Circular 7/2023 — Modifications to Circular 4/2012

Friday, September 8, 2023 OFFICIAL GAZETTE CIRCULAR 7/2023 addressed to Credit Institutions, Brokerage Houses, Investment Funds, Multiple-Object Financial Societies that have equity links with a Multiple Banking Institution, General Deposit Warehouses, Insurance Institutions, and the National Financial Institution for Agricultural, Rural, Forestry and Fisheries Development, regarding the modifications to Circular 4/2012 (transition of TIIE to terms greater than one banking business day, to the Funding TIIE).

At the margin a logo, which says: Bank of Mexico.- “2023, Year of Francisco Villa, the revolutionary of the people”. CIRCULAR 7/2023 TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT FUNDS, MULTIPLE-OBJECT FINANCIAL SOCIETIES THAT HAVE EQUITY LINKS WITH A MULTIPLE BANKING INSTITUTION, GENERAL DEPOSIT WAREHOUSES, INSURANCE INSTITUTIONS AND TO THE NATIONAL FINANCIAL INSTITUTION FOR AGRICULTURAL, RURAL, FORESTRY AND FISHERIES DEVELOPMENT: SUBJECT: MODIFICATIONS TO CIRCULAR 4/2012 (TRANSITION OF TIIE TO TERMS GREATER THAN ONE BANKING BUSINESS DAY, TO THE FUNDING TIIE)

The Bank of Mexico, with the purpose of continuing to promote the sound development of the financial system and considering the recommendations of the Swiss association that groups financial authorities from various countries, known as the Financial Stability Board (FSB, in English), as well as the grouping of banking supervisory authorities known as the Basel Committee on Banking Supervision, and the International Organization of Securities Commissions (IOSCO, in English), regarding the characteristics that reference rates used in financial markets should have, in particular, the periods in which financial institutions should cease to use reference rates not determined based on real operations, has decided to determine the dates from which the use, as underlying for new operations, of the Interbank Equilibrium Interest Rates (TIIE) in national currency with terms greater than one banking business day will be restricted, as well as to recognize the use of the one-day banking business day TIIE (Funding TIIE) as underlying within standardized derivative operations.

For the above, based on articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 2, 3, fraction I, 24, 26 and 36 of the Bank of Mexico Law, 46, fraction XXV, and 48 of the Credit Institutions Law, 176, first paragraph, of the Securities Market Law, 15, second paragraph, of the Investment Funds Law, 11 Bis 2, fraction XII, and 87-D, fourth paragraph, of the General Law of Organizations and Auxiliary Activities of Credit, 9, second paragraph, of the Organic Law of Nacional Financiera, 6, second paragraph, of the Organic Law of Federal Mortgage Society, 9, second paragraph, of the Organic Law of the Bank of Well-being, 9, second paragraph, of the Organic Law of the National Bank of Foreign Trade, 10, second paragraph, of the Organic Law of the National Bank of Public Works and Services, 8, second paragraph, of the Organic Law of the National Bank of the Army, Air Force and Navy, 22 of the Law for Transparency and Ordering of Financial Services, 1, 4, first paragraph, 8, fourth and eighth paragraphs, 10, first paragraph, 12, first paragraph, in relation to 19 Bis 1, fraction XI, and 17, fraction I, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue

OFFICIAL GAZETTE Friday, September 8, 2023 provisions through the General Directorate of Central Banking Operations and the Directorate of Central Banking Provisions, 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 Annex 2, add the definition “Funding TIIE” to item 1.1, as well as repeal the definition “TIIE” contained in item 1.1, of the “Rules for the Execution of Derivative Operations”, issued by the Bank of Mexico through Circular 4/2012, to remain in the following terms: RULES FOR THE EXECUTION OF DERIVATIVE OPERATIONS

“1. GENERAL PROVISIONS 1.1 … TIIE: Repealed. Funding TIIE: the Interbank Equilibrium Interest Rate in national currency, with a term of one banking business day, which is published by the Bank of Mexico in accordance with what is provided in Section IV of Chapter IV of Title Third of the Provisions applicable to the operations of credit institutions, multiple-object financial societies regulated that maintain equity links with credit institutions and the National Financial Institution for Agricultural, Rural, Forestry 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 it may have been modified through subsequent resolutions. …”

“ANNEX 2 CRITERIA FOR THE DETERMINATION OF STANDARDIZED DERIVATIVE OPERATIONS I. The Bank of Mexico, to determine the Derivative Operations that will have the character of Standardized Derivative Operations, will take into account the following characteristics: a. The degree of standardization of the terms and conditions of the Derivative Operations; b. The liquidity, depth, traded volume and size of the Derivative Operations in the Mexican market; c. The number and type of entities that have access to trade and settle them; d. The availability of reasonable, reliable and generally accepted price sources; e. The systemic risk associated with the celebration of said Derivative Operations, as well as their impact on the stability of the Mexican financial system; f. The existence of societies that administer systems to facilitate operations with securities authorized by the CNBV, or institutions abroad that perform similar functions to those carried out by said societies that are recognized by the CNBV, in which said Derivative Operations are traded; g. The existence of a clearing house or institution abroad that acts as a central counterparty, recognized by the Bank of Mexico in terms of item 7.6, in which said Derivative Operations are cleared and settled, and

Friday, September 8, 2023 OFFICIAL GAZETTE h. The effect on competition, considering the fees associated with trading and clearing services. II. In accordance with what is established in the previous fraction I, the following are considered Standardized Derivative Operations: Repealed. Swap Operations under which one of the parties is obligated to make payments denominated in pesos in periods of 28 natural days, or in those that substitute them in case of non-working days, of an amount calculated as the result of applying a certain fixed interest rate to a certain non-amortizable amount, and, in turn, the other party is obligated to make payments, in the same term, of amounts denominated in the same currency, equivalent to the result of applying the result of the composition of the Funding TIIE during all working days of the interest period, to the same non-amortizable amount, and whose minimum term of the Swap Operation is greater than or equal to 28 natural days and the maximum term less than or equal to 30 years. The interest composition referred to in the immediate preceding paragraph will correspond to what is established in the following formula: Where: • is the interest rate of a period to which the preceding paragraphs refer expressed in percentage points. • is the number of natural days of the interest calculation period (28 days for all periods, except in those cases where there are non-working days other than Saturdays and Sundays, at the beginning or at the end of the corresponding period). • is the number of working days within the interest calculation period in which the Bank of Mexico has published the Funding TIIE on its internet portal. • is an operator that means performing the multiplication of the factors between parentheses. • is the Funding TIIE published on the internet portal of the Bank of Mexico on the working day of the interest calculation period, expressed in percentage points. • is the number of natural days for which the published on the internet portal of the Bank of Mexico on the working day is applicable; that is, one day for all cases, except for working days that are immediately followed by non-working days, in which case the number of days will correspond to the sum of the working day plus the non-working day or the non-working days that immediately follow it.” TRANSITIONAL PROVISIONS FIRST.- The modifications to the “Rules for the Execution of Derivative Operations” provided for in this Circular will enter into force on January 1, 2025, without prejudice to what is provided in the following transitional rules. SECOND.- From January 1, 2024, Entities, Investment Funds, General Deposit Warehouses, Insurance Institutions and Sofomes that celebrate new Derivative Operations must refrain from using as Underlying in said operations the Interbank Equilibrium Interest Rates in national currency with terms of 91 and 182 days. However, Entities, Investment Funds, General Deposit Warehouses, Insurance Institutions and Sofomes may continue to use, as Underlying in said operations, the Interbank Equilibrium Interest Rates in national currency with terms of 91 and 182 days, as applicable, that the Bank of Mexico publishes in accordance with Chapter IV of Title Third of the “Provisions applicable to the operations of credit institutions, multiple-object financial societies regulated that maintain equity links with credit institutions and the National Financial Institution for Agricultural, Rural, Forestry 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 it may have been modified through subsequent resolutions, only in those Derivative Operations that they celebrate prior to the date indicated in this transitional rule. In these cases, Entities, Investment Funds, General Deposit Warehouses, Insurance Institutions and Sofomes may use the indicated reference rates until the maturity of the referred operations. THIRD.- From January 1, 2025, Entities, Investment Funds, General Deposit Warehouses, Insurance Institutions and Sofomes that celebrate new Derivative Operations or Standardized Derivative Operations, as applicable, must refrain from using as Underlying in said operations the Interbank Equilibrium Interest Rate in national currency with a term of 28 days. However, Entities, Investment Funds, General Deposit Warehouses, Insurance Institutions and Sofomes may continue to use, as Underlying in said operations, the Interbank Equilibrium Interest Rate in national currency with a term of 28 days that the Bank of Mexico publishes in accordance with Chapter IV of Title Third of the “Provisions applicable to the operations of credit institutions, multiple-object financial societies regulated that maintain equity links with credit institutions and the National Financial Institution for Agricultural, Rural, Forestry 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 it may have been modified through subsequent resolutions, only in those Derivative Operations or Standardized Derivative Operations that they celebrate prior to the date indicated in this transitional rule. In these cases, Entities, Investment Funds, General Deposit Warehouses, Insurance Institutions and Sofomes may use the indicated reference rate until the maturity of the referred operations. FOURTH.- Without prejudice to what is provided in the previous transitional rules Second and Third, exceptionally, Entities, Investment Funds, General Deposit Warehouses, Insurance Institutions and Sofomes may celebrate, after the dates indicated in the referred transitional rules, as applicable, new Standardized Derivative Operations using as Underlying the Interbank Equilibrium Interest Rate in national currency with a term of 28 days and new Derivative Operations using as Underlying the Interbank Equilibrium Interest Rates in national currency with terms of 28, 91 and 182 days that the Bank of Mexico publishes in accordance with Chapter IV of Title Third of the “Provisions applicable to the operations of credit institutions, multiple-object financial societies regulated that maintain equity links with credit institutions and the National Financial Institution for Agricultural, Rural, Forestry 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 it may have been modified through subsequent resolutions, exclusively, when such operations have as purpose the closing of positions in Derivative Operations and Standardized Derivative Operations that they have celebrated prior to the dates referred to in the transitional rules Second and Third, respectively, of this Circular.

Mexico City, September 4, 2023.- BANK OF MEXICO: General Director of Central Banking Operations, Gerardo Israel García López.- Signature.- Director of Central Banking Provisions, María Teresa Muñoz Arámburu.- Signature.

Friday, September 8, 2023 OFFICIAL GAZETTE For any inquiry regarding the content of this Circular, the Bank of Mexico is at your disposal through the Directorate of Central Banking Authorizations and Sanctions at telephone (55) 5237-2000 extension 3200.