Circular 6/2021 — Modifies the Securities Lending Rules

140 OFFICIAL GAZETTE Wednesday, September 22, 2021 BANCO DE MEXICO CIRCULAR 6/2021 addressed to Credit Institutions, Brokerage Houses, Investment Funds, Specialized Investment Societies for Retirement Funds, Insurance Institutions, Guarantee Institutions, and the National Financial Institution for Agricultural, Rural, Forest and Fisheries Development, in their securities lending operations, regarding the Modifications to the Rules to which credit institutions; brokerage houses; investment societies; specialized investment societies for retirement funds, and the Rural Financial Institution must adhere in their securities lending operations. At the margin, a logo that says: Bank of Mexico.- "2021, Year of Independence". CIRCULAR 6/2021 TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT FUNDS, SPECIALIZED INVESTMENT SOCIETIES FOR RETIREMENT FUNDS, INSURANCE INSTITUTIONS, GUARANTEE INSTITUTIONS AND THE NATIONAL FINANCIAL INSTITUTION FOR AGRICULTURAL, RURAL, FOREST AND FISHERIES DEVELOPMENT, IN THEIR SECURITIES LENDING OPERATIONS: SUBJECT: MODIFICATIONS TO THE RULES TO WHICH CREDIT INSTITUTIONS; BROKERAGE HOUSES; INVESTMENT SOCIETIES; SPECIALIZED INVESTMENT SOCIETIES FOR RETIREMENT FUNDS, AND THE RURAL FINANCIAL INSTITUTION MUST ADHERE IN THEIR SECURITIES LENDING OPERATIONS The Bank of Mexico, with the purpose of continuing to promote the sound development and stability of the financial system, as well as to foster the proper functioning of payment systems and the protection of the public's interests, has considered it necessary to update and modernize the regulatory framework for securities lending operations carried out by financial entities, in line with the recommendations of the financial authority bodies known as the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS), in order to strengthen the methodology used to calculate adjustment factors that seek to guarantee net exposure in securities lending operations through a procedure aimed at avoiding procyclicality, and to contribute to improving liquidity, security, depth and development of markets, as well as to include insurance and guarantee institutions as entities that can carry out securities lending operations in their capacity as lenders, establish the possibility that all entities provided for in the Rules can clear and settle their operations with a central securities counterparty, and expand the universe of titles that can be the subject of securities lending operations. For the above, based on articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 24 and 26, of the Bank of Mexico Law, 81, paragraph second, of the Credit Institutions Law, 176 of the Securities Market Law, 15 of the Investment Funds Law, 48, section VI, of the Savings Systems for Retirement Law, 132 and 157, of the Insurance and Guarantee Institutions Law, 4, paragraph first, 8, paragraphs fourth and eighth, 10, paragraph first, 12 Bis, paragraph first, in relation to 20 Quáter, section IV, 14, paragraph first, in relation to 25, section VII, 14 Bis, paragraph first, in relation to 17, section I, 14 Bis 1, paragraph first, in relation to 25 Bis 1, section IV and 19 Bis, section V, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Directorate of Payment Systems and Market Infrastructures, the General Directorate of Financial Stability, the General Legal Directorate, the General Directorate of Affairs of the Financial System and the National Operations Directorate, respectively, as well as Second, sections I, IV, VI, X and XVII, of the Agreement on the Attachment of Administrative Units of the Bank of Mexico, has resolved to modify the title of the Rules, the first paragraph and the definitions of "Shares", "Authority (ies)", "Savings Protection Bonds (BPAS)", "BREMS", "Currencies", "Entities", "Foreign Financial Entities", "Rural Financial Institution", "Institutional Investors", "Trading Mechanisms", "Reference Countries", "Siefores", "Titles", "Bank Titles", "Structured Titles", "UDIS", "Securities", "Foreign Securities" and "Government Securities" of numeral 1, numerals 2.1, 2.2, 2.3, 3.1, 3.2, 3.4, 4.1, 4.2, 5.1, 6.1, 6.2, 7.1, 7.3, 8.1, 8.2, 9.1, 9.2, 9.3, 9.4, 10.1, 10.5, 10.8, 10.9, 10.10, 11.1, 11.2, 12. and 12.1, add the definitions of "Stock Exchange", "Certificates", "Central Securities Counterparties", "Banking Business Day", "Investment Funds", "Guarantee Institutions" and "Insurance Institutions" to numeral 1, numerals 2.4, 2.5 and 3.2 Bis, and repeal the definitions of "Qualified Investors" and "Investment Societies" of numeral 1, numerals 3.3, 7.2, 12.2, 12.3 and 12.4, as well as Annex 1, of the "Rules to which credit institutions; brokerage houses; investment societies; specialized investment societies for retirement funds, and the Rural Financial Institution must adhere in their securities lending operations", issued by the Bank of Mexico on January 12, 2007, to remain in the following terms:

"RULES TO WHICH CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT FUNDS, SPECIALIZED INVESTMENT SOCIETIES FOR RETIREMENT FUNDS, INSURANCE INSTITUTIONS, GUARANTEE INSTITUTIONS AND THE NATIONAL FINANCIAL INSTITUTION FOR AGRICULTURAL, RURAL, FOREST AND FISHERIES DEVELOPMENT MUST ADHERE IN THEIR SECURITIES LENDING OPERATIONS"

1. DEFINITIONS "For the purposes of these Rules, the following shall be understood, in singular or plural, as: Shares: to the titles representing the share capital of companies domiciled in any of the Reference Countries that are: i) registered in the National Securities Registry, or ii) listed in the International Quotation System, including ordinary participation certificates on the aforementioned titles, as well as capital contribution certificates representing the share capital of development banking institutions; when they are registered in the aforementioned Registry. Authorities: to the Bank of Mexico, the National Banking and Securities Commission, the National Commission for the Savings System for Retirement, the National Insurance and Guarantee Commission and the Secretariat of Finance and Public Credit. Stock Exchange: to the anonymous society organized with such character in accordance with the provisions contained in the Securities Market Law. Savings Protection Bonds (BPAS): to the securities issued by the Institute for the Protection of Banking Savings in terms of the Federal Revenue Law for the corresponding fiscal year, with respect to which the Bank of Mexico acts as financial agent for their issuance, placement, purchase and sale in the national market, registered in the National Securities Registry referred to in the Securities Market Law. BREMS: to the Monetary Regulation Bonds issued by the Bank of Mexico, registered in the National Securities Registry referred to in the Securities Market Law. ... Certificates: to the real estate fiduciary and indexed exchange certificates, referred to in sections II and III of article 63 Bis 1 of the Securities Market Law. For the purposes of these Rules, real estate fiduciary exchange certificates must, at the time of the celebration of the Securities Lending operation in question, have at least one calendar year of quotation in any Stock Exchange and, individually, a market capitalization of at least five billion pesos. Central Securities Counterparties: to the anonymous societies organized with such character in accordance with the provisions contained in the Securities Market Law. ... Banking Business Day: to the calendar day other than that on which Credit Institutions must close their doors and suspend operations, in terms of the general provisions issued for such effect by the National Banking and Securities Commission, as well as to the business day in the jurisdiction or jurisdictions where the Securities subject to the Securities Lending are held in custody. Currencies: to United States dollars, as well as any other foreign currency that is freely transferable and immediately convertible to the aforementioned currency. Entities: to Credit Institutions, Brokerage Houses, Investment Funds, Siefores, Insurance Institutions, Guarantee Institutions and the FND.

142 OFFICIAL GAZETTE Wednesday, September 22, 2021 Foreign Financial Entities: to those authorized to act as financial entities by the competent authorities of the countries in which they are constituted. FND: to the National Financial Institution for Agricultural, Rural, Forest and Fisheries Development, a decentralized body of the Federal Public Administration, subject to its own Organic Law. Investment Funds: to the legal entities authorized to organize and function as such in terms of the Investment Funds Law. ... Guarantee Institutions: to the legal entities authorized to organize and function as such in terms of the Insurance and Guarantee Institutions Law. Insurance Institutions: to the legal entities authorized to organize and function as such in terms of the Insurance and Guarantee Institutions Law. Qualified Investors: Repealed. Institutional Investors: to the persons who have such character in terms of what is provided in the Securities Market Law, other than Investment Funds and Siefores. Trading Mechanisms: to those operated by societies authorized to administer systems to facilitate Securities Lending operations, in terms of the Securities Market Law. Reference Countries: to those corresponding to the authorities that are ordinary members of the Technical Committee of the International Organization of Securities Commissions, as well as to those that are part of the European Union. ... Siefores: to the specialized investment societies for retirement funds authorized to organize and function as such in terms of the Savings Systems for Retirement Law. Investment Societies: Repealed. Titles: to any debt security with a secondary market, that: a) is registered in the National Securities Registry referred to in the Securities Market Law, 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; b) is not included in any of the other definitions of these Rules; c) according to its term, has assigned, at the beginning of the operation, at least, by two securities rating institutions authorized by the National Banking and Securities Commission in terms of the applicable provisions, any of the qualifications included in the levels N1 to N13 of Annex 1, N1mx to N10mx of Annex 2, Ni to Niv of Annex 3, as well as Nimx to Nivmx of Annex 4, of Circular 39/2020 of the Bank of Mexico, published in the Official Gazette of the Federation on October 12, 2020, as modified by subsequent resolutions, and d) does not correspond to (i) a subordinate obligation; (ii) another debt title subordinate to the payment of obligations with higher priority, or (iii) any Structured Title. In the event that the Titles referred to in the previous paragraph do not have a credit rating on a local scale, the corresponding rating of the issuer of the title or, in its absence, the equivalent rating of the title on the global scale that, if applicable, corresponds to it in accordance with the aforementioned Circular or what the Bank of Mexico determines and makes known to the Entities, shall be taken. Bank Titles: to debt securities with a secondary market registered in the National Securities Registry provided for in the Securities Market Law, issued, accepted, guaranteed or guaranteed by Credit Institutions, except: a) subordinate obligations; b) other debt titles subordinate to the payment of obligations with higher priority, and c) Structured Titles. Structured Titles: to titles, other than Government Securities, whose yield is determined based on the variations observed in the prices of financial assets or of derivative operations on financial assets, including structured bank titles provided for in Title Second, Chapter I, Sections I, Section G, and III, Section E, of the "Applicable provisions to the operations of credit institutions, multiple-object financial societies regulated that maintain property links with credit institutions and the National Financial Institution for Agricultural, Rural, Forest and Fisheries Development" issued by the Bank of Mexico through Circular 3/2012, published in the Official Gazette of the Federation on March 2, 2012, as modified subsequently.

Wednesday, September 22, 2021 OFFICIAL GAZETTE 143 UDIS: to the units of account, whose value in national currency is published by the Bank of Mexico in the Official Gazette of the Federation, in accordance with articles Third of the "Decree by which obligations that may be called investment units are established and reforms and adds various provisions of the Federal Tax Code and the Income Tax Law" and 20 Ter of the Federal Tax Code. Securities: to the Certificates, Bank Titles, Government Securities, Foreign Securities, Savings Protection Bonds, BREMS and Titles. Foreign Securities: to debt titles with a secondary market, except subordinate obligations, other subordinate titles and Structured Titles, that are issued, accepted, guaranteed or guaranteed by international financial organizations, central banks and governments of Reference Countries other than Mexico and Foreign Financial Entities, as well as debt titles listed in the International Quotation System. Such titles, according to their term, at the beginning of the Securities Lending operation, must have assigned, at least by two securities rating institutions authorized by the National Banking and Securities Commission in terms of the applicable provisions, any of the qualifications included in the levels N1 to N13 of Annex 1, N1mx to N10mx of Annex 2, Ni to Niv of Annex 3, as well as Nimx to Nivmx of Annex 4 of Circular 39/2020 of the Bank of Mexico, published in the Official Gazette of the Federation on October 12, 2020, as modified by subsequent resolutions, and be registered, authorized or regulated, for sale to the general public, by the securities commissions or equivalent bodies of the Reference Countries. In the event that the Titles referred to in the previous paragraph do not have a credit rating on a local scale, the equivalent rating of the title on the global scale that, if applicable, corresponds to it in accordance with the aforementioned Circular or, in its absence, the rating corresponding to the issuer of the title, or what the Bank of Mexico determines and makes known to the Entities, shall be taken. Government Securities: to the securities registered in the National Securities Registry provided for in the Securities Market Law, issued or guaranteed by the Federal Government of the United Mexican States, except: the Certificates of the Treasury of the Federation issued under credit restructuring programs in investment units (Special Cetes), as well as any other that is not negotiable or does not have a secondary market."

2. OPERATIONS AND AUTHORIZED COUNTERPARTIES "2.1 Credit Institutions, Brokerage Houses and the FND may enter into Securities Lending on their own account with any natural or legal person. Credit Institutions that enter into Securities Lending with Shares and Securities, may enter into such lending without the intermediation of Brokerage Houses. Securities Lending with Foreign Securities that are not registered in the National Securities Registry provided for in the Securities Market Law, shall be subject in terms of intermediation to the provisions that are applicable." "2.2 Investment Funds may only enter into Securities Lending, in their capacity as borrowers or lenders, with Credit Institutions, Brokerage Houses or Foreign Financial Entities." "2.3 Siefores may only enter into Securities Lending, in their capacity as lenders, with Credit Institutions, Brokerage Houses or Foreign Financial Entities that meet the requirements that, for this effect, the National Commission for the Savings System for Retirement determines through general provisions." "2.4 Insurance Institutions and Guarantee Institutions may only enter into Securities Lending, in their capacity as lenders, with Credit Institutions, Brokerage Houses or Foreign Financial Entities. Insurance Institutions and Guarantee Institutions may enter into Securities Lending without the intermediation of Brokerage Houses." "2.5 Entities may clear and settle in Central Securities Counterparties the Securities Lending operations they enter into."

3. SECURITIES SUBJECT TO SECURITIES LENDING "3.1 Credit Institutions, Brokerage Houses and the FND may enter into Securities Lending on Shares and Securities. Likewise, Credit Institutions, Brokerage Houses and the FND may only enter into Securities Lending, in which they expressly agree that the Shares and Securities whose ownership the borrower is obliged to transfer to the lender, within the agreed term and in accordance with the agreed conditions, correspond to those to which the same "quotation code" or "issuance code" has been assigned, as applicable, in the respective stock exchange or securities market." "3.2 Investment Funds and Siefores may enter into Securities Lending with Shares or Securities as applicable, in the terms permitted by their law, as well as the provisions emanating from it, provided that they are provided for in their investment regime." "3.2 Bis Insurance Institutions and Guarantee Institutions may enter into Securities Lending on Shares and Securities." "3.3 Repealed." "3.4 Entities must deliver in Securities Lending and for the respective guarantee Shares and Securities that such Entities have at their unrestricted disposal, which must be, at all times, deposited in a Securities Depository."

4. TERMS "4.1 Entities may freely agree on the term of the Securities Lending they enter into, except as established in the following numeral." "4.2 The term of the Securities Lending entered into by Entities on Securities, including its extensions, must expire no later than the Banking Business Day preceding the maturity date of the Securities subject to the Securities Lending in question."

5. TRANSFERS "5.1 The transfer of the Shares and Securities subject to the Securities Lending by the lender to the borrower, may not be later than the fourth immediate Banking Business Day following the date on which the Securities Lending was agreed. At the maturity of the Securities Lending, the transfer of the Shares and Securities must be made on the same day of maturity." ...

6. PREMIUM "6.1 Entities may establish in the Securities Lending they enter into the denomination of the agreed premium that the borrower is obliged to pay as consideration in national currency, Currencies or in UDIS, regardless of the denomination of the Shares and Securities subject to the Securities Lending. In the event that the Entity enters into a Securities Lending with a counterparty other than Entities in which the premium is denominated in a currency or in UDIS different from that of the Shares and Securities subject to the Securities Lending, it must obtain and conserve an express and written declaration from said counterparty, by which it explicitly acknowledges the referred currency difference." "6.2 Entities must agree, in the Securities Lending they enter into, that the periods to be applied in the execution of such operations must be determined based on years of three hundred sixty days and the number of days effectively elapsed."

7. INTERESTS, PROPERTY RIGHTS AND CORPORATE RIGHTS "7.1 The Securities Lending entered into by Entities must provide for the obligation of the borrower to deliver to the lender the amount of the interests or returns paid by the respective issuers of the Securities subject to such Securities Lending, on the same Banking Business Day that they receive them, unless the parties stipulate otherwise." "7.2 Repealed." "7.3 Entities will exercise the corporate rights of the Shares subject to the Securities Lending in accordance with what is provided in the respective master contract."

8. INSTRUMENTATION AND CONFIRMATION "8.1 The Securities Lending that Entities enter into with other Entities or with Institutional Investors, must be carried out under the unique master contract that, for such operations, are jointly approved by the Mexican Bank Association, A.C., the Mexican Securities Institutions Association, A.C., and the Mexican Retirement Fund Administrators Association, A.C."

Wednesday, September 22, 2021 OFFICIAL GAZETTE 145

The aforementioned framework contract must contain, insofar as it does not contravene applicable national provisions, the guidelines and directives established in the contract models approved for this type of operation by the association constituted in the United States of America, known as the “Securities Industry and Financial Markets Association” (SIFMA), the “International Securities Lending Association” (ISLA) or the “Securities Industry Association”. Likewise, it must include the procedure to be followed in the event that the quotation on the Stock Exchange of the Shares or Securities subject to the Securities Lending or granted as collateral is suspended.

Likewise, the Entities must agree in the Securities Loans they enter into with the persons indicated in the first paragraph of this section the obligation of the borrower to constitute a guarantee that covers at all times the market value of the Securities or Shares given in Securities Lending. The Shares or Securities granted as collateral will incorporate the adjustment factor, determined in accordance with the procedure and guidelines described in this section. The initial guarantee must be constituted on the same value date as the transfer of the Shares or Securities subject to the Securities Lending.

The guarantee, determined in accordance with what is stated in the previous paragraph, which the borrower must in its case provide, may be constituted through pledge, stock pledge, guarantee trust or administration and payment trust, or pledge on the bank deposit of money.

The Entities, for the determination of the adjustment factors in the value of the Shares or Securities granted as collateral, must consider those resulting from the application of the methodology that, for such purposes, the Mexican Bank Association, A.C., and the Mexican Securities Market Association, A.C., agree upon, complying with the minimum guidelines described in items i) to iv) of this section. The aforementioned methodology along with the updated adjustment factors must be approved by the Bank of Mexico annually. For such purposes, the aforementioned associations must send to the Central Banking Authorizations and Consultations Management of the Bank of Mexico, for its approval the aforementioned documentation, at least thirty Banking Business Days in advance of the date on which they intend to start using the aforementioned table of adjustment factors. After the expiration of said period without any requirement from the Bank of Mexico, the table will be understood to be authorized.

Notwithstanding the foregoing, the Bank of Mexico may determine the adjustment factors that must be applied in the calculation of the guarantees referred to in this section, in substitution for or in the absence of those agreed by the respective aforementioned associations.

The Entities, for the determination of the aforementioned adjustment factor, must for each Share or Security granted as collateral observe the fluctuations in the price of such Shares or Securities, considering, at least, the following elements:

i) A historical period of five years. The period mentioned in this item must be composed of: (a) a fixed period that considers events that occurred during the 12-month period between August 2008 and July 2009, as well as the 12-month period between January and December 2013, and (b) a moving period that considers the events of the last three calendar years prior to the determination of the adjustment factor;

ii) Use a measure of expected loss conditioned to the fact that it is greater than or equal to the ninety-seven point five percentile of the tail of the distribution corresponding to losses due to value fluctuations also known as conditional value at risk;

iii) Consider the credit risk of the respective Shares or Securities taking into account the potential losses that these could generate due to credit degradation, and

iv) Incorporate, if applicable, an additional charge to the adjustment factor that considers the case in which there is a significant positive correlation between the credit risk of the Securities subject to the Securities Lending and the credit risk of the borrower.

Once the Entities determine the value of the Shares or Securities that are granted as collateral, in accordance with the adjustment factor to be implemented, in accordance with what is provided in items i) and iv) above, in Securities Lending operations to be arranged, the borrower must constitute daily the guarantees that result as appropriate, in order to cover at all times the market value of the Securities or Shares given in Securities Lending.

The Securities Lending that the Entities enter into with Foreign Financial Entities may be instrumented, in terms of the regulation applicable to them, under the framework contract referred to in the first paragraph of this section or under contracts approved for this purpose by any of the associations indicated in the second paragraph of this section 8.1.

When, in accordance with the laws governing them, the Entities carry out Securities Lending operations with other Entities, with Foreign Financial Entities or with Institutional Investors through Trading Mechanisms, the signing of the framework contract referred to in the first paragraph of this section will not be necessary, provided that the internal regulations of such Trading Mechanisms to which the aforementioned Securities Lending operations are subject comply with the provisions that these Rules establish regarding the aforementioned framework contract.

The Securities Loans that the Entities enter into with counterparties other than those indicated in the first and ninth paragraphs of this section must be carried out under the framework contracts they agree upon with them, in which the obligation of the borrower to guarantee the Securities Lending must be provided for, as well as the procedure to be followed in the event that the quotation on the Stock Exchange of the Shares or Securities granted in loan or as collateral is suspended. The aforementioned guarantee must be constituted on the same value date as the transfer of the Shares or Securities subject to the operation. The aforementioned guarantees may be constituted through pledge, stock pledge, guarantee trust or administration and payment trust, or the constitution of a bank deposit of money.

For the purposes of celebrating the Securities Lending in terms of what is provided in this section, the Entities may give as collateral Shares or Securities from their portfolio, credit rights in their favor or cash, as appropriate.

In all cases, the Entities must celebrate the aforementioned framework contracts in writing, prior to the arrangement of any Securities Lending.

The arrangement of the Securities Lending and, if applicable, the different acts that are carried out by virtue of this, must be carried out through any of the forms that the framework contract itself establishes.

The Entities will be responsible for ensuring that the Securities Lending they celebrate, including the corresponding contracts, strictly comply with these Rules, as well as with the other provisions applicable to them.”

“8.2 In the case of Securities Lending between Entities, with Foreign Financial Entities and with Institutional Investors, this must be confirmed on the same day of its arrangement through any means that leaves documentary evidence, including electronic media, of the celebration of the corresponding operation. When the transmission of the Shares or Securities is carried out between Entities through Securities Depositories, the records of the operation will serve as documentary evidence.

When the Securities Lending is carried out with persons other than those indicated in the previous paragraph, the Entities must issue on the same day of its arrangement, a receipt through any means that leaves documentary evidence, including electronic media, of the carrying out of the corresponding operation, which they must keep available for the client or send it in case the client requests it.

In the aforementioned confirmation or in the respective receipt, the lender, the borrower, the premium and the term of the Securities Lending must be indicated, as well as the specific characteristics of the Shares or Securities subject to it such as: issuer; issuance code; nominal value; type, and guarantor, acceptor or guarantor as appropriate.

When the parties to the Securities Lending agree on its early maturity, and the terms and conditions under which it will be carried out have not been established in the respective framework contract, they must agree at the time of arranging such maturity, the aforementioned terms and conditions. The arrangement must be carried out through any of the forms provided for in the framework contract and the confirmation or receipt that corresponds must be issued in accordance with what this section states.

In all cases, the Entities must make the records that proceed for the different acts that are carried out by virtue of the Securities Lending they celebrate, on the same day that such acts are arranged.”

9. ADDITIONAL PROVISIONS FOR OPERATIONS ON BEHALF OF THIRD PARTIES

“9.1 Credit Institutions and Brokerage Houses may celebrate Securities Lending on behalf of third parties with any natural or legal person. Credit Institutions may celebrate these operations without the intermediation of Brokerage Houses.”

“9.2 The Securities Loans that Credit Institutions and Brokerage Houses celebrate with Shares and Securities belonging to their clients must be carried out on behalf of third parties and may only be carried out through Trading Mechanisms. For the purpose of what is provided in the second paragraph of section 8.2, the records of the operation through said mechanisms will serve as documentary evidence, so no additional receipt will be required.”

“9.3 In order for Credit Institutions and Brokerage Houses to be able to celebrate Securities Loans on behalf of third parties, the respective client must grant them a mandate or commission so that, on their behalf, they carry out such operations, in the capacity of lender, borrower or both, identifying the type of Shares and Securities subject to the Securities Lending, as well as those that could be subject to guarantee, the maximum term of the same and, if applicable, the other general characteristics of said operations.”

Wednesday, September 22, 2021 OFFICIAL GAZETTE 147

“9.4 In the Securities Lending on behalf of third parties, the parties must constitute the guarantees that the Trading Mechanisms establish, according to the guarantee valuation methods that they determine, prior to approval by the National Banking and Securities Commission and the Bank of Mexico.”

10. PROHIBITIONS

“10.1 The Entities may not act as lenders or borrowers on their own account of the Shares or Securities they issue, accept, guarantee or secure.”

...

“10.5 In no case may Credit Institutions or Brokerage Houses arrange Securities Loans on behalf of third parties under discretionary contracts. For these purposes, a contract will be understood to be discretionary when it does not include, at least, the aspects established in section 9.3.”

...

“10.8 The Entities must refrain from carrying out Securities Lending under conditions and terms contrary to their policies and to the sound practices of the market.”

“10.9 The Entities may not celebrate Securities Lending under terms different from those provided in these Rules. The foregoing must be observed without prejudice to the fact that, in exceptional cases, the Bank of Mexico through the Central Banking Authorizations and Consultations Management authorizes the celebration of Securities Lending with other characteristics or on commercial documents different from those mentioned in this Circular.”

“10.10 The FND may not carry out Securities Lending operations on behalf of third parties.”

11. INFORMATION

“11.1 The Entities must provide to the Authorities in terms of the applicable provisions, information on the Securities Lending they celebrate, in the form and deadlines that they require.”

“11.2 The Entities must send to the corresponding Securities Depository, on the same day of its arrangement and in the terms that it indicates, the information relating to the Securities Lending they celebrate with other Entities and with the Bank of Mexico, that are settled through said Securities Depository.”

“12. SUPERVISION AND SANCTION”

“12.1 The Bank of Mexico will supervise compliance by the Entities with what is provided in these Rules and any non-compliance will be sanctioned in terms of what is provided in the Bank of Mexico Law and other applicable regulations.”

“12.2 Repealed”

“12.3 Repealed”

“12.4 Repealed”

“ANNEX 1 Repealed.”

TRANSITORY PROVISIONS

FIRST.- This Circular will enter into force on the Banking Business Day following its publication in the Official Gazette of the Federation, except for those cases provided for in the following transitory rule.

SECOND.- The Associations referred to in section 8.1, from the entry into force of this Circular and within the following twelve months, must present for approval by the Bank of Mexico the adjustment factors and the methodology referred to in said section. Once the Bank of Mexico authorizes the aforementioned adjustment factors and methodology, the Entities must, from the thirty-first Banking Business Day, establish the guarantees of the Securities Loans they agree upon, in accordance with section 8.1 of this Circular.

Mexico City, September 13, 2021.- BANK OF MEXICO: Director General of Payment Systems and Market Infrastructures, Manuel Miguel Ángel Díaz Díaz.- Rubric.- Director General of Financial Stability, Fabrizio López Gallo Dey.- Rubric.- Director General Legal, Luis Urrutia Corral.-

148 OFFICIAL GAZETTE Wednesday, September 22, 2021 Rubric.- Director General of Affairs of the Financial System, José Luis Negrín Muñoz.- Rubric.- Director of National Operations, Juan Rafael García Padilla.- Rubric. For any consultation regarding the content of this Circular, the Bank of Mexico is at your disposal through the Central Banking Authorizations and Sanctions Directorate at telephone (55) 5237-2000 extension 3200.