Terms and conditions for the 28 - Day Interbank Equilibrium Interest Rate (TIIE) Futures Contract (Cash Settlement)

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Christopher Booth
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1 The Eglish versio of the Terms ad Coditios for Futures Cotracts is published for iformatio purposes oly ad does ot costitute legal advice. However, i case of ay Iterpretatio cotroversy, the Spaish versio shall prevail. Terms ad coditios for the 28 - Day Iterbak Equilibrium Iterest Rate () Futures Cotract (Cash Settlemet) I. PURPOSE 1. Uderlyig Asset. 28-day deposits that produce yield at the 28-Day Iterbak Equilibrium Iterest Rate (hereiafter ), calculated by Baco de México based o quotatios submitted by full-service baks usig a mechaism desiged to reflect coditios i the Mexica Peso Moey Market. The procedure for calculatig the rate is established i Memoradum 2019/95 issued by Baco de México. 2. Face Value of a Futures Cotract. Each 28-Day Futures Cotract covers a face value of MXN$100, (Oe Hudred Thousad Mexica Pesos 00/100). 3. Cotract Listigs or Series. Uder the terms of their respective Iteral Regulatios, MexDer ad Asiga will list ad make available for tradig differet Series of the 28-Day Futures Cotracts o a mothly basis for up to te years. If the market demads availability of 28-Day Futures Cotracts with Maturity Dates differet from those metioed i the first paragraph of this poit (I.3), MexDer may list ew Series for tradig. II. TRADING MECHANISM 1. Ticker Symbol or Code The differet Series of Futures Cotracts will be idetified with a Ticker symbol or code, which will cosist of the expressio TE28, followed by the first letter ad the followig cosoat of the maturity moth ad the last two digits of the maturity year, as show i the followig example:

2 Futures Cotract Ticker Symbol or Code TE28 NV15 TE28 DC15 TE28 EN16 TE28 NV17 Uderlyig Asset Code Maturity Moth Maturity Year NV = November DC = December EN = Jauary NV = November 07 = = = = Quotatio Uit Tradig of 28-Day Futures Cotracts i MexDer will use as quotatio uit the Future Rate of the aualized yield, expressed i percetage poits, with two decimal places. 3. Miimum Future Rate Fluctuatio (Tick) Submittal of quotes for 28-Day Futures Cotracts executio will have as the miimum Future Rate fluctuatio, a value of oe basis poit (0.01) of the aualized percetile rate of yield metioed i poit (II.1) above. 4. Futures Cotract Tick Value The value of a 28-Day Futures Cotract tick is computed as the chage i the price of the 28- Day Futures Cotract. Where: Vp = P 2 -P 1 Vp = Value of the tick, rouded to 2 decimals. Variable i fuctio of the aual rate of yield egotiated i MexDer. P 2 y P 1 are the prices correspodig to rates with a iterval of oe basis poit. Prices are calculated by meas of the followig formula: P 1 VN r FT Where, VN = Face Value of the 28-Day Futures Cotract MX$100, r = aual rate of yield egotiated i MexDer, i percetile otatio with 2 decimal places. FT = Time Factor obtaied with 28/36000, to express the rate i percetile terms, trucated to eight decimal places = The result of r x FT is trucated to eight decimal places. P = Price of the 28-Day Future Cotract, rouded to 2 decimal places. 5. Meas for Tradig 28-Day Futures Cotracts will be traded by meas of olie procedures usig MexDer s Olie Tradig System, i accordace with the stadards ad procedures established i MexDer s Regulatios, without detrimet to MexDer s right to establish a differet mechaism. 2

3 Baks ad brokerage firms that trade as Market Makers or uder terms ad coditios of liquidity may request telephoe tradig services which will allow them to place direct orders to MexDer s operatios persoel area, to submit, withdraw, modify, ad execute a quote. III. CHARACTERISTICS AND TRADING PROCEDURES 1. Maximum Daily Future Rate Fluctuatio There will be o maximum fluctuatio i the Future Rate durig a sigle auctio sessio. 2. Tradig Hours Tradig hours for the 28-Day Futures Cotract will be Bak Busiess Days from 7:30 to 14:00 hours, Mexico City time. Also, tradig hours will be uderstood to iclude the period for tradig at Daily Settlemet Price ad auctios coveed by MexDer i accordace with provisios of poit (IV.3.d) herei. The above metioed otwithstadig MexDer s rights to establish differet tradig hours, which will shall be published i the Bulleti for at least three Busiess Days prior to the date they take effect. 3. Tradig Hours at Daily Settlemet Price MexDer will calculate the Daily Settlemet Price at the close of each tradig sessio. Clearig Members ad MexDer Traders will be allowed to trade 28-Day Futures Cotracts at this price, by submittig Firm Bids or Offers. The hours whe MexDer will receive Firm Bids or Offers for tradig at Daily Settlemet Price will be 14:25 to 14:35 hours. The above metioed otwithstadig MexDer s rights to establish differet tradig hours, which will shall be published i the Bulleti for at least three Busiess Days prior to the date they take effect. 4. Last Tradig Day ad the Maturity Date for the Series The last tradig day ad the Maturity Date for each Series of 28-Day Futures Cotracts will be the Bak Busiess Day after Baco de México holds the primary auctio of govermet securities i the week correspodig to the third Wedesday of the Maturity Moth. 5. Tradig New Series Tradig of Series with maturities differet from those established i poit (I.3) above, or a ew Series i the cycle of Futures Cotracts will begi the ext Bak Busiess Day after its publicatio i the (Derivatives Market Idicators) Bulleti. 6. Settlemet Date o Maturity For purposes of dischargig obligatios assumed by Asiga ad the Clearig Members with their Cliets, will be the Bak Busiess Day after the Maturity Date. IV. Daily Settlemet ad Settlemet at Maturity 1. Settlemet at Maturity Procedure. Cliets will carry out the Settlemet at Maturity subject to the procedures ad terms applicable for the Daily Settlemet at the maturity Date. 3

4 2. Daily Settlemet Cliets ad Clearig Members will carry out the Daily Settlemet of their obligatios derived from trades executed i MexDer as established i the Brokerage Agreemet. Clearig Members ad Asiga will carry out the daily settlemet of their obligatios i accordace with Asiga s Iteral Regulatios, icludig i such daily settlemets all profit ad loss, restatemet of Margis, restatemet of the Compesatio Fud, accrued iterest, ad, if applicable, the correspodig fees. 3. Computatio of the Daily Settlemet Rate At the ed of a tradig sessio, MexDer will calculate Daily Settlemet Rates for each Series i accordace with the followig order of priority ad methodology: a) The Daily Settlemet Rate, the first istace will be the weighed average of the rates agreed upo i Futures Cotracts trades executed i the last five miutes of the tradig sessio by Series ad adjusted to the earest tick, i accordace with the followig formula: Where: PL t i 1 i 1 PiVi Vi PL t = Settlemet Rate for 28-day Futures Cotracts o day t, rouded to the earest tick. = umber of trades executed i the last five miutes of auctioig. Pi = Rate egotiated for the i th trade. Vi = Volume traded i the i th trade. b) If o trades were executed durig the period established i poit (3.a) above, the Daily Settlemet Rate for each period will be the volume weighted average of the Firm Bids or Offers at the ed of the tradig sessio, applyig the followig formula: Where: PL t PcVv Vc PvVc Vv PL t = Settlemet Rate for 28-day Futures Cotracts o day t, rouded to the earest tick. P C = Rate of the lowest firm bid quote(s) at closig. P V = Rate of the highest firm offer quote(s) at closig. V C = Volume of the lowest firm bid quote(s) at closig. V V = Volume of the highest firm offer quote(s) at closig. c) If, at the close of the sessio, there is ot at least oe bid quote ad oe offer quote for a Futures Cotract with the same Maturity Date, the Daily Settlemet Rate will be the Future Rate agreed upo i the last trade executed durig the auctio sessio. d) If, durig the auctio sessio, o trades were executed for a give Futures Cotract Maturity Date, ad there is ope iterest for this particular Series or Egrapado (Stapled trade), the Daily Settlemet Rate will be that resultig from the auctio summoed by MexDer i the terms of its Iteral Regulatios. e) If, i the auctio metioed i poit (3.d) above, the lowest bid quote is higher tha the highest offer quote, the Daily Settlemet Rate will be the volume weighted average of the Firm Bids or Offers at the ed of the tradig sessio, applyig the formula show i poit (3.b) above. 4

5 If o firm bid ad offer quotes were received for the auctio metioed i poit (3.d) above, the Daily Settlemet Rate will be the rate derived from the methodology published by MexDer i its Bulleti. MexDer will make use of the previous poits (3.a), (3.b), (3.c) ad (3.d) takig ito cosideratio oly stapled trasactios for those Series i which trasactios are made frequetly through that form to arrage operatios. MexDer shall otify at least five days before the metioed procedure take effect, the Series from which the Daily Settlemet Rate will be set takig ito cosideratio stapled trasactios oly ad the methodology to be used to determie the grade of the curve resultig from the fulfillmet of poits (3.a), (3.b), (3.c) ad (3.d). Notwithstadig what s idicated i the last two paragraphs ad the provisios of poits (3.a), (3.b), (3.c) ad (3.d), if more tha oe third of the Market Makers ad brokerage firms ad baks operatig uder Liquidity Terms ad Coditios cosider that the Settlemet Rate fails to reflect the price prevailig at the close of the sessio, they may request that the exchage, which will rule o whether the request is fouded or ot, summo for a auctio to determie the Settlemet Rate. If the request is admitted, the exchage will summo a extraordiary auctio to determie the Settlemet Rate, i which the participats will observe the stadards established i MexDer s Iteral Regulatios. 4. Settlemet Rate at Maturity The Settlemet Rate at Maturity for the 28-Day Futures Cotract will be calculated i the followig order ad methodology: a) The Settlemet Rate at Maturity will be equal to the 28-Day Iterbak Equilibrium Iterest Rate issued by Baco de México as a result of the auctio held o the Cotract s last tradig day. b) If Baxico fails to publish the 28-Day Iterbak Equilibrium Iterest Rate for the Maturity Date, MexDer will calculate the Settlemet Rate at Maturity i accordace with the methodology used to calculate the Daily Settlemet Rate established i poits (3.a), (3.b), (3.c) ad (3.d), followig the aforemetioed order of priority. V. Positio Limits i 28-Day Futures Cotracts 1. Positio Limits for short or log positios ad for crossed positios. The Positio Limits established for the 28-Day Futures Cotract are the maximum umber of Ope Cotracts i the same class oe Cliet may hold. Positio Limits will be established by the Clearig House ad will be aouced i the (Derivatives Market Idicators) Bulleti. 2. Positio Limits for Hedgig Positios. Cliets may ope Log Positios ad Short Positios that exceed the Positio Limits established i poit IV.1 above solely for the purpose of creatig a hedgig positio. It will be the Clearig Member s resposibility to verify the existece of the coditios ecessary to carry out these trades ad provig the existece of Positios eligible for hedgig to the Clearig House o its Cliets behalf, o later tha the Bak Busiess Day after the Positio Limits are exceeded, followig the procedures established i the Operatig Maual. I accordace with the Iteral Regulatios, hedgig positio will be uderstood as the Short Positio or Log Positio a Cliet maitais i the Clearig House, which helps cover risks i a Cliet s positio i other markets differet from the exchage ad the Clearig House, i Uderlyig 5

6 Assets or securities of the same type as the Uderlyig Asset or i other kids of assets o which it is takig the hedgig positio. The Clearig House will, at its discretio, approve or dey a Cliet s request to maitai a hedgig positio, ad i case of rejectio the Clearig Member must assure that its Cliet closes the umber of Cotracts ecessary to comply with the Positio Limits established i poit IV.1 above, i the uderstadig that failure to close those Cotracts that exceed the Positio Limit will be grouds for sactios uder the terms of the Clearig House s Iteral Regulatios. VI. Extraordiary Evets 1. Fortuitous Evet or Causes of Force Majeure. Whe, due to a fortuitous evet or causes of force majeure, it becomes impossible to cotiue 28- Day tradig, MexDer ad Asiga may susped or cacel tradig, clearig, ad settlemet of Futures Cotracts, respectively, ad will be authorized, i terms of their respective Iteral Regulatios, to determie the meas for settlig the ope Cotracts at the time, safeguardig i all evets, the rights acquired by their Cliets. 2. Cotigecy Situatios. If MexDer declares a cotigecy situatio, both the auctio hours ad the operatig mechaism may be modified i accordace with MexDer s ad Asiga s Cotigecy Mauals. 6

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