Circular 5/2020 — Modifications to the Procedure for Acting as Market Makers for Government Securities

Wednesday, April 1, 2020 OFFICIAL GAZETTE 1 BANCO DE MEXICO CIRCULAR 5/2020 addressed to Credit Institutions and Securities Houses, regarding Modifications to the procedure for acting as Market Makers for Government Securities.

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

CIRCULAR 5/2020 TO CREDIT INSTITUTIONS AND SECURITIES HOUSES: SUBJECT: MODIFICATIONS TO THE PROCEDURE FOR ACTING AS MARKET MAKERS FOR GOVERNMENT SECURITIES

The Bank of Mexico, in its capacity as the financial agent of the Federal Government –and in view of the modifications that the Ministry of Finance and Public Credit, through Office number 305.-200/2020, dated March 25, 2020, has resolved to carry out on the procedure to which credit institutions and securities houses acting as market makers with respect to the government securities referred to in Office number 305.-027/2011 of said Ministry, made known by this Central Bank through its Circular 5/2011, dated February 14, 2011, as well as modifications to said procedure issued subsequently- attaches a copy of the cited Office number 305.-200/2020, in order to make its content known to these entities, for the effects indicated therein.

The foregoing, based on what is provided in articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 3, fraction III, 7, fraction I, and 10, of the Bank of Mexico Law, 22 of the Law for Transparency and Ordering of Financial Services, 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 Legal Directorate, respectively, as well as Second, fractions VI and X, of the Agreement on the Attachment of Administrative Units of the Bank of Mexico.

Mexico City, March 25, 2020.- The General Director of Central Bank Operations, Gerardo Israel García López.- Signature.- The General Legal Director, Luis Urrutia Corral.- Signature.

2 OFFICIAL GAZETTE Wednesday, April 1, 2020 For any inquiries regarding the content of this Circular, please contact the Directorate of Authorizations and Sanctions of Central Bank, at telephone numbers 55 5237-2308, 55 5237-2317 or 55 5237-2000, extension 3200.

“2020, Year of Leona Vicario, Meritorious Mother of the Fatherland”

Office No. 305.-200/2020 Mexico City, March 25, 2020

LIC. GERARDO ISRAEL GARCÍA LÓPEZ GENERAL DIRECTOR OF CENTRAL BANK OPERATIONS BANK OF MEXICO

PRESENT.

The Ministry of Finance and Public Credit, through the Public Credit Unit, based on articles 4th, fractions I and V of the General Public Debt Law; 3rd, fraction III, 7th, fraction I, 8th and 10 of the Bank of Mexico Law; 17 fractions VIII, X and XXI of the Internal Regulations of the Ministry of Finance and Public Credit; Single, fractions V and VII of the Decree authorizing the Federal Executive to issue Treasury Certificates of the Federation, published in the Official Gazette of the Federation (DOF) on July 8, 1993; 1st, fraction VI, 2nd and 3rd of the Decree authorizing the Ministry of Finance and Public Credit to issue Federal Government Development Bonds, published in the DOF on September 22, 1987, modified by Decree published in the DOF on September 9, 1998; the Decree establishing the obligations that may be denominated in Investment Units and reforming and adding various provisions of the Federal Tax Code and the Income Tax Law, published in the DOF on April 1, 1995 modified by Decree published in the DOF on December 7, 2009 and article 20 Ter of the Federal Tax Code, considers it convenient to continue fostering the development of the market for Federal Government Development Bonds with Fixed Interest Rate (BONOS) and those denominated in Investment Units (UDIBONOS).

Therefore, it has decided to modify sections 1, XV, 2.5, 4.1.3 and 4.2.2, as well as Annex 1, section III (Incentives for Bids in MexDer), fourth paragraph, of Office 305.-027/2011 dated January 27, 2011, modified by Offices 305.-105/2011 dated July 26, 2011, 305.-178/2011 dated November 18, 2011, 305.-023/2012 dated February 9, 2012, 305.-085/2012 dated July 3, 2012, 305.-010/2014 dated February 7, 2014, Office 305.-035/2014 dated May 14, 2014, Office number 305.-059/2015, dated July 1, 2015, Office number 305.-033/2017, dated February 28, 2017, Office number 305.-053/2017, dated March 30, 2017 and Office number 305.-156/2017, dated December 29, 2017, to remain in the following terms:

“1. DEFINITIONS ... I. to XIV Bis. ... XV.- Turnover Index: the ratio between the volume traded in the secondary market during a day of BONOS in accordance with the information collected by the Bank and the Outstanding Balance from Primary Operations of said BONO on the same date. XVI. to XXXI. ...”

“2. MARKET MAKERS AND UDIBONOS MARKET MAKERS 2.1 ... 2.2 to 2.4 ... 2.5 ... In the event that as a result of the calculation performed by the Ministry, two or more Market Makers obtain the same MM Index (IFM), to determine the order that each of the aforementioned Market Makers will have, the Investment Activity (IA) achieved by the respective Market Makers will be taken into account. However, in the case where said Market Makers have achieved the same IA, the position that said Market Makers occupied in the publication made by the Ministry in the immediately preceding measurement period will be considered, in accordance with section 8.2 of this Office. Likewise, in the case where as a result of the calculation performed by the Ministry, two or more UDIBONOS Market Makers obtain the same UDIBONOS MM Index (IFMU), to determine the order that each of the aforementioned UDIBONOS Market Makers will have, the UDIBONOS Investment Activity (IAU) achieved by the respective UDIBONOS Market Makers will be taken into account. However, in the case where said UDIBONOS Market Makers have achieved the same IAU, the position that said UDIBONOS Market Makers occupied in the publication made by the Ministry in the immediately preceding measurement period will be considered, in accordance with section 8.2 of this Office.”

Wednesday, April 1, 2020 OFFICIAL GAZETTE 3

“4. RIGHTS ... 4.1 ... 4.1.1 and 4.1.2 ... 4.1.3 Market Makers or UDIBONOS Market Makers who wish to exercise their purchase option right, between 8:45:00 hours and 9:00:00 hours on the second Business Day following the publication of the Auction results, must inform the Bank of Mexico on that same Business Day, through the means authorized for such effect, the quantity of CETES and BONOS, or UDIBONOS, respectively, that they wish to purchase. In the event that due to fortuitous event or force majeure, the aforementioned means are not available, the Bank of Mexico will communicate to them the procedure and schedule in which they can exercise their purchase right. When a syndicated auction is carried out for the placement of BONOS or UDIBONOS, Market Makers or UDIBONOS Market Makers, as applicable, may not exercise their purchase option right with respect to BONOS or UDIBONOS, as applicable, during the week in which said syndicated auction is held. The foregoing regardless of the maturity term of the instrument referred to in the corresponding syndicated auction. 4.1.4 ... 4.2 ... 4.2.1 ... 4.2.2 They will always act on their own account as borrowers. The term of the value lending operations may be up to sixty days. Notwithstanding the foregoing, in those cases where the Bank of Mexico deems it necessary, it may renew said operations for a term of one Business Day. On the other hand, Market Makers and UDIBONOS Market Makers may request the Bank of Mexico to renew the value lending operations, provided that the value of the instruments granted as collateral complies with what is provided in the following section 4.2.5. ... ... ... 4.2.3 to 4.2.10 ... 4.3 ...”

“Annex 1 Calculation of the Market Maker Index ... III. Incentives for Bids in MexDer ... ... ... Furthermore, Market Makers who throughout the aforementioned measurement period have obtained the highest scores will receive additional points in accordance with the following table: ... ...”

4 OFFICIAL GAZETTE Wednesday, April 1, 2020 TRANSITIONAL PROVISION SINGLE.- The provisions of this Office shall enter into force on April 1, 2020.

RESPECTFULLY The Head of the Public Credit Unit