Regulatory Alerts2017-03-30 | Circular 6/2017Added
Circular 6/2017 — Modification to Circular 3/2017 (Rules for Foreign Exchange Cover Auctions)
The Bank of Mexico modifies the Rules for Foreign Exchange Cover Auctions to establish a market-aligned exchange rate as the reference for settlement, aiming to reduce transaction costs for credit institutions. The amendment introduces new auction types, specifically 'Maturity Auctions' and 'Initiation Auctions', and defines the 'Forward Exchange Differential Unit' for calculating bids. It updates assignment criteria, settlement procedures, and the calculation of revaluation exchange rates using Thomson Reuters data, while adding new confirmation templates and deposit segregation requests to the annexes.
Thursday, March 30, 2017 OFFICIAL GAZETTE (Third Section) THIRD SECTION BANK OF MEXICO CIRCULAR 6/2017 addressed to credit institutions, regarding the Modification to Circular 3/2017 (Rules for Foreign Exchange Cover Auctions).
A logo appears at the margin, stating: Bank of Mexico.
CIRCULAR 6/2017 TO CREDIT INSTITUTIONS: SUBJECT: MODIFICATION TO CIRCULAR 3/2017 (RULES FOR FOREIGN EXCHANGE COVER AUCTIONS)
The Bank of Mexico, with the purpose of continuing to promote the sound development of the financial system, and in compliance with the agreement adopted by the Exchange Commission on the 28th day of the current month, considering that, with respect to the foreign exchange covers celebrated by the Bank itself, in terms of the Rules for the auctions of such operations issued through Circular 3/2017 published in the Official Gazette of the Federation on February 24 of this year, it is convenient to reflect conditions so that the credit institutions that subscribe to them avoid higher transaction costs due to the settlement of such operations, has resolved to modify the aforementioned Rules to establish as the reference for the calculation of such settlement an exchange rate consistent with the market conditions related to the respective transactions.
For the above, based on articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 7, first paragraph, fraction X and second paragraph, 14, 21, first paragraph, 22, fraction II, 24 and 32, of the Bank of Mexico Law, 22 of the Law for Transparency and Ordering of Financial Services, 8, paragraphs fourth and seventh, 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 Affiliation of the Administrative Units of the Bank of Mexico, has resolved to modify the 2nd in the definitions of Auction, Assignment Exchange Rate and Settlement Exchange Rate, first paragraph of the 5th, second paragraph of the 6th, 7th, third paragraph of the 9th, 11th, second paragraph of the 14th, and first and second paragraphs of the 15th, and Annexes 1, 2, 4 and 7, and to add to the 2nd the definition of Auction at Maturity, Initiation Auction and Forward Exchange Differential Unit, a Chapter IV Bis and an Annex 2 Bis of the “Rules for Foreign Exchange Cover Auctions”, contained in Circular 3/2017, to remain in the following terms:
RULES FOR FOREIGN EXCHANGE COVER AUCTIONS
“2nd. Definitions.- ... I. to XVI. ... XVII. Auction: to the Initiation Auction and the Maturity Auction, jointly or interchangeably. XVII Bis. Maturity Auction: to the Foreign Exchange Cover Auction that the Bank of Mexico will carry out when it so determines, in accordance with these Rules, on Banking Business Days corresponding to the respective maturities of the terms of the Foreign Exchange Covers previously celebrated, for an amount equal to or less than that of the latter. XVII Ter. Initiation Auction: to the Foreign Exchange Cover Auction to be celebrated for the first time, which will be carried out by the Bank of Mexico, in accordance with what is provided in these Rules. XVIII. ... XIX. Assignment Exchange Rate: to the corresponding Exchange Rate: (i) to the bid presented by the credit institution that has been assigned in the respective Initiation Auction, or (ii) to that which the Bank of Mexico determines and makes known, in terms of the 12a. Bis of these Rules, in the respective Maturity Auction. XX. Settlement Exchange Rate: to the Exchange Rate that will be used as a reference in accordance with what is provided in these Rules, and which corresponds: (i) to that named “Thomson Reuters WM US Dollar/Mexican Peso Spot 4pm London Closing Rates”, made known by the foreign information service provider company, named Thomson Reuters, corresponding to the Banking Business Day on which the term of the Foreign Exchange Cover in question expires, or (ii) to the Exchange Rate that the Bank of Mexico determines in substitution and makes known through the address <http://webdgobc>. XXI. to XXII ... XXII Bis. Forward Exchange Differential Unit: to the figure expressed in ten-thousandths of pesos per Dollar. XXIII. ... ...”
“5th. Requirements to present bids in Auctions.- Credit institutions interested in participating in the Auctions must previously celebrate a contract with the Bank of Mexico by which, on the one hand, they agree to be subject to the terms and conditions applicable to Foreign Exchange Cover operations they celebrate in accordance with these Rules and, on the other hand, establish the constitution of the Guarantees referred to in these Rules. For the purposes of the foregoing, credit institutions must present to the Operations Instrumentation Management a certified copy and a simple copy of the deed in which the powers to exercise acts of domain granted to the persons who will sign the respective contract on behalf of the corresponding credit institution are recorded, as well as a simple copy of the official identifications issued by some federal authority of said persons. ...”
“6th. Types of Auctions.- ... The two types of Auctions referred to in this Rule will be carried out based on a multiple price assignment, that is, the offered amount of Foreign Exchange Covers will be assigned starting from the highest bid, in terms of what is stated in the 11th of these Rules.”
“7th. Characteristics.- Bidding Institutions must present, in each Auction, competitive bids, in such a way that they indicate in the types of Auctions indicated below the following: I. Initiation Auctions: a) The Exchange Rate, expressed in four decimals, that the Bidding Institution is willing to have established as the Assignment Exchange Rate for the Foreign Exchange Cover it celebrates as a result of the Initiation Auction in question, and b) The amount in Dollars for which the Bidding Institution is willing to celebrate the Foreign Exchange Cover, which must be, as a minimum, of one million Dollars or multiples of that amount. II. Maturity Auctions: a) The result of multiplying the Forward Exchange Differential Units by ten thousand, which must be expressed in non-fractional units of pesos per a Dollar, and b) The amount in Dollars for which the Bidding Institution is willing to celebrate the Foreign Exchange Cover, which must be, as a minimum, of one million Dollars or multiples of that amount.”
“9th. Presentation of bids.- ... ... In the event that bids cannot be presented through SUBCAM-BANXICO, the Bank of Mexico, in an extraordinary manner, will authorize that they be presented, within the schedule established for the celebration of the respective Auction, by telephone communication with the staff of the Sub-Manager of National Exchanges or through any other authorized electronic, computing or telecommunications medium for this purpose by the Bank of Mexico, as it makes known to Bidding Institutions on its opportunity. Bidding Institutions that present bids under the assumption of this paragraph must confirm their bids in writing addressed to the National Operations Management of the Bank of Mexico presented in a closed envelope, no later than 17:00:00 hours of the same Banking Business Day of the respective Auction, in a format substantially equal to the one attached to these Rules as Annex 2 or Annex 2 BIS, as applicable, accompanied by a cover letter for each call for the Auction in question. ...”
“11th. Assignment Criteria.- The Bank of Mexico will assign the respective bids in the Auctions in question in accordance with the following processes corresponding to the types of Auctions indicated below: I. Initiation Auctions: According to the descending order of the Exchange Rates indicated in the bids in question, without exceeding the total amount that the Bank of Mexico has offered in the respective call. In the event that the value of the total bids exceeds said auctioned amount, only those with an accumulated value equal to this will be accepted. In the event that two or more Bidding Institutions present their bids with the same Exchange Rate and that, according to the order indicated in the previous paragraph, they remain in the last place of assignment to cover the total amount offered by the Bank of Mexico in the respective Initiation Auction, in such a way that the total amounts of the bids with higher Exchange Rates do not reach to cover said offered amount, but that the sum of the amounts of these last bids exceeds this last amount, the assignment of these last ones will be made pro rata according to the amount indicated in said bids, when it is a traditional Initiation Auction, or according to the order in which they were received when the corresponding Initiation Auction is interactive, in accordance with what is indicated in the 6th of these Rules. II. Maturity Auctions: According to the descending order of the Forward Exchange Differential Units indicated in the bids in question, without exceeding the total amount that has been offered in the respective call. In the event that the value of the total bids exceeds said auctioned amount, only those with an accumulated value equal to this will be accepted. In the event that two or more Bidding Institutions present their bids with the same Forward Exchange Differential Units and that, according to the order indicated in the previous paragraph, they remain in the last place of assignment to cover the total amount offered by the Bank of Mexico in the respective Maturity Auction, in such a way that the total amounts of the bids with higher Forward Exchange Differential Units do not reach to cover said offered amount, but that the sum of the amounts of these last bids exceeds this last amount, the assignment of these last ones will be made pro rata according to the amount indicated in said bids, when it is a traditional Maturity Auction, or according to the order in which they were received when the corresponding Maturity Auction is interactive, in accordance with what is indicated in the 6th of these Rules. In the event that, during the period between the presentation of the bids and the moment when the Bank of Mexico makes known the result of the Auctions, failures occur in the systems used for this purpose, the Auction will be declared void, even in the case where the Bank of Mexico has received bids. In this case, the Bank of Mexico will call for a new Auction on the same day, by the same medium or, in the absence of provision of this, by any other electronic, computing or telecommunications medium authorized for this purpose by the Bank of Mexico and made known to credit institutions.”
“CHAPTER IV BIS ASSIGNMENT EXCHANGE RATE CORRESPONDING TO MATURITY AUCTIONS
12a. Bis. Calculation of the Assignment Exchange Rate corresponding to Maturity Auctions.- The Bank of Mexico will determine the Assignment Exchange Rate, applicable to the Foreign Exchange Covers celebrated by the Assigned Institutions that correspond to the Maturity Auctions, as the result of the following arithmetic sum of: (i) the Forward Exchange Differential Units that result with assignment in terms of fraction II, of the 11th of these Rules, plus (ii) the Settlement Exchange Rate corresponding to the date of the Maturity Auction in question. For the purposes of settlement, guarantee and early maturity provided for in Chapters V and VI of these Rules, respectively, the Assigned Institutions that celebrate Foreign Exchange Covers as a result of the Maturity Auctions must use as the Assignment Exchange Rate that which the Bank of Mexico determines in accordance with the previous paragraph and makes known to the Assigned Institutions for this purpose through the address << http://webdgobc >>.”
“14th. Settlement.- ... What is provided in this Rule will be applicable to the Foreign Exchange Covers celebrated by the Bank of Mexico with the Assigned Institutions with respect to which the Bank of Mexico carries out Maturity Auctions, so their settlement must be carried out in accordance with this Rule independently of whether the aforementioned Assigned Institutions, in turn, result with a new assignment in said Maturity Auctions.”
“15th. Determination of the value of Foreign Exchange Covers.- The Bank of Mexico will calculate, on each Banking Business Day, the value of each of the Foreign Exchange Covers celebrated by the Assigned Institutions that are in force, as the equivalent result of multiplying: (i) the amount of the Foreign Exchange Cover that has been assigned in the corresponding Auction, by (ii) the result of subtracting, from the Revaluation Exchange Rate, the corresponding Assignment Exchange Rate. The value of those Foreign Exchange Covers whose Assignment Exchange Rate is greater than the Revaluation Exchange Rate will be considered as a liability of the respective Assigned Institution and, on the other hand, the value of those Foreign Exchange Covers whose Assignment Exchange Rate is less than the Revaluation Exchange Rate will be considered as an asset of that same Assigned Institution. Once the Bank of Mexico carries out the calculation of the value referred to in the previous paragraph, for each Foreign Exchange Cover celebrated by the same Assigned Institution, it will calculate the added value of all the Foreign Exchange Covers celebrated by this one that are in force, as the result of the following arithmetic subtraction: (i) the sum of the amounts equivalent to the value of the Foreign Exchange Covers as a liability of that Assigned Institution, minus (ii) the sum of the amounts equivalent to the value of those other Foreign Exchange Covers as an asset of that Assigned Institution. ...”
“ANNEX 1 DETERMINATION OF THE REVALUATION EXCHANGE RATE The Revaluation Exchange Rate calculated on the date for an operation with a maturity date is: where: Valuation Date Maturity Date of the operation Revaluation Exchange Rate on the day with maturity date Settlement Exchange Rate corresponding to the day , based on the published information according to the following identifier: Identifier USDMXNFIX=WM
Thursday, March 30, 2017 OFFICIAL GAZETTE (Third Section) Forward Exchange Differential Units on the day with Term calculated based on the published information according to the following identifier 1: Identifier Example for 1 month USDMXN[term]FIX=WM USDMXN1MFIX=WM
“ANNEX 2 MODEL OF CONFIRMATION OF THE BIDS PRESENTED TO PARTICIPATE IN THE INITIATION AUCTION OF FOREIGN EXCHANGE COVERS (LETTERHEAD OF THE CREDIT INSTITUTION) Mexico City, on _____ of ___________ of ________ BANK OF MEXICO NATIONAL OPERATIONS MANAGEMENT 5 de Mayo Avenue number 6 Centro Neighborhood, Mexico City, C.P. 06059. Present.
Full Name of the Credit Institution: ___________________________ Date of the corresponding Initiation Auction: ___________________________ (date of the assignment that, if applicable, corresponds to the Auction) Settlement Date: ___________________________ (maturity date of the Foreign Exchange Cover in question)
Exchange Rate (pesos per one unit of Dollar expressed in four decimals) Bid Amount (minimum one million Dollars or its multiples)
This communication serves to record the confirmation of the bids presented to the Bank of Mexico today by the credit institution on whose behalf this same communication is signed to participate in the Foreign Exchange Cover Auctions, which correspond to those referred to the data preceding. Regarding this, this credit institution acknowledges that the bids indicated in this communication are mandatory for the institution itself and irrevocable, will produce the broadest effects that correspond in law, and imply the acceptance of the credit institution itself to be subject to the “Rules for Foreign Exchange Cover Auctions”, issued by the Bank of Mexico through Circular 3/2017, in force today, as well as to the other terms and conditions of the call of date ______ of ______________________ of ______. The terms included in this communication with initial capital have the meanings assigned to them in the cited Rules.
1 Corresponds to that named “Thomson Reuters WM US Dollar/Mexican Peso Forward 4pm London Closing Rates”, made known by the foreign information service provider company, named Thomson Reuters. The Bank of Mexico may modify if necessary, both the information source and the references used for the calculation of the Revaluation Exchange Rate, such modification will be made known through the address << http://webdgobc >>.”
(Third Section) OFFICIAL GAZETTE Thursday, March 30, 2017 Sincerely, (FULL NAME OF THE BIDDING INSTITUTION) (NAME AND SIGNATURE OF AUTHORIZED OFFICIALS)”
“ANNEX 2 BIS MODEL OF CONFIRMATION OF THE BIDS PRESENTED TO PARTICIPATE IN THE MATURITY AUCTION OF FOREIGN EXCHANGE COVERS (LETTERHEAD OF THE CREDIT INSTITUTION) Mexico City, on _____ of ___________ of ________ BANK OF MEXICO NATIONAL OPERATIONS MANAGEMENT 5 de Mayo Avenue number 6 Centro Neighborhood, Mexico City, C.P. 06059. Present.
Full Name of the Credit Institution: ___________________________ Date of the corresponding Maturity Auction: ___________________________ (date of the assignment that, if applicable, corresponds to the Auction) Settlement Date: ___________________________ (maturity date of the Foreign Exchange Cover in question)
Forward Exchange Differential Units (expressed in whole numbers) Bid Amount (minimum one million Dollars or its multiples)
This communication serves to record the confirmation of the bids presented to the Bank of Mexico today by the credit institution on whose behalf this same communication is signed to participate in the Foreign Exchange Cover Auctions, which correspond to those referred to the data preceding. Regarding this, this credit institution acknowledges that the bids indicated in this communication are mandatory for the institution itself and irrevocable, will produce the broadest effects that correspond in law, and imply the acceptance of the credit institution itself to be subject to the “Rules for Foreign Exchange Cover Auctions”, issued by the Bank of Mexico through Circular 3/2017, in force today, as well as to the other terms and conditions of the call of date ______ of ______________________ of ______. The terms included in this communication with initial capital have the meanings assigned to them in the cited Rules. Sincerely,
Thursday, March 30, 2017 OFFICIAL GAZETTE (Third Section) (FULL NAME OF THE BIDDING INSTITUTION) (NAME AND SIGNATURE OF AUTHORIZED OFFICIALS)”
(Third Section) OFFICIAL GAZETTE Thursday, March 30, 2017 “ANNEX 4 COMMUNICATION TO THE OPERATIONS MANAGEMENT MANAGEMENT TO REQUEST THE SEGREGATION OF DEPOSITS IN THE FOREIGN EXCHANGE COVER GUARANTEES ACCOUNT (PAPER WITH LETTERHEAD OF THE CREDIT INSTITUTION) Mexico City, on __ of___ of 20__ BANK OF MEXICO Operations Management Management 5 de Mayo Avenue, number 6 Centro Neighborhood, Mexico City, C.P. 06059 Present.
Through this, for the purposes of what is established in the 16th of the “Rules for Foreign Exchange Cover Auctions” issued by that Bank of Mexico through Circular 3/2017, I request to the Bank of Mexico on behalf of (Full name of the credit institution), that it carry out the actions that result necessary to segregate from the Deposits indicated below, the corresponding amounts in the deposit account for Foreign Exchange Cover guarantees that it holds at this Institution, in order to guarantee the position at our charge of the Foreign Exchange Cover operations celebrated based on the cited Circular.
TYPE OF DEPOSIT AMOUNT Monetary regulation deposits: $_______________________ Term deposits derived from the auctions that the Bank of Mexico carries out to receive term deposits: $_______________________ Term deposits celebrated in accordance with the procedure for the determination of the interbank equilibrium interest rate: $_______________________ Deposits of the account in United States Dollars: $_______________________ Sincerely, Name, signature and position of the official or officials of the Institution c.c.p.: Support Direction for Operations Sub-Manager of Operations Management with Account Holders This communication may be directed to the email account indicated below: Email Account coberturas_cambiarias@banxico.org.mx”
Thursday, March 30, 2017 OFFICIAL GAZETTE (Third Section)
“ANNEX 7 COMMUNICATION TO THE OPERATIONS MANAGEMENT DEPARTMENT TO REQUEST THE TERMINATION OF THE GUARANTEE CONSTITUTED ON DEPOSITS (PAPER WITH THE LETTERHEAD OF THE CREDIT INSTITUTION) Mexico City, on __ of ___ of 20__
BANCO DE MÉXICO Operations Management Department Avenida 5 de Mayo, number 6 Centro Neighborhood, Mexico City, C.P. 06059
Present.
Through this document, for the purposes of what is established in the 18th rule of the “Rules for Foreign Exchange Coverage Auctions” issued by this Banco de México through Circular 3/2017, I request that Banco de México, on behalf of (Full name of the credit institution), carry out the necessary actions for the termination of the Guarantee constituted on the Deposits indicated below, the corresponding amounts of the deposit account for guarantees of Foreign Exchange Coverages held by this Institution in order to guarantee the position under our charge for Foreign Exchange Coverage operations carried out in accordance with the aforementioned Circular, which are mentioned below:
TYPE OF DEPOSIT AMOUNT Regulatory monetary deposits: $_______________________ Time deposits derived from the auctions that Banco de México carries out to receive time deposits: $_______________________ Time deposits carried out in accordance with the procedure for determining the equilibrium interbank interest rate: $_______________________ Deposits in the United States dollar account: $_______________________
Sincerely,
Name, signature, and position of the official or officials of the Institution
c.c.p.: Operations Support Directorate Sub-Management of Operations Management with Account Holders
This communication may be directed to the email account indicated below: Email Account coberturas_cambiarias@banxico.org.mx”
(Third Section) OFFICIAL GAZETTE Thursday, March 30, 2017
TRANSITORY PROVISIONS
FIRST.- The provisions of this Circular shall enter into force on April 3, 2017, except as provided in the following Second Transitory Rule.
SECOND.- Credit institutions that, prior to the entry into force of this Circular, have entered into the respective pledge and stock pledge contracts with Banco de México to guarantee foreign exchange coverage operations that are perfected as a result of the auctions carried out under the Rules for Foreign Exchange Coverage Auctions contained in Circular 3/2017 issued by this Central Bank and published in the Official Gazette of the Federation on February 24, 2017, must manifest to Banco de México, through a written document signed by the persons who hold the same powers as those foreseen for the celebration of said contracts, their knowledge and agreement with the additions and modifications contained in this Circular, in order to be able to participate in the Foreign Exchange Coverage Auctions carried out by the Central Bank.
Additionally, those Assigned Institutions that, in accordance with Circular 3/2017 issued by this Banco de México and published in the Official Gazette of the Federation on February 24, 2017, have carried out Foreign Exchange Coverages that, at the date of entry into force of this Circular, are pending settlement, may request Banco de México to carry out the modification to said operations in order that they remain subject to the same terms and conditions established in this Circular.
To formalize the acts foreseen in the two preceding paragraphs of this transitory rule, credit institutions must communicate with the National Operations Management at the telephone number (55) 5227-8642.
Mexico City, on March 28, 2017.- The General Director of Central Banking Operations, Jaime José Cortina Morfín.- Rubric.- The General Legal Director, Luis Urrutia Corral.- Rubric.
For any inquiries regarding the content of this Circular, please contact the Authorizations, Consultations, and Legal Control Management, at the telephone numbers (55) 5237-2308, (55) 5237-2317 or (55) 5237-2000, extension 3200.
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