Circular 5/2023 — Modifications to Circular 7/2022 (Inclusion of MS Bonds and Use of the Bank of Mexico’s Integrated Auction System)

152 OFFICIAL GAZETTE Wednesday, June 7, 2023 BANCO DE MÉXICO CIRCULAR 5/2023 addressed to Credit Institutions and Brokerage Houses, regarding modifications to Circular 7/2022 (inclusion of MS bonds and use of the Bank of Mexico’s Integrated Auction System).

At the margin, a logo that says: Bank of Mexico.- “2023, Year of Francisco Villa, the revolutionary of the people”.

CIRCULAR 5/2023 TO CREDIT INSTITUTIONS AND BROKERAGE HOUSES: SUBJECT: MODIFICATIONS TO CIRCULAR 7/2022 (INCLUSION OF MS BONDS AND USE OF THE BANK OF MEXICO’S INTEGRATED AUCTION SYSTEM)

The Bank of Mexico, in its capacity as the financial agent of the Federal Government and with the purpose of continuing to promote the sound development of the financial system, in order to follow up on the actions foreseen in the National Strategy for the Implementation of the 2030 Agenda, systematized and integrated by the Office of the Presidency, as well as what is contemplated in the National Development Plan 2019-2024, to comply with the Sustainable Development Goals included in the 2030 Agenda approved by the United Nations General Assembly and to incentivize sustainable investments in national territory, considers it convenient to adapt the “Rules for the holding of syndicated auctions of government bonds aligned to environmental, social, and corporate governance criteria”, in order to include the debt instrument issued by the Federal Government denominated in national currency, at a fixed interest rate and aligned to environmental, social, and corporate governance criteria, for its placement in the national market through the holding of syndicated auctions, as well as to establish the possibility of using the Bank of Mexico’s Integrated Auction System for the holding of said auctions.

For the above, based on articles 28, sixth and seventh paragraphs, of the Political Constitution of the United Mexican States, 1, 3, fraction III, 7, fraction I, 8, 10, 12 and 14 of the Bank of Mexico Law, 22 of the Law for Transparency and Ordering of Financial Services, 1, 4, first paragraph, 8, fourth and eighth paragraphs, 10, first paragraph, 12, first paragraph, in relation to 19 Bis, fractions II and 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 Directorate of Central Bank Regulations, respectively, as well as Second, fractions VI and X, of the Agreement on the Attachment of Administrative Units of the Bank of Mexico, has resolved to modify the definitions of “DALI” and “ESG Government Bonds” contained in section 1, sections 2.1, first paragraph, 2.2, second, fourth and sixth paragraphs, 5.1, 5.2, 5.3.1, first, third and fourth paragraphs, 5.4.1, third paragraph, 7, 8.1, 8.2, first paragraph, 8.3, first paragraph, 8.4, 9.4, third and fourth paragraphs, Appendices 1 and 2, as well as to add the definitions of “MS BONDS”, “Advanced Electronic Signature”, “Final Investor”, “SIAC-BANXICO” and “SIS” to section 1, of the “Rules for the holding of syndicated auctions of government bonds aligned to environmental, social, and corporate governance criteria”, contained in Circular 7/2022, to remain in the following terms:

RULES FOR THE HOLDING OF SYNDICATED AUCTIONS OF GOVERNMENT BONDS ALIGNED TO ENVIRONMENTAL, SOCIAL, AND CORPORATE GOVERNANCE CRITERIA

“1. DEFINITIONS For the purposes of these Rules, the terms used herein, in singular or plural, shall have the meanings indicated below, without prejudice to the different treatment given to similar terms in other regulations:

...

MS BONDS: the Development Bonds issued by the Federal Government of the United Mexican States in the national market, rated by a Securities Rating Agency and an ESG Criteria Rating Institution as bonds aligned to environmental, social, and corporate governance criteria, in accordance with the Reference Framework and these Rules, and which, in turn, comply with the Green Bond Principles, the Social Bond Principles and the Sustainability Bond Guidelines, in compliance with the Guide for External Reviews of Green, Social and Sustainability Bonds, published by the association of the Swiss Confederation known as the “International Capital Market Association” (ICMA) or, in its case, the instruments that replace them, denominated in national currency, at a fixed interest rate;

DALI: the payment system known as “System for the Deposit, Administration and Settlement of Securities”, administered by INDEVAL;

...

Advanced Electronic Signature: that signature which meets the requirements of Advanced or Reliable Electronic Signature referred to in articles 89 and 97 of the Commercial Code, as modified or replaced subsequently;

...

Final Investor: those persons determined by the Secretariat through the catalog it sends to the Bank prior to each Syndicated Auction and in accordance with these Rules, on whose behalf the ESG Distributors determined by the Secretariat in terms of section 2.1 may present bids. Such ESG Distributors shall have this status in cases where they present bids on their own account;

...

SIAC-BANXICO: the Bank of Mexico’s Account Holder Attention System;

SIS: the Bank of Mexico’s Integrated Auction System for submitting bids through SIAC-BANXICO, in accordance with these Rules and the contract entered into with the Bank;

...

ESG Government Bonds: the BONDES G, MS BONDS or other Development Bonds issued by the Federal Government of the United Mexican States in the national market, rated by a Securities Rating Agency and an ESG Criteria Rating Institution aligned to environmental, social, and corporate governance criteria, in accordance with the Reference Framework and these Rules, and which, in turn, comply with the Green Bond Principles, the Social Bond Principles and the Sustainability Bond Guidelines, in compliance with the Guide for External Reviews of Green, Social and Sustainability Bonds, published by the association of the Swiss Confederation known as the “International Capital Market Association” (ICMA) or, in its case, the instruments that replace them, jointly or separately.”

“2.1. Only ESG Distributors determined by the Secretariat for each Syndicated Auction may be bidders, who must present their bids on their own account or on behalf of the Final Investor. ...

“2.2. ... Credit institutions and brokerage houses intending to act as ESG Distributors must submit a written request to the Public Credit and International Affairs Unit of the Secretariat, located at Insurgentes Sur 1971, Tower 3, 7th floor, Guadalupe Inn neighborhood, postal code 01020, Benito Juárez territorial demarcation, Mexico City. ...

The Secretariat will notify the Bank and the corresponding Applicants, via message sent by email from the email account of the person holding the position of Head of the General Directorate of Financial Operations of the Secretariat or the Directorate that replaces it, of the Applicants it has determined may act as ESG Distributors. Such notifications must be made at least seven Banking Business Days in advance of the date on which the corresponding Syndicated Auction is held. The foregoing shall be observed, without prejudice to the notifications referred to in the second paragraph of section 2.1 of these Rules. ...

ESG Distributors that decide to cease operating with such status must send a written cancellation notice to the Public Credit and International Affairs Unit of the Secretariat, as well as a copy thereof to the National Operations Directorate of the Bank of Mexico located at Avenida 5 de Mayo number 6, first floor, Centro neighborhood, postal code 06000, Cuauhtémoc territorial demarcation, Mexico City. The aforementioned cancellation notice shall take effect from the next Banking Business Day following its receipt by the aforementioned authorities.”

“5.1. Types of Bids For the Syndicated Auctions referred to in section 4 of these Rules, bids may only be competitive and must indicate the issuance key and the total amount at par value in quantities expressed in thousands of pesos, rounded to five thousand pesos or its multiples, of the ESG Government Bonds that the bidder is willing to acquire, the clean price, expressed up to five decimal places, as well as the identification of the Final Investor, which must be done by including the identifier assigned by the Secretariat in the catalog referred to in the following paragraph.

For each Syndicated Auction, the Secretariat will notify the Bank and the ESG Distributors determined by the Secretariat itself in terms of section 2.1, of the catalog of Final Investors on whose behalf such distributors may present bids. Such notification will be made through the electronic, computing or telecommunications medium determined by the Secretariat itself, at least sixty minutes in advance of the time at which the corresponding Syndicated Auction will be held.

In those cases where, prior to the holding of any Syndicated Auction, the Bank does not receive from the Secretariat the catalog of Final Investors referred to in the preceding paragraph, the last catalog notified by the Secretariat to the Bank will be used, in accordance with what is provided in said paragraph.”

“5.2. Bid Limits The sum of the amounts of the bids for the acquisition of ESG Government Bonds presented by each bidder for each call, for each Final Investor, must not exceed the maximum amount that the Federal Government is willing to offer in the Syndicated Auction in question.

Likewise, bidders must respect the parameters that, in their case, the Secretariat determines for each of the calls regarding minimum price limits, maximum amount to be assigned per Final Investor, or any other that it determines.”

“5.3.1. Bidders must present their bids on the date and within the deadline indicated for this purpose in the corresponding calls through the SIS or, in its case, through the electronic, computing or telecommunications means determined by the Bank. ...

In the event that bids cannot be presented through the SIS or through the electronic, computing or telecommunications means determined by the Bank, or when the Bank so determines, bidders may present them, exceptionally, through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank, during the hours determined by the Bank in the respective call, in which case they must confirm them in writing addressed to the National Operations Management, presented in a closed envelope, no later than 17:00:00 hours on the same Banking Business Day of the Syndicated Auction, using the model contained in Appendix 1 of these Rules and accompanying it with a cover letter, as applicable, for each of the ESG Government Bonds in question.

The documents mentioned in the preceding paragraph must be signed, with handwritten signature or Advanced Electronic Signature, by the same representatives duly authorized by the bidder. Additionally, in the case of handwritten signatures, such documents must show the signature knowledge granted by the Bank, so such signatures must be registered in the Bank itself. The data of the Advanced Electronic Signature referred to in this Rule must be verifiable through the corresponding digital certificate issued by the Tax Administration Service.”

“5.4.1. ... The access, identification and, in its case, operation keys established for the use of the SIS or any other electronic, computing or telecommunications medium, that are used for the purposes of these Rules, will replace the handwritten signature with an electronic one, so that documentary or technical records where they appear will have full legal validity and produce the same effects that the laws grant to documents signed by the parties and, consequently, will have equal probative value.”

“7. RESULTS The Bank will make available to bidders, through the SIS and the aforementioned internet page of the Bank of Mexico or through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank, the general results of the Syndicated Auctions starting from thirty minutes after the applicable deadline for the presentation of bids for the auction in question. The information corresponding to the general results of a Syndicated Auction will remain available to bidders only through the aforementioned internet page, until the results of a new Syndicated Auction are incorporated in the terms indicated above.

Additionally, the Bank will inform each bidder individually, through the SIS or through any electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico, starting from thirty minutes after the deadline for the presentation of bids for the Syndicated Auction in question, of the quantity of ESG Government Bonds, if any, that will be assigned to them, indicating the clean price that must be paid for them.”

“8.1. The Federal Government, through the Bank, by virtue of what is provided in articles 2312 and 2331 of the Federal Civil Code, will reserve ownership of the ESG Government Bonds subject to the Syndicated Auctions that it must deliver, until the moment the Bank receives from the bidder payment of the corresponding price.”

“8.2. The settlement of the operations subject to the Syndicated Auctions referred to in these Rules will be carried out through DALI via delivery against payment in the terms established in the internal regulations of INDEVAL, on the date fixed in the corresponding call. ...

“8.3. In the event that a bidder does not pay the full price of the ESG Government Bonds assigned to them, the Bank will proceed in terms of what is provided in the contract it has signed with them in accordance with what is stated in section 9.1 of these Rules and may, without the need for a judicial declaration, rescind the sale and purchase of the ESG Government Bonds for the missing amount, so that the corresponding credits and debits for the missing amount will not be made in the cash and securities accounts in DALI. ...

“8.4. The settlement of the operations of the Syndicated Auctions with fixed interest rate ESG Government Bonds issued prior to the settlement date of the Syndicated Auctions must be carried out by adding to the respective clean price, the accrued unpaid interest, from and including the date of their issuance or last interest payment, as applicable, up to and excluding the settlement date, according to the following formula:

Where: Iacc = Accrued interest in national currency. VN = Par value of the ESG Government Bond in national currency. d = Natural days elapsed between the date of issuance or last interest payment, as applicable, and the settlement date. c = Annual interest rate of the corresponding ESG Government Bond, expressed in annual percentage terms and rounded to two decimal places.

The settlement of the operations of the Syndicated Auctions with variable interest rate ESG Government Bonds issued prior to the settlement date of the Syndicated Auctions must be carried out by adding to the respective clean price, the accrued unpaid interest, from and including the date of their issuance or last interest payment, as applicable, up to and excluding the settlement date, according to the following formula:

Where: = Accrued interest in national currency. = Par value of the ESG Government Bond in national currency. N = Natural days elapsed between the date of issuance or last interest payment, as applicable, and the settlement date. R = Accrued annual interest rate of the corresponding ESG Government Bond, expressed in annual percentage terms and rounded to hundredths, calculated according to the following formula:

Where: For each of the natural days between the date of issuance of the ESG Government Bond or the last interest payment, and the settlement date, will take values from 1 to N. Operator that means performing the multiplication of the factors between parentheses. The annual interest rate, expressed in percentage terms rounded to hundredths, based on wholesale funding operations carried out by credit institutions and brokerage houses through repurchase operations of one Banking Business Day with titles issued by the Federal Government, the Bank Protection Institute for Savings (IPAB) or the Bank of Mexico, known in the market as “Interbank Equilibrium Funding Interest Rate for One Day” calculated and made known by the Bank of Mexico through its internet page located at www.banxico.org.mx, in terms of what is provided in the “Provisions Applicable to the Operations of Credit Institutions, Multiple Purpose Financial Companies Regulated that Maintain Patrimonial Links with Credit Institutions and the National Financial Development Company for Agriculture, Rural, Forestry 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 through any other electronic, computing or telecommunications medium authorized for this purpose by the Bank itself. In the latter case, the Bank will inform in due course the medium through which it will disseminate said rate.

In the case of days that are not Banking Business Days, for the calculation of the interest rate referred to above, the rate made known on the immediately preceding Banking Business Day that corresponds will be used.”

“9.4. ... The authorization and the model of authorization that credit institutions or brokerage houses deliver to the Bank for the purposes indicated in this section must be signed by whoever has the authority to perform acts of dominion in the name and representation of the credit institution or brokerage house in question. To accredit the aforementioned authority, the credit institution or brokerage house must present certified and simple copies of the public deed in which the granting of the aforementioned power is recorded, as well as a simple copy of the official identification of the attorney-in-fact or attorneys-in-fact.

The documentation that must be sent to the Bank in accordance with what is provided in this section must be delivered to the Operations Management with an advance of at least five Banking Business Days prior to the date on which they intend to begin participating in the Syndicated Auctions.”

“APPENDIX 1 MODEL FOR PRESENTATION OF BIDS FOR SYNDICATED AUCTIONS OF GOVERNMENT BONDS ALIGNED TO ENVIRONMENTAL, SOCIAL, AND CORPORATE GOVERNANCE CRITERIA, FOR THE PURPOSES OF WHAT IS PROVIDED IN 5.3.1 OF THE RULES FOR THE HOLDING OF SYNDICATED AUCTIONS OF GOVERNMENT BONDS ALIGNED TO ENVIRONMENTAL, SOCIAL, AND CORPORATE GOVERNANCE CRITERIA

BANCO DE MÉXICO NATIONAL OPERATIONS MANAGEMENT Avenida 5 de Mayo number 6, Centro Neighborhood, C.P. 06000, Mexico City

Present.

MEXICO CITY, to ____ of ____________ ____.

The entity indicated below presents the following bid to participate in the auction to which this refers, in accordance and for the purposes of the “Rules for the holding of syndicated auctions of government bonds aligned to environmental, social, and corporate governance criteria”, issued by the Bank itself through Circular 7/2022, as modified by subsequent resolutions.

Bidder Name: _____________________________________________________________ Bidder Key at the Bank of Mexico: _________________________________________________ Issuance Key: ___________________________________________________________________

BIDS: Clean Price Amount (in thousands of pesos) Final Investor __________ . __________ __________ . __________ __________ . __________

The AMOUNTS at par value in quantities rounded to five thousand pesos or its multiples. The identification of the Final Investor must be done by including the identifier assigned by the Secretariat in the catalog it sends to the Bank, in accordance with what is provided in section 5.1 of the “Rules for the holding of syndicated auctions of government bonds aligned to environmental, social, and corporate governance criteria”, contained in Circular 7/2022 of the Bank of Mexico, as modified by subsequent resolutions.

The PRICES must be expressed up to FIVE decimal places. Clean price is understood as that which does not include accrued unpaid interest.

The aforementioned bids are mandatory and irrevocable for the bidder; they will produce the broadest effects in law, and imply our acceptance to all and each of the “Rules for the holding of syndicated auctions of government bonds aligned to environmental, social, and corporate governance criteria” in force, as well as to the terms and conditions of the call dated [ DAY ] of [ MONTH ] of [ YEAR ].

Sincerely, 1 (Bidder Name) (Name, position and signature of authorized officials)

158 OFFICIAL GAZETTE Wednesday, June 7, 2023 NOTE: Unused spaces must be cancelled. 1 This document must show the knowledge of signatures granted by the Bank of Mexico, so these signatures must be registered in the Bank itself.”

“APPENDIX 2 MODEL OF AUTHORIZATION IN FAVOR OF THE BANK OF MEXICO TO MAKE CHARGES AND CREDITS IN THE ACCOUNTS OF CREDIT INSTITUTIONS OR BROKERAGE HOUSES THAT SUBMIT BIDS IN THE SYNDICATED AUCTIONS OF GOVERNMENT SECURITIES ALIGNED WITH ENVIRONMENTAL, SOCIAL, AND CORPORATE GOVERNANCE CRITERIA, PURSUANT TO THE RULES FOR THE CONDUCT OF SYNDICATED AUCTIONS OF GOVERNMENT SECURITIES ALIGNED WITH ENVIRONMENTAL, SOCIAL, AND CORPORATE GOVERNANCE CRITERIA (LETTERHEAD OF THE CREDIT INSTITUTION OR BROKERAGE HOUSE) Mexico City, on __ of _________. BANK OF MEXICO OPERATIONS MANAGEMENT DEPARTMENT 5 de Mayo Avenue number 6, Centro Neighborhood, Postal Code 06000, Mexico City Present. The entity named (NAME OF THE CREDIT INSTITUTION OR BROKERAGE HOUSE) hereby irrevocably authorizes and instructs the Bank of Mexico to make the necessary charges and credits in the cash and securities settlement accounts that S.D. INDEVAL, Securities Deposit Institution, S.A. de C.V., maintains for this same entity, derived from the settlement of operations conducted by this entity under the “Rules for the Conduct of Syndicated Auctions of Government Securities Aligned with Environmental, Social, and Corporate Governance Criteria,” issued by the Bank of Mexico through Circular 7/2022, in its capacity as financial agent of the Federal Government, as they may be modified by subsequent resolutions. For these purposes, this entity consents to the Bank of Mexico sending the corresponding instructions to said securities deposit institution so that the respective records may be made. Additionally, this entity irrevocably authorizes and instructs the Bank of Mexico to make charges and credits in the national currency account that the Bank itself maintains for it, for any other amount that this company must pay pursuant to the provisions of the aforementioned Rules. Finally, we inform you that the authorizations and instructions referred to in this document may only be modified or revoked through written communication addressed to that Central Bank and presented with at least one banking business day in advance of the date on which the respective modification or revocation is intended to take effect. It is understood that the modification or revocation will not apply with respect to charges and credits resulting from bids submitted by this company prior to such communication taking effect. Sincerely, (NAME OF THE CREDIT INSTITUTION OR BROKERAGE HOUSE) (Name, position, and signature of the person(s) with authority to exercise acts of dominion) Cc: S.D. INDEVAL Securities Deposit Institution, S.A. de C.V. - For your information. Present.”

TRANSITORY PROVISIONS FIRST.- This Circular shall enter into force on the day of its publication in the Official Gazette of the Federation. SECOND.- The contracts that document the acts and operations derived from the syndicated auctions of government securities aligned with environmental, social, and corporate governance criteria, and the authorizations granted in favor of the Bank of Mexico to make charges and credits in the accounts of credit institutions or brokerage houses that submit bids in the syndicated auctions of government securities aligned with environmental, social, and corporate governance criteria, executed by credit institutions and brokerage houses in their capacity as ESG Distributor under sections 8.2, 9.1, 9.4, and Appendix 2 of the “Rules for the Conduct of Syndicated Auctions of Government Securities Aligned with Environmental, Social, and Corporate Governance Criteria” contained in Circular 7/2022, published in the Official Gazette of the Federation on April 12, 2022, and which are modified by this Circular, shall retain full validity and legal effect. Therefore, such credit institutions and brokerage houses shall not be required to execute a new contract or grant a new authorization due to the entry into force of the modifications implemented by this Circular. Furthermore, if in a later date they are renegotiated solely for the purpose of incorporating a new reference rate to replace the aforementioned interest rates, or to adjust the conditions of the operations to facilitate such transition, they shall not be subject to the Margin Exchange provided for in these Rules.

Wednesday, June 7, 2023 OFFICIAL GAZETTE 159 Mexico City, June 2, 2023.- BANK OF MEXICO: Director General of Central Banking Operations, Gerardo Israel García López.- Initials.- Director of Central Banking Regulations, María Teresa Muñoz Arámburu.- Initials. For any inquiries 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.