Circular 8/2017 — Modifies Circular 7/2011

Monday, April 3, 2017 OFFICIAL GAZETTE (Third Section) BANK OF MEXICO CIRCULAR 8/2017 addressed to credit institutions and stock brokerage houses, regarding modifications to Circular 7/2011.

A logo appears at the margin, stating: Bank of Mexico.

CIRCULAR 8/2017 TO CREDIT INSTITUTIONS AND STOCK BROKERAGE HOUSES: SUBJECT: MODIFICATIONS TO CIRCULAR 7/2011

The Bank of Mexico, in its capacity as the financial agent of the Federal Government, taking into account the letter from the Secretariat of Finance and Public Credit number 305.-033/2017, dated February 28, 2017, made known by this Central Bank through Circular 4/2017, has resolved to carry out modifications to the Procedure for Market Makers and UDIBONOS Market Makers to exercise their right to purchase BONOS, CETES, and UDIBONOS, as applicable, and to conduct lending operations on such securities with the Bank of Mexico in its capacity as the financial agent of the Federal Government, made known through Circular 7/2011, dated February 28, 2011, as well as modifications to said procedure issued subsequently.

Therefore, based on articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 3, fraction III, 7, fraction I, and 10, of the Bank of Mexico Law, 22 of the Law for Transparency and Ordering of Financial Services, 8, paragraphs fourth and seventh, 10, first paragraph, 12, first paragraph, in relation to 19 Bis, fraction V, and 17, fraction I, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Directorate of Central Bank Operations and the Directorate of Central Bank Provisions, respectively, as well as Second, fractions VI and X, of the Agreement on the Affiliation of Administrative Units of the Bank of Mexico, it has resolved to modify items 1., in the definitions of CETE, Business Day, and UDIBONO, 2.4, 2.9, 3.1, second paragraph, 3.2, and the Annex, as well as to add the definitions of BONO and UDI in item 1., and item 3.3, to the “Procedure for Market Makers and UDIBONOS Market Makers to exercise their right to purchase BONOS, CETES, and UDIBONOS, as applicable, and to conduct lending operations on such securities with the Bank of Mexico in its capacity as the financial agent of the Federal Government”, contained in Circular 7/2011, to remain in the following terms:

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

1. DEFINITIONS

“... BONO: The Federal Government Development Bond of the United Mexican States, denominated in national currency, with a fixed interest rate. CETE: The Treasury Certificate of the Federation of the Federal Government of the United Mexican States, excluding those issued under credit restructuring programs in UDIS (Special Cetes). Business Day: The day of the week in which financial entities are not obliged to close their doors or suspend operations, in terms of the general provisions issued for such effect by the National Banking and Securities Commission. ... UDI: The unit of account, whose value in national currency is published by the Bank of Mexico in the Official Gazette of the Federation, in accordance with articles Third of the “Decree by which obligations that may be denominated in investment units are established and reforms and additions are made to various provisions of the Federal Tax Code and the Income Tax Law” and 20 Ter of the Federal Tax Code. UDIBONO: The Federal Government Development Bond of the United Mexican States, denominated in UDIS, with a fixed interest rate.”

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

“2.1 to 2.3 ... 2.4 In the event that for any circumstance the electronic, computing, or telecommunication means referred to in item 2.3 cannot be used, requests may be submitted, exceptionally, through any of the means authorized by the Bank of Mexico as mentioned above, within the time established for the celebration of the corresponding purchase, in accordance with what is provided in item 2.2, and must be confirmed in writing no later than 17:00:00 hours of the same Business Day using the models attached as Annexes, accompanied by a cover letter at the aforementioned National Operations Management, located at 5 de Mayo Avenue number 6, second floor, Centro Neighborhood, Mexico City. Both documents must be duly signed by the same authorized representatives of the Market Makers and UDIBONOS Market Makers, and the letter must show the signature knowledge granted by the Bank of Mexico, so the signatures must be registered in the Central Institute itself. 2.5 to 2.8 ... 2.9 The delivery of BONOS, CETES, and UDIBONOS will be through Indeval, on the same Business Day that the placement of the securities takes place in terms of the respective Auction, by deposit into the own account that Indeval maintains for each Market Maker or UDIBONOS Market Maker. 2.10 to 2.11 ...”

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

“3.1 ... Market Makers and UDIBONOS Market Makers must pay daily to the Bank of Mexico the premium corresponding to each of these operations, in accordance with what is provided in item 4.2.6 and in Annex 4, as well as in item 7.2.5 and in Annex 5 of the Letter, respectively. 3.2 For Market Makers and UDIBONOS Market Makers to be able to carry out the aforementioned securities lending operations, they must previously sign a contract with the Bank of Mexico which will establish, in accordance with what is provided in the Letter, the characteristics of these operations, the rights and obligations of the parties, the procedure to constitute, substitute, and cancel the corresponding guarantees, as well as the procedure to renew or terminate early the aforementioned operations. For the purposes of the provision in the previous paragraph, at least ten Business Days in advance of the date on which they intend to start the celebration of such operations, Market Makers and UDIBONOS Market Makers must submit to the Operations Instrumentation Management within the hours between 9:30:00 and 18:00:00, a simple copy and a certified copy for verification, of the public deed containing the power to exercise acts of dominion granted to their representatives; a simple copy of an official identification of said persons, as well as a copy of the communication from Indeval stating that the credit institution or stock brokerage house in question is able to operate VALPRE-E. In this case, the corresponding credit institution or stock brokerage house must sign the corresponding contract at least five Business Days in advance of said date.

Monday, April 3, 2017 OFFICIAL GAZETTE (Third Section) 3.3 The Bank of Mexico may restrict Market Makers and UDIBONOS Market Makers from carrying out the aforementioned securities lending operations when they do not comply with what is provided in the Procedure or in the Letter.”

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

Mexico City, __ of ______ of __. BANK OF MEXICO National Operations Management, Present, Name of Market Maker: ________________________________ Market Maker Key at the Bank of Mexico: __________________________ Issuance Key Term in days Nominal Value

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The cited requests are mandatory and irrevocable; they will produce the broadest effects allowed by law, and imply our acceptance of what is provided in Circular 7/2011 and its modifications, as well as other applicable provisions. Sincerely, (Full name of the credit institution or stock brokerage house) (Name and signature of authorized officials) The Bank of Mexico reserves the right to invalidate those requests whose figures are not clearly legible, have erasures or corrections, or are in any way incorrect.”

TRANSITORY PROVISIONS FIRST. This Circular will enter into force on April 7, 2017, except for what is provided in the following transitory provision. SECOND. In order for Market Makers and UDIBONOS Market Makers to be able to celebrate securities lending operations with the Bank of Mexico under the terms and conditions provided in this Circular, as well as in the “Procedure to which credit institutions and stock brokerage houses acting as market makers must adhere”, contained in Letter 305.-027/2011, dated January 27, 2011, made known by this Central Institute through Circular 5/2011, and modifications to said procedure issued subsequently, prior to the effective date of this Circular, they must sign a new contract. For the purposes referred to in the previous paragraph, Market Makers and UDIBONOS Market Makers will be exempt from sending the copy of the communication through which Indeval states that the credit institution or stock brokerage house in question is able to operate in VALPRE-E, as well as from the deadlines provided in the second paragraph of item 3.2 of this Circular, and must, from the date of publication in the Official Gazette of the Federation of this: i) deliver to the Operations Instrumentation Management within the hours between 9:00:00 and 18:00:00, a simple copy and a certified copy for verification, of the public deed containing the power to exercise acts of dominion granted to their representatives for the celebration of the corresponding contract, as well as a simple copy of the official identification of said persons, and ii) sign the corresponding contracts. This is understood to mean that the Bank of Mexico will proceed to rescind the contracts it currently has with Market Makers and UDIBONOS Market Makers on April 7, 2017.

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Mexico City, March 30, 2017.- The General Director of Central Bank Operations, Jaime José Cortina Morfín.- Rubric.- The Director of Central Bank Provisions, Mario Ladislao Tamez López Negrete.- Rubric. For any queries regarding the content of this Circular, please contact the Authorizations, Queries, and Legal Control Management, at phones (55) 5237-2308, (55) 5237-2317 or (55) 5237-2000, extension 3200. 5237-2308, (55) 5237-2317 or (55) 5237-2000, extension 3200.