Circular 8/2009 — US Dollar Credit Auctions

CIRCULAR 8/2009 Mexico, D.F. on April 15, 2009. TO CREDIT INSTITUTIONS: SUBJECT: US DOLLAR CREDIT AUCTIONS.

Banco de México, based on Articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 7, fractions I, II and X, 8, 14, 16, 24 and 36, of the Banco de México Law; 22 of the Law for Transparency and Regulation of Financial Services; 8, third and sixth paragraphs, 12, in relation to 19, fraction IX, and 17, fraction I, of the Internal Regulations of Banco de México, which provide for the attribution of the Central Bank, through the General Directorate of Central Bank Operations and the Directorate of Central Bank Regulations, respectively, to issue provisions; Sole of the Agreement on the Assignment of Administrative Units of Banco de México, fractions I and IV, with the objective of promoting the sound development of the financial system and facilitating the proper functioning of payment systems, in order to provide financing to private sector participants facing pressures to obtain term resources, has resolved to issue the following:

“RULES APPLICABLE TO US DOLLAR CREDIT AUCTIONS”

1. DEFINITIONS For the purposes of these Rules, the following terms, singular or plural, shall be understood as:

Business Day(s): days of the week, excluding Saturdays, Sundays and those on which credit institutions are obligated to close their offices and branches, in accordance with the general provisions issued for such effect by the National Banking and Securities Commission.

Dollar(s): the legal tender of the United States of America.

Financial Network: the Banco de México website at address http://webdgobc or, as applicable, the electronic, computing or telecommunications medium determined for such effect by the Bank itself.

Credit Auction(s) in Dollars: those that Banco de México conducts to grant Dollar credits to credit institutions.

2. BIDDERS Only credit institutions acting on their own behalf may submit bids. Banco de México may limit the participation of one or more credit institutions when, in its judgment, the bids submitted by them fail to comply with applicable provisions or such institutions do not conform to sound market uses or practices.

3. CALLS FOR BIDS Banco de México shall notify bidders of the calls for US Dollar Credit Auctions at least one Business Day in advance of the date on which they are held, through the Account Holder Attention System of Banco de México (SIAC-BANXICO) or through any other electronic, computing or telecommunications medium authorized for such effect by Banco de México.

Such calls shall disclose the characteristics of the US Dollar Credit Auctions, such as: a) Date and time of the US Dollar Credit Auction; b) Type of US Dollar Credit Auction; c) Minimum and maximum amounts that may be requested; d) Credit term and interest periods; e) The minimum interest rate at which Banco de México is willing to conduct the credit operations subject to the respective US Dollar Credit Auction, and f) Date of delivery of the Dollars subject to the US Dollar Credit Auction.

4. TYPES OF US DOLLAR CREDIT AUCTIONS US Dollar Credit Auctions may be: a) Traditional: those in which credit institutions submit their bids without having information about other bids submitted, or b) Interactive: those in which credit institutions submit their bids while being able to know the marginal assignment rate of the US Dollar Credit Auction.

Both types of auctions may be assigned to: i) Single interest rate: those in which the auctioned amount will be assigned starting from the highest spread, and bids that receive assignment will be served at the spread of the last bid to receive assignment, even if they were partially served. ii) Multiple interest rate: those in which the auctioned amount will be assigned starting from the highest spread and bids that receive assignment will be served at the requested spread, even if they were partially served.

5. INTEREST RATE The interest rate that will apply during each interest period of the Dollar credit will be determined according to the following formulas:

1 / (1 + i_min_1) = 1 / (1 + i_1) + S_1 1 / (1 + i_min_2) = 1 / (1 + i_2) + S_1 1 / (1 + i_min_j) = 1 / (1 + i_j) + S_1 1 / (1 + i_min_n) = 1 / (1 + i_n) + S_1

where: i_j = Annual interest rate, expressed in percentage terms with rounding to four decimals applicable to interest period j, with j = 1, 2,…, n. min_i_j = Minimum interest rate, expressed in annual terms, established by Banco de México at the start of each interest period j, with j=1, 2, … , n, determined based on a market reference rate for the term of the interest period plus a differential. The reference rate and the differential will be disclosed by Banco de México in the respective call. S_1 = Annual spread expressed in percentage terms with rounding to four decimals, which the bidder will pay in each of the interest periods where S_1 >= 0. The spread will remain unchanged during the credit term. n = Last interest rate review period.

On the start dates of each interest period indicated in the calls, Banco de México will disclose the applicable minimum interest rate on the Financial Network.

6. BIDS 6.1 Types of bids Bids will be competitive and must be submitted in increments of one million Dollars or its multiples. The bidder must indicate the amount of Dollars for which it wishes to conduct the operation, as well as the annual interest spread at which it is willing to receive such credits. The annual interest rate will be calculated by adding the spread to the minimum interest rate, in accordance with the provisions of section 5 of these Rules.

6.2 Bid limits The sum of the amounts of the bids submitted by each bidder, for the US Dollar Credit Auction defined in each call, shall not exceed twenty-five percent of the maximum amount offered for said auction. In the case of interactive auctions, it will be understood that this limit applies to bids that have received assignment during the auction.

The aforementioned limit will be applicable to the set of bids submitted by multiple banking institutions that are part of the same financial group or controlled by the same shareholder. For these purposes, it will be understood that the same shareholder controls two or more multiple banking institutions when it is the owner of thirty percent or more of the shares representing the social capital of the institutions; has control of their general shareholders' meetings; is in a position to appoint the majority of the members of their boards of directors or, by any other means, controls the institutions.

6.3 Submission of bids Each bidder may submit one or more bids regarding the same call, provided that the sum of the bid amounts does not exceed the maximum amount specified in section 6.2.

Interested credit institutions must submit their bids on the date and time indicated in the respective call through SIAC-BANXICO or through any other electronic, computing or telecommunications medium authorized for such effect by Banco de México.

The access, identification and, as applicable, operation keys established for the use of SIAC-BANXICO will substitute the autograph signature with an electronic one, so that documentary or technical records where they appear will produce the same effects that the laws grant to documents signed by the parties and, consequently, will have equal probative value. In the event that a credit institution cannot submit its bids through SIAC-BANXICO, it may submit them by telephone or fax and must confirm them in writing delivered to the National Operations Management, no later than three hours after the corresponding US Dollar Credit Auction, using the model attached as Annex 1, in a closed envelope, accompanied by a letter of presentation. Both documents must be duly signed by the same authorized representatives of the participating credit institutions and the letter must show the knowledge of signatures granted by the Cash Operations Office of Banco de México, so that the signatures must be registered in the aforementioned office.

6.4 Effects of bids Bids submitted to Banco de Mexico in accordance with section 6.3 of these Rules will produce the broadest effects in law, and will imply the bidder's acceptance of all and each of these Rules, the terms and conditions established in the call in which Banco de México communicates the particular characteristics of the US Dollar Credit Auction in question, and what is stipulated in the contract referred to in section 9 of these Rules.

Every bid will be binding and irrevocable for the bidder who submits it. Banco de México may invalidate bids it receives if they do not comply with these Rules, what is stated in the corresponding call, or what is stipulated in the contract referred to in section 9; are not clearly legible; have erasures or corrections, or are incomplete or incorrect in any way.

7. ASSIGNMENT Bids will be assigned in descending order of the corresponding spreads, provided that the sum of the amount of assigned bids does not exceed the maximum amount indicated in the respective call. The last bid to receive assignment may be partially served in its amount.

In the event of tied bids and the amount to be assigned is not sufficient to serve such bids, they will be served pro rata with respect to their amount, except when it comes to Interactive US Dollar Credit Auctions, in which case the bids will be served in the order in which they were received.

Regarding those bids that have received assignment in accordance with this section, Banco de México will formalize the credit operations in accordance with the provisions of section 9.

8. RESULTS OF US DOLLAR CREDIT AUCTIONS Banco de México will inform the result of said auctions to each bidder individually, on the same Business Day that the respective auction is held, through SIAC-BANXICO or by any other electronic, computing or telecommunications medium authorized for such effect by the Central Institute itself.

Additionally, on the same Business Day that the US Dollar Credit Auction is held, Banco de México will publish the general results of said auction on its website on the worldwide network (Internet) identified with the domain name www.banxico.org.mx or through any other electronic, computing or telecommunications medium determined for such effect by Banco de México itself.

9. FORMALIZATION OF DOLLAR CREDITS To participate in US Dollar Credit Auctions, interested institutions must enter into a contract with Banco de México at least one Business Day in advance of the date on which the respective auction will be held.

For such purposes, credit institutions must present to the Sub-Management of National Operations Instrumentation, a certified and simple copy of the public deed in which the powers of their legal representative(s) to exercise acts of dominion are stated, as well as a simple copy of the official identification(s) of the person(s) who intend(s) to sign said contracts, at least one Business Day in advance of when they intend to sign the referred contract.

Credit institutions must make deposits or titles available to Banco de México sufficient to guarantee the Dollar credit assigned to them. For this purpose, institutions that have received assignment must send, no later than the Business Day immediately preceding the date of delivery of the Dollars scheduled in the respective call, to the National Operations Processing Management of Banco de México, a communication in terms of Annex 2 of this Circular.

If on the date and time indicated in the contract, a bidder does not have sufficient deposits or titles to guarantee the total amount of the credit assigned to it, Banco de México may, without the need for a judicial declaration, resolve the respective operation for the unguaranteed amount.

9.1 Credit institution deposit accounts The amount of Dollar credit operations formalized will be credited to the accounts that credit institutions have in the United States of America and that are registered with Banco de México. Such accounts may be modified at the request of credit institutions at least three Business Days in advance of the date on which the operations provided for in these Rules are to be carried out, using the format contained in Annex 3.

9.2 Characteristics of credit operations Credits will have the following characteristics: a) Lender: Banco de México. b) Borrower: The credit institution whose bids have received assignment. c) Term: That established by Banco de México in the call for the corresponding US Dollar Credit Auction. d) Amount: The amount of Dollars assigned by Banco de México as a result of the US Dollar Credit Auction, which are backed by guarantees specified in paragraph g). e) Interest Rate: The interest rate resulting in terms of section 5 of these Rules. f) Interest Periods: The interest payment terms and, as applicable, interest rate review of the US Dollar Credit Auctions, indicated in the respective call. g) Guarantees: i) Monetary regulation deposits; ii) time deposits derived from the procedure for determining the TIIE provided for in Annex 1 of Circular 2019/95; iii) time deposits derived from the operations referred to in Annex 7 of the said Circular; iv) US Dollar deposits referred to in section M.71.2 of Circular 2019/95; v) Certificates of the Treasury of the Federation denominated in national currency (CETES) excluding those issued under credit restructuring programs in investment units (SPECIAL CETES); vi) Development Bonds of the Federal Government denominated in national currency (BONDES) or in investment units (UDIBONOS); vii) Segregated Coupons of the Development Bonds of the Federal Government denominated in national currency with fixed interest rate or in investment units referred to in the "Rules for the Segregation and Reconstitution of Titles" issued by the Secretariat of Finance and Public Credit; viii) Titles issued by the Institute for the Protection of Bank Savings with respect to which Banco de México acts as financial agent for the issuance, placement, purchase and sale, in the national market (BANK SAVINGS PROTECTION BONDS (BPAS)); ix) Monetary Regulation Bonds (BREMS); x) Debt titles denominated in national currency issued by development banking institutions other than the lender deposited in the S.D. Indeval Institution for the Deposit of Securities, S.A. de C.V., and xi) Debt titles denominated in national currency, which are deposited in the S.D. Indeval Institution for the Deposit of Securities, S.A. de C.V., with at least two minimum AA ratings or its equivalent granted by authorized securities rating institutions by the National Banking and Securities Commission and issued by any of the following persons: a) Para-state entities; b) Local governments; c) Municipalities; d) International organizations; e) Non-financial resident companies in Mexico that are not part of the same business group or consortium of the lender, in accordance with the provisions of the Securities Market Law; f) Financial resident companies in Mexico other than the lender which issue such instruments to securitize future payment obligations for mortgage credits, or g) Fiduciary institutions of trusts constituted by financial resident companies in Mexico other than the lender whose assets are composed of a portfolio of mortgage credits.

The value of the guarantees referred to in this section that credit institutions must initially constitute for the assigned amount, once converted to Dollars, must be at least equal to the result of multiplying the initial margin determined by Banco de México on the date of celebration of the US Dollar Credit Auction, by the amount of the credit principal. To carry out the conversion of guarantees to Dollars, the exchange rate determined by Banco de México in accordance with the “Applicable Provisions for the Determination of the Exchange Rate to Fulfill Obligations Denominated in Foreign Currency Payable in the Mexican Republic” and published on its website on the date on which the corresponding US Dollar Credit Auction is held will be used.

The national currency value of the titles for guarantee purposes will correspond to the result of multiplying the number of titles by their unit value and by the applicable discount factor.

On the date of the call for US Dollar Credit Auctions, Banco de México will disclose to credit institutions through the Financial Network the following information: i) list of titles eligible to be delivered as collateral; ii) applicable discount factor for said titles; and iii) level of initial, minimum and maximum margins applicable to the value of the guarantees.

Likewise, on the date on which the corresponding US Dollar Credit Auction is held, Banco de México will make known to the institutions that receive assignment the unit value of the titles eligible to be delivered as collateral. To access this information, institutions that have received assignment must request, on the same day they receive the assignment notice, the corresponding access passwords to the Financial Network to the National Operations Processing Management of Banco de México.

Guarantees with titles will be constituted once these have been deposited in the Banco de México account at the S.D. Indeval Institution for the Deposit of Securities, S.A. de C.V.

On the business day following the date on which the guarantees are constituted, Banco de México will credit, in the account referred to in the previous section 9.1, the amount of the Dollars corresponding, provided that the accumulated amount of such credits does not exceed the amount of the principal of the credits assigned in the respective US Dollar Credit Auction.

In the event that the credit institution does not constitute guarantees for the total assigned amount, Banco de México will only credit the amount of Dollars for the amount that is guaranteed and the rest will be credited once the institution constitutes the missing guarantees.

9.3 Payment of interest and principal of credits Interest on the credit will be payable upon maturity of each interest period. On the other hand, the principal of the credit will be payable upon maturity of the respective operation.

On the dates of payment of interest and/or principal of the credit, credit institutions must credit the corresponding amount, in the account that Banco de México will make known to them through SIAC-BANXICO or any other electronic, computing or telecommunications medium authorized for such effect by the Central Institute.

On the maturity date of the credit, Banco de México will release the respective guarantees once it confirms that it has received the payment of the principal and corresponding interest, in accordance with the previous paragraph.

Likewise, in the event that on the maturity date of the operation the payment of the principal and corresponding interest of the credit is not made in full, Banco de México will proceed in accordance with what is established in the contract referred to in section 9.

9.4 Substitution of guarantees Credit institutions may substitute the guarantees they have granted to Banco de México, in accordance with what is stipulated in the contract referred to in section 9 of these Rules.

9.5 Review of the value of guarantees Banco de México will review on Thursdays of each week that the value of the guarantees is sufficient to cover the amount of the Dollar credit granted to each institution, in accordance with what is established in the contract referred to in section 9. In exceptional cases, Banco de México may review the value of the guarantees more frequently.

The value of the guarantees that credit institutions must maintain in the reviews carried out by Banco de México, once converted to Dollars, must be at least equal to the result of multiplying the minimum margin determined by Banco de México on the day the review is to be carried out, by the amount of the credit principal. To carry out the conversion of guarantees to Dollars, the exchange rate indicated in the second paragraph of section 9.2 of these Rules, published by Banco de México on its website on the date on which the review is to be carried out, will be used.

10. GENERAL PROVISIONS 10.1 Banco de México reserves the right to declare a US Dollar Credit Auction totally or partially void when, in its judgment, it considers that the bid or bids do not adequately represent market conditions or could produce inconvenient effects in the same or if it detects collusion between participating institutions.

10.2 Banco de México may suspend the participation of credit institutions in US Dollar Credit Auctions when they fail to comply with what is provided for in these Rules and/or in the contract referred to in section 9 of these Rules.

10.3 For market information, Banco de México will make known to the general public the characteristics and results of US Dollar Credit Auctions, through its Internet website or through any other electronic, computing or telecommunications medium authorized for such effect by Banco de México itself.

10.4 All times referred to in these Rules, in the calls and in the contract provided for in section 9 of these Rules, are referred to the time zone of Mexico City, Federal District.

ANNEX 1 APPLICATION FORM TO PARTICIPATE IN CREDIT AUCTIONS IN US DOLLARS (INSTITUTION'S LETTERHEAD) BANCO DE MÉXICO National Operations Management. 5 de Mayo Avenue No. 6, 1st floor, Centro Neighborhood, Cuauhtémoc Delegation, Postal Code 06059, Mexico City, Mexico Mexico, D.F., on __ of ________ 20__. Bidder Name: ________________________________ Bidder Key at Banco de México: __________________ BIDS: Interest Surplus Amount __________ . __________ __________ million US dollars __________ . __________ __________ million US dollars __________ . __________ __________ million US dollars INTEREST SURPLUSES must be expressed up to FOUR decimal places. The aforementioned bids are mandatory and irrevocable; they will produce the broadest effects corresponding in law, and imply our acceptance of all and each of the “Rules Applicable to US Dollar Credit Auctions,” contained in the current Circular 8/2009, to the contract signed with Banco de México referred to by said Rules, as well as to the terms and conditions of the call for bids dated _______ of ______________ of 2009. Sincerely, (Bidder Name) (Name and signature of authorized officials) NOTE: Unused spaces must be cancelled.

ANNEX 2 MODEL COMMUNICATION REGARDING DEPOSITS AND SECURITIES TO BE DELIVERED TO BANCO DE MÉXICO TO GUARANTEE THE CREDIT ASSIGNED IN THE US DOLLAR CREDIT AUCTIONS (INSTITUTION'S LETTERHEAD) Mexico, D.F., on BANCO DE MÉXICO Operational Processing Directorate 5 de Mayo Avenue No. 6, 4th floor, Centro Neighborhood, Cuauhtémoc Delegation, Postal Code 06059, Mexico City, Mexico (DENOMINATION OF THE CREDIT INSTITUTION) received assignment in the US Dollar Credit Auction held on ____ of ______________ of 2009, in terms of the “Rules Applicable to US Dollar Credit Auctions,” contained in the current Circular 8/2009, for an amount of $ _____________ (AMOUNT IN LETTERS). Regarding this, this credit institution requests Banco de México that the credit derived from said assignment be guaranteed with the following deposits and/or securities: Regulatory monetary deposits $ ________ Deposits constituted in accordance with the procedure described in section 1.22. of Annex 1 of Circular 2019/95 $ ________ Deposits made in terms of what is provided in Annex 7 of Circular 2019/95 $ ________ US dollar deposits referred to in section M.71.2 of Circular 2019/95 $ ________ Securities: _________ (DENOMINATION OF THE CREDIT INSTITUTION) expressly states that the issuers of the debt instruments detailed below are not part of the same corporate group or Consortium (in terms of what is provided in the Securities Market Law) to which this credit institution belongs. (Indicate the type of instrument, issuer, series, ISIN, and number of securities).

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Sincerely, Name and signature of authorized officials ccp. National Operations Processing Management. Central Banking Operations Information and Analysis Submanagement 1

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1 When this communication is sent by email, it must be addressed to ljimenez@banxico.org.mx; gtorresn@banxico.org.mx, sbasilio@banxico.org.mx, jsantael@banxico.org.mx and rcanojau@banxico.org.mx.

ANNEX 3 MODEL COMMUNICATION FROM THE CREDIT INSTITUTION TO BANCO DE MÉXICO TO REQUEST THE CHANGE OF ACCOUNT TO CREDIT THE US DOLLARS SUBJECT OF THE CREDIT DERIVED FROM THE US DOLLAR CREDIT AUCTION (INSTITUTION'S LETTERHEAD) Mexico, D.F., ________________ . BANCO DE MÉXICO Operational Processing Directorate 5 de Mayo Avenue No. 6, 4th floor, Centro Neighborhood, Cuauhtémoc Delegation, Postal Code 06059, Mexico City, Mexico Through this channel, I allow myself to request Banco de México on behalf of (DENOMINATION OF THE CREDIT INSTITUTION), that the US dollars, if any, assigned to my represented party, in terms of what is provided in the “Rules Applicable to US Dollar Credit Auctions” contained in Circular 8/2009 current, be deposited in account number ________________ in its name at _____________ (FULL DENOMINATION OF THE FOREIGN FINANCIAL ENTITY THAT HOLDS THE ACCOUNT). Likewise, we inform you that the instruction referred to in the previous paragraph can only be modified or revoked, through written communication addressed to that Central Bank and presented with an advance of at least three business banking days to the date on which the modification or revocation is intended to take effect. Sincerely, Name and signature of the representative(s) of the Institution with powers of dominion 1 ccp. International Operations Processing Management International Operations Accounting Submanagement 1 It must be sent at least three business banking days in advance of the date on which this communication is intended to take effect, to the Submanagement of National Operations Instrumentation within the hours comprised between 9:30:00 and 14:30:00 hours, as well as a certified and plain copy of the public deed in which the powers of the representative(s) to exercise acts of dominion are recorded, as well as a plain copy of their official identification(s).

TRANSITORY SINGLE. These Rules shall enter into force on April 15, 2009.