Circular 5/2006 — Amending Circular 115/2002

CIRCULAR 5/2006 Mexico, D.F., December 20, 2006. TO BROKER-DEALERS: SUBJECT: AMENDMENTS TO CIRCULAR 115/2002.

The Bank of Mexico, based on Article 28 of the Political Constitution of the United Mexican States; paragraphs six and seven of Articles 24, 26, and 32 of the Bank of Mexico Law; Article 176 of the Securities Market Law; paragraphs three and four of Article 8, Article 10, Article 14 in relation to Section II of Article 25, which grant the General Directorate of Financial System Analysis the authority to participate in the issuance of provisions, and Section I of Article 17 of the Internal Regulations of the Bank of Mexico, and with the objective of promoting the sound development of the financial system, considering that it is convenient: a) To update the provisions contained in Circular 115/2002 with those provided in the Securities Market Law, and b) To adjust the provisions on the purchase and sale of foreign currency and minted precious metals set forth in the aforementioned Circular 115/2002, in order to make them consistent with the “Rules to which multiple banking institutions, broker-dealers, investment companies, and limited-purpose financial societies must adhere in carrying out derivative operations” issued by the Bank of Mexico.

It has resolved to modify the last paragraph of section CB.1.6.3; from section CB.3 to section CB.3.1.4; the fourth paragraph of section CB.3.2.2; section CB.9.4; and section 9 of Annex 2, as well as to repeal the definition of Cash Operations from the aforementioned section CB.3.1.1, all of Circular 115/2002, to read as follows:

CB.1.6 LOANS FOR THE PURCHASE OR SALE OF SHARES. “CB.1.6.3 COLLATERAL. … The collateral referred to in section CB.1.6 may be constituted through stock pledge, pledge, guarantee trust, administration and payment trust, or bank deposits of money.”

CB.3 OPERATIONS WITH FOREIGN CURRENCY, MINTED METALS, FOREIGN EXCHANGE RISK POSITIONS, AND POSITIONS IN OPERATIONS WITH SECURITIES DENOMINATED IN FOREIGN CURRENCY.

CB.3.1 OPERATIONS WITH FOREIGN CURRENCY AND MINTED METALS. “CB.3.1.1 DEFINITIONS. For brevity in CB.3.1, the following shall be understood as: Business Days: days that are business days both in the United Mexican States and in the market or markets where the foreign currency subject to the operation is delivered or received. Minted Metals: those gold and silver coins whose minting and issuance is determined by the Bank of Mexico, in accordance with the characteristics established in the corresponding decrees, as well as those national pieces that have had the character of coins.”

“CB.3.1.2 OPERATIONS. Broker-dealers may enter into operations for the purchase and sale of Foreign Currency and Minted Metals against national currency or against other Foreign Currency, and operations for the swap of Minted Metals, subject to what is provided in this section. Operations for the purchase and sale of Foreign Currency and Minted Metals whose settlement date is after the fourth Business Day from their agreement date shall be subject to what is provided in the “Rules to which multiple banking institutions, broker-dealers, investment companies, and limited-purpose financial societies must adhere in carrying out derivative operations”. Broker-dealers may not charge commissions for the operations they enter into.”

“CB.3.1.3 INFORMATION TO THE PUBLIC. Broker-dealers must inform the public of the operations they are willing to carry out. Likewise, broker-dealers shall make known the exchange rates or maximum selling prices and minimum buying prices at which they are willing to conduct operations through signs, boards, or displays that prominently show the respective quotations or prices alongside the windows or counters where they conduct their operations, without prejudice to the fact that exchange rates or prices may also be displayed in other areas of the aforementioned premises. Operations carried out must be conducted at exchange rates equal to or more favorable to the public than those announced. This is without prejudice to the fact that in operations with Minted Metals where broker-dealers act as buyers, they may apply discounts to the cited prices due to the quality of the Minted Metals subject to the operation.”

“CB.3.1.4 DOCUMENTATION, RECEIPTS, AND RECORDS. Operations carried out by broker-dealers with national and foreign financial entities, as well as with other clients, may be documented under master contracts executed in writing by the parties prior to the agreement of any of these operations. Broker-dealers are responsible for ensuring that the contracts they use and the operations they enter into comply with this Circular and other applicable provisions. With respect to clients with whom broker-dealers have executed a stock intermediation contract, in substitution of the aforementioned master contract, they may execute a modifying agreement to the aforementioned stock intermediation contract in order to provide for the conditions and other characteristics according to which they will carry out the operations. In this regard, what is provided in Article 200 of the Securities Market Law shall apply, insofar as relevant. In cases where a master contract has been signed, each operation must be agreed upon through the forms established in it or in the stock intermediation contract. Broker-dealers must issue, on the same day of the agreement, a confirmation, through any means that leaves documentary evidence, including electronic means, of the execution of the corresponding operation. With respect to clients other than the entities mentioned in the first paragraph of this section, broker-dealers must issue a receipt that must be delivered upon conclusion of the transaction when the operation is conducted at a counter, and when conducted in any other form, they must keep said receipt available for the client or send it to them if requested. Likewise, in all cases, broker-dealers must make the appropriate accounting records for the operations they enter into on the same day of their agreement.”

“CB.3.2.2 COMPUTABLE ASSETS AND LIABILITIES. … … … Option operations provided in the “Rules to which multiple banking institutions, broker-dealers, investment companies, and limited-purpose financial societies must adhere in carrying out derivative operations” shall count as the result of multiplying their notional amount by the delta resulting from using the valuation model applied by the broker-dealer for the derivative operation in question. …”

CB.9 GENERAL PROVISIONS. “CB.9.4 Broker-dealers that fail to comply with the provisions contained in this Circular shall be sanctioned in accordance with Articles 27 and 33 of the Bank of Mexico Law. This is without prejudice to other applicable sanctions.”

“ANNEX 2 FOREIGN CURRENCY OPERATIONS THAT, UNDER SECTION CB.3.2, DO NOT COUNT TOWARD FOREIGN EXCHANGE RISK POSITION. … 9. OPERATIONS OR THAT PART OF THEM, REFERRED TO MINTED METALS …”

TRANSITORY SINGLE.- This Circular shall enter into force on January 15, 2007.