Circular 31/2020 — Modifications to Rules for Bank of Mexico Financing Guaranteed by Qualified Credit Assets for Micro, Small and Medium Enterprises

154 OFFICIAL GAZETTE Wednesday, August 19, 2020 BANCO DE MÉXICO CIRCULAR 31/2020 addressed to Multiple Banking and Development Banking Institutions regarding modifications to the Rules applicable to Bank of Mexico financing guaranteed by qualified credit assets of the banking sector, for their channeling to micro, small, and medium-sized enterprises.

A logo appears at the margin, stating: Bank of Mexico.- "2020, Year of Leona Vicario, Meritorious Mother of the Fatherland".

CIRCULAR 31/2020
TO MULTIPLE BANKING AND DEVELOPMENT BANKING INSTITUTIONS:
SUBJECT: MODIFICATIONS TO THE RULES APPLICABLE TO BANK OF MEXICO FINANCING GUARANTEED BY QUALIFIED CREDIT ASSETS OF THE BANKING SECTOR, FOR THEIR CHANNELING TO MICRO, SMALL, AND MEDIUM-SIZED ENTERPRISES.

The Bank of Mexico, considering the impacts that the COVID-19 pandemic has caused on the global economy and on the behavior of the financial markets in our country, as well as on credit granting channels, has deemed it necessary to make adjustments to the facility contained in the "Rules applicable to Bank of Mexico financing guaranteed by qualified credit assets of the banking sector, for their channeling to micro, small, and medium-sized enterprises," issued by the Bank of Mexico through Circular 25/2020, to provide resources to banking institutions for the financing of micro, small, and medium-sized enterprises affected by the aforementioned pandemic, with the purpose of contributing to the conditions that facilitate credit institutions in fulfilling their priority function of providing financing to the economy. The modifications to the operations subject to the present facility will be framed within the financing scenarios recognized by law, in accordance with the mandate and parameters that the Political Constitution of the United Mexican States imposes on the Central Bank, ensuring at all times that they fully comply with the financing objectives and limitations established in the Bank of Mexico Law. The facilities that, like this one, the Bank of Mexico has implemented in response to the prevailing conditions of economic and financial stress, have been designed with the purpose that financial institutions that can access these facilities continue to fulfill their function of granting credit to companies in the country, without this extending to related parties within their respective corporate structures.

For the above reason, based on articles 25, second paragraph, and 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States; 7, fractions I, II, and X; 8; 14, first paragraph; 15; 16; 24; and 36 of the Bank of Mexico Law; 54 and 96 Bis of the Credit Institutions Law; 22 of the Law for Transparency and Order of Financial Services; 4, first paragraph; 8, paragraphs fourth and eighth; 10; 14 Bis, first paragraph, in relation to 17, fraction I; 14 Bis 1, in relation to 25 Bis 1, fraction IV; 19 Bis 1, fractions I and XI; and 25, fraction VII of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Directorate of Financial Stability, the General Legal Directorate, the General Directorate of Affairs of the Financial System, and the Directorate of Support for Operations, respectively; as well as Second, fractions I, IV, VI, and X of the Agreement on the Assignment of Administrative Units of the Bank of Mexico, it has resolved to modify the definition of "Eligible Assets," "Eligible Currency," and "MiPyME" in section 1; paragraphs third, seventh, eighth, and ninth of section 2.1; section 3.1; section 3.2; paragraphs first and third of section 3.3; paragraphs first and second of section 3.4; the first paragraph of section 3.5; paragraphs first, third, fifth, sixth, and eighth, as well as items (i) and (iii) of section 3.7; section 3.8; section 3.9; item a) of section 4.3; section 4.4; section 5.1; section 5.3; the first paragraph of section 5.4; section 5.5; and the First Transitory Provision; as well as add a final paragraph to section 3.7 and an Annex 1, to the "Rules applicable to Bank of Mexico financing guaranteed by qualified credit assets of the banking sector, for their channeling to micro, small, and medium-sized enterprises," issued by the Bank of Mexico through Circular 25/2020, to remain in the following terms:

RULES APPLICABLE TO BANK OF MEXICO FINANCING GUARANTEED BY QUALIFIED CREDIT ASSETS OF THE BANKING SECTOR, FOR THEIR CHANNELING TO MICRO, SMALL, AND MEDIUM-SIZED ENTERPRISES

"1. Definitions.
...
"Eligible Assets: to those credit operations granted by the Institution in question, which correspond only to those indicated in Annex 1 of these Rules and meet the characteristics indicated therein, for their allocation, by the same Institution, as guarantee for the obligations resulting from the financing that the Bank of Mexico grants to it in accordance with these same Rules."
...
"Eligible Currency: to the Australian Dollar, Canadian Dollar, United States Dollar, New Zealand Dollar, Euro of the corresponding countries of the European Union, British Pound of the United Kingdom of Great Britain and Northern Ireland, and Japanese Yen."
...
"MiPyME: to the micro, small, and medium-sized enterprise, understood as that legal person or natural person with business activity that has a number of employees not exceeding 250 and that, in case it has entered into one or more financings with the Institution in question that remain valid at the time the Institution obtains resources from the Bank of Mexico in accordance with these Rules, the sum of the principal amounts of said financings, on the date of their origination, is not greater, in total, to 50 million pesos for each of those enterprises."
...
"2.1 Conditions for granting financing.
...
...
Institutions must present, through the electronic, computing, or telecommunications medium indicated for this purpose in the respective calls for proposals, the aforementioned applications within the deadlines and schedules indicated in said calls, in the format of the model attached to the respective call. In each of said applications, the respective Institution must manifest its consent to be subject to the terms and conditions of these Rules, as well as specify the following: (i) the operations, among those provided for in sections 4.1, 4.2, 4.3, and 4.4 of these Rules, that it offers to enter into for this purpose; (ii) the Eligible Assets that it offers as objects of the guarantees for the respective financings, or, if applicable, the titles that are the object of the repurchase agreements that it proposes to enter into with the Bank of Mexico by virtue of said applications, in order that, with the resources it obtains from the Bank of Mexico for said operations in accordance with these Rules, it grants credits to MiPyME; (iii) if applicable, the provision requiring it to dispose of the entire amount requested in a single payment on the date established for this purpose in accordance with these Rules, or the indication that the disposal of the total requested amount will be carried out in installments in accordance with what is provided in these same Rules, during a period that will not exceed ninety natural days counted from the day the Bank of Mexico has assigned the corresponding resources to said application; (iv) in case it requests disposal in installments, it must indicate the amount of the first disposal it requires to make, of the total that the Bank of Mexico assigns to it as a result of said application; (v) regarding the operations it offers to carry out in accordance with these Rules, the terms among those permitted in section 3.2 below to which it is willing to enter into said operations; (vi) if applicable, the number of companies with which it intends to enter into the referred credit operations, regarding which said Institution declares that it is not possible for it to verify the number of employees that such companies have, under the assumption that the Institution can only enter into the credit operations referred to in these Rules with said companies as long as the sum of the principal amounts of those operations does not exceed one-third of the total amount assigned by the Bank of Mexico as a result of said application, and (vii) in case the Institution intends to enter into the referred credit operations through non-bank financial entities, it must specify the names of these, the types of entities to which they correspond, and the respective keys of the Registry System of Financial Service Providers administered by the National Commission for the Protection and Defense of Users of Financial Services (CONDUSEF). Regarding the Eligible Assets that each Institution indicates in its respective application, it must include
in this a report issued by an Independent Professional Appraiser on the legal validity of the instruments under which the corresponding credit operations to each of said Eligible Assets have been entered into, as well as the compliance with the characteristics and conditions established in section 3.8 and Annex 1 of these Rules and the corresponding valuation of said Eligible Assets that the latter has carried out. ... ... ... The respective assignment will indicate the Eligible Assets that can be granted as guarantee or that can be the object of repurchase, in accordance with these Rules, as well as the value corresponding to them for this purpose, subject to the discount factors that the Bank of Mexico indicates in said assignment, which will be made known to the Institutions through the electronic, computing, or telecommunications medium indicated for this purpose by the Bank of Mexico in the respective call. Once the Bank of Mexico has notified the aforementioned assignment, the Institution in question must enter into, no later than ten Banking Business Days after the day of said assignment, the corresponding contracts for the financing operation subject to said assignment, in accordance with the models provided by the Bank of Mexico. Likewise, for each disposal of the resources that the Institution has requested in accordance with the above, this will only proceed as long as the Institution has previously constituted the guarantees on the Eligible Assets corresponding to the fiduciary institution indicated by the Bank of Mexico or, if applicable, has transferred the titles that are the object of repurchase to the account of the Bank of Mexico in Indeval or to the custodian account abroad, in accordance with what is provided regarding this in these Rules and the Manual. The exercise of the financing subject to these Rules may be carried out, as the Institution in question deems appropriate with the Bank of Mexico, through any of the operations indicated in the previous section or a combination of these, subject to what is provided in sections 4.1, 4.2, 4.3, and 4.4 of these Rules, as applicable. In all these scenarios, the disposal of the resources corresponding to the financings entered into based on the assignment corresponding in accordance with the above will be subject to the prior formalization and execution of the applicable contracts, including the allocation in the Guarantee Trust of the Eligible Assets or, if applicable, the transfer of ownership of the titles that are the object of repurchase. Likewise, in the event that the Institution in question has requested the disposal, in installments, of the resources derived from the operations that are entered into in accordance with these Rules, it must present the second and subsequent applications for the partial disposals that correspond on any Banking Business Day of the weeks in which they are required, prior to the expiration of the period of ninety natural days from the day the
Bank of Mexico has assigned said resources. In any case, the sum of the amounts of all partial disposals in said period must not exceed the total assigned amount. However, if the sum of the partial disposals requested by the Institution results in less than the total assigned amount at the end of the referred ninety-day period, no penalty will be applied for that sole reason. Only those Institutions that meet the requirements established for this purpose in accordance with these same Rules may obtain from the Bank of Mexico the resources referred to in these Rules, and that, in case the Bank of Mexico has assigned them resources in accordance with these Rules for applications presented previously, these have disposed of the entirety of said resources or the period of ninety days from the day corresponding to the assignment in question has concluded. Regarding development banking institutions, only those authorized to do so in accordance with applicable regulations may enter into the referred financings. …"

"3.1 Term for entering into the financing operation.
The term for entering into the financing operation will be the Banking Business Day following the day on which the Bank of Mexico has verified with the fiduciary institution of the Guarantee Trust the perfection of the guarantees in accordance with what is provided in these Rules or, regarding repurchase operations, on the Banking Business Day following the day on which the Bank of Mexico has notified the respective assignment, subject to the transfer of ownership of the titles that are the object of the repurchase in question in the respective securities deposit accounts that Indeval maintains for the Bank of Mexico. Regarding the disposal of the total assigned amount that the Institution in question has requested in a single payment or, if applicable, the first installment that it has indicated in the application it has presented in accordance with the above, the titles that are the object of the repurchase for the corresponding amount must be deposited on the Banking Business Day following the day on which the Bank of Mexico has notified the respective assignment, in the terms provided in the Manual. Likewise, in case the Institution has requested to dispose of the assigned resources in installments, once, during the period of ninety natural days from the day the Bank of Mexico has assigned said resources, it presents its application for the partial disposal that corresponds in accordance with the above, the titles that are the object of the repurchase relative to the amount of the installment must be deposited on the Banking Business Day following the day on which the Institution has presented the referred application."

"3.2 Terms of financing operations.
The terms of the financing operations that Institutions enter into with the Bank of Mexico in accordance with these Rules will be 12, 24, or 36 months, in accordance with what is established by the Institution in its application, without exceeding one thousand eighty natural days, counted from the Banking Business Day immediately following the day on which the guarantees are perfected."

"3.3 Principal amount and applicable interest rate.
The principal amount of the financing operation or, if applicable, the price of the repurchase that the Institution in question enters into will be that which the Institution has disposed of from the amount assigned by the Bank of Mexico to said Institution, up to an amount that, added to the agreed interest or premium, will not exceed the sum of the values of the Eligible Assets or titles, adjusted in accordance with what is indicated in section 3.7 or 4.4 of these Rules, as applicable, which will be the object of the guarantee for the obligations at the charge of the Institution by virtue of the financing operation or repurchase in question. ... Regarding the financing operations provided for in the following sections 4.1, 4.2, and 4.3, for the purposes of calculating interest, the referred interest rate will be divided by 360 and the obtained result will be multiplied by the number of natural days effectively elapsed and, in turn, the previous result will be multiplied by the principal amount of the operation in question that the respective Institution has effectively disposed of. With respect to the repurchase provided for in the following section 4.4, the interest rate will be used in the determination of the respective premium in accordance with what is indicated in said section. …"

"3.4 Disposal of the financing operation amount and crediting of the respective resources.
The Institution may dispose of the amount of the financing operation in question on the Banking Business Day following the day on which the corresponding guarantees have been perfected, through the transfer of the Eligible Assets to the corresponding Guarantee Trust, or, if applicable, the ownership of the titles that are the object of repurchase has been transferred to the Bank of Mexico, for an amount equivalent to that corresponding to the disposal of the resources that the Institution has requested in accordance with the previous section 2.1, subject to the Institution having signed the corresponding contracts for said operation and having received the notification from the Bank of Mexico on the respective assignment. Once the allocation of the Eligible Assets to the Guarantee Trust has been carried out, subject to the confirmation of the fiduciary institution, or once the transfer of ownership of the titles that are the object of repurchase has been carried out, the Bank of Mexico, during the schedules established in the Manual, will credit the amount equivalent to the principal amount of the financing or the price of the repurchase in question, equivalent to the amount of the corresponding disposal, in the Single Account that it maintains for the Institution, regarding the operations provided for in sections 4.1, 4.2, and 4.4 of these Rules or in that corresponding to the fiduciary institution in the Issuer Trust intervening in the operation contemplated in section 4.3. … …"

Wednesday, August 19, 2020 OFFICIAL GAZETTE 155 small, and medium-sized enterprises,

158 OFFICIAL GAZETTE Wednesday, August 19, 2020

“3.5 Payment of financing.
The principal amounts and interest of the financing operations provided for in paragraphs 4.1, 4.2 and 4.3 of these Rules, as well as the price and premium of the repos indicated in paragraph 4.4 below and other agreed expenses, payable by the Institution in question, shall be payable upon maturity of the respective operations.
…”

“3.7 Guarantee Trust.
At the latest on the date on which the Institution may dispose, in a single payment or in installments, as the case may be, of the principal amount corresponding to any of the financing operations contemplated in fractions I to III of the previous paragraph 2, which it enters into under these Rules, it must transfer the Eligible Assets indicated in the allocation referred to in the previous paragraph 2.1, for the amount of the corresponding disposal, to a guarantee trust (the Guarantee Trust). Said Guarantee Trust must be constituted in the Institution indicated by the Bank of Mexico, which must be different from the Accredited Institution and, where applicable, from that acting as trustee of the Issuer Trust, where applicable, in the financing operation referred to in the following paragraph 4.3. … The assigned Institution must affect the Guarantee Trust, by virtue of the trust contract in question, Eligible Assets whose valuation adjusted by the discount factors, must be equal to or greater than, at all times, the principal amount that said Institution has disposed of by virtue of the respective financing operation plus the estimated interest for said financing operation and any other agreed expenses. For these purposes, the value of the Eligible Assets will be determined in accordance with the corresponding discount factors that the Bank of Mexico determines based on the credit risk of the Eligible Assets and the prospects thereof. … On the day of the disposal of the financing amount in question, the estimated interest will be that resulting from applying the procedure established in paragraph 3.3 of these Rules, taking into account the average of the one-day interbank interest rate that the Government Board of the Bank of Mexico has determined as the target rate for monetary policy purposes, expressed annually and in percent with rounding to two decimal places, which is made known on the internet website of the Bank itself, from the date of execution 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 the disposal of the financing amount in question until the agreed expiration date of the term agreed for the respective financing operation, said target interest rate is modified by decision of the Government Board of the Bank of Mexico, the value of said rate will be taken as applicable for each of the days from that on which it has been made known until the agreed expiration date of the term of the financing operation. Without prejudice to the foregoing, the interest that the Accredited Institution must pay will be those resulting from the calculation performed, upon maturity of the term of the financing operation, in accordance with what is indicated in paragraph 3.3 of these Rules and the respective contract. In the credit contract or the issuance deed of the securities certificates
to be issued, depending on the financing operation in question, it must be established that, in the event that the value of the Eligible Assets in guarantee resulting from applying the respective discount factors is not sufficient to cover the sum of the principal amount of the financing operation that the Institution has disposed of, the estimated interest in accordance with the previous paragraph and any other agreed expenses, the Institution must affect the Guarantee Trust with additional Eligible Assets or substitute those already entrusted, or else affect Special Guarantee Securities for a value equivalent to the referred difference. Regarding the referred Special Guarantee Securities, the Institution in question must contribute them at their market price value, adjusted in accordance with the corresponding discount factors that the Bank of Mexico makes known to the Institutions, through the internet portal located at the address << http://webdgobc >>, whose remaining maturity term is, at least, ninety-three days. … The Bank of Mexico, in view of the date of issuance and placement of the titles offered as Special Guarantee Securities, as well as the depth and conditions prevailing in the market in which said titles are negotiated, may not accept such titles for their affectation to the Guarantee Trust, nor 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. In the case of titles denominated in Eligible Currencies, the Bank of Mexico may not accept those with which it is not in a position to carry out the corresponding operations within the term to perfect the respective repo. Additionally, the Bank of Mexico will not accept, in any case, among the titles offered by the Institutions, those that are issued by Related Parties of these. … … (i) Verify that the entrusted Eligible Assets comply with the characteristics referred to in the following paragraph 3.8; (ii) … (iii) Notify the Accredited Institution when any Eligible Asset or Special Guarantee Security does not comply with the requirements referred to in paragraph 3.8 and this section, in order for it to proceed to replace it with another in accordance with said paragraphs; (iv) … (v) … … Likewise, the Accredited Institution, within the term established for this purpose in the respective contract, must notify the trustee institution and the Bank of Mexico when any Eligible Asset or Special Guarantee Security does not comply with the requirements referred to in paragraph 3.8 and this section, regardless of the actions that the Accredited Institution takes to replace it with another in accordance with said paragraphs.”

“3.8 Eligible Assets in Guarantee.
The credit granted by the Bank of Mexico or Issuer Trust to the Accredited Institution, as appropriate for the financing operation entered into by the Institution among those indicated in fractions I to III of the previous paragraph 2, will be guaranteed with Eligible Assets indicated in Annex 1 of these Rules, which comply with the characteristics described in said Annex.
In any case, the Bank of Mexico may not accept credits referred to above as Eligible Assets, in view of the credit quality and future prospects of that quality, as well as the common risks represented by the Eligible Assets, in addition to the opinions issued by the Independent Professional Appraiser in the report delivered to the Bank of Mexico in accordance with the previous paragraph 2.1, as well as those that, due to their structural complexity, do not allow determining their quality and risks within a review period of less than ten Banking Business Days. In these cases, the Accredited Institution must contribute other Eligible Assets in guarantee in substitution of those that the Bank of Mexico has determined do not meet these criteria.”

“3.9 Replacement Assets.
In the event that any of the Eligible Assets affected to the Guarantee Trust, whether they are those provided for in fraction I or II of section A of Annex 1 of these Rules, (i) do not comply with any of the characteristics indicated in the previous paragraph 3.8, (ii) have been paid off early, in whole or in part, while remaining in the patrimony of the Guarantee Trust, or (iii) suffer a reduction in their value calculated as a result of applying a discount factor corresponding to a change in their credit situation, while continuing to comply with the characteristics referred to in the previous paragraph 3.8, the Accredited Institution, at the latest on the next Banking Business Day after receiving the respective notification from the trustee institution, must contribute to the Guarantee Trust, in substitution of said Eligible Assets, other Eligible Assets that comply with the indicated characteristics or Special Guarantee Securities, for a value equivalent to the amount that, added to that of the other entrusted Eligible Assets, allows covering the sum of the principal plus the estimated interest and other agreed expenses, in accordance with the previous paragraph 3.7. Additionally, the Accredited Institution, with the prior consent of the Bank of Mexico and the trustee institution, may contribute to the Guarantee Trust, in substitution of the previously entrusted Eligible Assets, other Eligible Assets with the characteristics provided for in the previous paragraph 3.8.”

“4.3 Guaranteed fiduciary securities certificates.
…
…
…
…

160 OFFICIAL GAZETTE Wednesday, August 19, 2020

…
…
…
…
…
… a) Receive from the Guarantee Trust reports that allow verifying, during the validity of the trust, that the Eligible Assets affected in guarantee are sufficient to duly guarantee the obligations guaranteed through the trust; b) to g) … … …”

“4.4 Repo operations.
For the Institution in question to enter into repos with the Bank of Mexico in accordance with these Rules, it must previously sign the respective contract with it, which will have, at least, the following characteristics:
Repo Provider: The Bank of Mexico.
Repo Recipient: The Institution that meets the requirements to obtain financing from the Bank of Mexico in accordance with these Rules.
Term of the repo: That provided for in the previous paragraph 3.2 Titles subject to the repo: The repos referred to in these Rules may only be entered into on any of the titles indicated in Annex 1 of these Rules, which comply with the characteristics indicated therein.
The Institution presenting the titles for the realization of the repo provided for in this paragraph must verify that they comply with 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 titles subject to the repo must be subsequent to that corresponding to the term of the repo. Exceptionally, in the event that the Institution in question does not have titles with maturities subsequent to the terms it has agreed to enter into with the Bank of Mexico in accordance with the above, it must enter into successive repos with other titles provided for in this paragraph, at the latest, two Banking Business Days prior to the maturity of the titles with shorter terms that it disposes of for these operations, until completing the terms agreed with the Bank of Mexico, provided that the remaining maturity term of the titles subject to the new repo is, at least, ninety-three days. The rate and other general terms of the successive repos entered into in accordance with the above must have the same characteristics as those corresponding to the first repo entered into by virtue of the allocation given. Additionally, in any case, the total value of the titles subject to the repo, determined in accordance with what is provided in the following paragraph, must be equal to or greater than the sum of the Repo Price plus the estimated premium of the operation and any other agreed expenses. In the event that the corresponding Institution does not contribute titles meeting the characteristics provided for in this paragraph to enter into the subsequent repos, the agreement to enter into the additional repos to reach the originally agreed term will be considered terminated. The Bank of Mexico will make known to the Institutions the valuation of the titles to be repoed and the corresponding discount factors on the internet page << http://webdgobc >>. In any case, the Bank of Mexico, in view of the date of issuance and placement of the titles, as well as the depth and conditions prevailing in the market in which said titles are negotiated, may not accept titles in repo operations, nor those that do not have an updated valuation at market prices. In the case of titles denominated in Eligible Currencies, the Bank of Mexico may not accept those with which it is not in a position to carry out the corresponding operations within the term to perfect the respective repo. Additionally, the Bank of Mexico will not accept, in any case, among the titles offered by the Institutions, those that are issued by Related Parties of these. Repo Price: The amount in national currency equivalent to the value of the titles subject to the repo made known by the Bank of Mexico at the moment of perfection of the operation, adjusted by the discount factors that the Bank itself determines and makes known through the internet portal it maintains at the address: << http://webdgobc >>.

Wednesday, August 19, 2020 OFFICIAL GAZETTE 161 Premium: That resulting from the following formula:
Where:
Interest Rate: That indicated in the previous paragraph 3.3. Amount: to the amount agreed for the corresponding repo, equivalent to the Repo Price.
Days: to the number of natural days that elapse between that on which the repo is perfected and the Banking Business Day on which it is settled.
The payment of the Premium will be made upon conclusion of the operation, through a charge that the Bank of Mexico makes in the Single Account that the Repo Recipient Institution holds.
Valuation of the titles subject to the repo: The Repo Recipient Institution must deliver to the Bank of Mexico, by virtue of the repo in question, titles whose valuation adjusted by the discount factors, must be equal to or greater than, at all times, the repo price plus the estimated premium for the repo operation and any other agreed expenses. For these purposes, the value of the titles will be determined in accordance with the prices and the corresponding discount factors that the Bank of Mexico makes known to the Institutions, through the internet portal located at the address: http://webdgobc.
For the case provided for in the previous paragraph, the estimated premium will be calculated as follows:
On the day of perfection of the repo in question, the estimated premium will be that resulting from applying the formula indicated above, for which the average of the one-day interbank interest rate that the Government Board of the Bank of Mexico has determined as the target rate for monetary policy purposes, expressed annually and in percent with rounding to two decimal places, which is made known on the internet page of the Bank itself, from the date of perfection until the valuation date, assuming, for the purposes of this calculation, that said rate will remain constant during the remaining term of the repo. Additionally, in the event that, from the day of perfection of the repo until the agreed expiration date of the term of the repo, said target interest rate is modified by decision of the Government Board of the Bank of Mexico, the value of said rate will be taken as applicable for each of the days from that on which it has been made known until the agreed expiration date of the term of the repo. Without prejudice to the foregoing, the Premium that the Repo Recipient Institution must pay to the Bank of Mexico will be that resulting from the calculation performed, upon expiration of the term of the repo, in accordance with what is indicated in the item “Premium” of this paragraph. The value of the titles subject to the repo will be determined daily, until the repo is settled, in accordance with the valuation carried out by the Bank of Mexico and, derived from this determination, the following will be done:
a) If the value of the titles, when applying the corresponding discount factor, results in less than the sum of the repo price, the estimated premium and any other agreed expenses, the Bank of Mexico will notify said situation to the Institution in question, through the site << https://webdgobc/ >>, which must send a communication in the terms established for this purpose in the Manual, in which it indicates the titles, among those specified in accordance with what is indicated above in this paragraph as titles susceptible to being subject to repo, that it will grant to the Bank of Mexico to cover the amount of the corresponding difference. The Institution must carry out, on the same Banking Business Day that the Bank of Mexico notifies that the shortfall is applicable, the transfer of said titles to the securities deposit account that the Bank of Mexico maintains in Indeval. In the case of those titles denominated in Eligible Currencies, the Institutions must carry out the referred transfer to the custody accounts abroad that the Bank of Mexico makes known, for these purposes, within the hours that the Institutions can consult in the Manual and, in this case, the Institutions must communicate to the Bank of Mexico, on the Banking Business Day immediately prior to that on which they are going to carry out said transfer, their intention to carry it out. b) If the value of the titles, when applying the corresponding discount factor, results in greater than the sum of the Repo Price, the Estimated Premium and any other agreed expenses, the Institution may request the Bank of Mexico to return the excess titles, to those granted as titles subject to the repo, through a communication sent to the Bank of Mexico in the terms of the Manual.

162 DIARIO OFICIAL Wednesday, August 19, 2020

In the event that the Institution does not carry out the transfer of the securities as referred to in the preceding subsection a), on the next Banking Business Day, the repurchase agreement (reporto) shall be deemed terminated in advance, in which case the Institution must make a payment for the uncovered amount derived from the difference between the sum of the Repurchase Price, the Estimated Premium, and any other agreed expenses, and the value of the securities, applying the corresponding discount factor. Notwithstanding the foregoing, without prejudice to the corresponding conventional penalty for the uncovered amount, the Institution and the Bank of Mexico may enter into a new repurchase agreement with the remainder of the securities that the Institution had previously delivered to it, for a term equal to the remaining term of the original operation.

Accreditation of resources: Once the Institution in question has signed the contract and submitted the request to enter into the corresponding repurchase agreement in accordance with the preceding section 2.1, such Institution must transfer the securities subject to the repurchase, as indicated in this section, to the securities deposit account that Indeval holds at the Bank of Mexico, or in custody accounts abroad, in terms of what is established in the Manual.

Once the delivery of said securities has been carried out through the transfer referred to in the preceding paragraph, the Bank of Mexico, during the hours established in the Manual, will credit the amount equivalent to the Repurchase Price in question to the Single Account held by the reporting Institution. The value of the securities delivered by the reporting Institution to the Bank of Mexico, adjusted by the discount factors, must fully cover both the Repurchase Price and the Estimated Premium and any other agreed expenses, in accordance with what is established in these Rules.

Payment of the repurchase agreement. The reporting Institution may, prior to the agreed expiration date for the repurchase agreement entered into in accordance with these Rules, pay in full or in part the amounts owed by it by virtue of said repurchase agreement. In these cases, the reporting Institution must inform the Bank of Mexico of this, through a communication prepared for such purposes in accordance with the format established in the respective repurchase agreement contract and during the hours indicated in the Manual.

Once all repurchase agreements provided for in these Rules have been fully settled, the obligations of the parties shall be extinguished.

“5.1 Destination of resources.
In the event that Institutions obtain resources from the Bank of Mexico through the financing operation that corresponds in accordance with these Rules, they must dedicate them to the direct granting or, in their case, indirect granting in the terms indicated for this purpose in this section, exclusively of new financings that may only consist of credits, financial leases, or financial factoring entered into with SMEs or in the expansion of the amount of any of the aforementioned existing operations, with special attention to smaller-sized companies. For these purposes, Institutions may refer the resources they obtain from the Bank of Mexico to the credit operations or expansions previously referred to granted to SMEs, which such Institutions have entered into since June 19, 2020.

Likewise, Institutions may carry out restructuring or refinancing of the credits referred to in the preceding paragraph that have been granted previously, provided that, through such restructuring or refinancing, the respective debtors can have access to additional resources derived from those obtained by the Institutions in accordance with the operations provided for in these Rules. In this case, Institutions must compute, for the purposes of these Rules, only the additional amounts derived from the operations subject to these same Rules.

Regarding the credit operations that the corresponding Institution enters into with companies regarding which the latter, in the request presented to the Bank of Mexico in accordance with the preceding section 2.1, third paragraph, subsection (vi), has declared that it is not possible to verify the number of employees these companies have, the number of these shall not be greater than that indicated in said request. In this last case, the Institution may only enter into the aforementioned credit operations with said companies starting from August 19, 2020, and the sum of the principal amounts of said operations may not exceed, in any case, the limit indicated in the cited section 2.1, third paragraph, subsection (vi).

Development banking Institutions that obtain resources derived from the financing operations they enter into in accordance with these Rules will channel them to the granting of new credits or expansion of credits to SMEs through other financial intermediaries specified in the respective requests they present in accordance with the preceding section 2.1, in accordance with the related programs that such Institutions have established.

Institutions will enter into the credits, financial leases, and financial factoring contemplated in the first paragraph of this section and carry out the restructuring and refinancing referred to in the preceding paragraph, at their own account and risk, by virtue of which they will determine the applicable terms and conditions for these, without prejudice to those indicated in these Rules. Additionally, said credits, financial leases, and financial factoring, as well as the restructuring and refinancing, may

Wednesday, August 19, 2020 DIARIO OFICIAL 163

be associated with the support and guarantee programs of development banking Institutions, in which case the Institutions granting them must subject them to the terms and conditions established in accordance with said programs.

The sum of the principal amounts of all credits, financial leases, or financial factoring that the Institution enters into with the same SME, as well as the additional amount that, in its case, it grants to this as part of the restructured or refinanced operation with resources derived from the operations subject to these Rules, shall not exceed 50 million pesos per each SME. With respect to those restructuring or refinancing of credits that Institutions have granted to SMEs prior to obtaining the resources subject to these Rules, such Institutions may only make available to the respective SME debtor companies, as part of those restructuring or refinancing, resources derived from the operations carried out in accordance with these Rules, provided that they agree to establish the same or better terms and conditions of term and rate as those stipulated in the contracts of the operations subject to the restructuring or financing in question.

The Institution may also dedicate the respective resources to the celebration or expansion of the aforementioned credit operations, indirectly, through another non-banking financial entity, specified in the request referred to in the preceding section 2.1, to which the corresponding Institution, in turn, grants a credit for these purposes exclusively. In this case, the respective Institution must agree with said financial intermediary on the terms and conditions applicable to the credit operations that the latter enters into, in its own name and for its own account, with the respective resources, as well as ensure obtaining from said intermediary the necessary information to present to the Bank of Mexico the report described in section 5.4 of these Rules.

In accordance with what is stated above in this section, once the Institution in question has, in total or in part in accordance with the above, available the respective resources from those that the Bank of Mexico has assigned in accordance with these Rules, such Institution will have a term of twenty Banking Business Days subsequent to that in which the Bank of Mexico has made available the resources derived from the operations subject to these Rules, so that, at the latest by the conclusion of such term, it dedicates said resources to the celebration or expansion of the aforementioned credit operations and, in its case, refers those other credit operations entered into since June 19, 2020 that are allowed to be included for the calculation of the destination of said resources in accordance with this section. In the event that the respective Institution has dedicated part of the resources derived from the financing operations entered into in accordance with these Rules to the celebration or expansion of any of the credit operations provided for in these same Rules or has referred said resources to credit operations entered into since June 19, 2020, as applicable in accordance with this section, and it receives, prior to the maturity of the operation in question, the payment of part or the entirety of said operation covered with the referred resources, it must dedicate the resources from that payment to the celebration or expansion of a new credit operation or expansion of any other existing one in the terms described above, within a term of twenty Banking Business Days subsequent to that in which it received said payment.

In the event that Institutions obtain resources by virtue of the operations entered into in accordance with these Rules and do not dedicate said resources to the celebration or expansion of credit operations or refer them to the other credit operations entered into since June 19, 2020, in the terms established in these same Rules, they will be obligated to reimburse the Bank of Mexico the respective resources in the cases indicated in the following section 5.3. In this case, regarding the financial operations carried out through the issuance of securities certificates in accordance with the preceding sections 4.2 and 4.3, the Bank of Mexico will return those certificates that cover the respective amount.”

“5.3 Additional conditions.
In the event that any Institution enters into a financing operation in accordance with these Rules and, during the term of that operation, does not dedicate or refer the entirety of the resources derived from it to the credit operations previously described in the terms established for this purpose in the preceding section 5.1, it must restore to the Bank of Mexico the amount that it has not dedicated or referred to the credit operations indicated, in which case the operation shall be deemed terminated in advance and the parties may simultaneously enter into a new operation, on the same terms, with the same maturity date as the previous one and with the same Eligible Assets and, in its case, Special Guarantee Values or, in its case, securities subject to the respective repurchase agreement, that cover, at least, the principal amount or repurchase price equivalent to the amount of resources that the Institution has effectively dedicated to the aforementioned credit operations, plus the estimated interest or repurchase premium in accordance with the above for the remaining term and, in its case, other agreed expenses. In this case, regarding the financial operations carried out through the issuance of securities certificates in accordance with the preceding sections 4.2 and 4.3, the Bank of Mexico will return those certificates that cover the respective amount.

164 DIARIO OFICIAL Wednesday, August 19, 2020

In the case referred to in the preceding paragraph, the Bank of Mexico, within ten Banking Business Days immediately following that in which the Institution in question presents the weekly report that corresponds in accordance with the following section 5.4, regarding the credit operations it has entered into or referred in the respective weeks within the term of twenty Banking Business Days that results applicable in accordance with said paragraph or on that Banking Business Day established for the presentation of said report in which the Institution has omitted to report the aforementioned credit operations, will send to that Institution a notification indicating the amount that it must reimburse to the Bank of Mexico in accordance with the above, in order for it to manifest what is convenient for its rights, within three Banking Business Days immediately following that in which it receives the aforementioned notification. Additionally, in the event that, in accordance with the other information that the Bank of Mexico obtains in the exercise of its powers, it presumes that the corresponding Institution has not entered into or referred the credit operations in accordance with what is established in these Rules, the Bank of Mexico will send to it, at any time, a notification on the same terms and for the same effects indicated above. Once the referred term of three Banking Business Days concludes and the Institution has not disproven what was stated by the Bank of Mexico in the notification that corresponds in accordance with the above, the latter will carry out, on the Banking Business Day following that in which said term concludes, a charge in the Single Account of the referred Institution for the amount that it has become obligated to restore and, in the event that the financing operation has been instrumented through the issuance of guaranteed fiduciary securities certificates in accordance with the preceding section 4.3, it will carry out the corresponding simultaneous payment to the Issuing Trust against the cancellation of the corresponding securities certificates.

In the event that the accredited Institution guarantees the financing it enters into with the Bank of Mexico, in terms of these Rules, with the corresponding Eligible Assets to credits with mortgage guarantee for the acquisition of real estate destined for housing or their refinancing, in accordance with what is indicated in subsection II of section A of Annex 1 of these Rules, it must, during the validity of said financing, abstain from carrying out securitizations, selling, or putting a fraction of its credit portfolio in guarantee, without prior authorization from the Bank of Mexico, as well as abstain from entering into new operations with Related Parties. Likewise, in the event that Institutions obtain resources derived from the financings guaranteed with the credits indicated in subsection II of section A of Annex 1 cited, they may dedicate said resources exclusively to credit operations they enter into in accordance with these Rules starting from August 19, 2020.

The Bank of Mexico may reject new requests from an Institution to enter into financing operations in accordance with these Rules when such Institution does not comply with the conditions provided for in these same Rules, with what is stipulated in the contract of the respective financing operation, as well as the other conditions established by the Bank of Mexico itself for those other operations entered into by it in accordance with the Rules and applicable stipulations.

As an exception to what is provided by article 116 of the Operations Provisions, Institutions that enter into the financing operations subject to these Rules may not incur overdrafts in their respective Single Accounts not covered by guarantees for the payment of said operations. By virtue of the above, in the event that the Bank of Mexico cannot carry out the respective charge at the maturity of the financing operation in question, the obligation to pay the respective financing shall be considered breached up to the amount not covered by the Institution in question.”

“5.4 Information to the Bank of Mexico.
Institutions must inform the Bank of Mexico of the credit operations to which they have dedicated or referred the resources that the latter has credited to them in their respective Single Accounts in accordance with what is provided for in these Rules. For these purposes, each Institution must present to the Bank of Mexico reports with a weekly frequency, on the day and with the detail that the latter indicates in the form that, for these purposes, it establishes through the Direction of Information of the Financial System. In said reports, Institutions must specify those companies with which they have entered into the referred credit operations, regarding which the Institutions declare that it is not possible for them to verify the number of employees these companies have, as well as they must also describe the way in which they have attended to smaller-sized companies.

…
…”

“5.5 Responsibility of Institutions in the granting of credits to SMEs.
Credit operations with SMEs, with resources obtained from the Bank of Mexico as a result of the operations provided for in these Rules, will be entered into by the respective Institutions as a result of decisions that only correspond to them to take, as part of the origination and evaluation process they carry out, by which the Bank of Mexico will be excluded from all responsibility for said decisions that Institutions take. Likewise, for the formalization of the aforementioned credit operations,

Wednesday, August 19, 2020 DIARIO OFICIAL 165

Institutions must comply with the applicable regulations, including that referred to in article 115 of the Credit Institutions Law, corresponding to the prevention of operations with resources of illicit origin.”

“TRANSITIONAL PROVISIONS
FIRST. This Circular will enter into force on the day of its publication in the Official Gazette of the Federation and its validity will expire on December 31, 2020.
…”

ANNEX 1
A. Eligible Assets. The Eligible Assets that Institutions may affect as guarantee for the financing operations they enter into with the Bank of Mexico, in accordance with these Rules, may only consist of some of the following:
I. Credits granted by the accredited Institution to legal entities resident in Mexico, as well as public trusts, whether financial, distinct from the Institutions themselves, and non-financial, that are not Related Parties of the accredited Institution and, regarding credits granted to multiple banking institutions, these must have been entered into before April 21, 2020, and
II. Credits granted by the Institution to natural and legal persons for the acquisition of real estate destined for housing, on which mortgages are constituted in first place to guarantee said credits during their validity, as well as for refinancing consisting in the granting of credits for the settlement of the same types of credits referred to.
For the effects indicated, the indicated credits must comply with the following characteristics:
a. The legal entities referred to in the preceding subsection I must comply with the National Credit Quality Criterion in Scale in accordance with the respective current ratings granted to them, or have issued debt securities that comply with the National Credit Quality Criterion in Scale or Global, as the case may be of the corresponding title. In the case of the referred titles, these must be in circulation on the date on which the Institution has presented the request in accordance with section 2.1 of these Rules; b. The referred credits must remain in force, without any default, since their origination, in the payments due on the respective amortization dates, on the date of their affectation to the Guarantee Trust and during the entire validity of the corresponding financing operation;
c. The accredited Institution must have the status of creditor or grantor of the respective credits and will be the sole and legitimate holder of the rights relative to said credits;
d. The rights relative to said credits must be free of any encumbrance or limitation of ownership or any other options or rights of preference of any nature; e. The debtor persons of said credits must not be subject to a commercial bankruptcy or similar procedure; f. The rights relative to the credits must be freely pledgeable, assignable, or transferable without any restriction and without requiring the consent or authorization of the respective debtor or third parties; g. The respective credits must be denominated in national or foreign currency; h. The affectation of the credits in the Guarantee Trust must not imply obligations to disburse amounts at the charge of the Trust;
i. Each of the Eligible Assets affected as guarantee must have, from the moment it is contributed to the Guarantee Trust, a maturity term for its outstanding balance of, at least, two Banking

---

166 OFFICIAL GAZETTE Wednesday, August 19, 2020

Banking days following the conclusion of the financing operation in question, and j. With respect to the credits indicated in this Annex, the Institution must affect as collateral, preferably in first place, those indicated in fraction I and, in second place, those indicated in fraction II. With respect to the credits indicated in the preceding fraction II, these shall be subject to a discount factor, for valuation purposes under numeral 3.7 of these Rules, not less than 51% of the respective appraisal value.

B. Securities subject to repurchase agreements. The securities of the repurchase agreements that Institutions may enter into with the Bank of Mexico pursuant to these Rules may only consist of any of the stock-exchange debt securities denominated in national currency, Eligible Currencies, or UDIS, deposited at Indeval or in the corresponding foreign custodian accounts, which comply with the National Scale Credit Quality Criteria, with respect to those securities denominated in national currency or UDIS, with the Global Scale Credit Quality Criteria, with respect to those securities denominated in Eligible Currencies, and have been issued by:

I. Any of the legal persons or public trusts that comply with the same characteristics indicated in fraction I of Section A of this Annex; or
II. Fiduciary institutions through which the persons indicated in the preceding fraction I issue said debt securities in the form of fiduciary stock certificates that represent the right of their holders to receive payment of principal and, if applicable, interest or returns, provided that said trusts have been constituted in accordance with the Securities Market Law and comply with the following characteristics:

a. The holders of the respective stock certificates must be placed in the first position of priority for payment of the respective certificates and no holder shall be subordinate 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 such products for the payment of the respective fiduciary stock certificates.
d. The instruments of issuance include an express clause by which also the persons responsible for whom the collective credit object of said titles was constituted are obligated to cover the amounts of debts covered by said titles that are not paid by the respective trust and other parties that, if applicable, have assumed said obligation.

Additionally, the securities subject to repurchase agreements shall not comprise structured bank securities provided for in Title Two, Chapter I, Sections I, Section G, and III, Section E, of the Operations Provisions, nor other securities instrumented with similar characteristics.

Likewise, the securities subject to repurchase agreements must be issued through private placement in the Mexican market.

Wednesday, August 19, 2020 OFFICIAL GAZETTE 167 TRANSITORY PROVISIONS SINGLE. These Rules shall enter into force on the day of their publication in the Official Gazette of the Federation.
Mexico City, August 12, 2020.- BANK OF MEXICO: The General Legal Director, Luis Urrutia Corral.- Signature.- The General Director of Affairs of the Financial System, José Luis Negrín Muñoz.- Signature.- The Director of Support for Operations, Joaquín Rodrigo Cano Jauregui Segura Millan.- Signature.- The Director of Financial Stability, Jorge Luis García Ramírez.- Signature.
For any consultation regarding the content of this Circular, the Bank of Mexico is available through the Central Banking Authorizations and Sanctions Directorate at telephone (55) 5237-2000 extension 3200.