Resolution modifying the General Provisions applicable to Brokerage Houses

DOF: 24/07/2017

RESOLUTION modifying the General Provisions applicable to Brokerage Houses

At the margin, a seal with the National Coat of Arms, which says: United Mexican States.- Ministry of Finance and Public Credit.- National Banking and Securities Commission.

The National Banking and Securities Commission, based on the provisions of articles 205, second paragraph, and 211 of the Securities Market Law, as well as 4, fractions IV, XXXVI, and XXXVIII, and 16, fraction I of the National Banking and Securities Commission Law, and

CONSIDERING

That it is deemed convenient to adjust the accounting criteria applicable to brokerage houses, regarding the classification of their investments in securities held to maturity, extending the period during which such securities can be sold or reclassified before their maturity, without affecting the ability to use that category, and

That, additionally, it is necessary to clarify the requirements for isolated events that are outside the control of brokerage houses, so that when they occur and brokerage houses sell or reclassify held-to-maturity securities, they can continue to classify them in this category, in order to achieve greater adherence and consistency with international standards established in the International Financial Reporting Standards, has resolved to issue the following:

RESOLUTION MODIFYING THE GENERAL PROVISIONS APPLICABLE TO BROKERAGE HOUSES

SOLE ARTICLE.- Annex 5, Criterion B-2 "Investments in Securities" of the "General Provisions applicable to brokerage houses", published in the Official Gazette of the Federation on September 6, 2004, and modified by resolutions published in the said Official Gazette on March 9, 2005; March 29, June 26, December 6, and December 22, 2006; January 17, 2007; August 11, September 19, and October 23, 2008; April 30, and December 30, 2009; February 4, July 29, and November 26, 2010; August 23, 2011; February 16, March 23, and December 17, 2012; January 31, July 2, and July 11, 2013; January 30, June 5, June 30, and December 19, 2014; January 6, 8, and 9, March 13, September 18, and December 31, 2015; May 12, September 28, and December 27, 2016, and June 23, 2017, shall be amended to read as follows:

TITLE FIRST to SEVEN . . .

Annexes A to D . . .

Annexes 1 to 4 Bis . . .

Annex 5

Accounting criteria for brokerage houses.

Annexes 6 to 19 . . .

TRANSITORY PROVISIONS

FIRST.- This Resolution shall enter into force the day following its publication in the Official Gazette of the Federation.

SECOND.- The criterion B-2 "Investments in Securities" of the "Series B Criteria relating to the concepts that make up financial statements", contained in Annex 5 which is modified by this Resolution, shall be applied prospectively in accordance with the provisions of Financial Reporting Standard B-1 "Accounting Changes and Corrections of Errors" issued by the Mexican Council for Financial Reporting Standards A.C., so that brokerage houses will not need to reevaluate the classifications of investments in securities previously recognized. Investments in securities classified prior to the entry into force of this instrument shall remain in the classification granted in accordance with the accounting criteria in effect on the date of their transaction. In any case, brokerage houses must disclose in the notes to the financial statements the main changes in accounting regulations for investments in securities that affected or could significantly affect their financial statements.

Respectfully,

Mexico City, July 13, 2017.- The President of the National Banking and Securities Commission, Jaime González Aguadé.- Signature.

B-2 INVESTMENTS IN SECURITIES

Objective and Scope

This criterion aims to define the specific rules regarding the recognition, valuation, presentation, and disclosure in financial statements of operations with investments in securities carried out by entities.

The following aspects are subject to this criterion:

a) initial recognition and valuation of investments in securities;

b) subsequent recognition of gains or losses derived from investments in securities;

c) recognition of impairment of investments in securities, and

d) derecognition of investments in securities from the entities' balance sheet.

The following topics are not subject to this criterion:

a) securities lending and borrowing;

b) derivatives and hedging transactions;

c) permanent investments contemplated by NIF B-8 "Consolidated or Combined Financial Statements" and NIF C-7 "Investments in Associates and Other Permanent Investments";

d) investments derived from pension and retirement plans,

e) assets that entities hold in proprietary position, derived from securitization transactions, to which the provisions of criterion C-2 "Securitization Transactions" shall apply, and

f) participation in special purpose entities in which entities have control, joint control, or significant influence, in which cases the provisions established in criterion C-5 "Consolidation of Special Purpose Entities" shall apply.

Definitions

Amortized Cost.- For the purposes of this criterion, it is the amount at which a financial asset is valued resulting from adjusting the value at which it is initially recognized by (i) payments of principal, (ii) plus or minus the accumulated amortization, using the effective interest method, of any difference between the value at which it is initially recognized and its value at maturity, and (iii) less any reduction in value due to impairment.

Transaction Costs.- For the purposes of this criterion, these are those incremental costs that are directly related to the acquisition of a security, that is, that would not have been incurred had the security not been acquired (for example, commissions paid to agents, consultants, brokers, as well as charges by stock exchanges, among others). Transaction costs do not include the discount or premium received or paid for debt securities, financing costs, or internal administrative costs.

Impairment.- It is the existing condition when the book value of investments in securities exceeds the recoverable amount of said securities.

Equity Instruments.- An asset represented through a security, certificate, or right derived from a contract, among others, that represents a residual participation in the assets of an entity, after deducting all its liabilities, such as shares, partnership interests, residual interests, among others.

Investments in Securities.- Those made in assets constituted by equity instruments, obligations, bonds, certificates, and other credit instruments and documents that are issued in series or in bulk and that the entity holds in proprietary position.

Effective Interest Method.-

It is the one by which the amortized cost of a financial asset or financial liability (or group thereof) is calculated and the recognition of financial income or expense over the relevant period. This, by applying the effective interest rate, that is, the discount rate that exactly equates the estimated future cash flows to be received or paid over the expected life of the financial asset or financial liability, or when appropriate, in a shorter period (for example, when there is the possibility of an early payment or redemption), with the net book value of said financial asset or financial liability.

Credit Risk.- It is the risk that one of the parties to a financial instrument causes a financial loss to the other party by failing to fulfill an obligation.

Market Risk.- It is the risk that the fair value or future cash flows of a financial instrument may fluctuate as a result of changes in market prices. Market risk comprises three types of risks: exchange rate risk (originated by changes in the exchange rate), interest rate risk (coming from changes in market interest rates), and other price risks (caused by particular factors of the specific financial instrument or its issuer, or by factors that affect all similar financial instruments traded in the market).

Effective Interest Rate.- Rate obtained by estimating cash flows considering all contractual conditions of the financial instrument (for example, commissions and interest paid or received by the parties to the contract, transaction costs, and any other premium or discount), without considering future credit losses. When exceptionally the cash flows and expected life of a group of substantially similar financial assets cannot be estimated reliably, the entity will use the contractual cash flows over the contractual period of each financial asset.

Securities Held to Maturity.- These are debt securities, whose payments are fixed or determinable and with a fixed maturity (which means that a contract defines the amounts and dates of payments to the holding entity), with respect to which the entity has both the intention and the capacity to hold until their maturity. A security cannot be classified as held to maturity if during the current fiscal year or during the two preceding fiscal years, the entity sold securities classified in the held-to-maturity category, or reclassified securities from the held-to-maturity category to the available-for-sale category, unless the amount sold or reclassified during the last 12 months does not represent more than 15% of the total amount of securities held to maturity on the date of the transaction. This, regardless of whether the securities to be classified, the previously sold, or the reclassified have similar or different characteristics. In this regard, it will be considered that both the intention and the capacity to hold the securities until maturity have been maintained when sales or reclassifications have been previously made that fall under any of the following circumstances:

a) they are carried out within the 90 natural days prior to their maturity or, if applicable, the date of the issuer's call option;

b) they occur after the entity has accrued or, if applicable, collected more than 85% of its original value in nominal terms, or

c) they are attributable to an isolated event that is outside the control of the entity, that is not recurring, and that could not have been reasonably foreseen by the entity.

Debt Securities.- These are instruments that, in addition to constituting a right for one party and an obligation for the other, have a known term and generate cash flows for the holder of the securities during or at the maturity of said term.

Available-for-Sale Securities.- These are debt securities and equity instruments, whose intention is not oriented to obtaining gains derived from price differences resulting from short-term buying and selling operations, and in the case of debt securities, there is neither the intention nor the capacity to hold them until maturity, therefore representing a residual category, that is, they are acquired with an intention different from that of securities for trading or held to maturity, respectively.

Securities for Trading.-

These are the securities that entities acquire with the intention of disposing of them, obtaining gains derived from price differences resulting from buying and selling operations in the short term, which they carry out as market participants.

Book Value.- It is the balance of an investment in a security, including adjustments for valuation results, interest, accrued dividends not collected, impairment loss, or any other adjustment that corresponds to it, as the case may be, as determined in accordance with this criterion.

Fair Value.- The amount for which an asset can be exchanged or a liability settled between informed, interested, and equally willing parties in a free competition transaction.

Classification

At the time of acquisition, investments in securities shall be classified as securities for trading, available-for-sale securities, or held-to-maturity securities. Each of these categories has specific rules regarding recognition, valuation, and presentation standards in financial statements.

The classification between the categories of securities for trading and available-for-sale securities shall be made by the entity's management, based on the intention at the time of acquiring a specific instrument with respect to it. To classify an instrument in the held-to-maturity category, it must:

i.

have the intention and capacity to hold them until maturity, and

ii.

not be prevented from classifying them as held to maturity in accordance with the provisions of paragraph 13.

Recognition Standards

At the time of acquisition, investments in securities shall be initially recognized at their fair value (which includes, if applicable, the discount or premium), in accordance with what is established for such purposes in criterion C-1 "Recognition and Derecognition of Financial Assets".

Transaction costs for the acquisition of securities shall be recognized, depending on the category in which they are classified, as follows:

a)
Securities for Trading.- In the results of the fiscal year on the date of acquisition.

b)
Available-for-Sale and Held-to-Maturity Securities.- Initially as part of the investment.

For the derecognition from the balance sheet of investments in securities, the guidelines provided for such purposes in criterion C-1, as well as what is stated in paragraph 30, must be followed.

Valuation Standards

General Valuation Standards

Securities for trading and available-for-sale securities shall be valued at their fair value.

Held-to-maturity securities shall be valued at their amortized cost, which implies that the amortization of the premium or discount (included, if applicable, in the fair value at which they were initially recognized), as well as transaction costs, shall form part of accrued interest.

Accrued Interest

Accrued interest on debt securities shall be determined in accordance with the effective interest method and recognized in the corresponding category within the investments in securities item against the results of the fiscal year (including in the case of available-for-sale securities). At the moment when accrued interest is collected, the investments in securities item shall be decreased against the cash and cash equivalents item.

Dividends

Dividends on equity instruments shall be recognized in the corresponding category within the investments in securities item against the results of the fiscal year (including in the case of available-for-sale securities), at the moment when the right to receive payment thereof is generated. When dividends are collected, the investments in securities item shall be decreased against the cash and cash equivalents item.

Valuation Result for Securities for Trading and Available-for-Sale

The valuation result of securities for trading shall be recognized in the results of the fiscal year.

The valuation result of available-for-sale securities shall be recognized in other items of comprehensive income within equity as referred to in Bulletin B-4 "Comprehensive Income" of the NIF. In the case that a security classified as available for sale constitutes a hedged item in a fair value hedge, in accordance with the provisions of criterion B-5 "Derivatives and Hedging Transactions", the valuation result of said security shall be recognized in the results of the fiscal year. In the case of an inflationary environment, the valuation result corresponding to the monetary position of available-for-sale securities shall be recognized in other items of comprehensive income within equity as referred to in Bulletin B-4.

The valuation result of securities for trading that are disposed of, which has been previously recognized in the results of the fiscal year, shall be reclassified as part of the trading result on the date of sale. Likewise, the accumulated valuation result of available-for-sale securities that are disposed of, which has been recognized in other items of comprehensive income within equity as referred to in Bulletin B-4, shall be reclassified as part of the trading result on the date of sale.

Gain or Loss on Exchange

The gain or loss on exchange arising from investments in securities denominated in foreign currency shall be recognized in the results of the fiscal year.

Reclassifications

Reclassifications from the held-to-maturity category to available-for-sale may be made, provided that there is no intention or capacity to hold them until maturity. Reclassifications to the held-to-maturity category, or from securities for trading to available-for-sale, may be made in extraordinary circumstances (for example, lack of liquidity in the market, no active market for the same, among others), which shall be evaluated and, if applicable, validated through express authorization of the CNBV.

Sales of securities classified as held to maturity may satisfy the conditions established in paragraph 13(c) and, therefore, do not raise doubts about the entity's intention to hold other investments until maturity, provided they are attributable to any of the following circumstances:

a)
Significant deterioration in the credit rating of the issuer.

b)
A change in tax laws that affects the tax treatment of the instrument's yields, and therefore its value.

c)
A business combination or a restructuring that involves the sale of a business segment including the financial instrument held to maturity.

d)
Modification of the regulations to which an entity may be subject and that affect the relationship of assets and equity.

The valuation result corresponding to the date of reclassification, in the event of reclassifying from the held-to-maturity category to available-for-sale, shall be recognized in other items of comprehensive income within equity as referred to in Bulletin B-4.

Valuation result shall be understood as the difference resulting from comparing the book value with the fair value on the date that the aforementioned reclassification takes place.

For those debt securities that had been authorized to effect the reclassification from the available-for-sale category to the held-to-maturity category, the valuation result corresponding to the date of the transfer shall continue to be reported in the entity's equity, and shall be amortized based on the remaining life of said security.

Regarding reclassifications that may have been authorized from the securities for trading category to any other, the valuation result on the date of reclassification should have been previously recognized in the income statement.

Clearing Accounts

Securities acquired that are agreed to be settled on a date subsequent to the agreement of the buying and selling operation and that have been assigned, that is, identified, shall be recognized as restricted securities (to be received) at the time of the agreement, while the sold securities shall be recognized as an outflow of investments in securities (to be delivered). The counterpart shall be a clearing account, creditor or debtor, as appropriate, in accordance with what is established in criterion A-3 "Application of General Standards".

Impairment in the Value of a Security

Entities must evaluate whether, on the balance sheet date, there is objective evidence that a security is impaired.

A security is considered impaired and, therefore, an impairment loss is incurred, if and only if, there is objective evidence of impairment as a result of one or more events that occurred subsequent to the initial recognition of the security, which had an impact on its estimated future cash flows that can be determined reliably. It is unlikely to identify a single event that individually is the cause of the impairment, it being more likely that the combined effect of various events could have caused the impairment.

Objective evidence that a security is impaired includes observable information, among others, regarding the following events:

a) significant financial difficulties of the issuer of the security;

b) it is probable that the issuer of the security will be declared in bankruptcy or other financial reorganization;

c) default on contractual clauses, such as default on payment of interest or principal;

d) the disappearance of an active market for the security in question due to financial difficulties, or

e) there is a measurable decrease in the estimated future cash flows of a group of securities since the initial recognition of said assets, although the decrease cannot be identified with the individual values of the group, including:

i. adverse changes in the payment status of issuers in the group, or

ii. local or national economic conditions that correlate with defaults in the securities of the group.

In addition to the events mentioned above, objective evidence of impairment for an equity instrument includes information about significant changes with an adverse effect that have taken place in the technological, market, economic, or legal environment in which the issuer operates, and indicates that it is probable that the cost of the investment in the equity instrument will not be recoverable.

The disappearance of an active market because a security is no longer publicly traded is not necessarily evidence of impairment. A decrease in the credit rating of an entity is not in itself evidence of impairment; however, it could be so when considered in combination with additional information. A decrease in the fair value of a security below its amortized cost is not necessarily evidence of impairment (for example, a decrease in the fair value of a debt security resulting from an increase in the risk-free interest rate, such as the interest rate relative to treasury certificates issued by the Federal Government).

In some cases, the observable information required to estimate the amount of the impairment loss for a security may be limited or cease to be relevant in certain circumstances, so the entity will use its judgment based on its experience to determine such impairment loss.

Securities for Trading

Because securities for trading are valued at fair value, recognizing the valuation result immediately in the results of the period, any impairment loss that may arise with respect to such securities would already be implicit in the aforementioned valuation result, so it is not required to perform the impairment assessment referred to in this section.

Available-for-Sale Securities

When a decrease in the fair value of an available-for-sale security has been recognized directly in other comprehensive income items within equity as referred to in Bulletin B-4, and there is objective evidence that the security is impaired, the valuation result recognized therein shall be reclassified to the results of the period. The amount to be reclassified shall be determined as follows:

a)

the difference between (i) the value at which the security was initially recognized, net of any principal payments and amortization, and (ii) the current fair value of the security, less

b)

any previously recognized impairment loss of the aforementioned security in the results of the period.

The impairment loss recognized in the results of the period for an equity instrument classified as available for sale shall not be reversed.

If, in a subsequent period, the fair value of a debt security classified as available for sale increases and such effect of the reversal of impairment can be objectively related to an event that occurs after the impairment was recognized in the results of the period, the impairment loss shall be reversed in the results of the period.

Held-to-Maturity Securities

If there is objective evidence that an impairment loss has been incurred with respect to a held-to-maturity security, the amount of the loss shall be determined by the difference between the book value of the security and the present value of estimated future cash flows, discounted at the original effective interest rate of the security (for example, the effective interest rate calculated at initial recognition). The book value of the security shall be reduced, recognizing the impairment loss in the results of the period.

If in a subsequent period, the amount of the impairment loss decreases and such decrease can be objectively related to an event that occurs after the impairment was recognized, the previously recognized impairment loss shall be reversed. The effect of the reversal of impairment shall not exceed the amortized cost that the security would have had on that date, if the impairment had not been recognized. Such effect shall be recognized in the results of the period.

Presentation Standards

Balance Sheet

Investments classified as securities for trading, available-for-sale securities, and held-to-maturity securities shall be presented separately in the securities investments item, maintaining that same order.

The valuation result of available-for-sale securities, as well as the valuation-related monetary position result in case of an inflationary environment, shall be presented in the item for valuation result of available-for-sale securities as part of other comprehensive income items within equity as referred to in Bulletin B-4.

Income Statement

Accrued interest and yields and gains or losses from changes in securities investments, as well as dividends from equity instruments, shall be presented in the item for interest income or interest expenses, as applicable.

The fair value valuation result of securities for trading, the amount of impairment loss for available-for-sale and held-to-maturity securities, or the effect of the reversal of impairment for debt securities classified as available-for-sale or held-to-maturity whose value was previously adjusted for impairment, shall be included within the item for fair value valuation result. The result from the sale and purchase of securities investments, as well as transaction costs for securities for trading, shall be presented within the items for gain or loss from sale and purchase, as applicable.

Disclosure Standards

Entities shall disclose in the notes to the financial statements the following information relating to securities investments:

a)

The book value of securities investments for each category of securities.

b)

In the event that the entity has sold held-to-maturity securities, it shall disclose in its financial statements and inform the CNBV of the amount and type of securities sold, the remaining time for which the held-to-maturity category cannot be used in the classification of securities, as well as an explanation of the reasons for such situation.

c)

If the entity has reclassified a security from the held-to-maturity category to the available-for-sale category, it shall disclose the amount and type of securities reclassified, the reason for such reclassification, the remaining time for which the held-to-maturity securities category cannot be used in the classification of securities, as well as an explanation of the reasons for such situation.

d)

In the event that the entity, in accordance with what is established in the Reclassifications section of this standard, has obtained authorization from the CNBV to reclassify securities, disclosure of this fact is required, specifically indicating the category from and to which the reclassification was made, as well as the characteristics of the reclassified securities regarding: their number, weighted average rate, and type of issuer. Likewise, the book value and fair value of the securities on the date of the financial statements shall be disclosed, when they have been transferred to the held-to-maturity securities category, or the effect of the fair value valuation on that date if the transfer has been from the securities for trading category to the available-for-sale category.

e)

The fair value of securities investments that have been pledged as collateral, including those that may have been reclassified as restricted in accordance with what is established in standard C-1.

f)

The terms and conditions related to the collateral.

g)

If the entity receiving collateral (consisting of financial or non-financial assets) has the right to sell it or pledge it, without there being a default by the entity granting the collateral, in terms of what is established in standard C-1, it shall disclose:

i.

the fair value of the collateral received;

ii.

the fair value of any collateral sold or pledged, and

iii.

the terms and conditions associated with the use of the collateral.

h)

Net gains or losses on:

i.

securities for trading;

ii.

available-for-sale securities, showing separately the valuation result recognized in other comprehensive income items within equity as referred to in Bulletin B-4 during the period and the amount reclassified to the results of the period, and

iii.

held-to-maturity securities.

i)

The total interest income and total interest expenses of securities.

j)

Income and expenses from commissions generated by securities.

k)

Accrued interest income from impaired securities.

l)

The amount of impairment for each category of available-for-sale and held-to-maturity securities.

m)

The amount and origin of the effect of the reversal of impairment of available-for-sale and held-to-maturity securities.

n)

Accounting policies relating to the valuation bases used in securities investments.

o)

Any extraordinary event that affects the valuation of securities investments.

p)

Information that allows users of the entity's financial statements to evaluate the nature and degree of risks arising from securities investments (for example, the type of risk and its characteristics, as well as to what extent they affect the entity), including but not limited to credit and market risks to which the entity is exposed at the end of the period, as well as the manner in which such risks are managed (for example, the establishment of a monitoring group whose function is the supervision and determination of risks, as well as the degree of compliance with the policies established for such purposes).

q)

Qualitative disclosure.

For each type of risk arising from securities investments:

i.

the risk exposures and how they arise;

ii.

their objectives, policies, and processes for managing risk and the methods used to measure them, and

iii.

any change in (i) or (ii), with respect to the previous period.

r)

Quantitative disclosure.

For each type of risk arising from securities investments:

i.

a summary of quantitative information about its risk exposures at the end of the period, which shall be based on information internally provided to key management personnel of the entity;

ii.

the quantitative disclosure for each type of risk (credit and market) detailed in items t) and u), to the extent that it has not been provided in accordance with the previous item (i), unless the risk is not material, and

iii.

risk concentrations, if not evident in accordance with the previous items (i) and (ii).

s)

If the quantitative information disclosed at the end of the period is not representative of the entity's exposure to risk during the period, additional information that is representative shall be provided.

t)

Regarding credit risk:

For each category of securities:

i.

the amount that best represents the maximum exposure to credit risk at the end of the period, without taking into account any collateral received or other type of credit enhancement (for example, guarantees);

ii.

with respect to the amount disclosed in the previous item (i), a description of the collateral received or other type of credit enhancements;

iii.

information on the credit quality of securities investments that are not impaired;

iv.

the book value of securities investments whose terms have been renegotiated, and which would otherwise be impaired;

v.

an analysis of securities investments that have been individually impaired at the end of the period, including the factors that the entity considered for such purposes, and

vi.

with respect to the amounts disclosed in the previous item (v), a description of the collateral received by the entity and other credit enhancements and, unless it is impracticable, an estimate of their fair value.

If an entity obtains financial or non-financial assets during the period, exercising the collateral or requesting other types of credit enhancements, and said assets meet the recognition standards contained in the accounting standards for brokerage houses, the following shall be disclosed:

i.

the nature and book value of the assets obtained, and

ii.

when the assets are not immediately convertible into cash, the policies to sell said assets, or to use them in operations.

u)

Regarding market risk, a sensitivity analysis for each type of market risk to which the entity is exposed at the end of the period, showing:

i.

the methods, main parameters, and assumptions used for the preparation of the analysis;

ii.

an explanation of the objective of the method used and of the limitations that could result in the information not fully reflecting the fair value of the securities investments, and

iii.

changes in the methods and assumptions used in the previous period, as well as the reasons for such changes.

v)

Securities investments other than government securities, which are integrated by debt securities from the same issuer and represent more than 5% of the entity's total capital, indicating the main characteristics of these (issuance, weighted average maturity, and weighted average rate). Total capital shall be determined in accordance with the rules for capitalization requirements for brokerage houses issued by the National Banking and Securities Commission.

w)

In the event that the entity acquires fiduciary rights issued by a trust and such issuance has been in series or in mass, the underlying asset of said fiduciary rights shall be disclosed, as well as the amount, term, and other characteristics thereof.

Appendix A is an integral part of standard B-2. Its content illustrates the application of this standard, with the purpose of clarifying its meaning.

APPENDIX A

APPLICATION GUIDE

Classification in the held-to-maturity securities category

Intention and capacity

For the purposes of the Reclassifications section, an entity does not have the intention to hold debt securities until maturity if at least one of the following assumptions is met:

a)

the entity intends to hold the security for an indefinite period;

b)

the entity is willing to sell the security (due to circumstances other than isolated events that are not subject to the control of the entity, are not recurrent, and could not have been reasonably anticipated by the entity) in response to changes in market interest rates or risks, liquidity needs, changes in the availability and profitability of alternative investments, changes in terms and sources of financing, or changes in foreign exchange risk, or

c)

the issuer has the right to settle a security for an amount significantly lower than its amortized cost.

GA1

For the purposes of the Reclassifications section, an entity does not have a demonstrated capacity to hold until maturity an investment in a security with a fixed maturity if:

a)

it does not have available financial resources to continue financing its investment until maturity, or

b)

it is subject to a legal or other type of restriction that may frustrate its intention to hold the investment until maturity.

Specific Cases

GA2

Variable interest rate debt securities may meet the conditions to be classified as held-to-maturity securities.

GA3

Credit risk does not prevent a security from being classified as held-to-maturity, provided that contractual payments are fixed and determinable, and that the other GA4 conditions for such classification are met.

GA4

The intention and capacity of an entity to hold debt securities until their maturity is not necessarily affected if such securities have been pledged as collateral in repo operations or securities lending. Notwithstanding the foregoing, the entity does not have the intention or capacity to hold debt securities until maturity if it does not expect to be able to maintain or recover access to said securities.

GA5

If the issuer of a security has a repurchase option, it meets the conditions to be classified as held-to-maturity if the entity has the intention and capacity to hold it until the date on which the issuer can repurchase it or until its maturity, and this substantially recovers its book value. The issuer's repurchase option simply accelerates the maturity of the security.

GA6

A security with a put option cannot be classified as held-to-maturity, because the fact of paying a premium for said option is inconsistent with the intention to hold it until maturity.

GA7

Equity instruments cannot be classified as held-to-maturity because they have an indefinite life period (such as shares), or because the amounts that the entity might receive would vary in an undetermined manner. Likewise, if the terms of a perpetual debt security contemplate interest payments for an indefinite time, the security cannot be classified as held-to-maturity.

GA8

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