Update – Circular 15/2020 – Amendments to Circular 10/2015 (Rules applicable to the financing granted by Banco de México to cover ordinary additional liquidity needs)
June 8, 2020 / COVID-19 / Financial and Banking Law
Since April 9, the Federal Official Gazette (FOG) has published various provisional measures adopted by Banco de México (hereinafter, “Banxico”) to face the circumstances derived from COVID-19 pandemic. These measures are focused on continuing to promote the good development of the financial system and ensure its stability, as well as to promote the proper functioning of the payment systems, and avoid disruptions in them. That is the reason why maintaining the provision of liquidity in local currency to credit institutions has been deemed necessary, in order to improve the functioning of national markets, strengthen credit-granting channels in the economy, and promote the orderly conduct of the debt and foreign exchange markets has been necessary.
To achieve the foregoing, Banxico has decided to amend the Rules applicable to the financing granted by Banco de México to cover additional ordinary liquidity needs faced by these institutions to facilitate the implementation of the necessary measures to access the aforementioned financing.
- Amendments to the Rules applicable to the financing granted by Banco de México to cover ordinary additional liquidity needs (hereinafter, the “Rules”)[1].
Conditions for the Granting of Financing:
The Institution interested in obtaining financing from Banxico under these circumstances must submit an application within the timeframe indicated in the Manual for these purposes, in the format set forth in “Exhibit 1” attached to the Rules. This application must be submitted through the Electronic Attention Module or it may be submitted in writing at Banxico registered office. It also must be signed by the head of the institution either with their advanced electronic or handwritten signature, if the document is submitted in writing at Banxico registered office. The application may also be submitted by the legal representative of the institution provided that they has administrative powers and to exercise acts of ownership and signs with their advanced electronic or handwritten signature if the application is submitted in writing at Banxico registered office.
The application may be made no later than the banking day on which the institution intends to make the disposition of the relevant funds. The foregoing will be subject to the execution of the relevant collaterals or the corresponding repurchase, as applicable, through the resource transfer of the Deposits subject matter of the collaterals or the securities subject matter of the repurchase in the relevant applicable money or security deposit accounts.
The financing subject matter of the Rules may be carried out, up to the Institution, through any of the following transactions or a combination of the following options: (i) granting of a simple loan guaranteed with the resources subject matter of the Deposits that the Buyer holds with Banxico; or (ii) repurchases on eligible securities.
IMPORTANT: Only those Institutions facing temporary liquidity needs may use the temporary financing referred to in the Rules in order to meet their payment obligations within the time limits due; or to carry out their obligations and comply with the requirements established for each type of financing. Regarding the Development Banking Institutions, only those authorized to carry out such transactions in accordance with the applicable regulations may carry out the referred transactions.
Execution of Agreements:
In order to enter into opening agreements for a simple loan and repurchase agreements subject matter of the Rules, the interested Institutions must submit to the International and Special Legal Affairs Department of Banxico certified copies of the deed evidencing the powers granted to their representatives to exercise acts of ownership, as well as certified copies of the official identifications of the representatives who sign the aforementioned agreements and the other documents indicated therein.
Loans Secured by Deposits:
In order for the relevant Institution to obtain the financing subject matter of the Rules by means of the secured credit indicated as a simple loan secured with the resources subject matter of the Deposits that the Buyer maintains with Banxico, the relevant Institution must previously execute a opening agreement for a simple loan with security with Banxico, which must have at least the following characteristics:
- Buyer: term referring to the institution that meets the requirements to obtain the financing from Banxico.
- Deadline for the disposition of the Loan amount.
- Amount: term referring to the amount in the local currency requested by the Institution, which may not exceed the sum of the deposit balance.
- Security: term referring to a pledge on the resources subject matter of the specific deposits indicated by the Buyer for such purposes, provided that such indicated deposits have, individually or jointly, sufficient balance to cover the principal and interest of the relevant loan.
- Crediting of funds: Once the agreement has been executed and the application has been submitted in accordance with the Manual in the Banking Day indicated by the Institution for such purpose, the relevant deposit will be done on the Single Account of such Institution up to the secured amount.
Repurchase transactions:
In order for the relevant Institution to obtain the financing subject matter of the Rules through repurchases indicated as repurchase on eligible securities, the Institution must previously execute the relevant agreement with Banxico, which will have, at least, the following characteristics:
- Seller: term referring to the Institution that meets the requirements to obtain the financing from Banxico.
- Deadline for the start of the transaction.
- Securities subject matter of the repurchase:
- Government Securities denominated in local currency, UDIS, or Eligible Currencies.
- Debt securities denominated in local currency or UDIS, credited in Indeval, and that meet the National Scale Credit Rating, which have been issued by:
- State-owned entities of the Federal Government, including Development Banking Institutions other than the Seller and FIRA;
- Productive Companies of the State;
- Multiple Banking Institutions, other than the Seller and which are not part of the same financial group, business group, or consortium to which the latter belongs;
- States;
- Municipalities;
- International financial organizations and multilateral entities;
- Non-financial entities residing in Mexico which are not part of the same financial group, business group, or consortium to which the Seller belongs;
- Institutional trustees that issue such debt securities in trust stock certificates.
- Institutional trust companies through which the persons indicated in items “i.” to “vii.” issue such debt securities in trust stock certificates that represent the right of their holders to receive the principal payment and interests or yields, if applicable.
- Debt securities denominated in Eligible Currencies that comply with the Global Scale Credit Rating and have been issued by any of the following persons:
- Foreign governments, central banks, or foreign entities that carry out similar functions.
- The persons mentioned in item “b” mentioned above.
- Bonus:
- Interest rate.
- Days: term referring to the payment of the Bonus that must be made on all Banking Days in which the repurchase remains in effect.
- Crediting of Funds: once the relevant Institution has executed the agreement and submitted the relevant application to carry out this transaction, such Institution must transfer the securities subject matter of the repurchase denominated in local currency or UDIS to the security deposit account that Indeval has with Banxico and that Banxico indicates on the Financial Network page mentioned above or, in case of securities denominated in Eligible Currencies, to the foreign custodian accounts that Banxico indicates, for such purposes, on the same page of the Financial Network. Once the delivery of such securities has been carried out through the aforementioned transfers, Banxico —during the hours established in the Manual— will make the relevant deposit on the Single Account of the Seller, up to the amount of the market value of the securities, adjusted by the discount factors.
Payment of Financing:
Regarding the renewal of the simple loan and repurchase transactions set forth in the Rules, the Buyer or Seller may pay all or part of the principal amount corresponding to the relevant financing received, for which it must inform Banxico by means of a communication made in accordance with the format attached in these Rules as Exhibit 2.
Information for Banco de México:
Institutions must provide the General Directorate of Financial System Affairs, the General Directorate of Central Banking Transactions, and the Financial System Information Directorate of Banxico with the information that, within the scope of their competence, such administrative units may require from them.
Term:
The amendment to the Rules became effective on May 13, 2020. It is worth mentioning that the complete document published in the FOG on the aforementioned date establishes Rule 1. Definitions. “Global Scale Credit Rating” and “National Scale Credit Rating”, Rule 2.3. Repurchase transactions, sub-section “c.” of item ii) of “Securities subject matter of the Repurchase” will only be applicable during the period from the effective date of this Circular until September 30, 2020.
[1] Since this document is a summary of the content of Circular 15/2020 – Rules applicable to the financing that Banco de México grants to cover ordinary additional liquidity needs, there are some elements expressed in this document that may have a more detailed explanation in the original document. Therefore, we suggest accompanying this summary with the official content of Circular 15/2020 published in the Federal Official Gazette. https://www.dof.gob.mx/nota_detalle.php?codigo=5593279&fecha=13/05/2020