Webinar:

TIIE Swaps Settlement

ASIGNA Clearing and Settlement House

November, 2015.

Agenda

Webinar Introduction: Roberto Gonzalez – Deputy General Director,

Post-Trade Division, BMV Group

Swaps Settlement at Asigna through Brokers: Jacques Levy -

President, Mexican Association of Brokerage Firms

Swaps Transactions at MexDer for their settlement in Asigna

(Backloading): Jose Miguel de Dios - Director, Derivatives Market

Transactions Services - MexDer

Clearing and Settlement of Swap Contracts in Asigna: Amilcar

Elorza - Operations Director, Asigna

Risks Valuation and Management for Swaps: Fabiola Perez

Duarte - Risks Sub-Director, Asigna

Tax Treatment: Jorge Correa - Creel, Garcia-Cuellar, Aiza y

Enriquez

Q&A

Webinar's Objective: TIIE Swaps Settlement in

Asigna, Clearing and Settlement House

“To disclose the clearing, settlement and registration services to be

offered by Asigna, Clearing and Settlement, regarding the

Settlement of Standardized Derivative Contracts, particularly for

TIIE Swaps Contracts”

Introduction: TIIE Swaps Settlement

ROBERTO GONZALEZ

Deputy General Director, Post-Trade Division, BMV Group

(Asigna, Valmer, Indeval and CCV)

Background

The global financial crisis of 2008 uncovered weaknesses in

the OTC derivatives market:

Risk of exposure in transactions which were not being

measured or controlled by the risks management systems.

Exposure of participants with several constituents of the

financial group.

Government intervention to try to avoid a systemic

contagion.

The contagion effect was exacerbated by the liquidity

pressure affecting warrants valuations, credit lines closure,

and a reduction in the operation.

Background

In 2009 the financial authorities of the G20 countries agreed to

promote actions to strengthen the OTC derivatives market

through:

i. Compulsory negotiation of standardized OTC transactions at

stock exchanges or electronic platforms, cleared and settled

through central counterparties.

• ii. Compulsory reporting of all derivatives transactions to central

information registries, and

• iii. Larger capital loads and requirements for bilateral collateral

margins (margin calls) for transactions which are not settled

through central counterparties.

Background

The commitment from the financial authorities (SHCP, CNBV and Bank of

Mexico) with the G20 will be met in accordance with the following:

i. Publication of Tripartite Regulations. Asigna will settle transactions

contracted in the negotiation platforms of the OTC market (Brokers).

ii. Amendment of the provisions applicable to companies managing

mechanisms to facilitate transactions with securities (Regulations for

Electronic Platforms) from the CNBV.

iii. Amendment of the Prudential Provisions of the Derivatives Market.

iv. Amendment of the capitalization Regulations set forth in the Sole

Circular Letter of Banks of the CNBV.

Enforceability to Settle OTC Derivatives.

iv. Circular Letter 4/2012 for derivative transactions of the Bank of Mexico (Banxico Circular Letter).

“Starting April 2016, the standardized derivative transactions carried out in the credit institutions and stock exchanges among themselves or with domestic institutional investors, entered into in Acknowledged Markets or Domestic or Foreign Negotiation Platforms, must be settled in Clearing Houses.”

Asigna has made the necessary adaptations to its regulations and operation to offer the services required for OTC derivatives transactions.

International Acknowledgments.

Asigna as MexDer FBOT House before CFTC.

Asigna is in the process of being recognized as a “Qualified CCP” before ESMA (March 2016)

“DCO Exemption” before the CFTC is underway.

Swaps Settlement in Asigna via Brokers:

JACQUES LEVY

President, Mexican Association of Brokerage Firms

• Law applicable to Societies managing systems which

facilitate transactions with securities (interbank and

institutional Brokers)

• Instruments

• Information

Brokers Regulation

• Registration in Mexico or in the U.S.

• U.S. authorities regulations

• Convenience.

• Transacted volumes.

Derivative Transactions Registration

• There is no current obligation to go through Brokers.

• Bilateral transactions - “Block Trades”.

• Liquidity ><Transparency.

• Acknowledged and accepted by authorities.

• New rule: Registration with Brokers.

Bilateral Transactions

Changes in April - November 2016

1. Obligation to go through trading platform or broker

platform (April 2016 for domestic counterparties,

November 2016 if there is a non-Mexican counterparty).

2. Obligation to register in central counterparty.

Platforms and clearing houses may be outside Mexico with

authorization from CNBV/Bank of Mexico.

Brokers and Central Counterparties

1. Link with central counterparties

2. Way to inform ASIGNA and receive confirmation

3. Clearing partners

Withholding Tax on differential payments

Comments from the tax specialist

Transactions Log (Backloading)

We are in the process of signing the contract between

Brokers and Asigna

Swaps Transaction in MexDer for their settlement in Asigna (Backloading)

JOSE MIGUEL DE DIOS

Operations Director at MexDer

www.mexder.com

Listed Swaps

MexDer has Swaps listed from 2x1 up to 390x1.

Each day the most common swaps are shown in the

transactions displays.

The Trading Desk at MexDer can be requested to release

a specific term, or transactions can be carried out as

Block Trades.

Swaps with accrued interest can be transacted with two

modes: Full Coupon, or only paying the remaining days

of the coupon.

All Swaps transacted at MexDer remain live, even when

the opposite transaction is carried out.

To close positions, an Unwind transaction or a

Substitution must be made.

www.mexder.com

Unwind

To register an Unwind it must be made through a Block

Trade, negotiating with the owner of the opposing

position in the swap the amount in MXN that any of the

counterparties would have to settle in order to break up

the Swap.

It is possible to make Unwinds in parts, and not

necessarily the entire volume.

www.mexder.com

Substitution

These transactions are made when any of the

counterparties of the swap wants to close the position

and the counterparty does not want to do so.

In this case a third party may be found to take the

position of the counterparty that opts out, taking its place

and being transparent for the counterparty wishing to

retain its position.

www.mexder.com

Characteristics of the Listed Swap

21

Underlying: Interbank Balance Rate TIIE28

Contract size: MXN$100,000.

Contract term: No less than 2 months (2x1) or greater than 30 years (390x1)

Ticker Symbol: # 28-day coupons x1

Trading Code: Fixed Nominal Interest Rate stated in percentage points with four

decimal points

Bid: 0.0025 Rate

Minimum Initial Margin: From MXN$32 (2x1) up to MXN$4,850 (390x1).

Opposing Marginalization: MXN$16

Negotiation schedule: 7:30 am to 2:00 pm.

Bloomberg <MMDD> MXN “contract” <CMDTY> CT <go>

Reuters MXN/FUTEX1 MXNIRS=XD

www.mexder.com

Regulatory Changes

22

October 2015 New capitalization rules for Credit Institutions

January 2016

Amendment of the CUF regarding the valuation of the Assets from the AFORES in other currencies.

April 2016

Operations between credit institutions and stock exchanges between themselves or with institutional clients.

November 2016

Transactions made by credit institutions or stock exchanges with foreign financial entities

Circular Letter 8 /2015

www.mexder.com

Circular Letter 8/2015

Requirements to enter into and settle Standardized

Derivative Transactions will become effective in

accordance with the following:

i. On April 1, 2016 for Standardized Derivative Transactions

entered into between Entities or between an Entity and

domestic Institutional Investors

ii. On November 16, 2016 for Standardized Derivative

Transactions entered into between an Entity and any

Foreign Financial Entity, as well as between an Entity and

any foreign Institutional Investor.

www.mexder.com

Entering into Swaps Transactions

It must be noted that the regulation does not only

address settling Swaps transactions in Clearing Houses

Acknowledged by the Mexican authorities, but it also

specifies that the transactions must be made in

Acknowledged Derivatives Markets or the Partnerships

which Manage systems to facilitate transactions with

Securities (Brokers)

www.mexder.com

Capital Requirements

The regulations also regard New Transactions being

made, i.e., the positions the institutions have prior to those

dates are not bound to send them to Clearing Houses,

nevertheless there was an amendment in October 2015

which affects the Capital requirements for Banking

Institutions.

In order to be able to easily migrate preexisting Swaps,

Backloading was implemented.

www.mexder.com

Backloading

Last September 8, MexDer and Asigna published on

their web page a notice explaining the Backloading

process.

This process implies transferring the preexisting swaps

in the OTC to migrate them to Asigna.

In this process, in order to avoid the closing of the OTC

positions having an fiscal impact due to the

acknowledgement of profit or loss, the original data on

when these Swaps were created would be included with

the information of these transactions.

www.mexder.com

27

Process to report Preexisting Swaps in

Asigna

The report between the counterparties must match and have the following information: 1. Series (3x1, 6x1 ,etc) 2. Purchase or Sale 3. Number of contracts with MXN$100,000.00 (one hundred thousand pesos) notional 4. Counterparty 5. Fixed Rate (at original rate or market rate) 6. Client’s Account in the Clearing Partner 7. Reference (optional up to 5 characters) 8. Number of periodical settlements 9. Cut-off date of the current coupon 10. Cut-off date of the last coupon

The report must be made separately for each counterparty through the operators or on behalf of Third Parties in case they are Clients

Report to MexDer Operators and the clearing partner a business day in advance and before 4:30 pm. It is done via Block Transaction

If the Block Transaction is carried out one day in advance, it does not require to comply with the number of bids for its registration.

Preexisting transactions would be

exempt of collection from MexDer and

Asigna until December 31, provided

they are reported one business day in

advance.

Clearing and Settlement of Swap Contracts in ASIGNA.

AMILCAR ELORZA Y ALEGRIA

Operations Director at Asigna

Clearing and Settlement of Swap Contracts

The clearing and settlement of TIIE swap contracts at 28

days in Asigna, comprises several activities:

Novation.

Registry.

Compensation.

Collateralization.

Marginalization.

Valuation.

Settlement.

Novation: Broker’s Operational Flow

1. Bank A requests quotation for a

Swap from the Broker.

2. Bank B agrees on the Swap with

Bank A through the Broker.

3. The Broker sends the transaction to

Asigna for its novation, clearing

and settlement.

4. After validating the accounts and

the transaction is within the

operational and exposure caps,

imposed by the Clearing Partner

(SL) to the Bank, and by Asigna to

the SL, the latter accepts and

novates the swap transaction.

5. Asigna sends notice of receipt and

novation of the swap to the Broker

and to the SLs.

6. The Broker notifies the novation of

the swap to its clients.

Bank A Bank B

Broker

Clearing House

Operation Account Operat. Cap

Clearing Partner (Bank A)

Clearing Partner (Bank B)

1 2

4 5 5

3 5

6 6

Novation: MexDer Operational Flow

1. The transaction goes through a

pre-transactional risk control

established by the Clearing

Partners (SLs) outside the

operational flow.

2. Operator A displays a purchase or

sale order in MexDer’s negotiation

system. Operator B closes the

operation.

3. MexDer sends confirmation of the

transactions to the Operators, and

simultaneously sends it to the SLs.

4. SLs receive and send to MexDer

the transaction’s acceptance.

5. MexDer sends the transaction to

Asigna.

6. Asigna confirms receipt and

automatic novation to MexDer.

Operator A Operator B

MexDer

Clearing House

Operation Operator ID Accounts

Clearing Partner (Operator A)

Clearing Partner (Operator B)

2

3 3

5

2

4 4

3 3

6

Each Swap will have a Unique Identifier comprised by the

transaction date and a number (folio) issued by Asigna.

USI = Date (AAMMDD) + Folio # (999999)

The USI will always be linked to the position generated by

the transaction.

Additionally, the place where the transaction was made

will be identified with an alphanumeric code. (Ex. MexDer

1, Broker 2, …, Foreign platform 9).

Registration

Contract to be Settled

• Notional Value : Multiples of MXN$100,000.00

• Tenor: Number of Coupons. Ex. 3x1, 13x1, 26x1,…130x1…

• Quotation Unit: The fixed nominal interest rate, stated in percentage with up to 4 decimal points.

• Effective Date: Business day immediately after the date of agreement.

• Reset Date: Bank business day immediately preceding the coupon’s Settlement Date.

• Payment Date: Day when the money flow resulting from the difference between Fixed Rate vs. Variable Rate on the notional value is paid.

• Payment Frequency: Each 28 consecutive days counted form the Effective Date. If any of those is a non-business day, the Payment Day will be moved to the next business day. (Payment Schedules).

• Maturity Date: Day in which the last coupon is cleared.

• Day Count Convention: Act/360.

The registration process of the negotiation generates…

Short Position for the “Buyer”.

Long Position for the “Seller”.

…according to the OTC practice, regarding the swaps

agreement.

• Long Position = “Receiver of Fixed Rate”.

Cashes coupons at fixed rate and pays at variable rate.

• Short Position = “Payer of Fixed Rate”.

Pays coupons at fixed rate and cashes at variable rate.

Registration

Clearing

All transactions are registered and remain open.

Operations do not get settled among themselves.

There is no positions netting.

Clearing in the margin requirement, opposed positions

which mitigate exposure to risk are acknowledged.

Clearing (netting) in the settlement of the variation margin

as well as the settlement of coupons.

An unwind transaction, eliminates the swap position for

both counterparties.

A substitution (assignment) transaction, cancels the

swap position for the part being substituted. For the

substitute, it creates the swap position with the

characteristics of the original swap, including the USI.

Periodically, or upon express request, Asigna will call the

involved parties to compress swap portfolios, to that end

a critical mass must exist.

Asigna began talks with TriOptima to set up a relation

which allows it to render this service.

Clearing

Collateralization

The Initial Margin required may be covered in cash securities and USD in cash

Collaterals must be submitted to the Clearing House before it requires the

Initial Margin.

INSTRUMENT SECURITY TYPE DISCOUNT

Shares* 1 20.00%

Brems XA 0.80%

BPAG91 IQ 1.50%

Bonde182 LS 1.50%

Bondes D LD 1.50%

BPAG28 IM 1.00%

Taxed Cetes BI 0.50%

BPA´s 182 IS 1.50%

T-Bills D4SP 6.50%

Dollar *CSP 6.50%

Naftrac 1 10.00%

DISCOUNTS APPLICABLE TO FEDERAL GOVERNMENT DEVELOPMENT

BONDS AT FIXED RATE, DENOMINATED “M”, FOR ALL THEIR TERMS INSTRUMENT SECURITY TYPE TERM DISCOUNT

Bond M P ≤ 1 year 1.00%

Bond M 1 < P ≤ 5 years 2.50%

Bond M 5 < P ≤ 10 years 5.00%

Bond M 10 < P ≤ 15 years 7.00%

Bond M 15 < P ≤ 20 years 8.00%

Bond M P > 20 years 8.00%

DISCOUNTS APPLICABLE TO TREASURY BONDS ISSUED BY THE FEDERAL

GOVERNMENT OF THE UNITED MEXICAN STATES, FOR ALL THEIR TERMS

INSTRUMENT SECURITY TYPE TERM DISCOUNT

T-Note & T-Bond D5SP & D6SP P ≤ 1 year 6.50%

T-Note & T-Bond D5SP & D6SP 1 < P ≤ 5 years 8.00%

T-Note & T-Bond D5SP & D6SP 5 < P ≤ 10 years 10.00%

T-Note & T-Bond D5SP & D6SP 10 < P ≤ 15 years 12.00%

T-Note & T-Bond D5SP & D6SP 15 < P ≤ 20 years 13.00%

T-Note & T-Bond D5SP & D6SP P > 20 years 13.00%

DISCOUNTS APPLICABLE TO DEVELOPMENT BONDS ISSUED

BY THE FEDERAL GOVERNMENT OF THE UNITED MEXICAN

STATES DENOMINATED IN INVESTMENT UNITS (UDIBONOS)

INSTRUMENT TERM DISCOUNT

UDIBONOS P ≤ 1 year 1.00%

UDIBONOS 1 < P ≤ 5 years 2.50%

UDIBONOS 5 < P ≤ 15 years 7.00%

Initial Margin. Is required in T+1 from both counterparties

of the swap transaction. If there are opposing positions,

Asigna acknowledges the reduction of the exposure,

since the risk is partially offset, so it requires a lower

Initial Margin.

Variation Margin. Asigna determines the current net value

of the swap and compares it against the one from the

immediately preceding business day, the resulting

difference, whether positive or negative, is covered by

one counterparty to the other through Asigna.

Marginalization

Initial Margin (Minimal Initial Contribution)

SWAPS PRODUCT

GROUP VME INDIVIDUAL OPPOSED DELIVERY

3X1 RTE (0.60) 0.00041 41 16 ***

6X1 RTE (0.60) 0.00099 99 16 ***

9X1 RTE (0.60) 0.00116 116 16 ***

13X1 RTE (0.60) 0.00227 227 16 ***

26X1 RTE (0.60) 0.00536 536 16 ***

39X1 RTE (0.60) 0.00745 745 16 ***

52X1 RTE (0.60) 0.01207 1,207.00 16.00 ***

65X1 RTE (0.60) 0.01523 1,523.00 16.00 ***

91X1 RTE (0.60) 0.02246 2,246.00 16.00 ***

130X1 RTE (0.60) 0.0287 2,870.00 16.00 ***

195X1 RTE (0.60) 0.037 3,700.00 16.00 ***

260X1 RTE (0.60) 0.043 4,300.00 16.00 ***

390X1 RTE (0.60) 0.0485 4,850.00 16.00 ***

*** Not applicable

Valuation

• Meetings were held with the Chicago Mercantile Exchange (CME) to know the methodology they use for swaps valuation, concluding with the following items:

• Since the coupons in MXN are a contractual obligation of the swap, a curve must be built which allows to forecast the cash flows (Future coupon payments) for the Floating side of the swap.

• Also, since there is no secondary market of Overnight Index Swap (OIS) in MXN, to discount said cash flows, a bank Funding Curve in MXN is required in MXN equal to the Bank Funding Curve in USD.

• That is why the OIS curves and the TIIE28 forward are built in MXN, which are shared with Asigna in order to have the same valuation.

The daily settlement, which is a sole flow to settle in T+1

includes:

Initial Margin which acknowledges the passing of time and

opposing positions.

Variation Margin resulting from the swap’s valuation

(Mark-to-Market).

The Variation Margin is adjusted through Price Alignment

Interest (PAI).

Daily payment of interests by Initial Margin covered in

cash.

Settlement (Mark-to-Market)

The variable rate applied to each coupon is the one published

by the Bank of Mexico on the day of the swap’s agreement.

For the following coupons, the one published by Banxico the

business day immediately preceding the settlement of the

effective coupon. (Reset Date).

The day prior to the settlement date, the amount of the coupon

payments is calculated, and the settlement takes place in T+1

as an additional concept of the daily Settlement.

These, as all other concepts of the settlement, are

compensated (netted) by Asigna, to generate a single positive

or negative cash flow.

Settlement (Coupons)

The requirement to receive preexisting swap transactions

(Backloading) in Asigna is for the original characteristics to be

registered when the transaction was agreed upon, such as:

Notional Value of the original swap.

Number of coupons agreed upon in the transaction.

Fixed rate agreed upon contracting.

Date of agreement.

Effective date.

Expiration date.

Settlement of accrued coupons, observing the total number of

days it has accrued, as well as the TIIE rate set for it at the cut-

off date of the previous coupon. (Full coupon payment).

Settlement (Preexisting Swaps)

Swap Contracts Clearing and Settlement in ASIGNA.

FABIOLA PEREZDUARTE DE LA CUEVA

Risks Sub-Director, Asigna

Daily Swaps Loss and Profit

1. Calcular los flujos del Swap.

i. Para la pata fija, traer a valor presente con la Curva OISTIIE

𝑉𝑃𝐹𝑡 =𝑇𝑓 ∗ 28/36000

1 + 𝑂𝐼𝑆𝑇𝐼𝐼𝐸𝑡 ∗ 𝑡/36000

i. Para la pata variable, calcular las tasas forward con la curva

IRSTIIEPR y traer a Valor Presente con la curva OISTIIE.

𝑉𝑃𝑉𝑡 =𝑓𝑤𝑑𝑡

1 + 𝑂𝐼𝑆𝑇𝐼𝐼𝐸𝑡 ∗ 𝑡/36000

donde,

𝑓𝑤𝑑𝑡 =1 + 𝐼𝑅𝑆𝑇𝐼𝐼𝐸𝑃𝑅𝑡 ∗ 𝑡/36000

1 + 𝐼𝑅𝑆𝑇𝐼𝐼𝐸𝑃𝑅𝑡−28 ∗ (𝑡 − 28)/36000− 1

Calculate the Swap flows

For the fixed leg, bring to present value with the OISTIIE Curve

For the variable leg, calculate the forward rates with the IRSTIIEPR

and bring to Present Value with the OISTIIE Curve

where,

Daily Swaps Loss and Profit

2. Determinar la pérdida o ganancia del Swap.

Pérdida y Ganancia Pata Variable

𝑽𝑷𝑺𝑽= 100,000 ∗ 𝑉𝑃𝐹𝑡 − 𝑉𝑃𝑉𝑡

𝑛

𝑡=1

Pérdida y Ganancia Pata Fija

𝑽𝑷𝑺𝑭 = 100,000 ∗ 𝑉𝑃𝑉𝑡 − 𝑉𝑃𝐹𝑡

𝑛

𝑡=1

Determining the Swap loss or profit

Variable Leg Loss and Profit

Fixed Leg Loss and Profit

Marginalization of Exchange Contracts

The marginalization model for the Swaps uses the maximum expected

variation (VME) of each node, calculating losses and profits with a

determined level of reliability and at a given temporary horizon (number

of day to close the position):

VME: Conditional VaR at 1% and 99%, taking the maximum from the two

observations.

Time horizon: 5 days

Curves: IRSTIIEPR (project flows), OISTIIE (flows at present value)

Contract Size: $100,000.00

Minimum Initial Contribution (AIM)

AIM IndividualNODE= VME * Contract Size =VMENode*100,000

• Opposed AIM = 2 * Parameter Opposed AIM

OTC SWAPS Marginalization

Parameters of Representative Nodes

Source: www.asigna.com.mx

Swaps VMEAIM

Individual

3X1 0.00041 41

6X1 0.00099 99

9X1 0.00116 116

13X1 0.00227 227

26X1 0.00536 536

39X1 0.00745 745

52X1 0.01207 1207

65X1 0.01523 1523

91X1 0.02246 2246

130X1 0.02870 2870

195X1 0.03700 3700

260X1 0.04300 4300

390X1 0.04850 4850

Nodos representativosIndividual

AIM

Representative nodes AIM Opuesta 16Opposing AIM

Marginalization of exchange contracts N

eg

oti

ati

on

Scenarios,

Prod. Grp.

*Regarding a debit, apply factor of Product Group= 0.6

7,404,260 Max(U5,D5)

0.6Grupo ProductoProduct Group

Larga Corta Riesgo Opuesta

U5 Swaps 7,420,600 16,340- 7,404,260

D5* Swaps 7,420,600- 16,340 4,442,556- 320

Long Short Risk Opposed

7,404,580$ AIMT=Max(U5,D5)+OpuestaOpposed

Clase Clase Real Larga Corta AIM Larga AIM Corta AIM Riegso

130X1 69X1 10 - 16,340 1,634

130X1 74X1 4,000 7,092,000 - 1,773

130X1 88X1 100 216,300 - 2,163

130X1 91X1 50.00 112,300 - 2,246

Long Short Long AIM Short AIM Risk AIM Class Real Class

Marginalization Exchange Contracts + Future on

TIIE28 N

eg

oti

ati

on

S

cen

ari

os

Prod. Grp.

*Regarding a debit, apply factor of Product Group= 0.6

4,709,820 Max(U5,D5)

Larga Corta Riesgo Opuesta

U5* TE28 116,400 1,200- 115,200

D5 TE28 116,400- 1,200 69,120- 1,440

TIIE28 Long Short Risk Opposed

Larga Corta Riesgo Opuesta

U5 Swaps 177,300 4,956,240- 2,867,364-

D5* Swaps 177,300- 4,956,240 4,778,940 3,200

Swaps Long Short Risk Opposed

Riesgo Opuesta

U5 S 2,752,164-

D5 S 4,709,820 4,640

Risk Opposed

4,714,460$ AIMT=Max(U5,D5)+OpuestaOpposed

Beneficio 184,320$ Benefit Sin Gpo Prod. 4,898,780$ w/o Prod. Grp.

Clase Clase Real Serie Larga Corta AIM Larga AIM Corta AIM Riegso

TE28 AB16 30 - 3,600 - 120

TE28 EN16 40 - 4,800 - 120

TE28 FB16 900 - 108,000 - 120

TE28 DC15 - 10 - 1,200 120

130X1 69X1 - 60 - 98,040 1,634

130X1 74X1 100 - 177,300 - 1,773

130X1 88X1 - 1,000 - 2,163,000 2,163

130X1 91X1 - 1,200 - 2,695,200 2,246

Long Short Long AIM Short AIM Risk AIM Real Class Class

Intraday settlements

Intraday settlements will be made periodically with the purpose of

eliminating the counterparty risk.

Asigna being the AAA Counterparty, the credit risk is mitigated and

the use of lines of credit is substituted for margins with the possibility

of using collateral instead of cash.

The credit quality of the counterparty (Asigna) is maintained

throughout the life of the contract

Market

Opening

Intraday

Settlement

Intraday

Settlement

Intraday

Settlement Intraday

Settlement

Market

Closing

Intraday

Settlement

Backloading Process

The Backloading process will allow the input of transactions

previously agreed upon and with accrued coupons.

In the determination of requirements, the compensation

between positions of long and short contracts belonging to the

same Product Group will be taken into consideration.

The Clearing Partners notify Asigna

the position they intend to input

through the process of Backloading

a previous day.

1 Asigna estimates the contributions requirement

and reports it to each Clearing Partner,

considering what is notified as Backloading and

the existing positions to include the

compensation benefit per product group.

2

Each Clearing Partner notifies its

clients, to foresee the intraday

requirements

3

Fiscal Treatment

JORGE CORREA

Creel, Garcia-Cuellar, Aiza y Enriquez

Understanding that the Accrued Variation Margin

constitutes a credit, the PAI would be a yield

derived from such credit and, as a result, it

should be treated as interest.

Fiscal Situation - Price Alignment Interest

(PAI)

Fiscal Situation

Income Tax (ISR)

Income Type of

fiscal revenue

Residents in Mexico Residents abroad Non-Lucrative Legal Person

Legal Person Person Basis Natural and Legal

Person Basis Exempt and Non-Exempt Basis

PAI Interest

Taxable income:

Actual interest

(earned).

Deduction:

Non deductible.

Withholding:

From the clearing

partner or global

accounts manager,

at a rate of 0.60%

on capital.

Taxable income:

Nominal interest

(accrued).

Deduction: As per

LISR requirements.

Withholding: From

the clearing partner

or global accounts

manager, at a rate

of 0.60% on capital.

Annual

adjustment for

inflation: Valuation

Margin must be

considered for the

calculation of the

annual adjustment,

accruing it or

deducting it, as the

case may be

Articles 18, 25,

27, 28, 44, 45,

54 and 134 of

the Law on

Income Tax

(ISR).

Article 21 of the

Federal

Revenue Act

(LIF).

Rule 3.5.3. of

the Fiscal

Miscellaneous

Resolution

(RMF) for 2015.

Taxable income:

Interest.

Deduction: Does

not apply

Withholding: From

the clearing partner

or global accounts

manager, applying

a rate of 4.9% and

up to 40% under

the LISR or, as the

case may be, under

the appropriate

treaty.

Articles 153, 166

and 171 of the Law

on Income Tax

(ISR).

Exempt:

* SIEFORES

* Authorized donees

* Debt investment or

variable income funds

* Public interest entity

Withholding: To non-

exempt non-lucrative legal

persons, from the clearing

partner or global accounts

manager, at a rate of 0.60%

on capital.

Distributable remnant:

Non-deductible

expenditures (interests) of

authorized donees or debt

investment or variable

income funds may be

computed to calculate the

distributable remnant.

Articles 79, 81

and 86

and171 of the

Law on

Income Tax

(ISR).

The payment for PAI would be subject to IVA at a

rate of 16%. Nonetheless, if the payee or the

payer of the PAI is a certain institution from the

financial system, such payment would be

exempt.

Fiscal Situation

Value Added Tax (IVA)

There are certain items which are still not regulated

and which, as a result, have been discussed with

the fiscal authorities, such as:

IVA Exemption.

Transparency of clearing houses and clearing

partners.

Withholding rate for residents abroad.

Calculation of the annual adjustment for inflation.

Fiscal Situation – Items to be regulated

Q & A

November, 2015.

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