Circular 9/2016 — Rules for BREMS R Auctions Conducted by the Bank of Mexico

Thursday, May 12, 2016 OFFICIAL GAZETTE (First Section) 100

CIRCULAR 9/2016, addressed to Credit Institutions, regarding the Rules for the auctions of Reportable Monetary Regulation Bonds (BREMS R) conducted by the Bank of Mexico.

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

CIRCULAR 9/2016

TO CREDIT INSTITUTIONS:

SUBJECT: RULES FOR THE AUCTIONS OF REPORTABLE MONETARY REGULATION BONDS (BREMS R) CONDUCTED BY THE BANK OF MEXICO

The Bank of Mexico, with the objective of continuing to promote the sound development of the financial system and making the implementation of monetary policy more efficient, has considered it convenient to provide an alternative to credit institutions to fulfill the obligation to maintain monetary regulation deposits at the Bank itself. To this end, the Bank of Mexico will conduct auctions of Reportable Monetary Regulation Bonds (BREMS R) that will be settled with resources from said deposits.

For the above, based on Articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States; Articles 7, fraction I, 8, 14, 24, and 28, of the Bank of Mexico Law; Article 9 of the National Financiera Organic Law; Article 6 of the Federal Mortgage Society Organic Law; Article 9 of the National Savings and Financial Services Bank Organic Law; Article 9 of the National Foreign Trade Bank Organic Law; Article 10 of the National Public Works and Services Bank Organic Law; Article 8 of the National Bank of the Army, Air Force and Navy Organic Law; Article 22 of the Law for Transparency and Ordering of Financial Services; Articles 4, first paragraph, 8, fourth and seventh paragraphs, 10, first paragraph, 14 Bis, first paragraph, in relation to Article 17, fraction I, as well as Article 19 Bis, fraction V, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Legal Directorate and the National Operations Directorate, respectively; as well as Article 2, fractions VI and X, of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, it has resolved to issue the following:

RULES FOR THE AUCTIONS OF REPORTABLE MONETARY REGULATION BONDS (BREMS R) CONDUCTED BY THE BANK OF MEXICO

CHAPTER I PRELIMINARY PROVISIONS

1a.- Definitions.- For the purposes of these Rules, the following shall be understood:

I. Bank: the Bank of Mexico.

II. BREMS R: the Reportable Monetary Regulation Bonds issued by the Bank.

III. Single Account: the national currency deposit account that Credit Institutions must open and maintain at the Bank.

IV. DALÍ: the System for the Deposit, Administration and Settlement of Securities, administered by INDEVAL.

V. Monetary Regulation Deposit: the deposit that Credit Institutions have established in accordance with the provisions of the "Rules Applicable to Monetary Regulation Deposits," contained in Circular 9/2014 of the Bank.

VI. Banking Business Day: the day on which Credit Institutions are not obliged to close their doors or suspend operations, in terms of the general provisions issued for such purposes by the National Banking and Securities Commission.

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VII. INDEVAL: the S.D. INDEVAL Securities Deposit Institution, S.A. de C.V.

VIII. Development Banking Institutions: the National Foreign Trade Bank, S.N.C., Development Banking Institution; the National Bank of the Army, Air Force and Navy, S.N.C., Development Banking Institution; the National Savings and Financial Services Bank, S.N.C., Development Banking Institution; Nacional Financiera, S.N.C., Development Banking Institution; the Federal Mortgage Society, S.N.C., Development Banking Institution; and the National Public Works and Services Bank, S.N.C., Development Banking Institution.

IX. Multiple Banking Institution: the legal entity authorized to act as such in terms of what is provided in the Credit Institutions Law.

X. Credit Institutions: Multiple Banking Institutions and Development Banking Institutions, jointly.

XI. SIAC-BANXICO: the Bank of Mexico Account Holder Attention System.

XII. Auction: the auction of BREMS R conducted by the Bank in terms of these Rules.

The terms mentioned above may be used in singular or plural, without this implying a change in their meaning.

2a. Bidders.- Only Credit Institutions that have established a Monetary Regulation Deposit at the Bank may submit bids in the Auctions in question.

3a. Auction Announcements.- The Bank will make the Auction announcements available to Credit Institutions starting at 11:30:00 hours on the last Banking Business Day of the week immediately preceding that in which the Auction in question will take place, through its internet page, the SIAC-BANXICO, or any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank, unless the Bank announces another date or time for a particular announcement.

In the announcements referred to in the preceding paragraph, the Bank will disclose the necessary characteristics for the conduct of the Auctions.

4a. Type of Auctions.- The Auctions will be at a fixed price of $100.00 (ONE HUNDRED PESOS 00/100 M.N.), so all bids resulting in allocation will be served at said price.

5a. Prices.- The references to price contained in these Rules correspond to clean price, that is, that which does not include accrued but unpaid interest, rounded to the nearest cent.

CHAPTER II CHARACTERISTICS OF BIDS

6a. Type of Bid.- The bid submitted by each Credit Institution must indicate the following: a) the issuance key of the BREMS R, and b) the total nominal value amount of each bid, in quantities expressed in thousands of pesos.

7a. Bid Limits.- The bid submitted by each Credit Institution for each Auction must not exceed the total amount of the Monetary Regulation Deposit that it has established at the Bank, truncated to thousands of pesos, nor the maximum amount announced by the Bank in the corresponding announcement.

8a. Submission of Bids.- Each Credit Institution may submit only one bid in relation to the same Auction, which must refer exclusively to the issuance of BREMS R indicated in the announcement in question.

Credit Institutions must submit their bids, in terms of these Rules, through the SIAC-BANXICO on the date, time, form, terms, and conditions indicated in the respective announcements and in the SIAC-BANXICO operations manual, or through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank.

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In the event that bids cannot be submitted through the SIAC-BANXICO, Credit Institutions may submit them, exceptionally and within the time established for the Auction, through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank, in which case they must confirm them by written notice addressed to the National Operations Management of the Bank, presented in a closed envelope no later than 17:00:00 hours on the same Banking Business Day of the Auction, which must adhere to the model attached to these Rules as Annex 1 and be accompanied by a cover letter.

The documents mentioned in the preceding paragraph must be signed by the same representatives duly authorized by the bidding Credit Institution to submit the bids in question. Additionally, the letter must show the signature knowledge that the Bank has granted, so said signatures must be previously registered at the Bank itself.

9a. Effects of Bids.- The bids submitted by each Credit Institution to the Bank will produce the broadest effects corresponding in law and will imply the acceptance by the bidding Credit Institution of all and each of these Rules, as well as the terms and conditions established in the corresponding announcement for each Auction.

Every bid will be mandatory for the Credit Institution that submits it and will be irrevocable. The Bank may cancel the request or bids it receives if they do not comply with these Rules or what is stated in the corresponding announcement; are not clearly legible; have erasures or corrections; or are incomplete or, in any way, incorrect.

CHAPTER III ALLOCATION

10a. Allocation Criteria.- Bids will be served without exceeding the maximum amount indicated in the respective announcement.

The amount of BREMS R that each bidding Credit Institution with an allocated bid must receive will be at closed nominal value to thousands of pesos.

In the event that the amount to be allocated is insufficient to serve such bids, they will be served pro rata with respect to their requested amount.

CHAPTER IV RESULTS

11a. Report of Auction Results.- The Bank will make the general results of the Auction available to bidding Credit Institutions, through the SIAC-BANXICO, its internet page, or through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank and made known to bidding Credit Institutions, no later than thirty minutes after the deadline for the submission of bids. Such information will remain available to bidding Credit Institutions through the mentioned medium, until the general results of a new Auction are incorporated.

The Bank will inform each bidding Credit Institution individually, through the SIAC-BANXICO or through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank, no later than sixty minutes after the deadline for the submission of bids for the Auction in question, of the quantity of BREMS R, if any, that have been allocated to it and that will be delivered to it.

CHAPTER V SETTLEMENT

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12a. Reservation of Ownership.- The Bank, by virtue of what is provided by Article 2312 of the Federal Civil Code, reserves ownership of the allocated BREMS R, until the Bank makes the charge, in the special deposit account where the bidding Credit Institution in question maintains its Monetary Regulation Deposit, for the amount necessary to settle the respective purchase and sale operation.

13a. Procedure for Settlement.- The Bank, for the settlement of the purchase and sale operations of BREMS R referred to in these Rules, will proceed as follows on the settlement date of the Auction indicated in the corresponding announcement:

I. It will charge in the special deposit account of the bidding Credit Institution in question, in which it maintains its Monetary Regulation Deposit, the amount equivalent to the total nominal value of the BREMS R allocated to it;

II. It will credit in the Single Account of the respective bidding Credit Institution, the amount equivalent to the accrued but unpaid interest corresponding to the amount of the Monetary Regulation Deposit used to settle the BREMS R allocated to it, including such accrued interest up to the day corresponding to the settlement date;

III. It will charge in the Single Account of the bidding Credit Institution in question, the amount equivalent to the accrued but unpaid interest corresponding to the total nominal value of the BREMS R to be delivered, from the date of their issuance or last interest payment up to, and including, the settlement date of the Auction indicated in the corresponding announcement, calculated in terms provided in Rule 14a of these Rules; and

IV. It will deliver, through the free delivery transfer procedure through DALÍ, the BREMS R subject to the operation, in terms of what is established in the internal regulations of INDEVAL, on the settlement date of the Auction indicated in the corresponding announcement. To this end, on said date, the Bank will instruct INDEVAL to credit the total amount of BREMS R allocated to the bidding Credit Institution in question, in the securities deposit account that INDEVAL itself maintains for it.

For the purposes of the provisions of this Rule, before the closing of DALÍ operations on the day of the settlement of the Auction in question, bidding Credit Institutions must take the necessary actions so that the Monetary Regulation Deposit they have established in the special deposit accounts that the Bank maintains for them, for the total nominal value of the BREMS R allocated to them, is free of any encumbrance.

14a. Calculation for Settlement.- The accrued but unpaid interest of the BREMS R subject to the operation, from the date of their issuance or last interest payment, as applicable, up to the settlement date referred to in Rule 13a of these Rules, will be calculated according to the following formula:

I_dev = VN * R * N / 36000

Where:

I_dev = Accrued Interest.

VN = Nominal Value of the BREMS R.

N = Natural days elapsed between the date of issuance of the BREMS R or last interest payment, as applicable, and the settlement date.

R = Annual interest rate of the BREMS R, expressed in annual percentage terms and rounded to two decimals, calculated according to the following formula:

R = (Π_{i=1}^{N} (1 + r_i * 36000 / 36000)) - 1

Where:

i = Each of the natural days between the date of issuance of the BREMS R or the last interest payment, as applicable, and the settlement date, will take values from 1 to N.

Π = Operator meaning to perform the multiplication of the factors in parentheses.

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r_i = The one-day interbank interest rate that the Bank's Board of Governors has determined as the target rate for monetary policy purposes, expressed in annual form and in percent with rounding to two decimals, in effect on each of the days of the interest calculation period (each day "i") according to the most recent monetary policy bulletin published by the Bank through its internet page or through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank itself. In the latter case, the Bank will timely inform the medium through which said rate will be disseminated.

In the event that, for any cause, the publication of the monetary policy bulletin cannot be made, the target rate given in the monetary policy bulletin published on the date closest to the interest calculation period will be taken as reference for the interest calculation.

In the event that this rate ceases to be made known permanently, the Bank will make known the rate that replaces it for the purposes of calculating the interest referred to in these Rules.

15a. Default.- In the event that a bidding Credit Institution, before the closing of DALÍ operations, does not have unencumbered resources in the special deposit account in which it maintains its Monetary Regulation Deposit at the Bank, for the amount equivalent to the total nominal value of the BREMS R allocated to it, the Bank may, without the need for a judicial declaration, rescind the sale for the missing amount.

In the case referred to in the preceding paragraph, the bidding Credit Institution must cover to the Bank the amount resulting from applying one percent on the amount of the missing Monetary Regulation Deposit to settle the operation.

The Bank will charge the amount referred to in the preceding paragraph in the Single Account of the bidding Credit Institution in question, on the immediate next Banking Business Day after the date on which the default occurred in terms of the authorization model presented to the Bank in accordance with the format included in Annex 2.

Without prejudice to the foregoing, the Bank may disqualify the bidder in question from participating in the Auctions.

CHAPTER VI GENERAL PROVISIONS

16a. Publication of Auction Characteristics.- For market information, the Bank will make the characteristics of the Auctions known to the general public, through its aforementioned internet page or through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank.

17a. Force Majeure or Fortuitous Event.- In the event that, due to force majeure or fortuitous event, the SIAC-BANXICO cannot be used to announce the auctions or inform the results of the Auctions, the Bank will timely communicate the procedure that will be followed for such purposes.

18a. Payment of BREMS R.- Credit Institutions interested in participating in the auctions referred to in these Rules must authorize the Bank to instruct the credit to the securities account that INDEVAL maintains for them, for the titles allocated to them. Likewise, the aforementioned Credit Institutions must authorize the Bank to charge the amount of the Monetary Regulation Deposit corresponding to the settlement of the operation, in the special deposit accounts that the Bank maintains for them. Additionally, the same Credit Institutions must authorize the Bank to make charges and credits in the Single Account that it maintains for them for the amount resulting in terms of what is provided in these Rules.

For such purposes, the aforementioned Credit Institutions must grant, prior to their participation in the Auctions subject to these Rules, an authorization in favor of the Bank, prepared in terms of the format included in Annex 2 of these Rules, a copy of which must be delivered to INDEVAL.

The authorization referred to in this Rule must be signed by whoever has the authority to exercise acts of dominion in the name and representation of the Credit Institution, and be accompanied by certified and simple copies of the public instrument in which the granting of the aforementioned powers is recorded, as well as a simple copy of the official identification of the attorney(s).

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The documentation that must be sent to the Bank in accordance with the provisions of this Rule must be delivered to the Operations Management Department of the Bank at least three Banking Business Days in advance of the date on which they intend to begin participating in the Auctions.

19a. Modifications to the Auction.- The Bank may modify the dates, times, and deadlines it mentions in the announcements in the event that circumstances occur that prevent strict compliance with the procedure and other acts related to the Auction in question. In such an event, the Bank will inform of the aforementioned modifications through the SIAC-BANXICO or through any other electronic, computing, or telecommunications medium authorized for this purpose by the Bank and made known to bidding Credit Institutions.

ANNEX 1

MODEL OF REQUEST TO PARTICIPATE IN THE AUCTION OF REPORTABLE MONETARY REGULATION BONDS (BREMS R) CONDUCTED BY THE BANK OF MEXICO

Mexico City, on _____ of _________________ of ________.

BANK OF MEXICO NATIONAL OPERATIONS MANAGEMENT 5 de Mayo Avenue, No. 6 Col. Centro, C.P. 06059, Mexico City.

Presente

Bidder Name: ___________________________________________________ Bidder Key at the Bank of Mexico: ____________ Issuance Key of the BREM R for which bids are submitted: ______________________________ (XRAAMMDD) Term in days of the BREM R issuance for which bids are submitted: _________________ days

BID: Total Amount ____________________ thousands of pesos

The fixed allocation price is $100.00 (ONE HUNDRED PESOS 00/100 M.N.)

We will appreciate having the bid submitted to the Bank of Mexico today confirmed, which corresponds to the data above, which is mandatory and irrevocable; it will produce the broadest effects corresponding in law and implies our acceptance of the "Rules for the Auctions of Reportable Monetary Regulation Bonds (BREMS R) Conducted by the Bank of Mexico," contained in Circular 9/2016 of the Bank of Mexico in force, as well as the terms and conditions of the announcement dated ______ of ______________________ of ________.

Sincerely,

(BIDDER NAME) (NAME AND SIGNATURE OF AUTHORIZED OFFICIALS)

Thursday, May 12, 2016 OFFICIAL GAZETTE (First Section) 107 ANNEX 2 MODEL OF POWER OF ATTORNEY IN FAVOR OF THE BANK OF MEXICO TO CARRY OUT CHARGES AND CREDITS IN THE ACCOUNTS HELD FOR CREDIT INSTITUTIONS, AND TO INSTRUCT CHARGES AND CREDITS IN THE ACCOUNTS HELD FOR THEM BY S.D. INDEVAL VALUE DEPOSIT INSTITUTION, S.A. DE C.V. (LETTERHEAD OF THE CREDIT INSTITUTION) Mexico City, on _____ of ___________________ of _______. BANK OF MEXICO OPERATIONS MANAGEMENT DEPARTMENT 5 de Mayo Avenue, No. 6 Centro Neighborhood, Postal Code 06059, Mexico City. Present (The full name of the Credit Institution) hereby authorizes and instructs the Bank of Mexico irrevocably to carry out the necessary credits in the securities deposit account held for us by S.D. INDEVAL Value Deposit Institution, S.A. de C.V., for the amount of Reportable Monetary Regulation Bonds (BREMS R), issued by the Bank of Mexico, that this Credit Institution is to receive derived from the Auctions carried out under the "Rules for the Auctions of Reportable Monetary Regulation Bonds (BREMS R) Conducted by the Bank of Mexico", contained in Circular 9/2016 of the Bank of Mexico. For these purposes, that Central Bank will send the corresponding instructions to said value deposit institution so that the respective records are made. Likewise, at this time, the Bank of Mexico is authorized and instructed irrevocably to carry out charges in the special deposit accounts where this Credit Institution maintains its Monetary Regulation Deposit, up to the amount corresponding to the settlement of the BREMS R received (Full name of the Credit Institution). Additionally, the Central Bank is authorized and instructed irrevocably to carry out charges and credits in the national currency account known as the Single Account, for the concept of accrued but unpaid interest, as well as to carry out charges in the latter account for any other amount that this company must cover by virtue of any non-compliance with the provisions of the aforementioned Rules. The authorizations and instructions referred to herein may only be modified or revoked through written communication addressed to the Bank of Mexico and presented with an advance of at least three banking business days prior to the date on which the respective modification or revocation is intended to take effect. Sincerely, (NAME, POSITION AND SIGNATURE OF PERSON(S) WITH AUTHORITY TO PERFORM ACTS OF DOMINION) C.c.p.: S.D. Indeval Value Deposit Institution, S.A. de C.V. For your information. TRANSITORY SINGLE.- These Rules shall enter into force on the Banking Business Day following their publication in the Official Gazette of the Federation. Mexico City, on May 10, 2016.- The General Legal Director, Luis Urrutia Corral.- Rubric.- The Director of National Operations, Alfredo Sordo Janeiro.- Rubric. For any inquiries regarding the content of this Circular, please contact the Authorizations, Inquiries and Legal Control Department, at the phone numbers (55) 5237-2308, (55) 5237-2317 or (55) 5237-2000, extension 3200.

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