Circular 7/2024 — Modifications to the Repo Rules

DIARIO OFICIAL Thursday, May 16, 2024

CIRCULAR 7/2024 addressed to credit institutions, brokerage houses, investment funds, specialized investment societies for retirement funds, general warehouse depositories, insurance institutions, guarantee institutions, regulated multiple-object financial societies that maintain equity links with a credit institution, and the National Financial Development Institution for Agriculture, Rural, Forestry and Fisheries, regarding the Modifications to the Rules to which credit institutions, brokerage houses, investment funds, specialized investment societies for retirement funds, general warehouse depositories, insurance institutions, guarantee institutions, regulated multiple-object financial societies that maintain equity links with a credit institution, and the National Financial Development Institution for Agriculture, Rural, Forestry and Fisheries, must adhere in their repo operations.

At the margin, a logo that says: Bank of Mexico.- "2024, Year of Felipe Carrillo Puerto, Meritorious of the Proletariat, Revolutionary and Defender of the Mayab".

CIRCULAR 7/2024

TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT FUNDS, SPECIALIZED INVESTMENT SOCIETIES FOR RETIREMENT FUNDS, GENERAL WAREHOUSE DEPOSITORIES, INSURANCE INSTITUTIONS, GUARANTEE INSTITUTIONS, REGULATED MULTIPLE-OBJECT FINANCIAL SOCIETIES THAT MAINTAIN EQUITY LINKS WITH A CREDIT INSTITUTION AND THE NATIONAL FINANCIAL DEVELOPMENT INSTITUTION FOR AGRICULTURE, RURAL, FORESTRY AND FISHERIES:

SUBJECT: MODIFICATIONS TO THE RULES TO WHICH CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT FUNDS, SPECIALIZED INVESTMENT SOCIETIES FOR RETIREMENT FUNDS, GENERAL WAREHOUSE DEPOSITORIES, INSURANCE INSTITUTIONS, GUARANTEE INSTITUTIONS, REGULATED MULTIPLE-OBJECT FINANCIAL SOCIETIES THAT MAINTAIN EQUITY LINKS WITH A CREDIT INSTITUTION AND THE NATIONAL FINANCIAL DEVELOPMENT INSTITUTION FOR AGRICULTURE, RURAL, FORESTRY AND FISHERY, MUST ADHERE IN THEIR REPO 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 public interests, has considered it necessary to update and modernize the regulatory framework for repo operations carried out by financial entities, taking into consideration the need and convenience to adapt the regulations regarding repo operations carried out in the local financial market, so that these comply with best practices and international standards.

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, 46 Bis 5, fraction IV, 54, fractions I and III, and 81, paragraph second, of the Credit Institutions Law, 176 of the Securities Market Law, 15 of the Investment Funds Law, 48, fraction VI, of the Savings for Retirement System Law, 11 Bis 2, fraction XI, and 87-D, paragraph fourth, of the General Law of Organizations and Auxiliary Credit Activities, 132 and 157, of the Insurance and Guarantee Institutions Law, 4, paragraph first, 8, paragraphs fourth and eighth, 10, paragraph first, 12, paragraph first, in relation to 19 Bis, fraction V, 14, paragraph first, in relation to 25 Bis, fraction VII, 14 Bis 1, in relation to 25 Bis 1, fraction IV, 17, fraction I, and 20 Quáter, fraction IV, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Directorate of Central Banking Operations, the General Directorate of Financial Stability, the General Directorate of Financial System Affairs, the Central Banking Provisions Directorate, and the Payment Systems and Market Infrastructures Policy and Surveillance Management, respectively, as well as Second, fractions I, IV, VI, X and XVII, of the Agreement on the Assignment of Administrative Units of the Bank of Mexico, has resolved to modify the definitions of "Certified General Warehouse Depository", "Deposit Certificates" and "Institutional Investors and Qualified Investors", contained in numeral 1, numerals 2.1, paragraphs second, third and fourth, 2.3, 2.4, 2.5, 3.1 Bis, 3.4, 3.6, 4.1, 4.2, 5.1, 5.2, 6.1, 6.2, 8.1, paragraphs first, third, sixth, seventh, ninth, tenth, eleventh, twelfth, thirteenth, fourteenth, seventeenth, 8.1 Bis, 8.2, paragraphs first, second, third and fifth, 9.3, 9.6, 10., paragraph first, and 11.1, add the definitions of "State Productive Enterprises", "MAE" and "Commercial Societies", in numeral 1, numerals 2.8, 3.7, 12., 12.1, 12.2, 12.3 and 12.4, Annexes 4, 5 and 6, as well as repeal numeral 3.1 Bis 1, of the "Rules to which credit institutions, brokerage houses, investment funds, specialized investment societies for retirement funds, general warehouse depositories, insurance institutions, guarantee institutions, regulated multiple-object financial societies that maintain equity links with a credit institution and the National Financial Development Institution for Agriculture, Rural, Forestry and Fisheries, must adhere in their repo operations", issued by the Bank of Mexico on January 12, 2007, as modified by subsequent resolutions, to remain in the following terms:

RULES TO WHICH CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT FUNDS, SPECIALIZED INVESTMENT SOCIETIES FOR RETIREMENT FUNDS, GENERAL WAREHOUSE DEPOSITORIES, INSURANCE INSTITUTIONS, GUARANTEE INSTITUTIONS, REGULATED MULTIPLE-OBJECT FINANCIAL SOCIETIES THAT MAINTAIN EQUITY LINKS WITH A CREDIT INSTITUTION AND THE NATIONAL FINANCIAL DEVELOPMENT INSTITUTION FOR AGRICULTURE, RURAL, FORESTRY AND FISHERY, MUST ADHERE IN THEIR REPO OPERATIONS

1. DEFINITIONS

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"General Warehouse Depository: that entity authorized to be constituted and operate with such character in accordance with the General Law of Organizations and Auxiliary Credit Activities, classified in Level IV in terms of said Law, that complies with the requirements established in these Rules."

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"Deposit Certificates: the credit instruments, registered in the RUCAM, issued by general warehouse depositories classified in Levels III and IV, in terms of the General Law of Organizations and Auxiliary Credit Activities, that comply with the requirements established in these Rules."

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"State Productive Enterprises: Petróleos Mexicanos and the Federal Electricity Commission, as well as their respective subsidiary productive enterprises."

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"Institutional Investors and Qualified Investors: persons who have such character in terms of what is provided in the Securities Market Law."

"MAE: the Electronic Attention Module referred to in the Rules of the Electronic Attention Module and the Commission Registration System, issued through Circular 13/2012 of the Bank of Mexico, as modified by subsequent resolutions."

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"Commercial Societies: those constituted as commercial societies in terms of the General Law of Commercial Societies and that have assigned, by at least two Securities Rating Agencies, a rating corresponding to any of those included in levels N1 to N13 of Annex 1, N1mx to N10mx of Annex 2, Ni to Niii of Annex 3, as well as Nimx to Niiimx of Annex 4, of Circular 39/2020 of the Bank of Mexico, published in the Official Journal of the Federation on October 12, 2020, as modified by subsequent resolutions."

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2. AUTHORIZED OPERATIONS AND COUNTERPARTIES

2.1 ...

"Without prejudice to the foregoing, when said Entities enter into Repos, in their capacity as repo-takers, on Titles or Foreign Securities, with other financial entities of the same financial group to which they belong, with Qualified Investors or with natural persons, they may only enter into such operations when said Titles or Foreign Securities, according to their term, have assigned, by at least two Securities Rating Agencies, a rating corresponding to any of those included in levels N1 to N13 of Annex 1, N1mx to N10mx of Annex 2, Ni to Niii of Annex 3, as well as Nimx to Niiimx of Annex 4, of Circular 39/2020 of the Bank of Mexico, published in the Official Journal of the Federation on October 12, 2020, as modified by subsequent resolutions.

Regarding the Titles referred to in the previous paragraph, in the event that they do not have a credit rating, the rating corresponding to the issuer of the Title shall be taken, or what the Bank of Mexico determines and makes known to the Entities referred to in the first paragraph of this numeral.

Additionally, Credit Institutions, Linked SOFOMES E.R. and Brokerage Houses may only enter into Repos, in their capacity as repo-givers, with the Bank of Mexico, other Credit Institutions, Brokerage Houses, General Warehouse Depositories or Foreign Financial Entities. Likewise, Credit Institutions, in their capacity as repo-givers, may enter into Repos with State Productive Enterprises and Commercial Societies, only on Government Securities."

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"2.3 Siefores may only enter into Repos, in their capacity as repo-givers, with Credit Institutions, Brokerage Houses, Linked SOFOMES E.R. or Foreign Financial Entities, that comply with the requirements that, for this purpose, the National Commission of the Savings for Retirement System determines through general provisions."

"2.4 The FND may only enter into Repos, in its capacity as repo-giver, and in this case, counterparties may only be the Bank of Mexico, Credit Institutions, Brokerage Houses, General Warehouse Depositories or Foreign Financial Entities."

"2.5 General Warehouse Depositories may enter into Repos, in their capacity as repo-givers, with any of their clients. Additionally, said entities may enter into Repos, in their capacity as repo-takers, only with Credit Institutions, Linked SOFOMES E.R., Brokerage Houses, Agricultural-Related Trusts (FIRA), the FND, or Foreign Financial Entities.

For this purpose, General Warehouse Depositories must send to the Central Banking Authorizations and Consultations Management of the Bank of Mexico, through the MAE, a valid operational certification opinion issued by the Agricultural-Related Trusts (FIRA).

Subsequently, General Warehouse Depositories that carry out Repos and have sent the certification referred to in the previous paragraph to the Bank of Mexico, must send said Central Institute the certification provided for in the mentioned paragraph, at the latest, within ten Banking Business Days from when it was renewed.

In the event that General Warehouse Depositories do not have the operational certification opinion referred to in the second paragraph of this numeral, they must send, in terms of what is provided in the cited paragraph, an opinion prepared by an independent third party through which the aspects established in Annex 4 of these Rules are evaluated. In this case, the referred opinion must include an explanation of the aspects evaluated and the considerations for granting the certification.

For the purposes of the previous paragraph, the independent third party must have a minimum professional experience of five years in process evaluation in the general warehouse depository sector or ten years in other sectors, and comply with what is established in Annex 5 of these Rules.

Likewise, General Warehouse Depositories that carry out Repos and for this purpose have sent the certification opinion referred to in the fourth paragraph of this numeral, must, through the MAE, send to the Central Banking Authorizations and Consultations Management of the Bank of Mexico, in the month of July of each year, a new opinion prepared by an independent third party regarding the evaluation of the aspects established in Annex 4 of these Rules.

General Warehouse Depositories must disseminate through their website the executive summary of the valid operational certification opinions issued by the Agricultural-Related Trusts (FIRA) or by an independent third party, as applicable."

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"2.8 Entities may hire Credit Institutions, Securities Depositories and Foreign Financial Entities that are established in any of the Reference Countries, which provide them, among others, services related to the custody and administration of the Securities subject to Repo operations and the administration of the guarantees that must be constituted in terms of numeral 8.1 of these Rules, which may consist of:

i. Process the Repos, after these have been entered into by the parties in terms of the framework contract referred to in numeral 8.1 of these Rules.

ii. Confirm the instructions received from counterparties regarding the Repos in which they intervene.

iii. Custody in segregated accounts the Securities subject to Repo operations and, if applicable, the corresponding guarantees.

iv. Transfer the Securities subject to Repo operations and, if applicable, the corresponding guarantees, between the accounts of the repo-giver and repo-taker according to the instructions granted by them.

v. Determine the market value of the Securities subject to the Repo and, if applicable, the corresponding guarantees, in terms of what is established in numeral 8.1 of these Rules.

vi. Determine the amount of the guarantees that counterparties must constitute to cover the exposure of one party of the Repo with respect to the other, in accordance with what is established in the framework contract referred to in numeral 8.1 of these Rules.

vii. Carry out the substitution of the Securities subject to the Repo operation in accordance with what is agreed between the parties in conformity with numeral 3.7 of these Rules.

viii. Carry out the bilateral compensation of the obligations assumed by the repo-giver and the repo-taker in the Repos in which they intervene.

ix. Carry out the settlement of the Repos in the terms established in these Rules.

x. Have processes for the management of defaults by the parties of the Repo.

In the contracts that Entities enter into with those persons who provide them with the services referred to in this numeral, they must abstain from incorporating clauses by virtue of which it is allowed for said service providers to participate in the negotiation of the contracts through which the Repos are instrumented, guarantee the obligations of the parties in case of any default in the Repos they have entered into, nor grant credit or financing to the parties of the Repo."

3. CREDIT INSTRUMENTS SUBJECT TO REPO

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"3.1 Bis Additionally to what is established in numeral 3.1 above, the Entities indicated in said numeral may only enter into Repos on Deposit Certificates issued by general warehouse depositories that have any of the certifications provided for in numeral 2.5, provided that said credit instruments attest to any of the merchandise or credits on the merchandise referred to in Annex 6 of these Rules and it is established in the framework contracts referred to in numeral 8.1 of these Rules the reference to the price source that will be taken into account during the validity of the Repo to carry out the valuation of the Deposit Certificates in accordance with the methodology indicated in numerals 8.1 and 8.1 Bis of these Rules. Likewise, Deposit Certificates may cover any of the merchandise indicated as underlying that can be subject to derivative operations, in accordance with what is provided in the "Rules for the Carrying Out of Derivative Operations", issued by the Bank of Mexico through Circular 4/2012, published in the Official Journal of the Federation on March 2, 2012, in the current terms that correspond or the modifications made subsequently.

The Entities referred to in numeral 3.1 that enter into Repos on Deposit Certificates must ensure, prior to the entry into the operation in question, that the general warehouse depository that issued the Deposit Certificates subject to the Repo has any of the certifications provided for in numeral 2.5 of these Rules. On their part, general warehouse depositories whose Deposit Certificates are subject to Repos must disseminate through their website the executive summary of the valid operational certification opinions that have been issued by the Agricultural-Related Trusts (FIRA) or by an independent third party, as applicable.

In addition to the above, the Deposit Certificates subject to Repos must attest to any of the merchandise or credits on the merchandise referred to in Annex 6 of these Rules, provided that it is established in the framework contracts referred to in numeral 8.1 of these Rules the reference to the price source that will be taken into account during the validity of the Repo to carry out the valuation of the deposit certificates in accordance with the methodology indicated in numerals 8.1 and 8.1 Bis of these Rules. Likewise, the Deposit Certificates may cover any of the merchandise indicated as underlying that can be subject to derivative operations, in accordance with what is provided in the "Rules for the Carrying Out of Derivative Operations", issued by the Bank of Mexico through Circular 4/2012, published in the Official Journal of the Federation on March 2, 2012, in the current terms that correspond or the modifications made subsequently.

The Bank of Mexico may authorize the carrying out of Repo operations on Deposit Certificates that attest to a merchandise or a credit on it, different from those indicated in the previous paragraph, for which it will take into account that said merchandise has an observable and transparent price, as well as a significant number of observations."

"3.1 Bis 1 Repealed."

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"3.4 Each General Warehouse Depository may enter into Repos, in terms of what is provided in numerals 2.5 and 3.1 Bis, only with the Deposit Certificates it issues itself."

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"3.6 In Repos on Securities entered into by Entities, without prejudice to what is established in numeral 3.7 of these Rules, those of the same species that the repo-giver undertakes to transfer to the repo-taker in the agreed term, must have the same "issuance key" assigned in the corresponding market."

"3.7 Entities may agree in the framework contracts referred to in numeral 8.1 the possibility of carrying out the substitution of the Securities subject to the Repo operation during its validity. For this purpose, the referred contracts must establish, at least, the following:

i. The manner and terms in which the repo-taker may request the repo-giver to substitute the Securities, as well as the manner and terms in which the repo-giver will express its consent.

ii. The manner in which the repo-giver will deliver the substituted Securities and in which the repo-taker will deliver the substitute Securities. The delivery of said Securities must be simultaneous.

iii. The characteristics of the titles that may be subject to substitution. For these titles, the same valuation methodology indicated in numeral 8.1 must be followed, as well as all other terms of the repo operation."

4. TERMS

"4.1 Entities and General Warehouse Depositories may freely agree on the term of the Repos they enter into, except for what is established in numerals 4.2 and 4.3."

"4.2 The term of the Repos entered into by Entities and General Warehouse Depositories, including their extensions, must mature at the latest on the Banking Business Day prior to the maturity date of the Securities or Deposit Certificates subject to the Repo in question; however, in the contract that instruments the Repo, the delivery of Securities with terms shorter than the maturity of the Repo may be agreed, provided that the contract establishes that, in accordance with numeral 3.7, the Securities subject to the operation in question will be substituted at the latest one Banking Business Day before the maturity date of said titles."

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5. SETTLEMENT OF OPERATIONS

"5.1 The transfer of the Securities or Deposit Certificates, as well as the funds subject to a Repo, must be carried out by delivery against payment, which may not be later than the fourth Banking Business Day immediately following the date on which the Repo was agreed.

Upon maturity of the Repo, the transfer of the Securities or Deposit Certificates, as well as the corresponding funds, must be carried out on the same day of maturity, by delivery against payment."

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“5.2 Financial Entities and General Warehouses of Deposit may carry out the early settlement of the Repos they enter into, under the terms stipulated in the master contracts under which the corresponding operations are executed.”

6. PRICE AND PREMIUM

“6.1 Financial Entities and General Warehouses of Deposit may establish in the Repos they enter into the denomination of the price and premium in national currency, Foreign Exchange, or in UDIS, regardless of the denomination of the Securities or Deposit Certificates subject to the Repo.

In the event that Credit Institutions, Related SOFOMES E.R., Brokerage Houses, or General Warehouses of Deposit enter into a Repo with a counterparty other than Financial Entities or General Warehouses of Deposit, in which the price and premium are denominated in a currency different from that of the Securities or Deposit Certificates subject to the Repo, they must obtain and retain an express and written declaration from said counterparty, explicitly acknowledging the difference in currencies referred to.”

“6.2 Financial Entities and General Warehouses of Deposit must agree, in the Repos 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 actually elapsed.”

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8. INSTRUMENTATION AND CONFIRMATION

“8.1 Repos that Financial Entities enter into with other Financial Entities or Institutional Investors, as well as those carried out by Credit Institutions, in their capacity as repo lenders, with State Productive Enterprises and Commercial Companies, must be carried out considering the market price of the Securities or Deposit Certificates subject to the Repo, or others granted as collateral for such operations, minus the adjustment factors determined in accordance with the methodology and guidelines described in this section. Likewise, they must be entered into under the unique master contract that, for such operations, is jointly approved by the Mexican Bank Association, A.C., and the Mexican Securities Institutions Association, A.C.

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Repos entered into by Financial Entities and General Warehouses of Deposit for terms greater than three Banking Business Days counted from the date of agreement, including their extensions, must establish the obligation to constitute collateral that covers the exposure of one party to the Repo with respect to the other, when such exposure exceeds the maximum amount agreed upon by the parties themselves in accordance with the corresponding master contract. The exposure will be calculated as the difference between the agreed price of the Repo at the time of its celebration, plus the agreed premium accrued to the date of calculation, and the market value of the Securities or Deposit Certificates subject to the Repo, the latter incorporating the adjustment factor determined in accordance with the procedure and guidelines described in this section.

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General Warehouses of Deposit, for the determination of the adjustment factors referred to in the third paragraph of this section, must consider those resulting from the application of the methodology that, for such purposes, is agreed upon by the Mexican Bank Association, A.C. and the General Warehouses of Deposit Association, A.C., complying with the minimum guidelines described in subsections i) to iv) of this section. The aforementioned methodology and the table with updated adjustment factors must be approved by the Bank of Mexico annually, in accordance with the procedure described in the previous paragraph.

Likewise, the methodologies referred to in this section must consider rules and procedures for obtaining information, taking into account, among other things, the availability of reliable data, to discard errors in the information and identify missing values. Furthermore, they must consider the performance, at least every twelve months, of: a) evaluations on their reasonableness to, if applicable and subject to the authorization of the Bank of Mexico, add, eliminate, or adjust those relevant components and assumptions to improve their robustness and effectiveness; as well as, b) adjustment tests using historical information (backtesting), employing the historical information of the operations carried out and the

OFFICIAL GAZETTE Thursday, May 16, 2024

applicable rates. Financial Entities and General Warehouses of Deposit must document the results of the tests referred to in this paragraph.

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Financial Entities and General Warehouses of Deposit, for the determination of the adjustment factors mentioned, must, for each Security or Deposit Certificate subject to the Repo, consider, at least, the following elements:

i. to iv. …

In addition to the aforementioned subsections, the methodology may incorporate other additional adjustment factors considering the nature of the respective Security or Deposit Certificate, such as: a) a charge when there is a currency mismatch between the Securities or Deposit Certificates and the price and premium of the Repo; b) additional charges to the adjustment factor based on the difficulty in determining and observing the market prices of the Securities or Deposit Certificates involved in Repo operations when they do not comply with what is stated in subsection i) of this section or have no history; c) the feasibility of placing the inventory of goods backed by the Deposit Certificates; d) the difficulty or cost of storing the goods backed by the Deposit Certificates, and e) any other expense that might be incurred due to any breach of the Repo that could affect the repo lender.

Once Financial Entities and General Warehouses of Deposit determine the adjustment factor to implement, in accordance with what is provided in subsections i) to iv) above, in Repo operations to be agreed upon, the counterparties must constitute additional collateral daily as appropriate, so as to mitigate the exposure that exceeds the maximum amount agreed upon by the parties that assumes the repo lender or the repo borrower in accordance with the corresponding contract.

Repos entered into by Financial Entities and General Warehouses of Deposit with Foreign Financial Entities may be instrumented, under the regulations applicable to them, under the master 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 or in the first paragraph of section 8.1 Bis.

Repos entered into by Financial Entities and General Warehouses of Deposit with counterparties other than those indicated in the first and twelfth paragraphs of this section must be carried out under the master contracts they agree upon with them.

For the purposes of the contracts mentioned in the first, eleventh, and twelfth paragraphs of this section, Financial Entities and General Warehouses of Deposit, subject to what the laws regulating them dispose, may give as collateral titles or securities from their portfolio, credit rights in their favor, or cash, as appropriate.

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Financial Entities and General Warehouses of Deposit will be responsible for ensuring that the Repos they enter into, including the corresponding contracts, strictly comply with these Rules, as well as with the other provisions applicable to them.”

“8.1 Bis Repos entered into by General Warehouses of Deposit with Credit Institutions, Brokerage Houses, Related SOFOMES E.R., and the FND must be carried out considering the market price of the Deposit Certificates, minus the adjustment factors determined in accordance with the methodology and guidelines described in the previous section. Likewise, they must be entered into under the unique master contract that, for this type of operation, is jointly approved by the General Warehouses of Deposit Association, A.C., the Mexican Bank Association, A.C., and the Mexican Securities Institutions Association, A.C. The aforementioned master contract must contain, insofar as it does not contravene applicable national provisions, the guidelines and directives established for this type of operation by the associations referred to in the second paragraph of section 8.1.”

“8.2 In the case of Repos between Financial Entities or General Warehouses of Deposit, with Foreign Financial Entities or with Institutional Investors, these must confirm each other on the same day of their agreement through any means that leaves documentary evidence, even in electronic media, of the celebration of the corresponding operation. When Repos between Financial Entities are settled through Securities Depositories, the records of the operation will serve as documentary evidence of the confirmation.

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When Repos are entered into with persons other than those indicated in the previous paragraph, Financial Entities and General Warehouses of Deposit must issue, on the same day of their agreement, a receipt through any means that leaves documentary evidence, even in electronic media, of the execution of the corresponding Repo, which they must keep available for the client or send to them in case the client requests it.

In the aforementioned confirmation or in the respective receipt, the repo borrower, the repo lender, the price, premium, date of agreement and start of the operation, and term of the Repo must be indicated, as well as, as appropriate, the specific characteristics of the Securities or Deposit Certificates subject to it, such as: issuer; issuance key; nominal value; type of Security or Deposit Certificate; characteristics of the goods backed by the Deposit Certificate and, if applicable, guarantor, acceptor, or guarantor of the Securities or Deposit Certificate.

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In all cases, Financial Entities and General Warehouses of Deposit must make the records that correspond for the different acts carried out by virtue of the Repos they enter into, on the same day that such acts are agreed upon.”

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9. PROHIBITIONS

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“9.3 Financial Entities and General Warehouses of Deposit must abstain from entering into Repos under conditions and terms contrary to their policies and to the sound practices of the market.”

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“9.6 Financial Entities and General Warehouses of Deposit may not enter into Repos 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 Inquiries Management, authorizes the celebration of Repos with other characteristics or on different credit titles than those mentioned in this Circular.”

10. INFORMATION

“Financial Entities and General Warehouses of Deposit must provide to the Authorities, under the terms of applicable provisions, information on the Repos they enter into, in the form and deadlines that they require.”

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11. SUPERVISION AND SANCTION

“11.1 The Bank of Mexico will supervise compliance by Financial Entities and General Warehouses of Deposit with the provisions of these Rules, and any non-compliance will be sanctioned in accordance with what is provided in the Bank of Mexico Law and other applicable regulations.

Financial Entities and General Warehouses of Deposit will be sanctioned by the Bank of Mexico when, in contravention of what is provided in section 8.1, they do not use the adjustment factors approved by the Bank of Mexico or do not deliver the collateral that corresponds in accordance with these Rules.”

“12. SPECIAL MODALITIES OF REPOS”

“12.1 The modalities of Repos enumerated in this section must be subject to the provisions provided in the previous sections, insofar as they do not oppose the particular aspects established below.”

“12.2 Financial Entities may enter into Repos known as open repos without establishing a specific maturity term, these Repos being able to be matured by either party on any Banking Business Day, prior notice being delivered to the other party with the advance and in the terms agreed upon in the respective contract. Without prejudice to the foregoing, open repos must be settled by delivery against payment of the funds and of the Securities subject to the Repo, no later than three hundred sixty-five days following the date on which the Repo was agreed upon. In the celebration of these operations, the parties must be subject to the methodology and guidelines established in section 8.1 and may establish the possibility of carrying out the substitution of the Securities subject to the Repo operation, in accordance with section 3.7.

Regarding the Repos referred to in this section, the transfer of the funds as well as of the Securities subject to the Repo may be carried out only at the beginning and at the maturity of the Repo.”

“12.3 Financial Entities may enter into Repos known as evergreen repos, whose term they may freely agree upon, and in which it is established that such operations will be automatically extended, so that they always maintain the same term agreed upon at the beginning of the operation, either party being able to give notice to the other party with the advance and in the terms established in the respective contract, of its intention to mature in advance or to not continue extending the aforementioned Repo. Likewise, in the celebration of these operations, the parties must be subject to the methodology and guidelines established in section 8.1 and may establish the possibility of carrying out the substitution of the Securities subject to the Repo operation, in accordance with section 3.7.

Regarding the Repos referred to in this section, the transfer of the funds as well as of the Securities subject to the Repo may be carried out only at the beginning and at the maturity of the Repo, without the parties being obliged to carry out such transfer by reason of the extensions of the operation in question.”

“12.4 Credit Institutions, Brokerage Houses, and Investment Funds may enter into Repos, known as forward starting repos, in which the transfer of the Securities or Deposit Certificates and the funds subject to the Repo is carried out on a date subsequent to the fourth immediate Banking Business Day following that on which the Repo in question was agreed upon. For this purpose, Credit Institutions and Brokerage Houses must previously obtain the authorization of the Bank of Mexico in accordance with section 3.4 of the Rules for the carrying out of derivative operations, issued by this Central Institute through Circular 4/2012, published in the Official Gazette of the Federation on March 2, 2012, in the terms currently in force that correspond or the modifications made subsequently.

Regarding Siefores, these must have the authorization of the Bank of Mexico referred to in subsection l) of the definition of Underlyings of the Rules to which specialized investment societies for retirement funds must be subject in the carrying out of derivative operations, issued by this Central Institute through Circular 6/2013, published in the Official Gazette of the Federation on December 27, 2013, in the terms currently in force that correspond or the modifications made subsequently. Likewise, they must obtain the non-objection from the National Commission of the Retirement Savings System, in accordance with applicable provisions.”

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“ANNEX 4 General guidelines to be observed in the operational certification of general warehouses of deposit

In this annex, general guidelines to be observed in the operational certification of general warehouses of deposit are established.

The objective is to present the minimum elements that the certifying agent must verify to issue its certification, including the analysis of the stages of the operational process, the level of competence, and the technical and operational capabilities of the general warehouses of deposit, considering the risk management observed in their operation. The certification must ensure that general warehouses of deposit offer adequate service levels with their size and goods stored, so that such certification allows providing a reasonable level of confidence regarding the storage, custody, maintenance, security, and value of the goods backed by the deposit certificates they issue.

The general process for certification must consider, the review of the operational process of general warehouses of deposit, as well as the characteristics and functionality of the storage infrastructure.

I. Review of the operational process.

The review must include inspections, both on-site and documentary, as appropriate for the aspects to be verified for operational certification, and must consider the analysis of its operational process, its corporate governance, the enabling process that integrates the stages of business, evaluation, approval,

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instrumentation, monitoring, control, and recovery, as well as the integration of files, as follows:

Analysis of financial strength • Credit history of the warehouse and its officials. • Capital structure. • Operational results. • Business profitability. • Efficiency indicators.

AGD Operation • Personnel structure and infrastructure for attention to its operations. • Level of integration with other companies in the sector. • Position in the sector and in the market. • Certifications and alliances with companies. • Establishment of a strategic plan.

Corporate Governance. • Board of directors: integration and independence. • Shareholding structure or control group. • Organizational structure and level of experience of its officials. • Internal regulations: organization manual, norms and policies for enabling, internal control, systems, integral risk management, and compliance with anti-money laundering and counter-terrorism financing prevention. • Procedures for: enabling and renting warehouses, monitoring and supervision, review and valuation of systems for administration and control of merchandise inventory, sampling, entry and control of inventories, verification that the amount issued in certificates coincides with the stored product, recovery, and file integration. • Internal Control System.

Business Model • Sectors, geographic coverage, and products and merchandise. • Contracting of services with third parties. • Market strategy.

Evaluation of accredited warehouses to be enabled • Evaluation methodologies for enabling warehouses. • Credit bureau queries of applicants. • Legal verification of the applicant and legal bureau. • Establishment of certification limits for each enabled or rented warehouse. • Collateral policy.

Approval of credits or warehouses to be enabled. • Decision-making bodies (Enabling Committee). • Approval process. • Authorized levels. • Other decision-making bodies.

Instrumentation. • Contracting and formalization.

OFFICIAL GAZETTE Thursday, May 16, 2024

• Determination of merchandise value. • Control desk. • Issuance of Deposit Certificates and pledge bonds and their records. • Control systems. • Security guards.

Monitoring. • Process, systems, and controls for the supervision of own and enabled warehouses. • Physical inspection of merchandise (unit, personnel, and material resources). • Sampling, entry, conservation, and exit methodologies for merchandise. • Supervision visit program and alerts. • Inspector rotation policy. • Technology for inspection and monitoring system. • Circumstantial minutes and reports to the board of directors. • Evaluation and monitoring of relevant events.

Control. • Systems: functionality, processes, controls, and reports for the issuance of Deposit Certificates and pledge bonds and monitoring of inventories. • Security in systems and business continuity plan. • Internal Control System and internal control evaluation. • Warehouse report control. • Monitoring of alerts.

Recovery. • Recovery and collection process (preventive, extrajudicial, and judicial). • Documented procedures: auction, registration, and write-off of uncollectible accounts. • Uncollectible accounts and write-offs.

Enabling files. • Integration, structure, and control of physical files of enabled and rented warehouses. • Controls and records of entry and exit of enabling files.

II. Review of storage infrastructure.

For the aspects to be reviewed of the infrastructure of own and enabled warehouses, the following must be observed: • Procedure for sampling and analysis of the products it stores. • System for registration and control of Deposit Certificates and pledge bonds and inventories. • Infrastructure requirements for operation. • Conditions for handling and conservation of merchandise. • Security systems and access controls. • Documented protocols for security measures. • Competencies of the personnel operating the enabled warehouses and years of experience.”

“ANNEX 5”

Thursday, May 16, 2024 OFFICIAL GAZETTE Independence criteria for independent third parties certifying general warehouses I. The income received by the independent third party, from the general warehouse or, where applicable, from its holding company, subsidiaries, or legal entities belonging to the same Business Group or Consortium derived from the provision of their services, does not represent in its entirety ten percent or more of their total income during the year immediately preceding that in which the review is intended to be carried out. II. The person designated by the independent third party to carry out the review is not or has not been during the year immediately preceding their designation, a board member, general manager, or employee holding a position within the two immediate lower levels to the latter in the general warehouse, in its holding company, subsidiaries, or legal entities belonging to the same Business Group or Consortium, defined in fractions II and X of article 2 of the Securities Market Law. III. Where applicable, the independent third party or the person designated by it to carry out the review does not have investments in shares in the warehouse or, where applicable, in its holding company, subsidiaries, or legal entities belonging to the same Business Group or Consortium, unless made through investment funds. IV. Where applicable, the general warehouse, its holding company, subsidiaries, or the legal entities belonging to the same Business Group or Consortium, have investments in the independent third party carrying out the review, unless made through Investment Funds. V. The independent third party does not provide the general warehouse with any other service in addition to this service related to the verification of its internal control systems or risk management. VI. The income that the independent third party receives or will receive for certifying the general warehouse does not depend on the result of the certification. VII. The independent third party does not have overdue accounts receivable with the general warehouse for any service it has already provided, as of the date of verification.” “ANNEX 6 Metals and construction 1 steel 2 bronze 3 cement 4 PVC 5 industrial pipe Petroleum derivatives and energy 6 asphalt (*) 7 coal 8 petroleum coke 9 polyethylene 10 polypropylene Agriculture and livestock 11 sesame 12 almond 13 chili 14 egg 15 Fertilizer

OFFICIAL GAZETTE Thursday, May 16, 2024 16 bean 17 cattle, bovine, porcine and caprine (on hoof and in carcass) and frozen cuts of said meat 18 hibiscus 19 walnut 20 ginger 21 honey Grains, seeds and spices 22 peanut 23 cinnamon 24 safflower (seed and oil) 25 chia 26 cocoa 27 chickpea 28 sunflower (seed and oil) 29 palm (seed and oil) 30 pepper 31 cotton (seed) Other foods 32 shellfish (frozen and in flour) 33 turkey (frozen and in flour) 34 fish (frozen and in flour) 35 chicken (frozen and in flour) Others 36 natural rubber 37 soap (bar and liquid) 38 paper and cardboard TRANSITORY PROVISIONS FIRST. - This Circular shall enter into force on June 14, 2024. SECOND. - General Warehouses shall have until November 11, 2024 to send to the Bank of Mexico any of the certifications referred to in paragraphs 2.5 and 3.1 Bis of the Rules, modified by this Circular. After the period indicated in the previous paragraph, General Warehouses that have not sent the aforementioned documentation must refrain from celebrating new Reportos and may only continue with those that are in effect as of the aforementioned date. THIRD.- Entities authorized to celebrate Reportos on Deposit Certificates must ensure that upon conclusion of the period mentioned in the SECOND transitory provision of this Circular, the general warehouse that has issued Deposit Certificates that are the subject of any Reporto that the aforementioned Entities maintain in effect as of the aforementioned date, has complied with the obligation to send to the Bank of Mexico any of the certifications referred to in paragraphs 2.5 and 3.1 Bis of the Rules, modified by this Circular. In the event that the general warehouse in question does not prove that it has sent the aforementioned documentation, the aforementioned Entities must refrain from celebrating new Reportos on the Deposit Certificates issued by the aforementioned general warehouse.

Thursday, May 16, 2024 OFFICIAL GAZETTE Mexico City, May 8, 2024.- BANK OF MEXICO: General Director of Central Banking Operations, Gerardo Israel García López.- Rubric.- General Director of Financial Stability, Fabrizio López Gallo Dey.- Rubric.- General Director of Financial System Affairs, José Luis Negrín Muñoz.- Rubric.- Director of Central Banking Provisions, María Teresa Muñoz Arámburu.- Rubric.- Manager of Policy and Surveillance of Payment Systems and Market Infrastructures, Daniel Garrido Delgadillo.- Rubric. For any queries 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.