Mexico on behalf of (NAME OF THE CREDIT INSTITUTION), that the United States Dollars, if any, that are assigned to my represented party, in terms of what is provided in the "Rules applicable to US Dollar credit auctions" contained in Circular 8/2009 and its modifications, be deposited in account number __________________ at its name in _____________ (FULL NAME OF THE FOREIGN FINANCIAL ENTITY HOLDING THE ACCOUNT), with BIC _________. Likewise, we inform you that the instruction referred to in the previous paragraph can only be modified or revoked, through written communication addressed to the Bank of Mexico and presented with an advance of at least three Business Days to 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 dominion 2 c.c.p. Sub-Management of Operations Management with Account Holders.

---

2 This communication must be sent at least three 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 dominion that sign it are stated, as well as a simple copy of their official identification(s). TRANSITORY PROVISIONS FIRST. These Rules will enter into force on April 1, 2020. SECOND. Contracts that credit institutions have celebrated in terms of numeral 9 of the "Rules applicable to US Dollar credit auctions", issued by the Bank 1When this communication is sent by email it must be addressed to ncastro@banxico.org.mx; gtorresn@banxico.org.mx; ggo-ovg@banxico.org.mx

Wednesday, April 1, 2020 OFFICIAL GAZETTE 9 of Mexico through Circular 8/2009, which are modified in accordance with this Circular, will maintain their validity. Mexico City, on March 25, 2020.- BANK OF MEXICO: The Director General of Central Bank Operations, Gerardo Israel García López.- Initials.- The Director General of Legal Affairs, Luis Urrutia Corral.- Initials. 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 phone (55) 5237-2000 extension 3200.