MEXICO Trends and Developments Contributed by: Pablo Perezalonso Eguía, Isabel Ortiz-Monasterio Borbolla and Alejandro Mosqueda Pérez, Ritch, Mueller y Nicolau, S.C.
institutions or institutional investors. However, Mexican financial institutions may also use inter - national agreements such as the GMRA when transacting with foreign financial institutions. For transactions with individuals or other counter - parties not covered by the Reporto Regulations, any mutually agreed master agreement can be used. Historically, Mexican repos differed from inter - national standards, which led banks to conduct repo transactions through their foreign branches, bypassing the Local Reporto Master Agreement. Some of the limitations included: • the inability to substitute collateral; • the lack of authorisation for open repos; • restricted counterparties; • limitations on the term and maturity of repor - tos based on the underlying securities; and • the inability to use a tri-party agent. These restrictions were addressed in Circular 7/2024. Banco de México modifications Through Circular 7/2024, Banco de México intro - duced several key changes to the Reporto Reg - ulations. These changes were largely expected and are intended to assist market participants in trying to enter into transactions as closely as possible to international standards but using the Local Reporto Master Agreement instead. This should translate into developing the local repo market due to the fact that agreements will be entered in Mexico and local participants such as custodians, teams based in Mexico, and third- party service providers such as lawyers will now be more in demand than before. a. Substitution and delivery against payment
Mexican financial entities are now permitted to substitute securities during the lifespan of a repo transaction. The repo agreements must specify at least: • how and under what terms the Seller can request a substitution of the securities, and the conditions under which the Buyer will accept it; • the process for simultaneously exchanging the old and new securities between the Seller and Buyer; and • the characteristics of the securities eligible for substitution. Furthermore, the obligation for the Seller to transfer securities against payment by the Buyer is now explicitly required. b. Termination The term of a repo, including any extensions, must end at least one banking business day before the maturity of the underlying securities. However, the agreement may allow for securities with a maturity date shorter than the repo’s term, provided the securities are substituted using the process outlined in section “a.”, at least one banking business day prior to the securities’ maturity. c. Tri-party agency The Reporto Regulations now allow the use of tri-party agents or custodians for repo securi - ties, limited to Mexican banks or foreign financial institutions from recognised markets (eg, Inter - national Organization of Securities Commissions (IOSCO) or EU member states). Tri-party agents are authorised to: • process repos after execution by the parties;
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