Circular 7/2011 — Procedure for Market Makers to Exercise the Right to Purchase Government Securities and Conduct Securities Lending Operations with the Bank of Mexico

(First Section) OFFICIAL GAZETTE Wednesday, March 2, 2011 BANCO DE MÉXICO CIRCULAR 7/2011, addressed to credit institutions and brokerage houses regarding the Procedure for Market Makers and UDIBONOS Market Makers to exercise the right to purchase BONOS, CETES, and UDIBONOS, as applicable, and to conduct lending operations on said securities with the Bank of Mexico in its capacity as financial agent of the Federal Government.

A logo appears at the margin, stating: Banco de México.

CIRCULAR 7/2011 TO CREDIT INSTITUTIONS AND BROKERAGE HOUSES:

SUBJECT: PROCEDURE FOR MARKET MAKERS TO EXERCISE THE RIGHT TO PURCHASE GOVERNMENT SECURITIES AND CONDUCT LENDING OPERATIONS ON SAID SECURITIES WITH THE BANK OF MEXICO IN ITS CAPACITY AS FINANCIAL AGENT OF THE FEDERAL GOVERNMENT

The Bank of Mexico, in its capacity as financial agent of the Federal Government, taking into account the letter from the Ministry of Finance and Public Credit No. 305.-027/2011 made known through our Circular 5/2011, by which said Department establishes a new operational procedure for credit institutions and brokerage houses acting as Market Makers for Federal Government Development Bonds, both with fixed interest rates and those denominated in Investment Units and Treasury Certificates, as well as considering the convenience of having only one procedure for exercising the right to purchase said securities, and for the lending operations of such securities that the aforementioned Market Makers can carry out, has resolved to compile the cited procedure.

Therefore, based on what is provided in Articles 3, fraction III, 7, fraction I, and 10 of the Bank of Mexico Law, 22 of the Law for Transparency and Ordering of Financial Services, as well as the first paragraph of Article 4, fourth and seventh paragraphs of Article 8, first paragraph of Article 10, 14 Bis in relation to Article 17, fraction I, and Article 19, fraction VII of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Legal Directorate and the Operations Directorate, respectively, as well as the Single provision of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, fractions VII and XII, it issues:

PROCEDURE FOR MARKET MAKERS AND UDIBONOS MARKET MAKERS TO EXERCISE THE RIGHT TO PURCHASE BONOS, CETES, AND UDIBONOS, AS APPLICABLE, AND CONDUCT LENDING OPERATIONS ON SUCH SECURITIES WITH THE BANK OF MEXICO IN ITS CAPACITY AS FINANCIAL AGENT OF THE FEDERAL GOVERNMENT

1. DEFINITIONS

For the purposes of this Procedure, singular or plural, may be designated as:

BONOS: Federal Government Development Bonds with fixed interest rates.

CETES: Treasury Certificates of the Federation.

Business Days: Those determined by the National Banking and Securities Commission, through general provisions, as business days for Market Makers.

Market Makers: Credit institutions and brokerage houses that the Ministry determines may act as such under applicable provisions.

UDIBONOS Market Makers: Market Makers that the Ministry determines may act as such under applicable provisions.

Indeval: S.D. Indeval, Securities Deposit Institution, S.A. de C.V.

Letter: The one issued by the Ministry No. 305.-027/2011 made known through Circular 5/2011 of the Bank of Mexico, as well as its modifications.

Procedure: The "Procedure for Market Makers and UDIBONOS Market Makers to exercise the right to purchase BONOS, CETES, and UDIBONOS, as applicable, and to conduct lending operations on such securities with the Bank of Mexico in its capacity as financial agent of the Federal Government."

Ministry: The Ministry of Finance and Public Credit.

SIAC-BANXICO: The Bank of Mexico Account Holder Service System.

AUCTIONS: The auctions for the placement of BONOS, CETES, and UDIBONOS, as applicable, carried out in accordance with the provisions set forth in Annex 6 of Circular 2019/95, Annex 3 of Circular 1/2006, and item CB.5 of Circular 115/2002, or those that replace them, issued by the Bank of Mexico, addressed to multiple banking institutions, development banking institutions, and brokerage houses, respectively.

UDIBONOS: Federal Government Development Bonds denominated in Investment Units.

2. RIGHT OF MARKET MAKERS AND UDIBONOS MARKET MAKERS TO PURCHASE BONOS, CETES, AND UDIBONOS, AS APPLICABLE, FROM THE BANK OF MEXICO IN ITS CAPACITY AS FINANCIAL AGENT OF THE FEDERAL GOVERNMENT

2.1 Market Makers shall have the right to purchase BONOS and CETES; additionally, UDIBONOS Market Makers shall have the right to purchase UDIBONOS, at a rate or price equal to the weighted rate or allocation price, as applicable, resulting from the Auction of each of said government securities, in all weeks in which they are held.

2.2 Requests to exercise the aforementioned purchase right must be submitted to the National Operations Management of the Bank of Mexico, between 8:45:00 and 9:00:00 hours on the Business Day following the publication of the Auction results.

Credit institutions and brokerage houses may submit one request for each type of security offered in the Auctions. Such requests must specify the nominal value of the requested securities, in multiples of 10 for CETES and in multiples of 100 for BONOS and UDIBONOS.

2.3 Requests must be submitted through SIAC-BANXICO, or through any other electronic, computing, or telecommunication medium authorized for this purpose by the Bank of Mexico. The access, identification, and, where applicable, operational keys established for the use of electronic, computing, or telecommunication media will substitute the handwritten signature with an electronic one; therefore, documentary or technical records in which they appear will produce the same effects that laws grant to documents signed by the parties, and consequently, will have equal probative value.

2.4 In the event that for any circumstance the electronic, computing, or telecommunication media referred to in item 2.3 cannot be used, requests may be submitted via fax during the time frame referred to in item 2.2, and must be confirmed in writing no later than 13:00:00 hours on the same Business Day using the models attached as Annexes, accompanied by a cover letter to the aforementioned National Operations Management, located at 5 de Mayo Avenue No. 6, first floor, Centro Neighborhood, in this city. Both documents must be duly signed by the same authorized representatives of the Market Makers and UDIBONOS Market Makers, and the letter must show the signature knowledge granted by the Operations and Business Continuity Management of the Payment Systems of the Bank of Mexico, so that the signatures must be registered in the aforementioned Management.

2.5 Requests submitted to the Bank of Mexico will produce the broadest effects allowed by law and will imply the acceptance by Market Makers and UDIBONOS Market Makers of all and each of the provisions set forth in the Procedure; in the Letter; and in other provisions applicable for this purpose.

Such requests will be mandatory for Market Makers and UDIBONOS Market Makers that submit them and will be irrevocable.

(First Section) OFFICIAL GAZETTE Wednesday, March 2, 2011

2.6 The Bank of Mexico may invalidate the requests it receives if they do not comply with what is stipulated in the Procedure or the Letter, are not clearly legible, have erasures or corrections, or are incomplete or incorrect in any way.

2.7 The Bank of Mexico, through SIAC-BANXICO, will inform all Market Makers, including UDIBONOS Market Makers, who have submitted the request to exercise the right to purchase BONOS, CETES, and UDIBONOS, as applicable, in accordance with the Procedure, of the quantity of securities to be sold to them and the total prices they must pay for each type of security, no later than 2 hours after the deadline for submitting the corresponding requests as provided in item 2.2.

2.8 The Bank of Mexico, acting as financial agent of the Federal Government, based on Article 2312 of the Federal Civil Code, reserves ownership of the BONOS, CETES, and UDIBONOS subject to the sale until the moment the corresponding price payment is made.

2.9 The delivery of BONOS, CETES, and UDIBONOS will be through Indeval, on the same Business Day that the placement of the securities takes place in terms of the respective Auction, by deposit into the account that Indeval holds for each Market Maker.

2.10 Market Makers and UDIBONOS Market Makers must make the payment for BONOS, CETES, and UDIBONOS in accordance with what is stipulated in the Internal Regulations of Indeval.

2.11 Except for what is provided in items M.44 of Circular 2019/95 and BD.38 of Circular 1/2006, in the event that any Market Maker or UDIBONOS Market Maker does not make the full payment for the BONOS, CETES, and UDIBONOS sold to them, the Bank of Mexico may, without the need for a judicial declaration, rescind the sale for the uncovered amount. Without prejudice to the foregoing, the Ministry, in terms of what is provided in item 8.5 of the Letter, may determine that the credit institution or brokerage house in question ceases to act as a Market Maker or UDIBONOS Market Maker.

3. LENDING OF SECURITIES BETWEEN MARKET MAKERS AND UDIBONOS MARKET MAKERS, AND THE BANK OF MEXICO IN ITS CAPACITY AS FINANCIAL AGENT OF THE FEDERAL GOVERNMENT

3.1 The lending operations of BONOS, CETES, and UDIBONOS referred to in the Letter will be carried out through Indeval in accordance with what is provided in its Internal Regulations; for this, Market Makers and UDIBONOS Market Makers must carry out the necessary procedures with said Institution, in order to be able to operate the electronic procedure for the celebration of specialized securities lending operations, called VALPRE-E.

Upon maturity of the securities lending operations referred to in the preceding paragraph, Market Makers and UDIBONOS Market Makers must pay the Bank of Mexico the premium corresponding to each of said operations, in accordance with what is provided in item 4.2.6 and Annex 4, as well as in item 7.2.5 of the Letter, respectively.

3.2 For Market Makers and UDIBONOS Market Makers to be able to carry out the aforementioned securities lending operations, they must previously celebrate a contract with the Bank of Mexico which will establish the characteristics of said operations, the rights and obligations of the parties, as well as the procedure to constitute, substitute, and cancel the corresponding guarantees.

For the purposes of the preceding paragraph, at least ten Business Days in advance of the date on which they intend to start the celebration of such operations, Market Makers and UDIBONOS Market Makers must submit to the Sub-Management of National Operations Instrumentation within the time frame between 9:30 and 18:00 hours, a simple copy and a certified copy for verification of the public deed containing the power to exercise acts of dominion granted to their representatives; a simple copy of an official identification of said persons, as well as a copy of the communication from Indeval in which it states that the credit institution or brokerage house in question is able to operate VALPRE-E. In this case, the corresponding credit institution or brokerage house must sign the corresponding contract at least five Business Days in advance of said date.

ANNEX REQUEST TO EXERCISE THE RIGHT TO PURCHASE BONOS, CETES, AND UDIBONOS BY MARKET MAKERS AND UDIBONOS MARKET MAKERS

Mexico, D.F. to ___ of __________ of ____.

BANCO DE MÉXICO National Operations Management, Present,

Name of Market Maker: ________________________________________________________ Market Maker Key at the Bank of Mexico: _______________________________________

Issuance Key Term in days Nominal Value

---

---

---

---

---

---

The aforementioned requests are mandatory and irrevocable; they will produce the broadest effects allowed by law, and imply our acceptance of what is stipulated in Circular 7/2011 and its modifications, as well as other provisions that are applicable.

Sincerely,

(Name of the credit institution or brokerage house) (Name and signature of authorized officials)

(First Section) OFFICIAL GAZETTE Wednesday, March 2, 2011

The Bank of Mexico reserves the right to invalidate those requests whose figures are not clearly legible, have erasures or corrections, or are incorrect in any way.

TRANSITORY PROVISIONS

FIRST. This Circular will enter into force on March 3, 2011. From that date, Circular 3/2006 and its modifications made through Circulares 12/2007 and 39/2008 of October 3, 2007, and September 1, 2008, respectively, are hereby repealed, as well as item CB.7 and Appendix 2 of Annex 5, both of Circular 115/2002.

SECOND. Market Makers and UDIBONOS Market Makers who have signed contracts for the celebration of securities lending and stock pledge operations under the procedures repealed by the preceding Transitory Provision will retain full validity and legal effect; therefore, in these cases, they will not need to sign a new contract in accordance with item 3.2 of this Circular.

The signatures of the officials and employees of Market Makers and UDIBONOS Market Makers, which have been registered with the former Cash Account Operations Office of the Bank of Mexico, may be used for the purposes of item 2.4; therefore, it will not be necessary to register them again, now with the Operations and Business Continuity Management of the Payment Systems.

Mexico, D.F. on February 28, 2011.- BANCO DE MÉXICO: The General Legal Director, Héctor Reynaldo Tinoco Jaramillo.- Rubric.- The Director of Operations, Jaime José Cortina Morfín.- Rubric.

For any inquiries regarding the content of this Circular, please contact the Authorizations, Inquiries, and Legal Control Management, located at 5 de Mayo Avenue No. 2, Centro Neighborhood, Mexico, Federal District, C.P. 06059, or at telephone numbers 5237.2308, 5237.2317, or 5237.2000 Ext. 3200.