Circular 55/2008 — Modifies the Repo Rules

"2008, Year of Physical Education and Sports" CIRCULAR 55/2008 Mexico, D.F., November 6, 2008 TO CREDIT INSTITUTIONS; BROKERAGE HOUSES; INVESTMENT SOCIETIES; SPECIALIZED INVESTMENT SOCIETIES FOR RETIREMENT FUNDS, AND THE RURAL FINANCIAL INSTITUTION: SUBJECT: RESOLUTION MODIFYING THE RULES TO WHICH CREDIT INSTITUTIONS; BROKERAGE HOUSES; INVESTMENT SOCIETIES; SPECIALIZED INVESTMENT SOCIETIES FOR RETIREMENT FUNDS, AND THE RURAL FINANCIAL INSTITUTION MUST SUBMIT IN THEIR REPO OPERATIONS

The Bank of Mexico, pursuant to Articles 28 of the Political Constitution of the United Mexican States, paragraphs six and seven, 24 and 26 of the Bank of Mexico Law; 53 fraction II and 81 of the Credit Institutions Law; 176 of the Securities Market Law; 15 second paragraph of the Investment Societies Law; 48 fraction VI of the Savings for Retirement Systems Law, 19 of the Organic Law of the Rural Financial Institution, 22 of the Law for Transparency and Orderly Regulation of Financial Services, as well as Articles 8 third and sixth paragraphs, 10, 14 in relation with 25 fraction II; 17 fraction I and 19 fraction IX, which provide for the powers of the Bank of Mexico to issue provisions, through the General Directorate of Financial System Analysis, the Directorate of Central Banking Provisions, and the Directorate of Operations, respectively, all of the Internal Regulations of the Bank of Mexico, as well as the Single Agreement on the Assignment of Administrative Units of the Bank of Mexico, fractions I, III and IV; considering that it is convenient to modify the regulation regarding repo operations to expand the universe of titles that can be subject to such operations, with the purpose of promoting the sound development of the financial system and protecting the interests of the public, has resolved to modify the definitions relating to “Securities” and “Foreign Securities” of section 1, as well as section 2.1, of the “Rules to which credit institutions; brokerage houses; investment societies, specialized investment societies for retirement funds and the rural financial institution must submit in their repo operations”, to remain in the following terms:

“1. DEFINITIONS For the purposes of these Rules, the following shall be understood: . . . Securities: any debt instrument with a secondary market - except subordinate bonds, other subordinate instruments, and Structured Securities - denominated in national currency that: a) is registered in the National Securities Register, or, when issued abroad, is registered, authorized or regulated, for sale to the general public, by the Securities Commissions or equivalent bodies of the Reference Countries, and b) is not included in any of the other definitions of these Rules. . . . Foreign Securities: debt instruments with a secondary market - except subordinate bonds, other subordinate instruments, and Structured Securities - denominated in Foreign Exchange that are issued, accepted, guaranteed or guaranteed by international financial organizations, Central Banks of Reference Countries other than Mexico, governments of said countries and Foreign Financial Entities. Such instruments must be registered, authorized or regulated, for sale to the general public, by the Securities Commissions or equivalent bodies of the Reference Countries. . . .”

2. AUTHORIZED OPERATIONS AND COUNTERPARTIES “2.1 Credit Institutions and Brokerage Houses may act as Repo-takers with any person. When acting as Repo-takers with other entities of the same financial group to which they belong, Qualified Investors, and with individuals, the securities subject to the repo must be rated in terms of Annexes 1, 2 and 3 of these Rules, as applicable, by at least two internationally recognized rating agencies.

Additionally, they may act as Repo-givers exclusively with the Bank of Mexico, Credit Institutions, Brokerage Houses, and Foreign Financial Entities. Repo operations with Securities carried out by credit institutions may be effected without the intermediation of Brokerage Houses. Operations with Foreign Securities that are not registered in the National Securities Register shall be subject, regarding intermediation, to the applicable provisions.”

TRANSITORY SINGLE. This Resolution shall enter into force on November 6, 2008.