Circular 9/2008 — Rules for Purchase Auctions of Fixed-Rate Government Development Bonds and Investment Unit Bonds

"2008, Year of Physical Education and Sports" CIRCULAR 9/2008 Mexico City, March 13, 2008. TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, INVESTMENT COMPANIES AND SPECIALIZED INVESTMENT COMPANIES FOR RETIREMENT FUNDS: SUBJECT: RULES FOR THE PURCHASE AUCTIONS OF BONDS OF THE FEDERAL GOVERNMENT DEVELOPMENT WITH FIXED INTEREST RATE AND BONDS OF THE FEDERAL GOVERNMENT DEVELOPMENT DENOMINATED IN INVESTMENT UNITS

The Bank of Mexico, in its capacity as financial agent of the Federal Government, based on what is provided in articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 3rd, fraction III; 7th, fraction I; 8th; 10; 14 and 24 of the Bank of Mexico Law; 22 of the Law for Transparency and Ordering of Financial Services; 8, third and fourth paragraphs; 10; 17, fraction I and 19, fraction IX, which provide for the attribution to the Direction of Central Banking Provisions and to the Direction of Operations to participate in the issuance of provisions, respectively, all of the Internal Regulations of the Bank of Mexico published in the Official Gazette of the Federation on September 30, 1994, whose last modification was published in said Official Gazette on April 26, 2007; as well as in the Single Article, fraction IV of the Agreement on the Adscription of the Administrative Units of the Bank of Mexico; and in terms of Letters 305.-023/2008 and 305.-049/2008 of February 11 and March 12, both of 2008, respectively, through which the Secretariat of Finance and Public Credit through the Public Credit Unit instructs this Central Bank to, in its capacity as financial agent of the Federal Government, carry out the necessary acts so that the provisions conducive to carrying out purchase auction operations of Bonds of the Federal Government with fixed interest rate (Bonds), as well as Bonds of the Federal Government Development denominated in Investment Units (Udibonos), are issued, and with the objective of promoting the healthy development of the financial system, considering the importance of: a) Smoothing the maturity profile of the internal debt of the Federal Government in circulation, and b) Having tools that allow the Federal Government to improve the efficiency of the yield curve of both nominal and real rates.

It has resolved to issue the: RULES FOR THE PURCHASE AUCTIONS OF BONDS OF THE FEDERAL GOVERNMENT WITH FIXED INTEREST RATE AND BONDS OF THE FEDERAL GOVERNMENT DEVELOPMENT DENOMINATED IN INVESTMENT UNITS

1. DEFINITIONS Bonds: to the Bonds of the Federal Government Development, issued in pesos, with fixed interest rate; Net Long Position: a) the sum of the own position plus the titles to be received by operations of repo or loan of securities, minus the titles to be delivered by other operations of the same nature. Auctions: to the purchase auctions of Bonds or Udibonos provided for in these Rules; Udibonos: to the Bonds of the Federal Government Development denominated in investment units; and UDIS: to the investment units referred to in the "Decree by which the obligations that may be denominated in Investment Units and reform and adds various provisions of the Fiscal Code of the Federation and of the Income Tax Law", published in the Official Gazette of the Federation on April 1, 1995.

2. BIDDERS Only the following persons may present bids: a) Credit institutions; b) Brokerage houses; c) Investment companies; d) Specialized investment companies for retirement funds, and e) Other persons expressly authorized for such effect by the Bank of Mexico. The corresponding authorization may be limited or revoked, at any time, by the Central Bank itself. The persons mentioned above must always act on their own account. The investment companies regulated by the Investment Companies Law will present their bids through the investment company operating society that provides them with asset administration services.

The person who has a Net Long Position, at nominal value, greater than 30% of the amount in circulation of the Bonds or Udibonos subject to purchase, must abstain from presenting bids. In the case of multiple banking institutions and brokerage houses that form part of the same financial group or that are controlled by the same shareholder, for the determination of the Net Long Position, the sum of the position of each of them will be considered. For the purposes of the above, it will be understood that the same shareholder controls a multiple banking institution and a brokerage house when it is the owner of thirty percent or more of the shares representing the social capital of both intermediaries; 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 multiple banking institution and the brokerage house in question. The Bank of Mexico will not accept bids from the persons mentioned above when, in its judgment, they fail to comply with the applicable provisions or do not conform to the healthy uses or practices of the securities market.

3. CALL The Bank of Mexico will make known the calls for the Auctions two business days before the date on which the Auction in question will take place, starting at 12:00:00 hours, through its electronic page on the worldwide network (Internet) identified with the domain name: www.banxico.org.mx or through any other electronic, computing or telecommunication medium authorized for such effect by the Bank of Mexico, unless the Bank makes known another date or time for a particular call. Such calls will make known the characteristics of the Auctions, such as: a) Date and time when the Auction will be held; b) The type of Auction; c) The keys of the issuances of the Bonds or Udibonos that the Federal Government wishes to buy, and d) The maximum amount of Bonds or Udibonos that the Federal Government is willing to buy from the bidders.

4. TYPES OF AUCTIONS a) Single-price: those in which the Bonds or Udibonos will be accepted starting from the maximum price that the issuer is willing to pay, assigning the same price to all bids of equal or lower price. b) Multiple-price: those in which the Bonds or Udibonos will be accepted starting from the maximum price that the issuer is willing to pay, assigning to each of the accepted bids the specific price that the bidder has indicated in the bid itself. c) Fixed-price: those where the issuer determines in advance the price at which it is willing to buy the Bonds or Udibonos, assigning a fixed price to each of the accepted bids.

5. PRICES For Fixed-price Auctions, the Bank of Mexico will make known the price of the Bonds or Udibonos at which the Federal Government wishes to carry out the purchase, through its Internet electronic page or through any other electronic, computing or telecommunication medium authorized for such effect by the Bank of Mexico. The mentions contained in these Rules regarding prices refer to clean prices, that is, those that do not include unpaid accrued interest.

6. BIDS 6.1 Types of bids For Single-price or Multiple-price Auctions, each bid must indicate: a) the issuance key of the Bond or Udibono that the bidder intends to sell to the Federal Government; b) the price, expressed up to five decimals, at which the bidder is willing to sell each title, and c) the total nominal amount of each bid, in quantities expressed in thousands of pesos or UDIS and rounded to five thousand pesos or UDIS or multiples of that amount. For Fixed-price Auctions, each bid must indicate: a) the issuance key of the Bond or Udibono that the bidder intends to sell to the Federal Government, and b) the total nominal amount that the bidder is willing to sell, in quantities expressed in thousands of pesos or UDIS and rounded to five thousand pesos or UDIS or multiples of that amount.

6.2 Bid limits The sum of the amounts of the bids presented by each bidder, for each call, must not exceed the maximum amount offered of Bonds or Udibonos that the Federal Government is willing to accept from the bidders.

6.3 Submission of bids Each bidder may present one or more bids regarding the same call. Interested parties must present their bids on the date and time indicated in the respective call, through the Bank of Mexico Account Holder Attention System (SIAC-BANXICO), or through any other electronic, computing or telecommunication medium authorized for such effect by the Bank of Mexico or well in requests that they elaborate according to the models attached as "Appendix 1" and "Appendix 2" of these Rules.

The access, identification and, if applicable, operation keys established for the use of electronic computing or telecommunication media will substitute the autograph signature by an electronic one, so that the 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. The bids presented according to the models attached as "Appendix 1" and "Appendix 2" must be delivered to the National Operations Management of the Bank of Mexico in a closed envelope accompanied by a cover letter. Both documents must be signed by the same representatives duly authorized by the bidder, and the letter must show the knowledge of signatures granted by the Cash Account Operations Office of the Bank of Mexico, so that said signatures must be registered in the said Office.

6.4 Effects of bids The bids presented to the Bank of Mexico in terms of section 6.3 will produce the widest effects that correspond in law, and will imply the acceptance of the bidder to all and each of these Rules, as well as to the terms and conditions established in the call in which the Bank of Mexico communicates the particular characteristics of the Auction. Every bid will be binding for the bidder who presents it and will be irrevocable. The Bank of Mexico may cancel the request or the bids it receives, if they do not conform to these Rules or to what is stated in the corresponding call; are not clearly legible; have erasures or corrections, or are incomplete or in some way incorrect. Likewise, the Bank of Mexico may reject bids regarding one or more issuances if, in its judgment, the participation of such bids, due to their characteristics, could produce inconvenient effects in the objectives of credit regulation, or of a healthy development of the securities market in particular or of the financial market in general. The Bank of Mexico will inform the Federal Government about the bids that, in terms of the preceding paragraphs, do not participate in the Auctions.

6.5 Assignment In the Auction, the bids for the issuance will be assigned according to the ascending order of the corresponding unit prices, without exceeding the maximum amount offered in the call. When the Auction is indicated at single price, the bids will be assigned at the price corresponding to the last bid that receives assignment, even if it has not been fully attended in its amount. In the case of Multiple-price Auctions, the bids will be assigned at the price corresponding to each of these bids. For Fixed-price Auctions, the bids will be assigned at the price determined by the Federal Government and up to the amount indicated in the bid itself.

7. COMMON PROVISIONS In case of tied bids and the amount to be assigned is not sufficient to attend such bids, they will be attended pro rata regarding their amount. The Federal Government may determine in any Single-price or Multiple-price Auction, the maximum unit price at which it is willing to buy the Bonds or Udibonos subject to the Auction. In these cases, bids with higher prices will not be attended. The Federal Government may declare any Auction totally void, in which case no bid will receive assignment. The amounts of the Bonds or Udibonos to be delivered by each bidder who has received assignment will be at nominal value, closed to thousands of pesos or UDIS.

8. RESULTS The Bank of Mexico will inform each bidder individually, through SIAC-BANXICO, no later than sixty minutes after the deadline for the presentation of bids, the quantity and the unit price of the Bonds or Udibonos that will be bought from that bidder, as well as the total amount that will be credited to the corresponding account. Likewise, it will make available to all bidders through its electronic page or through any other electronic, computing or telecommunication medium that the Bank of Mexico itself determines for such effect, no later than thirty minutes after the deadline for the presentation of bids, the general results of the Auction. In the event that, due to force majeure or fortuitous event, the results of the Auction cannot be made known in accordance with what is stated in this section, the Bank of Mexico will timely communicate the applicable procedure to make such results known. From the date of settlement of the Auction in question, the Library Services Office of the Bank of Mexico will keep available to interested parties information about the bids received in each Auction and the amount of Bonds or Udibonos bought in each of them, without indicating the name of the bidder. The historical information corresponding to the Auctions carried out by the Bank of Mexico will be kept available to interested parties in the mentioned Office.

9. SETTLEMENT OF AUCTIONS 9.1 The settlement date of the purchase will be that established in the call. On the day of settlement, the Bank of Mexico will instruct the S.D. Indeval Institution for the Deposit of Securities, S.A. de C.V., (Indeval) so that the respective purchase and sale is carried out through the delivery against payment procedure provided for in the internal regulation of Indeval itself. The persons referred to in letters c), d) and e) of section 2. above, must deliver the Bonds or Udibonos and receive the respective payment through a credit institution or brokerage house. To this effect, the credit institution or brokerage house that the bidders have designated, must send to the National Operations Processing Management of the Bank of Mexico a communication in terms of "Appendix 3". For the purposes of the above, all the Bonds or Udibonos that the bidders who have received assignment are obliged to deliver, must be deposited in the corresponding securities accounts, no later than 15:30:00 hours on the day the purchase is settled. The bidders who: i) do not have the total amount of the Bonds or Udibonos that they must deliver in the account designated in the time referred to in the previous paragraph, or ii) present bids in contravention of what is provided in section 2. of these Rules, must cover the conventional penalties that correspond according to what is established in the following paragraphs. In the first case, the Bank of Mexico may, without the need for a judicial declaration, rescind the purchase and sale for the missing amount, so that the corresponding credits and charges will not be made in the securities accounts in Indeval. Without prejudice to what is stated, the Bank of Mexico in both cases may disqualify the respective bidder from participating in the Auctions. In the cases referred to in the previous paragraph, the conventional penalties will be, with respect to letter i), the equivalent to one percent of the nominal amount of the Bonds or Udibonos that were not delivered timely to the Federal Government and, with respect to letter ii), the equivalent to one percent of the nominal amount of the Bonds or Udibonos corresponding to the bids presented. Such conventional penalties will be charged in national currency in the account that the Bank of Mexico holds for the defaulting bidder or to the institution or brokerage house authorized by said bidder in terms of "Appendix 3". The corresponding charge will be made on the settlement date of the Auction or, in the case of bids presented in contravention of what is provided in section 2. of these Rules, on the date on which the Bank of Mexico has the information regarding the respective default.

9.2 The settlement of Bonds or Udibonos will be carried out by adding to the respective unit price the unpaid accrued interest, from the last interest payment, to the settlement date that corresponds, according to the following formula:

[ (VN * c * d) / 36000 ] = I_dev

Where: I_dev = Accrued interest. VN = Nominal value of the title. d = Days elapsed between the date of the last interest payment and the settlement date. c = Annual interest rate of the Bond or Udibono expressed in percentage terms. In the event that the settlement date coincides with the interest payment date, the days elapsed between the date of the last interest payment and the settlement date will be equal to zero.

10. GENERAL PROVISIONS For market information, the Bank of Mexico will make known to the general public the characteristics of the Auctions, through its Internet electronic page or through any other electronic computing or telecommunication medium authorized for such effect by the Bank of Mexico itself. All times referred to in these Rules are referred to the time zone of Mexico City, Federal District. In the event that, due to force majeure or fortuitous event, the calls or the results of the Auctions cannot be made known in accordance with what is stated in sections 3. and 8., respectively, the Bank of Mexico will timely communicate the applicable procedure to make such calls or the results of the corresponding Auctions known.

APPENDIX 1 MODEL OF REQUEST TO PARTICIPATE IN THE PURCHASE AUCTION OF BONDS OF THE FEDERAL GOVERNMENT DEVELOPMENT WITH FIXED INTEREST RATE (BONDS) REQUEST ON OWN ACCOUNT Mexico City, __ of ________ 20__. Bidder Name: _____________ Bidder Key at the Bank of Mexico: __________________ Issuance Key of the Bond that is willing to sell: _______________ BIDS: Unit Price Total Amount __________ . __________ __________ thousands of pesos __________ . __________ __________ thousands of pesos __________ . __________ __________ thousands of pesos The PRICES must be expressed up to FIVE decimals. The PRICES are without including accrued interest. The cited bids are mandatory and irrevocable; they will produce the widest effects that correspond in law, and imply our acceptance to all and each of the "Rules for the Purchase Auctions of Bonds of the Federal Government Development with Fixed Interest Rate and Bonds of the Federal Government Development denominated in Investment Units" in force, as well as to the terms and conditions of the call of date ___ of __________ of 20__. Sincerely, (name of the bidder) (name and signature of authorized officials) NOTE: Unused spaces must be cancelled.

APPENDIX 2 MODEL OF REQUEST TO PARTICIPATE IN THE PURCHASE AUCTION OF BONDS OF THE FEDERAL GOVERNMENT DEVELOPMENT DENOMINATED IN INVESTMENT UNITS (UDIBONOS) REQUEST ON OWN ACCOUNT Mexico City, __ of ____________ of 20__. Bidder Name: __________________ Bidder Key at the Bank of Mexico: __________________________ Issuance Key of the Udibono that is willing to sell: ______________ BIDS: Unit Price Total Amount __________ . __________ __________ thousands of UDIS __________ . __________ __________ thousands of UDIS __________ . __________ __________ thousands of UDIS The PRICES must be expressed up to FIVE decimals. The PRICES are without including accrued interest. The cited bids are mandatory and irrevocable; they will produce the widest effects that correspond in law, and imply our acceptance to all and each of the "Rules for the Purchase Auctions of Bonds of the Federal Government Development with Fixed Interest Rate and Bonds of the Federal Government Development denominated in Investment Units" in force, as well as to the terms and conditions of the call of date ____ of _________ of 20__. Sincerely, (name of the bidder) (name and signature of authorized officials)

NOTE: Unused spaces must be cancelled.

APPENDIX 3 MODEL LETTER OF INSTRUCTIONS TO CREDIT INSTITUTIONS OR BROKERAGE HOUSES TO CREDIT THE ACCOUNT (INSTITUTION OF CREDIT OR BROKERAGE HOUSE LETTERHEAD) Mexico, D.F., on __ of ___________ of 20__. BANK OF MEXICO Av. 5 de Mayo No. 2, Col. Centro, Mexico, D.F. 06059 Attention: National Operations Processing Management. (DENOMINATION OF THE CREDIT INSTITUTION OR BROKERAGE HOUSE) authorizes and instructs in an irrevocable manner the Bank of Mexico to process on our behalf, in the securities account held for us by S.D. Indeval Institution for Securities Deposits, S.A. de C.V., the settlement of the Purchasing Auctions of Federal Government Development Bonds with fixed interest rate (Bonds) or Federal Government Development Bonds denominated in Investment Units (Udibonos) that, as a result of the Purchasing Auctions of said Bonds or Udibonos, must be delivered and received by (DENOMINATION OF THE BIDDER). Likewise, that Central Bank is authorized and instructed in an irrevocable manner to: a) deposit the cash in favor of (DENOMINATION OF THE BIDDER) derived from the purchase operations mentioned in the previous paragraph, into (the Single Account or Cash Deposit Account) in national currency that said Bank holds for us, and b) carry out the charges that, where applicable, correspond in the aforementioned national currency account held for us by the Bank of Mexico, for the payment of conventional penalties that (DENOMINATION OF THE BIDDER) must cover in terms of what is provided in the "Rules for the Purchasing Auctions of Federal Government Development Bonds with fixed interest rate and Federal Government Development Bonds denominated in Investment Units" in force. Finally, we make known to you that the authorizations referred to in this document may only be modified or revoked through written communication addressed to that Central Bank and presented with an advance of at least one banking business day prior to the date on which the respective modification or revocation is intended to take effect. Sincerely, (denomination of the credit institution or brokerage house) (name and signature of authorized officials)

TRANSITORY SINGLE.- This Circular shall enter into force on March 19, 2008.