Circular 4/2008 — Modifies Circular 2019/95

"2008, Year of Physical Education and Sport" CIRCULAR 4/2008 Mexico City, February 13, 2008. TO THE MULTIBANK INSTITUTIONS: SUBJECT: MODIFICATIONS TO CIRCULAR 2019/95.

The Bank of Mexico, based on what is provided in Article 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; Articles 24, 26, and 31 of the Bank of Mexico Law; Article 22 of the Law for Transparency and Ordering of Financial Services; in Articles 8, fourth paragraph, 10, 17, section I, and 20, section IV of the Internal Regulations of the Bank of Mexico, which provide for the attribution of the Central Banking Provisions Directorate and the Operations and Payments Systems Directorate to participate in the issuance of provisions, respectively, all of the Internal Regulations of the Bank of Mexico, published in the Official Gazette of the Federation on September 30, 1994, whose last modification was published in said Official Gazette on April 26, 2007; as well as in the Sole Article, section IV of the Agreement on the Assignment of Administrative Units of the Bank of Mexico, and with the objective of promoting the sound development of the financial system and the proper functioning of payment systems, while continuing the modernization process of such systems, has resolved to modify the first sentence and the definition of "Chamber System (SICAM)" of section M.72.1, the first paragraph of section M.72.2, section M.72.21, subsection f) of the third paragraph and the fourth paragraph of section M.72.21.1, the first paragraph of section M.72.21.2, as well as Annex 26, all of Circular 2019/95, to remain in the following terms:

M.72. COMPENSATION AND FUND TRANSFER.

"M.72.1 DEFINITIONS. For brevity, in singular or plural, in M.72. it will be understood by: ... Chamber System (SICAM).- The subsystem of SIAC-BANXICO through which the net balances derived from the Compensation of both Documents and the operations carried out through the Electronic Fund Transfer Service, the Receipt Bill Collection Service, and the Bank Cash Exchange and Compensation Service are determined, and the credits required to settle the referred balances of the Compensation of the Documents or the mentioned operations are calculated. ..."

"M.72.2 NATIONAL CURRENCY COMPENSATION. The Compensation of Documents referred to in section M.72. will be carried out in the Clearing Chambers indicated in Annex 16. ..."

"M.72.21. The Compensation provided for in section M.72.2 relative to the Clearing Chambers indicated in Annex 16, may be carried out in any operational modality and through the mechanisms freely agreed upon by the participating credit institutions, always subject to what is provided in M.72. and to sound banking practices and usages. Institutions must allow adherence to the Clearing Chamber, under equal conditions, to all credit institutions, provided that they satisfy the requirements defined prior to the establishment of the Clearing Chamber in question, to carry out Compensation under the adopted operational modality."

"M.72.21.1 ... The associated institutions will have the same number of votes that will confer equal rights in decision-making. Likewise, it must be provided in said contract: ... f) that any modification made to the multilateral contract must be submitted to the prior approval of the Bank of Mexico through the Directorate of Authorizations, Consultations and Legal Control, and that when it modifies its provisions relative to compensation and fund transfer, and by virtue of said modifications there are contradictions between the provisions and the referred contract, the necessary adjustments must be made to the cited multilateral contract, in order to make it congruent with the respective provisions. Likewise, the institutions that wish to establish a Clearing Chamber referred to in M.72.21, must present to the Directorate of Authorizations, Consultations and Legal Control of the Bank of Mexico for its authorization, the project of the aforementioned multilateral contract, with at least ninety natural days of advance notice prior to the entry into force of said agreement."

"M.72.21.2 Regardless of the operational modality adopted by institutions in a Clearing Chamber, they must define in a manual the rules of operation and procedures to carry out Compensation. The Bank of Mexico, through the Directorate of Authorizations, Consultations and Legal Control, must approve said Manual in advance, as well as any modifications made to it. ..."

"ANNEX 26 PROCEDURES TO DETERMINE THE CREDITS REQUIRED TO SETTLE THE BALANCES OF DOCUMENT COMPENSATION AND OPERATIONS CARRIED OUT IN THE ELECTRONIC FUND TRANSFER SERVICE, IN THE RECEIPT BILL COLLECTION SERVICE, AND IN THE BANK CASH EXCHANGE AND COMPENSATION SERVICE.

A. Definitions For brevity, in singular or plural, it will be understood by: Clearing Chamber.- The entity authorized by the Bank of Mexico that, for the purpose of carrying out Compensation between credit institutions, provides the Bank of Mexico with the corresponding information according to M.72. In such entity, more than two credit institutions must participate. Payment Capacity.- The sum of the balance the bank has in SIAC-BANXICO plus the credit it has available in it. Payment Obligations.- The total amount of the set of Documents and operations of the Electronic Fund Transfer Service, the Receipt Bill Collection Service, and the Bank Cash Exchange and Compensation Service, presented in the Clearing Chambers under the charge of a particular institution. SIAC-BANXICO.- The Bank of Mexico Account Holder Attention System. Chamber System (SICAM).- The subsystem of SIAC-BANXICO through which the net balances derived from the Compensation of both Documents and the operations carried out through the Electronic Fund Transfer Service, the Receipt Bill Collection Service, and the Bank Cash Exchange and Compensation Service are determined, and the credits required to settle the referred balances of the Compensation of the Documents or the mentioned operations are calculated.

B. Service Priority. The order of service priority with which the Payment Obligations of the participants in the Chamber System (SICAM) will be settled will depend on those settled by said System according to the following order: i. Check Service; ii. Electronic Fund Transfer Service (TEF); iii. Receipt Bill Collection Service, and iv. Bank Cash Exchange and Compensation Service.

C. Algorithm. To cover the negative balances that a participant in the Chamber System (SICAM) might have, the following procedure will be applied:

1. First, the resources of its positive balance in SIAC-BANXICO will be used, if any.
2. If this balance is not sufficient, the credit granted by the Bank of Mexico to said institution in SIAC-BANXICO will be used to cover the mentioned negative balances. These resources will be used to cover the negative balances of the services respecting the priority order mentioned in section B.
3. In case the Payment Capacity of the participant in SIAC-BANXICO is not sufficient to cover the negative balances, the bilateral credit lines contracted will be used, considering only those of participants who have offered credit and who have Payment Capacity in SIAC-BANXICO or who have a positive balance in the Chamber System (SICAM). The lines will be exercised proportionally among all offerers, attempting to cover the negative balance of the services in the priority order described in section B.

D. Procedure to Eliminate Payment Obligations from the Settlement Process. If after applying the algorithm described in section C of this Annex, there are institutions that do not have resources to pay all their obligations, the following will be proceeded with: • The institution i* with the largest negative balance to cover its Payment Obligations in the Chamber System (SICAM) will be determined. • The Payment Obligations of institution i* derived from the Bank Cash Exchange and Compensation Service will be cancelled. • In case institution i* continues to have a negative balance to cover its Payment Obligations, the Payment Obligations of said institution i* derived from the Receipt Bill Collection Service will be cancelled. • In case institution i* continues to have a negative balance to cover its Payment Obligations, and said balance is greater than the sum of its Payment Obligations derived from documents received in all Clearing Chambers, its Payment Obligations from the Electronic Fund Transfer Service will be cancelled. • If institution i* still continues to have a negative balance, a set of Clearing Chambers will be identified in which the sum of the Payment Obligations of said institution derived from documents is greater than or equal to the negative balance of institution i*, and such Payment Obligations will be cancelled. To identify said set of Clearing Chambers and in the case of documents presented in the Chamber operated by Cecoban, S.A. de C.V., the set will be integrated considering as a Clearing Chamber each of the locations where institutions carry out the physical exchange of documents. • When institution i* ceases to have a deficit position in the Chamber System (SICAM), resulting from applying any of the previous cancellations, the Payment Obligations will be updated and the algorithm described in section C will be applied with the non-cancelled Payment Obligations."

TRANSITORY SINGLE.- This Circular will enter into force from the preliminary phase of compensation on February 14, 2008.