Circular 8/2015 — Modifies Circular 4/2012

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CIRCULAR 8/2015 addressed to credit institutions, brokerage houses, investment funds, multiple-object financial societies that have equity links with a multiple banking institution, general warehouses, and to Financiera, regarding the modifications to Circular 4/2012 (Derivative Operations).

A logo is placed at the margin, which says: Bank of Mexico.

CIRCULAR 8/2015

TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT FUNDS, MULTIPLE-OBJECT FINANCIAL SOCIETIES THAT HAVE EQUITY LINKS WITH A MULTIPLE BANKING INSTITUTION, GENERAL WAREHOUSES AND TO FINANCIERA:

SUBJECT: MODIFICATIONS TO CIRCULAR 4/2012 (DERIVATIVE OPERATIONS)

The Bank of Mexico, with the objective of continuing to promote the sound development of the financial system and considering the work carried out by representatives of financial authorities from several countries with the purpose of establishing general and common guidelines in matters of negotiation and operation of over-the-counter derivatives, in order to strengthen the markets in which such operations are celebrated and settled, which is fundamental to fostering financial stability, as well as to reduce default risks, deems it convenient to effect modifications to the Rules for the execution of derivative operations.

For the aforementioned reasons, based on articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 24, 26, 27 and 36 of the Bank of Mexico Law, 46, section XXV, and 46 Bis 5, section II, of the Credit Institutions Law, 176 of the Securities Market Law, 15, second paragraph, of the Investment Funds Law, 22 of the Law for Transparency and Ordering of Financial Services, 11, section XII, and 87-D of the General Law of Organizations and Auxiliary Credit Activities, 9 of the Organic Law of National Financiera, 6 of the Organic Law of Federal Mortgage Society, 9 of the Organic Law of the National Savings Bank and Financial Services, 9 of the Organic Law of the National Bank of Foreign Trade, 10 of the Organic Law of the National Bank of Works and Public Services, 8 of the Law Organic of the National Bank of the Army, Air Force and Navy, 7, section X, and 19 of the Organic Law of the National Financial Development Bank for Agriculture, Rural, Forestry and Fisheries, 4, first paragraph, 8, paragraphs fourth and seventh, 10, first paragraph, 12, first paragraph, in relation to 19, section VI, 14, first paragraph, in relation to 25 Bis, section VII, 14 Bis, first paragraph, in relation to 17, section I, 14 Bis 1, first paragraph, in relation to articles 25 Bis 1, section IV, and 25 Bis 2, section II, and 15, first paragraph, in relation to 20, section XI, of the Internal Regulations of the Bank of Mexico, which grant the attribution to issue provisions through the General Directorate of Central Banking Operations, the General Directorate of Financial Stability, the General Legal Directorate, the General Directorate of Affairs of the Financial System and the General Directorate of Payment Systems and Corporate Services, respectively, as well as Second, sections I, VI, VIII and X, of the Agreement on the Assignment of the Administrative Units of the Bank of Mexico has resolved to add a section 1.1, as well as the definitions of “General Warehouses”, “Confirmation”, “Investment Funds”, “Institutional Investors and Qualified Investors”, “Forward Operations”, “Swap Operations”, “Standardized Derivative Operations”, “Structured Operations”, “SHCP”, “Sofomes” and “TIIE”, the sections 1.2, 1.3, section 2.1, subsection g), with sub-subsections i) to v), 3.1.2, with a second and third paragraphs, 3.1.7, 5.1, 5.2, 7.4, 7.5, 7.6, 7.7, 12.1 to 12.4, modify the first paragraph of section 1.1, as well as the definitions of “Total Return Derivatives”, “Business Day”, “Entities”, “Credit Event”, “Rural Financiera”, “Recognized Markets”, “Futures Operations”, “Credit Derivative Operations”, “Option Operations”, “Derivative Operations”, “Underlyings”, “Credit-Linked Notes” and “UDIS”, of the aforementioned section, 2.1 in its first paragraph and its subsections g) and h), 2.3, 3.1.1, in its first paragraph, subsection c), 3.1.2 in its first paragraph and sub-subsection iii) of subsection a), 3.1.3, the first paragraph, 3.1.4, 3.1.5, second paragraph, 3.2, 3.3, 3.4, 4., 5., 6., 7.1, 7.2, 8., first paragraph, 10.4, 10.5, 11., subsection c) 12. and 13, as well as repeal the definitions of “Reference Asset”, “Swap Contracts”, and

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“Investment Societies”, “Sofoles” in section 1 and section 10.1, of the “Rules for the execution of derivative operations”, contained in Circular 4/2012, to remain in the following terms:

RULES FOR THE EXECUTION OF DERIVATIVE OPERATIONS

“1. GENERAL PROVISIONS”

“1.1 For the purposes of these Rules, the following shall be understood, in singular or plural, as:

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Reference Asset: Repealed.

General Warehouses: legal entities authorized to operate as such, in terms of what is provided in the General Law of Organizations and Auxiliary Credit Activities.

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Confirmation: the physical or electronic writing, which contains the characteristics of the Derivative Operation, which one party of the operation sends or makes available to the other party, as well as the physical or electronic writing by which this latter manifests its agreement with the terms of that Derivative Operation sent by its counterparty.

Swap Contracts: Repealed.

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Total Return Derivatives: operations in which the Protection Buyer is obligated to pay the Protection Seller the flows from a Risk Asset, as well as the changes by increases in the value of said Risk Asset and this in turn is obligated to pay the former an interest rate plus the balance resulting from the downward changes in the value of the Risk Asset, it being possible to agree that, in the event that the Credit Event occurs, the first will deliver the Risk Asset and the second the agreed amount.

Business Day: the day that is a business day both in the United Mexican States in terms of the general provisions issued for such purpose by the CNBV, as well as in the jurisdiction or jurisdictions in which the Settlement of the respective Derivative Operation is carried out.

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Entities: Credit Institutions, Brokerage Houses and the Financiera, jointly or separately.

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Credit Event: the event referred to the payment capacity of a debtor —including, by way of example, payment default, restructuring of the debt, request or declaration of bankruptcy or insolvency, moratorium or deterioration in its rating granted by any securities rating agency— that, if it occurs, obliges the parties to a Credit Derivative Operation to comply with what is stipulated in the contract in the terms agreed.

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Financiera: the decentralized organism of the Federal Public Administration provided for in the Organic Law of the National Financial Development Bank for Agriculture, Rural, Forestry and Fisheries.

Investment Funds: anonymous societies authorized to organize and function as such in terms of the Investment Funds

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Law.

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

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Recognized Markets: the stock exchange constituted in terms of the “Rules to which market participants in the derivatives contracts market shall be subject”, published in the Official Gazette of the Federation on December 31, 1996 and its modifications, to the derivatives exchanges established in countries of the European Union, of the Organization for Economic Co-operation and Development (OECD), as well as those whose financial authorities are designated members to form the Council of the International Organization of Securities Commissions (IOSCO, by its acronym in English).

Forward Operations: any contract, agreement or operation of purchase or sale of an Underlying at a future date in the over-the-counter market, according to which the parties agree to fulfill their respective obligations at the agreed price of said Underlying at the time of the agreement of the operation. Forward Operations (Forwards) must mature on a date subsequent to the fourth Business Day following the date of their agreement.

Futures Operations: any contract, agreement or operation of purchase or sale of an Underlying at a future date celebrated in Recognized Markets, according to which the parties agree to fulfill their respective obligations at the agreed price of said Underlying at the time of the agreement of the operation.

Credit Derivative Operations: Credit Default Derivatives, Total Return Derivatives, Credit-Linked Notes and any other Derivative Operation or Structured Operation in which the exercise of a right or the fulfillment of an obligation is stipulated when a Credit Event occurs.

Swap Operations: any contract, agreement or operation in which the parties agree to exchange between themselves, at future dates or during a certain period, cash flows, calculated based on the value of one or more interests or on the level of other interest rates or any other concept, as well as on the value of currencies, commodities, securities, instruments or indices.

Option Operations: operations in which the buyer, by paying a premium to the seller, acquires the right, but not the obligation, to buy, sell or receive a certain amount, at one or more future dates, one or several Underlyings at an agreed price, or the result of the variation of said Underlyings, and the seller is obligated to sell, buy or deliver a certain amount, as appropriate, said Underlyings at the agreed price, or the result of the variation in the value of said Underlyings.

Derivative Operations: interchangeably, (i) Futures Operations, Forward Operations, Option Operations, Swap Operations, Credit Derivative Operations, or any

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combination of these, as well as (ii) those others that, in their case, the Bank of Mexico authorizes in terms of section 3.4 of these Rules.

Standardized Derivative Operations: to Swap Operations in accordance with which one of the parties is obligated to make payments denominated in pesos, in periods of 28 days or in those that replace them in case of non-business days, of an amount calculated as the result of applying a certain fixed interest rate to a certain amount, non-amortizable, and in turn, the other party is obligated to make payments, in the same periods, of amounts denominated in the same currency, equivalent to the result of applying the TIIE, to the same non-amortizable amount, and whose minimum term of the Swap Operation be greater than or equal to 56 days and the maximum term less than or equal to 30 years.

Structured Operations: instruments in which there is a main contract, which contains a part referring to assets or liabilities that are not Derivative Operations, including by way of example credit operations, bond issuances or other debt instruments, and another part represented by one or more Derivative Operations, such as Option Operations or Swap Operations. Among these operations are those documented through titles issued on their own account or through a trust, by way of example, structured bank titles issued by Credit Institutions in accordance with what is provided in Title Two, Chapter I, Section I, Subsection G, and Section III, Subsection E, of Circular 3/2012 of the Bank of Mexico and fiduciary indexed exchange certificates and optional titles referred to in articles 63 Bis 1, section III, and 66, of the Securities Market Law.

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SHCP: the Ministry of Finance and Public Credit.

Investment Societies: Repealed.

Sofomes: multiple-object financial societies, considered as such in accordance with the General Law of Organizations and Auxiliary Credit Activities, that maintain equity links with a multiple banking institution.

Sofoles: Repealed.

Underlyings: interest rates, assets, securities, prices, indices, commodities or operations, indicated in section 2.1, as well as those authorized in their case in accordance with what is provided in section 3.4 of these Rules, which can be the object of a Derivative Operation.

TIIE: Interbank Equilibrium Interest Rate in national currency for a term of 28 days published by the Bank of Mexico in accordance with what is provided in Title Three, Chapter IV, Section I, of Circular 3/2012 of the Bank of Mexico.

Credit-Linked Notes: instruments or titles that pay a yield and whose value is referenced to the performance of a Risk Asset and which, in the event that the Credit Event occurs, the issuer of the instrument or title delivers to the investor the Risk Asset or the agreed amount.

UDIS: accounting units, whose value in national currency publishes the Bank of Mexico in the Official Gazette of the Federation, in accordance with articles Third of the “Decree by which the obligations that may be denominated in investment units are established and reforms and adds various provisions of the Federal Tax Code and the Law

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of Income Tax” published in the Official Gazette of the Federation on April 1, 1995 and 20 Ter of the Federal Tax Code.

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“1.2 Entities, Investment Funds, General Warehouses and Sofomes may only carry out Derivative Operations referred to in these Rules, for which they must be subject to the terms and conditions they contain.”

“1.3 For the purposes of these Rules, any set of operations, contracts or agreements that, individually or combined, produce the same economic effects as any of the Derivative Operations provided for in section 1.1, shall be subject to the provisions applicable to the equivalent Derivative Operations.”

2. UNDERLYINGS

“2.1 Entities may only carry out Derivative Operations on the following Underlyings:

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g) Any of the following commodities:

i) Gold and silver;

ii) Corn, wheat, soy, sugar, rice, sorghum, cotton, oats, coffee, orange juice, cocoa, barley, milk, canola, soybean oil and soybean meal;

iii) Pork meat, swine and cattle;

iv) Natural gas, heating fuel, diesel, gasoline and crude oil, and

v) Aluminum, copper, nickel, platinum, lead and zinc, and

h) Futures Operations, Forward Operations, Option Operations, Credit Derivative Operations and Swap Operations, on the Underlyings referred to in the previous subsections.”

“2.3 Investment Funds, General Warehouses and Sofomes may only carry out Derivative Operations with Underlyings included in section 2.1 of these Rules that, according to their corporate purpose and, in their case, investment regime, are authorized to operate.”

3. AUTHORIZATIONS

“3.1.1 …

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c) Underlyings, including a detailed description when it comes to Derivative Operations that, in turn, include as Underlying other Derivative Operations.

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“3.1.2 Entities that obtain authorization to celebrate Derivative Operations on their own account may celebrate other types of Derivative Operations, operate in other Markets or celebrate Derivative Operations on Underlyings provided for in subsections a) to f) and h) of section 2.1, different from those indicated in said authorization, provided that:

a) …

i) …

ii) …

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iii) The Underlyings referred to in subsections a) to f) and h) of the aforementioned section 2.1 on which they intend to celebrate Derivative Operations on their own account.

b) …

As an exception to the requirements established in subsections a) and b) above, the Entity that has authorization from the Bank of Mexico to carry out one or more of the Derivative Operations may carry out, without the need to request a new authorization, Derivative Operations on fiduciary indexed exchange certificates, optional titles and similar securities, listed in the International Quotation System, provided that (i) it is fiduciary indexed exchange certificates that represent only rights with respect to any of the Underlyings provided for in section 2.1 on which the Entity has authorization from the Bank of Mexico; (ii) in the case of optional titles or their equivalents listed in the International Quotation System, the Entity has authorization from the Bank of Mexico to carry out Options on the Underlying to which the optional title or its equivalent refers or on optional titles whose Underlyings are shares of the Entity itself that issues them or of credit titles that represent said shares.

What is established in this section will not be applicable in relation to Credit Derivative Operations that Entities intend to celebrate as additional to those on which they have authorization from the Bank of Mexico. Entities that are in the aforementioned situation, to be able to carry out the celebration of Credit Derivative Operations or other Derivative Operations on the Underlyings indicated in subsection g) of section 2.1, must obtain authorization from Bank of Mexico in terms of section 3.1.1.”

“3.1.3 Each Credit Institution and, in its case, Financiera that have authorization to celebrate Derivative Operations on their own account in terms of these Rules must send to the Management during the month of March of each year, a communication issued by its respective audit committee in which it states that said Entities comply with the requirements indicated in the Annex of these Rules, in relation to those Derivative Operations they carry out and with the Underlyings object of said operations. Regarding this, they must accompany in said communication, the audit report or opinion that was presented to the audit committee with which it is concluded that compliance with what is established in the Annex of these Rules is given and in which it must clearly indicate the areas and procedures audited, as well as the different procedures that were carried out for the verification of compliance with said requirements.

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“3.1.4. Entities may carry out Forward Operations on their own account, without requiring authorization when the Underlyings involved are Development Bonds of the Federal Government of the United Mexican States, with fixed interest rate, in national currency and the Settlement is carried out in a term no greater than eight Business Days counted from their date of agreement.”

“3.1.5 …

For the purposes of the foregoing, Entities must: i) have a risk management and control unit responsible for valuing, measuring and monitoring such risks, ii) have an adequate valuation of said Derivative Operations and counterparty risk and determine the effectiveness of the hedge, according to the accounting criteria applicable to each Entity, and submit these Derivative Operations to the respective risk committees of said Entities for prior approval before their celebration, and iii) inform semi-annually to their board of directors, or to their board of trustees, as appropriate, regarding the carrying out of those Derivative Operations and their limits, including the calculation on the effectiveness of the hedge.”

“3.1.7 Entities and Sofomes that intend to acquire or issue, on their own account, titles that document Structured Operations must obtain the authorization referred to in section 3.1.1 of these Rules to carry out Derivative Operations and on the Underlyings to which they refer.”

“3.2 INVESTMENT FUNDS

“Investment Funds may only carry out Derivative Operations, subject to the general provisions issued by the CNBV and without requiring authorization from the Bank of Mexico. These operations may be carried out in any Market.”

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“3.3 SOFOMES AND GENERAL WAREHOUSES OF DEPOSIT”

“Sofomes and General Warehouses of Deposit may only carry out Derivative Operations, without the need to comply with the requirements set forth in sections 3.1.1, 3.1.2, and 3.1.3, when such operations are intended to cover their own risks.

For the purposes of the foregoing, Sofomes and General Warehouses of Deposit must: i) have a risk administration and control unit or equivalent body responsible for valuing, measuring, and monitoring such risks; ii) have adequate valuation of the Derivative Operations and counterparty risk, and determine the effectiveness of the hedge, according to the accounting criteria applicable to them, and submit these Derivative Operations to the respective risk committees or equivalent bodies for prior approval before their execution; and iii) report to their board of directors at least once every semester regarding the execution of these operations and their limits, including in said report the calculation on the effectiveness of the hedge. These operations may be carried out in any Market.”

3.4 OTHER DERIVATIVE OPERATIONS OR WITH OTHER UNDERLYING ASSETS

“The Bank of Mexico may authorize Entities, Investment Funds, General Warehouses of Deposit, and Sofomes to carry out Derivative Operations other than those indicated in subsection (i) of the definition of Derivative Operations, as well as with other Underlyings different from those indicated in section 2.1 of these Rules. For this purpose, interested parties must submit a written authorization request to the Management describing the Derivative Operation they intend to carry out, as well as its structure or combination of Derivative Operations and the respective Underlying, as applicable. Regarding this, they must attach a communication issued by the audit committee in terms of the last paragraph of section 3.1.1, as well as the audit report or opinion that has been presented to the audit committee or equivalent body, in which it is stated that compliance with the provisions of the Annex of these Rules is met, and in which the audited areas and procedures must be clearly indicated, as well as the different procedures that have been carried out to verify compliance with said requirements.”

4. AUTHORIZED COUNTERPARTIES

“Entities may carry out Derivative Operations with any person.

Entities may only carry out Derivative Operations in over-the-counter markets for the coverage of their own risks, in terms of section 3.1.5 of these Rules, with Entities authorized by the Bank of Mexico to celebrate Derivative Operations on their own account and with Foreign Financial Entities. Likewise, regarding operations in Recognized Markets, the counterparty of the Derivative Operation must be the clearing house or, as applicable, the foreign institution acting as central counterparty, recognized by the Bank of Mexico in terms of section 7.6.

Credit Institutions and the Financial Institution may only carry out Credit Derivatives Operations with other Credit Institutions authorized by the Bank of Mexico to celebrate such Derivative Operations on their own account, with other Mexican financial entities authorized to carry out such operations or with Foreign Financial Entities.

Investment Funds, General Warehouses of Deposit, and Sofomes may only carry out Derivative Operations in over-the-counter markets with Entities authorized by the Bank of Mexico to celebrate Derivative Operations on their own account and with Foreign Financial Entities. Likewise, regarding operations in Recognized Markets, the counterparty of the Derivative Operation must be the clearing house or, as applicable, the foreign institution acting as central counterparty, recognized by the Bank of Mexico in terms of section 7.6.”

“5. DOCUMENTATION AND NEGOTIATION”

“5.1 Derivative Operations, except Credit-Linked Notes, that: (i) Entities carry out among themselves, as well as with other national or foreign financial entities and with Institutional Investors and Qualified Investors, and (ii) Investment Funds, General Warehouses of Deposit, and Sofomes carry out with their authorized counterparties, shall be documented in master contracts, which must reflect guidelines and directives contained in contract models recognized in international markets, such as those approved by Recognized Markets or by the entity known as “International Swaps and Derivatives Association, Inc.”, provided that this does not contravene applicable national provisions.

Regarding Credit-Linked Notes and Structured Operations, these must be documented in an issuance deed, in a contract, or in a security in accordance with applicable provisions.

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Derivative Operations, except Credit-Linked Notes, and their characteristics may be agreed upon through the form that the corresponding master contract establishes. Entities, Investment Funds, General Warehouses of Deposit, and Sofomes must register these operations and invariably must send or make available to their counterparty the Confirmation, on the same day that they celebrate the respective Derivative Operation. Likewise, in case of not receiving the Confirmation from their counterparty on that same date, they must comply with the applicable requirements.

The obligation of Confirmation for Entities, Investment Funds, General Warehouses of Deposit, and Sofomes provided in the preceding paragraphs will not be applicable when Derivative Operations are negotiated in Recognized Markets subject to the procedures these establish for such purposes.

In the event that, for the negotiation or Confirmation of Derivative Operations, the parties agree on the use of electronic, computing, or telecommunication means, they must specify the reciprocal identification keys and the responsibilities entailed by their use.

Entities, Investment Funds, General Warehouses of Deposit, and Sofomes that celebrate Derivative Operations in over-the-counter markets, whose clearing and settlement is not carried out through clearing houses or foreign institutions acting as central counterparties, must provide for this type of Derivative Operations, among others, the following aspects: a) Processes for verification with their counterparties (reconciliation), regarding the manner and terms according to which the valuation of the Derivative Operations celebrated with said counterparties will be carried out periodically; b) Mechanisms for the resolution of disputes that may arise with their counterparties, related to the execution of the verification processes referred to in the previous subsection; and c) Procedures to periodically evaluate the possibility of carrying out regularly the compression of this type of Derivative Operations celebrated with their counterparties.”

“5.2 Standardized Derivative Operations between Entities, or between an Entity and a Foreign Financial Entity that in its respective jurisdiction provides services of the same type as any of the Entities, as well as between an Entity and a national or foreign Institutional Investor, must be celebrated: (i) in Recognized Markets, (ii) through societies that administer systems to facilitate securities operations authorized by the CNBV, or (iii) through foreign institutions that perform functions similar to those carried out by the societies indicated in subsection (ii) above that are recognized by the CNBV.”

6. GUARANTEES

“Entities, Investment Funds, General Warehouses of Deposit, and Sofomes may guarantee the compliance of Derivative Operations through cash deposits, credit rights in their favor, or the securities or assets in their portfolio.

Regarding Forward Operations, Option Operations, Swap Operations, Credit Derivatives Operations, as well as any others that, as applicable, the Bank of Mexico authorizes in terms of section 3.4 of these Rules, that Entities, Investment Funds, General Warehouses of Deposit, and Sofomes carry out in over-the-counter markets, they may only grant the guarantees mentioned in the previous paragraph, when the counterparties are Credit Institutions, Broker-Dealers, Foreign Financial Entities, Investment Funds, specialized investment societies for retirement funds, Sofomes, as well as any other counterparty that the Bank of Mexico authorizes.

Entities and Investment Funds, in no case, may receive subordinate obligations as guarantee for the compliance of the Derivative Operations they celebrate. Likewise, Entities may not receive shares issued by financial entities or holding companies of financial groups as guarantee.”

7. FORMS OF SETTLEMENT

“7.1 Settlement of Derivative Operations may be effected through the delivery of the previously determined Underlyings or the crediting of a sum of money into a deposit bank account, in accordance with the nature of the operation and with what the parties agree.”

“7.2 Entities that celebrate on their own account Derivative Operations on the Underlyings indicated in subsection g) of section 2.1, are prohibited from settling them in kind.”

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“7.4 Settlement of Derivative Operations must be effected within a period not exceeding four Business Days counted from the maturity or exercise date applicable.”

“7.5 Standardized Derivative Operations between Entities, or between an Entity and a Foreign Financial Entity that in its respective jurisdiction provides services of the same type as any of the Entities, as well as between an Entity and a national or foreign Institutional Investor, must be settled through: i) clearing houses constituted in terms of the “Rules to which participants in the derivatives contract market must be subject”, issued jointly by the Bank of Mexico, the SHCP, and the CNBV, or ii) foreign institutions that act as central counterparties in derivatives exchanges or over-the-counter markets abroad, and that have been recognized by the Bank of Mexico as such, in accordance with section 7.6 and subject to the internal regulations that the referred clearing houses or foreign institutions acting as central counterparties in over-the-counter markets establish for the acceptance, clearing, and settlement of Standardized Derivative Operations.

Entities that celebrate Standardized Derivative Operations on their own account with another Entity of the same financial group in Mexico or with a Foreign Financial Entity belonging to the same financial consortium may request exemption from the requirements provided in section 5.2 and the preceding paragraph, provided that they submit to the Bank of Mexico and this approves that: i) they are subject to adequate and centralized risk evaluation, measurement, and control procedures; ii) they are included in a consolidation scheme at the level of the financial group in Mexico or the financial consortium; and iii) as applicable, the Bank of Mexico has determined that the jurisdiction in which the Foreign Financial Entity belonging to the same consortium is located has an equivalent regulatory regime regarding the negotiation and settlement of Derivative Operations. For the purposes of these Rules, it will be understood that a Foreign Financial Entity belongs to a financial consortium when it forms part of a set of financial entities in which the same legal person exercises control, in terms similar to that indicated by article 2, fraction III, of the Securities Market Law.”

“7.6 The Bank of Mexico may grant recognition to foreign institutions that act as central counterparties, regarding operations carried out in derivatives exchanges and over-the-counter markets abroad, taking into account the following: a) That the foreign institutions are authorized by the financial authorities of the jurisdiction in which they act as central counterparties and are subject to effective supervision and monitoring that guarantee compliance with the provisions applicable to them, either by the authorities of said jurisdiction or by the Bank of Mexico or the CNBV in cooperation with the respective authorities of said jurisdiction; b) That the regulatory framework applicable to said foreign institutions, on the one hand, produces results similar or equivalent to those of the provisions issued by Mexican authorities, applicable to those providing clearing services for Derivative Operations in Mexico and, on the other hand, complies with the Principles for Financial Market Infrastructures issued by the Committee on Payment and Settlement Systems of the Bank for International Settlements and the Council of the International Organization of Securities Commissions in 2012 or those that replace them, including, without limitation, the principles related to i) the measurement, monitoring, and effective management of credit, liquidity, business, legal, and operational risks; ii) effective and clearly defined rules and procedures for the management of participant defaults, also known as clearing members of the clearing house; iii) clear and transparent good governance mechanisms; iv) access and participation criteria; and v) efficiency and transparency; and c) That the Bank of Mexico or the CNBV have signed a memorandum of understanding with the foreign financial authorities that regulate and supervise said foreign institution, in accordance with applicable provisions.

The Bank of Mexico may revoke the previously mentioned recognition, in those cases where, in its judgment, compliance with any of the criteria or requirements established at the time of granting said recognition is no longer met.”

“7.7 The recognition that the Bank of Mexico grants to foreign institutions in terms of the preceding section may be carried out at the request of the interested foreign institution or any Entity, or by the initiative of the Bank of Mexico itself based on the information it collects for this purpose.”

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8. OPERATIONS ON BEHALF OF THIRD PARTIES

“Entities may carry out Derivative Operations on behalf of third parties through mandate, commercial commission, or specific instruction to celebrate Derivative Operations. In these cases, Entities must comply with the provisions of Circular 1/2005 which contains the “Rules to which credit institutions; broker-dealers; insurance institutions; guarantee institutions, limited object financial societies, and the Rural Financial Institution must be subject, in trust operations”.

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10. PROHIBITIONS

“10.1 Repealed.”

“10.4 Entities shall not celebrate Derivative Operations when the respective Underlying does not have an interest rate or market reference price, except when Derivative Operations are carried out with the Underlyings indicated in subsection f) of section 2.1 of these Rules.”

“10.5 Broker-Dealers shall not carry out Credit Derivatives Operations on their own account.

Investment Funds, General Warehouses of Deposit, and Sofomes shall not carry out Credit Derivatives Operations.”

11. LIMIT, SUSPENSION, OR REVOCATION OF OPERATIONS

“… a) … b) … c) Do not meet the capital requirements applicable to them in accordance with the corresponding provisions; d) … e) … f) …”

12. INFORMATION

“12.1 Entities, Investment Funds, General Warehouses of Deposit, and Sofomes that celebrate Derivative Operations, including those that form part of Structured Operations documented in the securities they issue or acquire, must provide information on said operations, in the terms, form, and deadlines established by the Bank of Mexico, to the Information Directorate of the Financial System of the Bank of Mexico.

Additionally, Entities must provide the information referred to in this section regarding the Derivative Operations carried out by financial entities with respect to which they are direct or indirect owners of shares representing their share capital with voting rights representing at least fifty-one percent of the paid-up capital or which they can control in terms of what is provided in article 2, fraction III, of the Securities Market Law.

Likewise, in accordance with the resolution issued by the Bank of Mexico and subject to what is established in the following section 12.3, the subjects referred to in the first paragraph of this section are obligated to provide the information indicated in said paragraph to any of the clearing houses indicated in section 7.5 of these Rules, which provide registration and custody services for Derivative Operations information, as well as to any of the foreign institutions that are recognized by the Bank of Mexico, in accordance with section 12.2, as central information registration entities.

In the resolutions issued by the Bank of Mexico for the purposes indicated in the preceding paragraph, it may determine those cases in which the subjects mentioned in the first paragraph of this section will not have to provide the Bank with the information to which said paragraph refers. In any case, the exception established by the Bank of Mexico will proceed without prejudice to its powers to request from Entities, Investment Funds, General Warehouses of Deposit, and Sofomes any other information different from that which they provide to the referred clearing houses or foreign entities, as well as any information on Derivative Operations for supervision purposes in particular cases.”

“12.2 The Bank of Mexico may grant recognition to foreign institutions that perform central information registration functions, taking into account the following: a) That the foreign institutions are authorized by the financial authority of the country in which they act as central information registration and are subject to effective supervision and monitoring that guarantee compliance with the provisions applicable to them, either by the authorities of said jurisdiction or by the Bank of Mexico or the CNBV in cooperation with the respective authorities of said jurisdiction;”

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b) That the regulatory framework applicable to said foreign institutions, on the one hand, produces results similar or equivalent to those of the provisions issued by the Mexican authorities, applicable to whoever provides Central Information Registry services for Derivative Operations in Mexico, and on the other hand, complies with the Principles for Financial Market Infrastructures issued by the Committee on Payments and Settlement Systems of the Bank for International Settlements and the Council of the International Organization of Securities Commissions in 2012 or those that replace them, including, without limitation, principles related to i) the measurement, monitoring, and effective management of business, legal, and operational risk; ii) disclosure of accurate and timely market data to relevant authorities and the public according to their needs; iii) clear and transparent good governance mechanisms; iv) access and participation criteria, and v) efficiency and transparency;

c) That Banxico, or failing that, the CNBV, has entered into a memorandum of understanding with the foreign financial authorities that regulate and supervise said foreign institution, in accordance with applicable provisions, and

d) That Banxico can obtain from the foreign institution or, in its case, from the foreign financial authorities that regulate and supervise it, the information provided to it by the Entities, the Investment Funds, the General Deposit Warehouses, and the SOFOMES regarding the Derivative Operations they carry out.

Banxico may revoke the previously mentioned recognition in those cases where, in its judgment, the criteria or requirements established at the time of granting said recognition are no longer met.”

“12.3 The Entities, the Investment Funds, the General Deposit Warehouses, and the SOFOMES that have agreed with any of the clearing houses indicated in section 7.5 to provide them with the information on Derivative Operations indicated in the previous section 12.1, must have prior written authorization from their counterparties granted in such a way that it does not contravene the applicable confidentiality and secrecy provisions.”

“12.4 For the purposes of information reporting, the transaction, the product, and the parties involved in each operation must be identified, using unique identifiers according to the standards established for such effect by Banxico.”

13. SANCTIONS

“The Entities, the General Deposit Warehouses, and the SOFOMES that fail to comply with the provisions contained in these Rules will be sanctioned by Banxico in accordance with the Bank of Mexico Law and other applicable provisions.

The Investment Funds that fail to comply with the provisions contained in these Rules will be sanctioned by the CNBV in accordance with what is stated in the Investment Funds Law.”

TRANSITIONAL PROVISIONS

FIRST.- These Circular shall enter into force on the next business day following its publication in the Official Gazette of the Federation, except as provided in the following Transitional Provisions.

SECOND.- The requirements for the celebration and settlement of Standardized Derivative Operations referred to in sections 5.2 and 7.5 of these Rules, shall enter into force as follows: i) on April 1, 2016, for Standardized Derivative Operations celebrated between Entities or between an Entity and National Institutional Investors, and ii) on November 16, 2016, for Standardized Derivative Operations celebrated between an Entity and any Foreign Financial Entity that in its respective jurisdiction provides services of the same type as any of the Entities, as well as between an Entity and any Foreign Institutional Investor.

THIRD.- Regarding the requirement referred to in the last paragraph of section 5.1 on Derivative Operations in over-the-counter markets, whose clearing and settlement is not carried out through clearing houses or foreign institutions acting as central counterparties, it shall enter into force on April 1, 2016.

FOURTH.- The celebration of Derivative Operations by authorized investment companies under the terms of the legal provisions in force prior to the entry into force of the Decree by which various provisions in financial matters are reformed, added, and repealed, and the Law to Regulate Financial Groups is issued, published in the Official Gazette of the Federation on January 10, 2014, will continue to be subject to what is provided in these Rules, until the periods provided for in Transitional Provision Thirty-Eighth, fraction I, of said Decree have elapsed.

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Mexico, D.F., April 13, 2015.- The General Director of Payment Systems and Corporate Services, Lorenza Martínez Trigueros.- Signature.- The General Director of Central Banking Operations, Jaime José Cortina Morfín.- Signature.- The General Director of Financial Stability, Pascual Ramón O’Dogherty Madrazo.- Signature.- The General Legal Director, Luis Urrutia Corral.- Signature.- The General Director of Financial System Affairs, Jesús Alan Elizondo Flores.- Signature.

For any inquiries regarding the content of this Circular, please contact the Department of Authorizations, Consultations, and Legal Control, at the phones (55) 5237-2308, (55) 5237-2317, or (55) 5237-2000 Ext. 3200.