MEXICO Trends and Developments Contributed by: Pablo Perezalonso Eguía, Isabel Ortiz-Monasterio Borbolla and Alejandro Mosqueda Pérez, Ritch, Mueller y Nicolau, S.C.
New Repurchase Agreement (“Repo”) Regulations in Mexico: An Opportunity to Develop the Local Market Introduction On 16 May 2024, Banco de México, Mexico’s Central Bank, issued Circular 7/2024 that amended the rules governing repo transactions entered by Mexican financial institutions in Mex - ico (the Reglas a Las Que Deberán Sujetarse Las Instituciones de CréditoCasas de BolsaSo- ciedades de Inversión, Sociedades de Inversión Especializadas de Fondos para el Retiro y la Financiera Rural en sus Operaciones de Repor- to the “ Reporto Regulations ”). This amendment, aimed at modernising Mexico’s repo regula - tions (known locally as reportos ), aligns them with international standards in order to address the evolving needs of the local market. The pur - pose of these modifications was to foster the local market for repo trough eliminating certain legal barriers that existed, which the authors will explain in detail in this article. Many market participants welcomed these changes, viewing them as a step toward bring - ing Mexico’s repo market closer to international practice. According to these participants and Banco de México, almost all repo transactions currently entered in Mexico are intraday, primar - ily for liquidity purposes. As a result, repos aimed at speculation, credit, or risk management are seldom seen in the country. However, this contrasts with other data from Banco de México, indicating that government repos – both in the primary market (between other banks and Banco de México) and the secondary market (between banks and other financial entities) – are significant. Mexico is also the second-largest emerging market economy for daily repo transactions, just behind Brazil. This suggests a strong demand for repo activity
in Mexico, yet many of these transactions are executed outside the country. A widely accepted reason for Mexico’s repo mar - ket remaining primarily intra-day and conducted offshore is legal restrictions. Despite these limi - tations, both regulators and market participants have taken gradual steps to promote the Mexi - can repo market, with Circular 7/2024 being the latest action. The purpose of this article is to examine: • the regulatory framework and recent modifi - cations to Mexico’s repo market; • the actions taken by both industry bodies and regulators, including Circular 7/2024 and changes to the local repo master agreement; • the challenges in aligning local practices with international agreements like the Global Mas - ter Repurchase Agreement (GMRA); and • the new repo regulations in the context of Mexico’s recent judicial reforms, which may encourage lenders to explore alternative col - lateral enforcement strategies and increase the role of repos as a collateral tool. Repo in Mexico (reportos) Repo transactions were first introduced into Mexican law in 1932 through the Ley General de Títulos y Operaciones de Crédito (the “Nego - tiable Instruments Law”). Initially, repos were designed primarily for liquidity management, with a maximum term of 45 days. This restriction was later lifted for financial entities and, more recently, for large corporations. The elimination of this restriction is a clear example of the dif - ficulties that repo transactions have encountered in Mexico to be consolidated as a real option for secured financing, not only for liquidity pur - poses. Initially repos where only governed by the Negotiable Instruments Law, however, in
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