MEXICO Trends and Developments Contributed by: Pablo Perezalonso Eguía, Isabel Ortiz-Monasterio Borbolla and Alejandro Mosqueda Pérez, Ritch, Mueller y Nicolau, S.C.
• confirm instructions from counterparties; • take custody of securities and collateral in segregated accounts; • transfer securities and collateral as instructed by the parties; • calculate the market value of securities and collateral; • determine collateral requirements; • facilitate the substitution of securities; • conduct bilateral netting of obligations; • settle repos; and • manage default procedures. However, tri-party agents are prohibited from negotiating repo agreements, securing obliga - tions, covering any failure to comply with agree - ments, or providing credit or financing to the parties involved in the repo. d. New counterparties The new regulations now mandate that Mexi - can state-owned companies such as Petróleos Mexicanos (Pemex) and the Comisión Federal de Electricidad (CFE) must use the Local Repor - to Master Agreement and exchange collateral in their repo transactions. Additionally, non-financial entities with a certain minimum credit rating are also required to use the Local Reporto Master Agreement. e. New types of repos Circular 7/2024 introduces new types of repo transactions that can be conducted in Mexico. i. Open repo This type of repo has no fixed termination date, and either party can terminate it on any banking business day with prior notice. Open repos must
be settled by delivery of securities against pay - ment within 365 days of the agreement. Cash and securities are exchanged only twice – once at the start and once at termination. ii. Evergreen repo An evergreen repo also lacks a fixed termination date and can be extended automatically, main - taining the same term as originally agreed. Either party can notify the other of their intention to terminate or extend the repo. In evergreen repos, the exchange of cash and securities occurs only at the start and termination, with no transfer Circular 7/2024 sets forth that repos with a deliv - ery date more than four banking business days after the agreement has been entered into will now be classified as derivatives and will require special authorisation from Banco de México. Comparative analysis: Mexican repos vs international standards and industry actions to align with the GMRA In both the US and Europe, repo transactions are largely governed by master agreements like the GMRA. While the GMRA and Mexico’s Local Reporto Master Agreement share some similari - ties, they also have key differences. (a) Similarities between the GMRA and the Local Reporto Master Agreement required upon extension. f. Forward starting repo (i) Regulatory authorisations: Both agreements are authorised by Banco de México for use by financial entities. However, as noted, Mexi - can banks must use the Local Reporto Mas - ter Agreement when transacting with Mexican counterparties, while the GMRA is permitted for
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