Circular 6/2016 — Modifying Circular 4/2012 (Derivatives Operations)

Thursday, March 31, 2016 OFFICIAL GAZETTE (Third Section) 1 CIRCULAR 6/2016 addressed to Credit Institutions, Brokerage Houses, Investment Funds, Multiple-Object Financial Societies that have Patrimonial Links with a Multiple Banking Institution, General Deposit Warehouses and to the Financial Institution, regarding the Modifications to Circular 4/2012 (Derivatives Operations). At the margin a logo, which says: Bank of Mexico. CIRCULAR 6/2016 TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT FUNDS, MULTIPLE-OBJECT FINANCIAL SOCIETIES THAT HAVE PATRIMONIAL LINKS WITH A MULTIPLE BANKING INSTITUTION, GENERAL DEPOSIT WAREHOUSES AND TO THE FINANCIAL INSTITUTION: SUBJECT: MODIFICATIONS TO CIRCULAR 4/2012 (DERIVATIVES OPERATIONS) The Bank of Mexico, with the object of continuing to promote the sound development of the financial system, on the one hand, by strengthening the markets in which over-the-counter derivatives transactions are celebrated and settled, which, in turn, contributes to fostering financial stability, and on the other hand, with the establishment of measures to mitigate the exposures of participants in this market with respect to the risks of counterparty credit, has resolved to modify the “Rules for the carrying out of derivatives transactions”, contained in Circular 4/2012 of the Bank of Mexico to establish, among other aspects: i) the criteria to determine standardized derivatives transactions, which will be subject to the requirements of negotiation through exchanges and electronic platforms, as well as to clearing and settlement in entities acting as central counterparties; ii) the possibility that entities that, due to the low exposure that their standardized derivatives transactions represent to the financial system as a whole, may be exempted from the requirements referred to in the previous subsection; iii) the possibility that entities may celebrate their standardized derivatives transactions through “block transactions”, which exchanges and electronic platforms will instrument in accordance with the regulation applicable to them, and iv) the procedure that institutions from abroad acting as central counterparties must follow for the purposes of their recognition by the Bank of Mexico. For the above, based on articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 24, 26, 27 and 36 of the Bank of Mexico Law, 46, subsection XXV, and 46 Bis 5, subsection II, of the Credit Institutions Law, 176 of the Securities Market Law, 15, second paragraph, of the Investment Funds Law, 22 of the Law for Transparency and Ordering of Financial Services, 11, subsection XII, and 87-D of the General Law of Organizations and Auxiliary Activities of Credit, 9 of the National Financial Law, 6 of the Federal Mortgage Society Organic Law, 9 of the Organic Law of the National Bank for Savings and Financial Services, 9 of the Organic Law of the National Bank of Foreign Trade, 10 of the Organic Law of the National Bank of Public Works and Services, 8 of the Organic Law of the National Bank of the Army, Air Force and Navy, 7, subsection X, and 19 of the Organic Law of the National Bank for Agricultural, Rural, Forestry and Fisheries Development, 4, first paragraph, 8, paragraphs fourth and seventh, 10, first paragraph, 12, first paragraph, in relation to 19 Bis, subsection V, 14, paragraph first, in relation to 25 Bis, subsection VII, 14 Bis, first paragraph, in relation to 17, subsection I, 14 Bis 1, first paragraph, in relation to articles 25 Bis 1, subsection IV, and 25 Bis 2, subsection II, and 20, subsection XI, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Directorate of Affairs of the Financial System, the General Directorate of Central Banking Operations, the General Directorate of Financial Stability, the General Legal Directorate, and the Directorate of Payment Systems, respectively, as well as Second, subsections I, IV, VI, VIII and X, of the Agreement on the Assignment of Administrative Units of the Bank of Mexico has resolved to modify the definition of Standardized Derivatives Transactions, as well as sections 3.1.1, last paragraph, 3.1.2, first paragraph, subsection a) and subsection iii), as well as the penultimate paragraph, 3.1.3, first paragraph, 3.4, 4, second and last paragraph, 7.4, 7.6, first paragraph, 7.7, 8, 11, first paragraph, subsections b) and e), as well as the current Annex only, to become Annex 1, and add a second paragraph to 5.2, a section 7.5 Bis, a section

Thursday, March 31, 2016 OFFICIAL GAZETTE (Third Section) 2 7.8, as well as Annexes 2 and 3, of the “Rules for the carrying out of derivatives transactions”, contained in Circular 4/2012, to remain in the following terms: RULES FOR THE CARRYING OUT OF DERIVATIVES TRANSACTIONS

1. GENERAL PROVISIONS “1.1 … … Standardized Derivatives Transactions: those Derivatives Transactions that the Bank of Mexico determines with such character, in terms of the Annex 2 of these Rules. …”
2. AUTHORIZATIONS “3.1.1 … … … … … In addition, the application must be accompanied by a communication issued by the audit committee in which they declare that they comply with the requirements provided in Annex 1 of these Rules, in relation to Derivatives Transactions and the Underlyings with respect to which they request authorization to operate for their own account.” “3.1.2 … a) Give written notice to the Management with at least 15 natural days in advance of the date on which they intend to carry out the Derivatives Transactions in question, regarding the following: … … iii) The Underlyings referred to in subsections a) to f) and h) of the aforementioned section 2.1 on which they intend to celebrate Derivatives Transactions for their own account. In case the Entities intend to celebrate Derivatives Transactions on any of the Underlyings indicated in subsection h) of section 2.1, the Entities must include in the notice referred to in this section 3.1.2 a detailed description of each of the Derivatives Transactions in question. … The Entities that have authorization from the Bank of Mexico to carry out some or all of the Derivatives Transactions may carry out, without the need to obtain a new authorization or comply with the subsections a) and b) above, the same type of such Derivatives Transactions on the fiduciary exchange-traded funds indexed as referred to in article 63 Bis 1, subsection III, of the Securities Market Law, registered in the National Securities Registry, as well as securities issued abroad with similar characteristics to these, listed in the International Quotation System, provided that such certificates and foreign securities meet the following characteristics: a) seek to replicate the behavior of the same Underlyings as those corresponding to the Derivatives Transactions subject to such authorization, b) do not involve taking short positions in any of the assets subject to investment to which they are referred, except for those resulting from the lending of securities, c) do not seek to replicate mathematically or statistically, in inverse or exponential form, the behavior of indices, financial assets or reference parameters or well, that the indices, financial assets or reference parameters whose behavior they seek to replicate do not replicate, in turn, mathematically or statistically, in an inverse or exponential manner, the behavior of other indices, financial assets or reference parameters. …” “3.1.3 Each Credit Institution and, where applicable, the Financial Institution that have authorization to celebrate Derivatives Transactions for their own account in terms of these Rules must send to the Management during the month of March of each year, a communication issued by their respective audit committee in which it states that such Entities comply with the requirements indicated in Annex 1 of these Rules, in relation to those Derivatives Transactions they carry out and with the Underlyings subject to said operations. Regarding this, they must accompany in the referred communication, the audit report or opinion that was presented to the audit committee with which it is concluded that compliance is given with what is established in Annex 1 of these Rules and in which it must clearly indicate the areas and procedures audited, as well as the different procedures that were carried out to verify compliance with said requirements. … …” “3.4 OTHER DERIVATIVES TRANSACTIONS, ON OTHER UNDERLYINGS OR WITH A SETTLEMENT DATE DISTINCT The Bank of Mexico may authorize Entities, Investment Funds, General Deposit Warehouses and Sofomes to carry out Derivatives Transactions: a) different from those indicated in subsection (i) of the definition of Derivatives Transactions, b) on Underlyings different from those indicated in section 2.1 or c) with a Settlement Date different from that established in section 7.4 of these Rules. For this purpose, the interested parties must present to the Management a written authorization request where they describe, as appropriate, the Derivatives Transaction they intend to carry out, its structure or combination of Derivatives Transactions, the respective Underlying, or the Settlement Date that is intended to be established. Regarding this, the subjects referred to in this paragraph must accompany a communication issued by their respective audit committee in terms of the last paragraph of section 3.1.1, as well as the audit report or opinion that has been presented to the audit committee or equivalent body, in which it is stated that the subject in question complies with what is established in Annex 1 of these Rules and in which it must clearly indicate the areas and procedures audited, as well as the different procedures that have been carried out to verify compliance with said requirements.”
3. AUTHORIZED COUNTERPARTIES “… Entities may only carry out Derivatives Transactions in over-the-counter markets for the hedging of their own risks, in terms of section 3.1.5 of these Rules, with Entities authorized by the Bank of Mexico to celebrate Derivatives Transactions for their own account and with Foreign Financial Entities. Likewise, regarding Derivatives Transactions in Recognized Markets, the counterparty of the Derivatives Transaction must be the clearing house or, where applicable, the institution from abroad that acts as a central counterparty, recognized by the Bank of Mexico in terms of section 7.6. … Investment Funds, General Deposit Warehouses and Sofomes may only carry out Derivatives Transactions in over-the-counter markets with Entities authorized by the Bank of Mexico to celebrate Derivatives Transactions for their own account and with Foreign Financial Entities. Likewise, regarding Derivatives Transactions in Recognized Markets, the counterparty of the Derivatives Transaction must be the clearing house or, where applicable, the institution from abroad that acts as a central counterparty, recognized by the Bank of Mexico in terms of section 7.6.”
4. INSTRUMENTATION AND NEGOTIATION “5.2 … Standardized Derivatives Transactions that Entities celebrate in Recognized Markets or by means of the societies or institutions referred to in subsections (i) to (iii) of the previous paragraph, in which the submission of firm bids is allowed without using automated electronic negotiation systems or public offer mechanisms, may be carried out through orders known as block transactions, provided that the notional amount of said Standardized Derivatives Transactions adjusts to what the Bank of Mexico determines and makes known to Entities through the Electronic Attention Module in terms of the “Rules of the Electronic Attention Module”, contained in Circular 13/2012 of the Bank of Mexico, as well as through its internet page.”
5. FORMS OF SETTLEMENT “7.4 The Settlement Date of Derivatives Transactions must not exceed four Business Days counted from the maturity or exercise date that corresponds, except in those cases where the Bank of Mexico authorizes a different term in accordance with section 3.4 above.” “7.5 Bis Entities may celebrate Standardized Derivatives Transactions without being subject to the requirements provided in section 5.2 and the first paragraph of the previous section, provided that the notional amount corresponding to all their outstanding Standardized Derivatives Transactions is, for a period of, at least, three consecutive months within a six-month period prior to the celebration of the Standardized Derivatives Transaction in question, less than or equal to the equivalent of ten billion UDIS.

Thursday, March 31, 2016 OFFICIAL GAZETTE (Third Section) 4 The exception referred to in the previous paragraph will also apply to Entities that carry out Standardized Derivatives Transactions with other Entities that intervene as counterparties and are located in the situation established in said paragraph. The Entity that has celebrated Standardized Derivatives Transactions and intends to take advantage of the exception referred to in this section must carry out the calculation of the notional amount of said outstanding Standardized Derivatives Transactions on the last Business Day of each month, based on the information that the Entity itself has reported to the Bank of Mexico in accordance with section 12.1, for which it must consider the official value of the UDI corresponding to the date on which said calculation is made.” “7.6 The Bank of Mexico may grant recognition to institutions from abroad that act as central counterparties, with respect to Derivatives Transactions, including Standardized Derivatives Transactions that are carried out in derivatives exchanges and over-the-counter markets taking into account the following: …” “7.7 The recognition that the Bank of Mexico grants to the institutions from abroad referred to in subsection ii) of the first paragraph of section 7.5 above may be granted at the request of the interested institution from abroad, in accordance with the procedure indicated in Annex 3 of these Rules or well, on the initiative of the Bank of Mexico itself based on the information it collects for this purpose.” “7.8 Those institutions from abroad that act as central counterparties and have obtained the recognition by the Bank of Mexico in terms of section 7.5 above may request the Bank of Mexico, in accordance with the procedure indicated in Annex 3 of these Rules, the expansion of said recognition with respect to other Derivatives Transactions, including Standardized Derivatives Transactions, additional to those provided in said recognition. The expansion referred to in this paragraph may be granted on the initiative of the Bank of Mexico itself based on the information it collects for this purpose.” 8. OPERATIONS FOR THE ACCOUNT OF THIRD PARTIES “Entities may carry out Derivatives Transactions and Structured Operations for the account of third parties through mandate, commercial commission or specific instruction to celebrate Derivatives Transactions and Structured Operations. In these cases, Entities must comply with what is provided in Circular 1/2005 which contains the “Rules to which credit institutions; brokerage houses; insurance institutions; surety institutions, limited-object financial societies and the Rural Financial Institution must comply, in fiduciary operations”. In addition to what is provided in the previous paragraph, Brokerage Houses, when carrying out Derivatives Transactions and Structured Operations in compliance with a mandate or commission, must comply with what is provided in the Securities Market Law, as well as in other applicable provisions.” 11. LIMIT, SUSPENSION OR REVOCATION OF OPERATIONS “… … b) Cease to meet any requirement of Annex 1 of these Rules; … … e) Carry out Derivatives Transactions in contravention of sound uses or practices that correspond to said Derivatives Transactions, and …” “ANNEX 1 …” “ANNEX 2 CRITERIA FOR THE DETERMINATION OF STANDARDIZED DERIVATIVES TRANSACTIONS I. The Bank of Mexico, to determine the Derivatives Transactions that will have the character of Standardized Derivatives Transactions, will take into account the following characteristics: a. The degree of standardization of the terms and conditions of the Derivatives Transactions;

Thursday, March 31, 2016 OFFICIAL GAZETTE (Third Section) 5 b. The liquidity, depth, traded volume and size of Derivatives Transactions in the Mexican market; c. The number and type of entities that have access to negotiate and settle them; d. The availability of reasonable, reliable and generally accepted price sources; e. The systemic risk associated with the celebration of said Derivatives Transactions, as well as its impact on the stability of the Mexican financial system; f. The existence of societies that administer systems to facilitate transactions with securities authorized by the CNBV, or institutions from abroad that perform similar functions to those performed by said societies that are recognized by the CNBV, in which said Derivatives Transactions are negotiated; g. The existence of a clearing house or institution from abroad that acts as a central counterparty, recognized by the Bank of Mexico in terms of section 7.6, in which clearing and settlement of said Derivatives Transactions take place, and h. The effect on competition, considering the fees associated with negotiation and clearing services. II. In accordance with what is provided in section I above, the following are considered Standardized Derivatives Transactions: Swap Transactions in accordance with which one of the parties obligates itself to make payments denominated in pesos, in periods of 28 days or in those that replace them in case of non-business days, of an amount calculated as the result of applying a certain fixed interest rate to a certain amount, non-amortizable, and in turn, the other party obligates itself to make payments, in the same periods, of amounts denominated in the same currency, equivalent to the result of applying the TIIE, to the same non-amortizable amount, and whose minimum term of the Swap Transaction is greater than or equal to 56 days and the maximum term less than or equal to 30 years.” “ANNEX 3 PROCEDURE FOR INSTITUTIONS FROM ABROAD ACTING AS CENTRAL COUNTERPARTIES TO REQUEST THE BANK OF MEXICO RECOGNITION AS REFERRED TO IN SECTION 7.7 OF THE RULES FOR THE CARRYING OUT OF DERIVATIVES TRANSACTIONS I. Procedure for recognition The procedure for the Bank of Mexico to grant recognition to institutions from abroad that act as central counterparties, with respect to Derivatives Transactions, including Standardized Derivatives Transactions, that are carried out in derivatives exchanges and/or over-the-counter markets abroad will consist of the following 3 stages: i. Evaluation of the institution from abroad acting as a central counterparty and its regulatory framework; ii. Verification of the existence of a memorandum of understanding between the Bank of Mexico, or the CNBV, and the financial authorities of the abroad that regulate and supervise the requesting central counterparty, and iii. Determination of recognition. i. Evaluation of the institution from abroad acting as a central counterparty and its regulatory framework The institution from abroad interested in obtaining the recognition referred to in this Annex must:

1. Present its respective request, in writing, to the Management of Authorizations, Queries and Legal Control of the Bank of Mexico, in order to initiate the recognition procedure in terms of section 7.6 of Circular 4/2012. In said request, the institution from abroad must indicate an address in the Mexican Republic to receive notifications from the Bank of Mexico regarding said request, as well as attach, at least, the following documentation, which must be presented in the Spanish language: a. The form “Relevant information of the institution from abroad acting as a central counterparty” contained in Appendix 1 of this document, duly completed, in order for the Bank of Mexico to have relevant information

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about the foreign institution, as well as evaluating the implementation in the regulations of aspects related to the measurement, monitoring and management of credit, liquidity, business, legal and operational risks; the rules and procedures for the management of defaults by participants; the mechanisms of good corporate governance; the criteria for access and participation; the communication rules and procedures, and the policies for the disclosure of information; b. The rules, procedures, manuals, methodologies and contracts in force applicable to the foreign institution in its function as a central counterparty with respect to Derivative Transactions, including Standardized Derivative Transactions, that are carried out in the derivatives exchanges and/or the over-the-counter markets of the foreign jurisdiction in question, in accordance with the legislation and regulation applicable to it; c. The documentation that constitutes sufficient evidence that the foreign institution has a valid authorization, license, concession or similar resolution, granted by the competent authority of its jurisdiction of origin, as well as the specification of the activities it may perform with respect to derivative transactions, and d. The evaluation report prepared in accordance with the "Model of evaluation report on the observance of principles by a FMI", contained in the document "Principles for Financial Market Infrastructures: Disclosure Framework and Assessment Methodology" issued in December 2012, by the Committee on Payment and Settlement Systems of the Bank for International Settlements and by the Council of the International Organization of Securities Commissions, or that which replaces it in its case.

2. Within a maximum period of 45 calendar days from the date the Bank of Mexico has received the application and documentation indicated in the previous section 1, it will notify the foreign institution applicant whether the application and documentation presented is complete. In the event that the information referred to in this section is not complete, the Bank of Mexico will notify the applicant of this situation, within the same period indicated in the previous paragraph, and will indicate the missing information, which must be delivered within a period not exceeding 30 calendar days, counted from the notification made by the Bank of Mexico. In the event that the applicant institution does not present, within the period indicated in this paragraph, the missing information indicated by the Bank of Mexico in accordance with this section, the respective application will be annulled from the conclusion of the referred period. The foregoing does not affect the right of the foreign institution in question to present, subsequently, a new application in accordance with the terms of this Annex.

3. Within a maximum period of 90 calendar days from the notification referred to in the previous section, the Bank of Mexico will evaluate the application and documentation and, if appropriate, request from the applicant the additional information it considers relevant for the determination to be made.

4. Once the periods mentioned in the previous sections 2 and 3 have concluded, the Bank of Mexico will inform the applicant of the result of the evaluation of the foreign institution referred to in this subsection.

ii. Verification of the existence of a memorandum of understanding between the Bank of Mexico, or the CNBV, and the foreign financial authorities that regulate and supervise the requesting central counterparty

The indication in the previous section i. is subject to the Bank of Mexico or the National Banking and Securities Commission having celebrated the respective memorandum of understanding provided for in subsection c) of section 7.6 of Circular 4/2012. For these purposes, in the event that, on the date of presentation of the application subject to this Annex, the aforementioned memorandum of understanding is not available, the Bank of Mexico will carry out the management it deems appropriate for its celebration with the foreign financial authorities that regulate and supervise the foreign institution.

iii. Determination of recognition

Derived from what is provided in subsections (i) and (ii) above, the Bank of Mexico will determine whether the foreign institution acting as the requesting central counterparty must be recognized by this Central Institute for the effects indicated in Circular 4/2012. To this effect, the Bank of Mexico will notify the determination of such recognition to the applicant, as well as to the competent authorities of the jurisdiction in question. Additionally, the Bank of Mexico will publish a list on its website with the foreign institutions acting as counterparties that it has recognized.

iv. Expansion of recognition to a foreign institution acting as a central counterparty of the foreign jurisdiction, to cover other Derivative Transactions, including Standardized Derivative Transactions

The foreign institution recognized in terms of this Annex and interested in expanding such recognition to cover other Derivative Transactions, including Standardized Derivative Transactions, must:

1. Present its respective application, in writing, to the Management of Authorizations, Consultations and Legal Control of the Bank of Mexico, in order to initiate the procedure for the expansion of recognition in accordance with section 7.6 and the second paragraph of section 7.7 of Circular 4/2012. In the aforementioned application, the foreign institution must indicate a domicile in the Mexican Republic to receive notifications from the Bank of Mexico regarding such application, as well as attach, at least, the following documentation, which must be presented in the Spanish language: a. The form "Relevant information of the foreign institution acting as a central counterparty" contained in Appendix 1 of this document, duly completed, with respect to subsections 3.b.v., 3.b.vi., 3.b.vii., 5, 6, 10.b.i., 10.b.iv., 11.b.ii., 13.b.ii., 13.b.iii., as well as any other relevant subsection to the effect that the Bank of Mexico can have relevant information on the expansion of recognition of the foreign institution, and b. The rules, procedures, manuals, methodologies and contracts in force applicable to the foreign institution in its function as a central counterparty with respect to Derivative Transactions, including Standardized Derivative Transactions, considered in the expansion of recognition, in accordance with the legislation and regulation applicable to it.

2. Within a maximum period of 35 calendar days from the date the Bank of Mexico has received the application and documentation indicated in the previous section 1, it will notify the foreign institution applicant whether the application and documentation presented is complete. In the event that the information referred to in this section is not complete, the Bank of Mexico will notify the applicant of this situation, within the same period indicated in the previous paragraph, and will indicate the missing information, which must be delivered within a period not exceeding 30 calendar days, counted from the notification made by the Bank of Mexico. In the event that the applicant institution does not present, within the period indicated in this paragraph, the missing information indicated by the Bank of Mexico in accordance with this section, the respective application will be annulled from the conclusion of the referred period. The foregoing does not affect the right of the foreign institution in question to present, subsequently, a new application in accordance with the terms of this Annex.

3. Within a maximum period of 55 calendar days from the notification referred to in the previous section, the Bank of Mexico will evaluate the application and documentation and, if appropriate, request from the applicant the additional information it considers relevant for the determination to be made.

4. Once the periods mentioned in the previous sections 2 and 3 have concluded, the Bank of Mexico will inform the applicant of the result of the evaluation of the expansion of recognition to cover other Derivative Transactions, including Standardized Derivative Transactions.

II. Contact

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Any doubt or clarification regarding the recognition procedure must be directed to the Management of Authorizations, Consultation and Legal Control, to the email address: autorizaciones@banxico.org.mx.”

“Appendix 1. Relevant information of the foreign institution acting as a central counterparty

I. General information of the foreign institution acting as a central counterparty

1. Name and legal domicile of the foreign institution Click here to enter text.

2. Jurisdiction (country) of origin where the foreign institution has authorization/concession to operate as a central counterparty Click here to enter text.

3. List of the relevant authority(ies) of the foreign institution in the jurisdiction of origin, indicating, if applicable, the function carried out by each one (regulation, supervision or monitoring) Authority Function Click here to enter text. Click here to enter text. Click here to enter text. Click here to enter text. Click here to enter text. Click here to enter text. Click here to enter text. Click here to enter text. Click here to enter text. Click here to enter text.

4. Authorized personnel of the foreign institution who can attend to any matter related to the recognition procedure Contact 1 Name Click here to enter text. Position Click here to enter text. Address Click here to enter text. Email Click here to enter text. Phone Click here to enter text. Contact 2 Name Click here to enter text. Position Click here to enter text. Address Click here to enter text. Email Click here to enter text. Phone Click here to enter text.

5. Personnel of the authority(ies) that regulate or supervise the foreign institution that can be contacted by the Bank of Mexico for any matter related to the recognition procedure

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Authority Click here to enter text. Name Click here to enter text. Position Click here to enter text. Address Click here to enter text. Email Click here to enter text. Phone Click here to enter text.

II. Description of the foreign institution acting as a central counterparty

1. Legal Framework a. General description of the applicable legal and regulatory framework Click here to enter text. b. Detail of the requirements Relevant Requirements Legislative or regulatory requirements to the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and support documents) i. Procedures for the management of legal risk. Click here to enter text. Click here to enter text. ii. Rules for the intervention of clearing members in case of defaults. Click here to enter text. Click here to enter text. iii. Statutory requirements and other requirements that clearing members must meet. Click here to enter text. Click here to enter text. iv. Measures adopted to ensure the financial integrity of the foreign institution acting as a central counterparty, such as the determination of contributions, the mutualization of risks among clearing members, as well as other complementary corrective measures. Click here to enter text. Click here to enter text. v. Applicable regulation on security measures to preserve the confidentiality of information. Click here to enter text. Click here to enter text.

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vi. Applicable regulation for the reporting of transactions to a TR. Click here to enter text. Click here to enter text.

2. Organization a. Description of the relevant aspects of the corporate governance structure, including its legal nature Click here to enter text. b. Detail of the requirements Relevant Requirements Legislative or regulatory requirements to the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and support documents) i. Integration, functions and responsibilities of the Board of Directors (or equivalent body), senior management and compliance officer, including a list with the names of the shareholders or owners of the foreign institution acting as a central counterparty, with their participation percentage; as well as a list of officials, directors, governors and members of the permanent committees. Click here to enter text. Click here to enter text. ii. Policies and procedures to resolve conflicts of interest. Click here to enter text. Click here to enter text. iii. Permanent audit programs applied to the participants of the foreign institution acting as a central counterparty, as well as the mechanisms that allow monitoring the financial situation of said participants. Click here to enter text. Click here to enter text.

3. Risks and risk management practices a. General description of the main risks faced by the foreign institution, as well as the main policies, procedures and systems for their administration. Click here to enter text. b. Detail of the requirements Relevant Requirements Legislative or regulatory requirements to the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and support documents) i. The comprehensive framework of policies, procedures and systems for the comprehensive management of the risks to which the central counterparty is exposed, including credit, liquidity, operational, legal and business risk. Click here to enter text. Click here to enter text. ii. The policies, procedures and mechanisms for the measurement, administration and monitoring of credit risk. Click here to enter text. Click here to enter text. iii. Structure of the safety net of the foreign institution acting as a central counterparty. In particular:

• Methodology to determine resources for the default fund
• Scenarios and stress tests, historical and hypothetical, to estimate Cover 1, and in its case Cover 2, including assumptions, models, policies to calibrate the model and financial resources to cover losses. Click here to enter text. Click here to enter text. iv. Minimum capital requirements for clearing members. Click here to enter text. Click here to enter text. v. Policies and methodologies to determine and value the guarantees and haircuts applicable. Click here to enter text. Click here to enter text. vi. Initial and variation margin methodologies, including: a) assumptions and parameters, b) review policies, c) criteria for netting with other derivative contracts and the use of portfolio compression, d) retrospective tests, d) calibration and sensitivity models, f) availability of price sources and other information sources, g) valuation models and h) a demonstration of the margin methodology Click here to enter text. Click here to enter text.

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applied to real scenarios. vii. Standards, agreements and procedures to identify, manage and mitigate liquidity risk. Additionally, explain how the foreign institution will establish and maintain resources to guarantee daily processing, netting and settlement. Click here to enter text. Click here to enter text.

4. Services, functions and markets a. General description of the services provided to participants, the functions performed, as well as the markets in which it carries out its activities and the role it plays in them Click here to enter text.

5. Information on Derivative Transactions, including Standardized Derivative Transactions a. List of derivative contracts or products Click here to enter text. b. Detail of the requirements Relevant Requirements Legislative or regulatory requirements to the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and support documents) i. Terms and conditions of each derivative contract listed in subsection a. Click here to enter text. Click here to enter text. c. Statistical information of each derivative contract or product, particularly regarding liquidity, depth, type of participants, as well as amounts regarding transactions accepted for settlement and those that are currently in force. Click here to enter text.

6. Participation a. General description of the access requirements to the services of the foreign institution and the permanence of clearing members, as well as the types of participation of said clearing members that, if applicable, such institution provides Click here to enter text. b. Detail of the requirements Relevant Requirements Legislative or regulatory requirements to the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and support documents)

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i. Participation criteria and concentration limits. Exposure and operation limits, as well as other risk filters imposed on clearing members. Click here to enter text. Click here to enter text.

7. Procedures in case of defaults a. General description of the procedures implemented by the foreign institution to address the default of its participants, including payment defaults and shortfalls of clearing members Click here to enter text. b. Detail of the requirements Relevant Requirements Legislative or regulatory requirements to the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and support documents) i. Rules and procedures regarding defaults, including the events that constitute the default of a clearing member and the procedure to address the deficiencies that arise as a consequence of a default. Also, after the default of a clearing member, provide a description and documentation on the authority and methods to take measures, such as the liquidation of positions, hedging, auctions, transfer of customer accounts of a clearing member to another. Click here to enter text. Click here to enter text.

8. Segregation of accounts and portability of resources and positions a. General description of the account structure, as well as mechanisms for the segregation and portability of both margins and positions of participants Click here to enter text. b. Detail of the requirements Relevant Requirements Legislative or regulatory requirements to the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and support documents)

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i. Rules and procedures that allow for the segregation and mobility of positions and resources that clearing members deliver to the foreign institution acting as a central counterparty, whether on its own account or on behalf of its clients.

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9. Investment and Custody of Resources

a. General description of the investment and custody policy for the resources held by the foreign institution

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b. Detail of requirements

Relevant Requirements Legislative or regulatory requirements for the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and supporting documents)

i. Documentation demonstrating how client resources are custodied and invested, and how the foreign institution obtains and maintains records and information related to such investments.

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10. Operational Processes

a. Description of the main operational processes, highlighting the manner in which it carries out the acceptance, processing, clearing, settlement, and irrevocability of operations, as well as margin requirements

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b. Detail of requirements

Relevant Requirements Legislative or regulatory requirements for the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and supporting documents)

i. Mechanisms for the receipt, clearing, and settlement of contracts; receipt and delivery of margins.

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ii. Mechanisms and systems for the storage, safeguarding, and

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Thursday, March 31, 2016 OFFICIAL GAZETTE (Third Section) 15

administration of information, including the obligation to report its operations.

iii. Business continuity plans.

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iv. Timelines and schemes for liquidation procedures.

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11. Connectivity with Other Infrastructures

a. List of other financial market infrastructures with which a connection has been established

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b. Detail of requirements

Relevant Requirements Legislative or regulatory requirements for the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and supporting documents)

i. Procedures regulating information exchange agreements or interconnection agreements with other central counterparties.

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ii. Connection mechanisms with the stock exchange and/or trading platforms or platforms from abroad.

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12. Business Continuity

a. General description of business continuity plans

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b. Detail of requirements

Relevant Requirements Legislative or regulatory requirements for the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and supporting documents)

i. The management of general business risk. In particular:

• The business recovery plan and
• Policies and standards for identifying and mitigating business risk.

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ii. Minimum capitalization requirement for the foreign institution and its management and investment policy.

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Thursday, March 31, 2016 OFFICIAL GAZETTE (Third Section) 16

iii. The hypothetical capital (Kcc), as well as the other aggregated variables that are relevant for the application of the method to determine the "capital requirements for exposure to the default fund of clearing houses" provided for in the "Capital requirements for banking exposures to central counterparties" published by the Basel Committee on Banking Supervision, as well as the publication policy.

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13. Communication and Information Disclosure Procedures

b. Detail of requirements

Relevant Requirements Legislative or regulatory requirements for the foreign institution in the jurisdiction of origin (Refer to laws and/or regulation) Description and justification of compliance by the foreign institution (Refer to internal regulations and supporting documents)

i. The standards and procedures for communication to facilitate the registration, payment, clearing, and settlement of operations.

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ii. The fees applicable for the provision of services.

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iii. The formats for the registration of information that must be kept available to the Authorities, as well as the type of information that is disseminated to the public.

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iv. Policy for the disclosure of information to the general public, as well as the publication of audited financial statements.

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14. In the event that recognition as a central counterparty has been obtained or is in process in other jurisdiction(s), briefly describe the activities and services that are or will be provided pursuant to said procedure, as well as the instruments in question.

Jurisdiction Instruments Activities and services Supporting documents

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Thursday, March 31, 2016 OFFICIAL GAZETTE (Third Section) 17

TRANSITORY PROVISIONS

FIRST.- This Circular shall enter into force on the next business day following its publication in the Official Gazette of the Federation.

SECOND.- Those foreign institutions that, prior to the entry into force of this Circular, have submitted to the Bank of Mexico their application to obtain recognition as a central counterparty in derivatives exchanges and/or over-the-counter markets abroad, shall follow the recognition process in accordance with what is provided in Annex 3 of this Circular.

Mexico City, March 28, 2016.- The General Legal Director, Luis Urrutia Corral.- Initials.- The General Director of Central Bank Operations, Jaime José Cortina Morfín.- Initials.- The General Director of Financial Stability, Pascual Ramón O’Dogherty Madrazo.- Initials.- The General Director of Financial System Affairs, Jesús Alan Elizondo Flores.- Initials.- The Director of Payment Systems, Manuel Miguel Ángel Díaz Díaz.- Initials.

For any inquiries regarding the content of this Circular, please contact the Management of Authorizations, Consultations, and Legal Control, at the phone numbers (55) 5237-2308, (55) 5237-2317, or (55) 5237-2000 Ext. 3200.