Banco de México
Banco de México’s Policies and Functions Regarding Financial Market Infrastructures
August 2016
Banco de México’s Policies and Functions Regarding Financial Market Infrastructures 1 Banco de México
NOTE
This text is provided for readers’ convenience only. Discrepancies may possibly arise between the original document and its translation to English. The original and unabridged document in Spanish is the only official document.
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Contents Contents ...... 3 1. Introduction ...... 5 1.1. Banco de México’s general objectives with regard to FMIs...... 6 1.2. Content and structure of the document ...... 6 2. Overview of FMIs ...... 7 2.1. Types of FMIs ...... 7 2.2. Principles that apply to FMIs ...... 10 3. Landscape of FMIs in Mexico ...... 12 3.1. Payment systems...... 12 3.2. Central securities depositories and securities settlement systems ...... 13 3.3. Central counterparties ...... 14 3.4. Trade repositories ...... 14 3.5. Cross‐border payment systems and foreign‐currency payment systems ...... 14 4. Banco de México and its relationship with FMIs ...... 16 4.1. The central bank’s multiple roles in FMIs ...... 16 4.2. Banco de México’s policies and objectives concerning FMIs ...... 17 4.3. Intraday liquidity provision ...... 19 4.4. Supervision ...... 20 5. Systemically important FMIs in Mexico ...... 22 5.1. SPEI ...... 22 5.2. SIAC ...... 27 5.3. DALI ...... 31 5.4. CCV ...... 35 5.5 Asigna ...... 40 5.6. Banco de México’s Derivatives Trade Repository ...... 45 6. Retail payment infrastructures in Mexico ...... 48 6.1. National Electronic Clearinghouse (CCEN) ...... 48 6.2. Clearinghouses for card payments ...... 52 6.3. Clearinghouses for mobile payments ...... 56 6.4. Payment technologies ...... 59 7. Cross‐border and foreign‐currency‐denominated payments ...... 61 7.1. Banco de México’s policy regarding cross‐border and foreign‐currency‐denominated payments ...... 61 7.2. Domestic U.S. dollar interbank payment system (SPID) ...... 62
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7.3. Directo a México ...... 66 7.4. Continuous Linked Settlement ...... 69 7.5. Foreign correspondent banking ...... 72 8. Information technology security ...... 73 8.1. Background ...... 73 8.2. Risks to cybersecurity ...... 73 8.3. Banco de México’s policy regarding cybersecurity ...... 74 9. Final considerations ...... 74 Statistical appendix ...... 75 Annex ...... 79 List of acronyms ...... 80
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1. Introduction
In order to make better use of a society’s resources, payment mechanisms that allow its members to complete financial transactions in a simple, safe, inexpensive and fast way should be available. Considering this social necessity, the Banco de México Law establishes as two of the central bank’s purposes fostering the proper functioning of payment systems, and promoting the financial system’s sound development, implying that Banco de México must ensure that financial market infrastructures (FMIs) function properly. FMIs are multilateral arrangements among participating institutions, including the operators of the infrastructures used for clearing, settlement and registering of payments, securities operations, derivatives contracts, and other financial transactions. FMIs usually establish a set of common rules and procedures, a technological infrastructure, and a suitable and specialized risk management framework. FMIs are composed of payment systems, central securities depositories, securities settlement systems, central counterparties, and trade registers.
This document describes the Mexican FMIs, their interrelationships and the type of transactions they carry out. Additionally, the different roles of the central bank with respect to FMIs are described, and the objectives of Banco de México for each FMI are detailed. This information allows authorities, participants, and the general public to become familiar with the structure of the systems used to process financial transactions, thereby contributing to the proper functioning of financial systems and the economy in general.
In order to comply with its mandate, Banco de México adheres to an overall policy guiding its functions as regulator, supervisor, user, and operator of FMIs. These functions involve a great number and diversity of actions due to the variety of FMIs and their participants. As a regulator, the central bank implements rules that apply to FMIs and their participants, analyzes new technologies that could be used to improve the efficiency and safety of FMIs, and analyzes statistical information concerning the transactions executed in FMIs in order to detect risks and identify potential improvements. These activities involve coordination with other authorities, mainly for those cases in which the infrastructure is regulated in conjunction with several authorities. As a supervisor, Banco de México ascertains whether or not FMIs and their participants comply with established rules. Finally, Banco de México performs the role of operator of the most important payment system in the country, SPEI.
Economic activity depends on the proper operation of FMIs, both for processing financial system transactions and for operations carried out by individuals. This document aims to describe Banco de México’s policy as well as its regulatory and supervisory functions to achieve properly functioning FMIs. In addition, by publishing this document, Banco de México complies with its obligations of: Accountability, by describing the way Banco de México tries to achieve the aim of fostering the proper functioning of payment systems Public disclosure of policies, in order to increase trust in the payment systems Improved transparency with regard to regulated entities, in order to facilitate the risk management of FMIs and their participants, and to help them comply with regulation comprehensively.
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1.1. Banco de México’s general objectives with regard to FMIs Article 2 of the Banco de México Law establishes that the central bank's purpose is to provide the country's economy with domestic currency, in the pursuit of the stability of the purchasing power of that currency. Additionally, the central bank has the purpose of promoting the sound development of the financial system and fostering the proper functioning of the payment systems.
Accordingly, the proper functioning of FMIs is present in several of Banco de México’s key responsibilities. Monetary policy is instrumented by means of some of the most important FMIs in the country, namely SPEI, SIAC and DALI; the issuance of regulation and supervisory activities with regard to FMIs contributes to the development of financial stability; regulating the use of electronic payment systems promotes their efficiency and competition; and finally, the disclosure of timely and relevant information on FMIs provides certainty and transparency to financial institutions and the general public.
1.2. Content and structure of the document
This document defines Banco de México’s objectives, policies and functions with respect to FMIs, and provides descriptions of the main FMIs that operate in México. This document aims to facilitate a deeper knowledge of the interaction between the central bank and the FMIs. Thus, the document is not a periodic report on the Mexican FMIs up to a specific date, nor is it a report on Banco de México’s particular actions during a given time period.
The rest of the document is organized as follows: Overview of FMIs contains a more complete definition of the different types of FMIs. Additionally, it includes an introduction to the Principles for Financial Market Infrastructures (PFMIs), which are high‐level standard recommendations for the proper management of risk inherent in FMIs.
Landscape of FMIs in Mexico presents a general description of Mexican FMIs, including their interrelationships.
Banco de México and its relationship with FMIs contains a description of the different roles the central bank plays in relation to FMIs. It also includes explanations of the objectives and policy for each FMI. Additionally, this section describes Banco de México’s policy for intraday liquidity provision. This intraday liquidity provision is a facility that allows participants to maintain the resources needed to pay the liabilities they incur in FMIs. Finally, the section includes the supervisory objectives and tasks carried out by Banco de México aimed at both participants and infrastructures.
Systemically important FMIs are those that, in the event of a grave design or operational failure, can affect the stability of the financial system in one or more jurisdictions and, consequently, their economic activity. Systemically important financial market infrastructures in Mexico contains a subsection for each of Mexico’s systemically important FMIs: SPEI, DALI, CCV, Asigna, and SIAC. Each subsection includes the description of the infrastructure, the relevant regulation, the applicable PFMIs, the role played by Banco de México, and the tools used to regulate and supervise the infrastructure.
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Similarly, Retail payment infrastructures in Mexico contains a description of these infrastructures, their regulation, the best practices that apply to them, the roles played by Banco de México, and the tools used to regulate and supervise them. Additionally, a subsection has been included for new payment technologies.
Cross‐border and foreign‐currency‐denominated payments deals with three infrastructures: Directo a México, the system that processes cross‐border payments from the United States to Mexico; the CLS, which settles foreign exchange transactions; and the SPID, which started operations in April 2016. Finally, the section includes a subsection for Banco de México’s policy on foreign correspondent services.
Lastly, Information technology security describes the risks related to the safe and efficient operation of FMIs, as well as the importance of mitigating, preventing, and, when necessary, rapidly recovering from an event in which an information security risk materializes. Lastly, it describes Banco de México’s policy on this issue.
2. Overview of FMIs
This section provides definitions and a classification of financial market infrastructures. Additionally, it describes a set of recommendations that guide the regulation and supervision of some of the FMIs. These recommendations, known as the Principles for Financial Market Infrastructures1 (PFMIs), are a set of high‐level guidelines for the proper management of risks inherent in FMIs.
According to the Committee for Payments and Market Infrastructures (CPMI)2 definition, a financial market infrastructure is a multilateral system among participating institutions, including the operator of the system, used for the purposes of clearing, settling, or recording payments, securities, derivatives, or other financial transactions.
2.1. Types of FMIs FMIs are classified as payment systems, central securities depositories, securities settlement systems, central counterparties, and trade repositories.
2.1.1. Payment Systems A payment system is a set of instruments, procedures and rules for transferring funds among two or more participants. The system includes the participants and the operator. Payment systems typically base their operation on agreements among two or more participants and the
1 The Principles were published by the Bank for International Settlements Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO), in April 2012. 2 The CPMI is one of the permanent committees of the Bank for International Settlements (BIS). This committee was established in 1980 as the Committee of Payment and Settlement Systems. The main objective of CPMI is to promote the safety and efficiency of FMIs, and to serve as a forum for cooperation among central banks in oversight, policy and operational matters. The CPMI issues standards of global scope in these areas. Banco de México is one of the 25 CPMI member institutions.
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operator of the mechanism; funds are transferred through an agreed operational infrastructure. Payment systems can be categorized, according to their settlement structure, into those that perform a clearing process before the settlement and those that perform gross settlement.
In order to operate a clearing system, an automated clearinghouse is needed. An automated clearinghouse is a central entity –or a centralized processing mechanism– by means of which financial institutions agree to process payments or other financial liabilities for their settlement on a net basis. This results in benefits from the perspective of managing the liquidity of the assets that the system operates; that is, it diminishes the amount of liquidity needed for a given operational level. Some automated clearinghouses take on important risk management responsibilities for the whole system, since, as part of their operation, financial liabilities arise that are not immediately paid. A typical example of an automated clearinghouse is the system for interbank check processing.
Another common type of payment system is a real time gross settlement (RTGS) system. These systems settle payments in a continuous way, one by one, in the order they are received, assuming that the payer possesses the required funds. Due to the characteristics of this form of settlement, participants’ liquidity needs are generally high compared to those in automated clearinghouses. However, one of the advantages of these systems is that credit risk is eliminated, since, during the settlement process, the payer account is debited and the receiver account is credited simultaneously. Nowadays, a large number of countries have at least one system of this type, usually operated by the central bank.
From the perspective of final users, who are the clients of the direct participants, payment systems can be categorized into those that process transactions in real time, and those that process transactions in a deferred way. Both netting settlement systems and gross settlement systems can operate under any of these structures.3 The decision of which structure should be used depends on business models and risk management plans. In an RTGS system, final users typically receive real‐time services, since this does not pose any risk; in contrast, providing real‐ time services under a deferred settlement system makes risk management more difficult in case of participant default. This risk can be attenuated by executing the clearing process very frequently and by implementing control procedures for eliminating credit risk among participants.
It is important to note that payment systems have traditionally been classified by the value of the payments they process; that is, as large value payment systems and retail payment systems. Large‐value payment systems describe those in charge of settling transactions produced by financial institutions and firms which, given their importance to the financial system, are considered urgent; thus, exclusive RTGS systems were used for this purpose in order to avoid risks. Retail payment systems refer to those dedicated to processing payments carried out by the general public, usually by means of a deferred settlement system, since those payments are not considered urgent. This classification of payment systems was important in the past, but technological advances have allowed operating risks to be controlled in just one system processing both large‐value and retail payments. SPEI, the RTGS system operated by Banco de México, benefits the general public through the security and efficiency of real‐time processing.
3 Clearing systems can have very frequent clearing and settlement cycles that occur nearly in real time.
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2.1.2. Securities settlement systems A securities settlement system (SSS) is a system that allows the transfer, clearing and settlement of transactions with securities between participants’ accounts, based on a set of predetermined multilateral rules. In addition, SSSs usually perform other functions, such as confirmation of trade instructions and confirmation of settlement instructions.
2.1.3. Central securities depositories A central securities depository (CSD) is a system that creates and manages securities accounts and provides centralized safekeeping services and other services related to securities, such as managing securities’ amortizations. CSDs help to guarantee the integrity of the securities issued; that is, they guarantee that securities are not created improperly or destroyed, nor are their details modified by accident or for the purposes of fraud. In many countries, the entities that operate a CSD also operate an SSS.
Both SSSs and CSDs usually operate through one or more central entities. However, it is possible for them to operate by means of decentralized structures through new technologies in which both registry and settlement can be made among the participants without the use of any central structure.4
2.1.4. Central counterparties A central counterparty (CCP) is an entity that stands between the counterparties of contracts traded in a financial market, and so becomes the buyer for each seller and the seller for each buyer. In this way, the counterparty risks in that market are concentrated in a single entity, simplifying risk analysis and allowing for better management from a systemic perspective, since by concentrating the risks, some risk factors may compensate for others. Since the main function of a CCP is to manage counterparty risk, this entity should have sound structures to measure, limit, oversee, and control this type of risk, as well as any other risks that may arise during operation. Any disruption could be extended to the whole market the CCP serves, and potentially to the entire financial system. In this way, CCPs can reduce risks, but at the expense of concentrating them in systemically important entities; that is why it is essential to have strict risk controls in place.
2.1.5. Trade repositories A trade repository (TR) is an entity that maintains a central electronic registry of trade data. A TR can help to improve transparency with respect to transactional information for the relevant authorities and the general public as well. In this way, TRs promote financial stability and contribute to detecting and averting risks in the market they serve. TRs have become more significant in the Over‐the‐Counter (OTC) derivatives market.
4 One such recent technology is the distributed ledger, which consists of a shared database stored in various locations. Each location may have its own identical copy of the ledger, and the changes made to it are reflected in all copies of the ledgers within moments of being executed. For example, assets can be financial or legal in nature. Permissions regarding the assets on the ledger are based on cryptographic keys and signatures.
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2.2. Principles that apply to FMIs The Principles for Financial Market Infrastructures (PFMIs) are a set of 24 recommendations issued jointly in 2012 by the CPMI and the International Organization of Securities Commissions (IOSCO).5 These high‐level recommendations for FMIs aim to improve their security and efficiency, promote adequate risk management, limit systemic risk, and promote transparency and financial stability. Some of the principles are applicable to all types of FMIs, whereas other principles apply only to specific types.6
Banco de México, as a permanent member of the CPMI, participated in the creation of these principles and considers them an important basis for the achievement of its objectives; thus, this central bank has sought to reflect them in regulations it issues and in its policies on FMIs.
What follows are brief descriptions of each principle, grouped by the topic they cover (CPMI‐ IOSCO, Principles for Financial Market Infrastructures, April 2012).
2.2.1. General organization Principle 1, legal basis: An FMI should have a well‐founded, clear, transparent, and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions. Principle 2, governance: An FMI should have governance arrangements that are clear and transparent, promote the safety and efficiency of the FMI, and support the stability of the broader financial system. Principle 3, framework for the comprehensive management of risks: An FMI should have a sound risk‐management framework for comprehensively managing legal, credit, liquidity, operational, and other risks.
2.2.2. Credit and liquidity risk management Principle 4, credit risk: An FMI should effectively measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes. Principle 5, collateral: An FMI that requires collateral to manage its or its participants’ credit exposure should accept collateral with low credit, liquidity, and market risks. Principle 6, margin: A CCP should cover its credit exposures to its participants for all products through an effective margin system that is risk‐based and regularly reviewed. This principle applies only to CCPs. Principle 7, liquidity risk: An FMI should effectively measure, monitor, and manage its liquidity risk.
2.2.3. Settlement Principle 8, settlement finality: An FMI should provide clear and certain final settlement, at a minimum by the end of the value date. Principle 9, money settlements: An FMI should conduct its money settlements in central bank money where practical and available. If central bank money is not used, an FMI should
5 The IOSCO is an organization of securities and futures markets regulatory bodies. Its members cover over 100 countries, and it is recognized as the global standard setter for the securities sector. Mexico’s National Banking and Securities Commission (CNBV), is a member of the IOSCO. 6 The list of Principles that apply to each type of FMI can be found in the Annex.
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minimize and strictly control the credit and liquidity risk arising from the use of commercial bank money. Principle 10, physical deliveries: An FMI should clearly state its obligations with respect to the delivery of physical instruments or commodities and should identify, monitor, and manage the risks associated with such physical deliveries.
2.2.4. Central securities depositories and exchange‐of‐value settlement systems Principle 11: central securities depositories: A CSD should have appropriate rules and procedures to help ensure the integrity of securities issues and minimize and manage the risks associated with the safekeeping and transfer of securities. A CSD should maintain securities in an immobilized or dematerialized form for their transfer by book entry. Principle 12: exchange‐of‐value settlement systems: If an FMI settles transactions that involve the settlement of two linked obligations (for example, securities or foreign exchange transactions), it should eliminate principal risk by conditioning the final settlement of one obligation upon the final settlement of the other, for example by applying a delivery versus payment mechanism in securities transactions.
2.2.5. Default management Principle 13, participant‐default rules and procedures: An FMI should have effective and clearly defined rules and procedures to manage a participant default. These rules and procedures should be designed to ensure that the FMI can take timely action to contain losses and liquidity pressures and continue to meet its obligations. Principle 14, segregation and portability: A CCP should have rules and procedures that enable the segregation and portability of positions of a participant’s customers and the collateral provided to the CCP with respect to those positions.
2.2.6. General business and operational risk management Principle 15, general business risk: An FMI should identify, monitor, and manage its general business risk and hold sufficient liquid net assets funded by equity to cover potential general business losses so that it can continue operations and services as a going concern if those losses materialize. Principle 16, custody and investment risks: An FMI should safeguard its own and its participants’ assets and minimize the risk of loss on and delay in access to these assets. An FMI’s investments should be in instruments with minimal credit, market, and liquidity risks. Principle 17, operational risk: An FMI should identify the plausible sources of operational risk, both internal and external, and mitigate their impact through the use of appropriate systems, policies, procedures, and controls. Systems should be designed to ensure a high degree of security and operational reliability and should have adequate, scalable capacity. Business continuity management should aim for timely recovery of operations and fulfilment of the FMI’s obligations, including in the event of a wide‐scale or major disruption.
2.2.7. Access Principle 18, access and participation requirements: An FMI should have objective, risk‐ based, and publicly disclosed criteria for participation, which permit fair and open access. Principle 19, tiered participation arrangements: An FMI should identify, monitor, and manage the material risks to the FMI arising from tiered participation arrangements.
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Principle 20, FMI links: An FMI that establishes a link with one or more FMIs should identify, monitor, and manage link‐related risks.
2.2.8. Efficiency and effectiveness Principle 21, efficiency and effectiveness: An FMI should be efficient and effective in meeting the requirements of its participants and the markets it serves. Principle 22, communication procedures and standards: An FMI should use, or at a minimum accommodate, relevant internationally accepted communication procedures and standards in order to facilitate efficient payment, clearing, settlement, and recording.
2.2.9. Transparency Principle 23, disclosure of rules, key procedures, and market data: An FMI should have clear and comprehensive rules and procedures and should provide sufficient information to enable participants to have an accurate understanding of the risks, fees, and other material costs they incur by participating in the FMI. All relevant rules and key procedures should be publicly disclosed. Principle 24: disclosure of market data by trade repositories: A TR should provide timely and accurate data to relevant authorities and the public in line with their respective needs.
3. Landscape of FMIs in Mexico
Mexico possesses an extensive and well‐developed financial system, in which multiple FMIs of the different types described in the previous section operate. This section describes the general characteristics of the main FMIs in Mexico as of January 2016.
3.1. Payment systems 3.1.1. Interbank electronic payment system (SPEI) SPEI is managed by Banco de México, and its participants consist mainly of banks, non‐bank financial institutions and Banco de México.7
SPEI is the country’s main payment system. It processes both the high‐value payments of financial institutions and treasuries of large companies, as well the retail payments of the general public. SPEI implements the vast majority of the interbank funds transfers of the country, both in number and value.
SPEI has extensive operating hours, allowing it to handle payment requirements from financial market participants as well as those of the general public. For retail payments, SPEI will begin operating 24 hours a day, 7 days a week, in November 2016. SPEI settles payments very quickly, nearly in real time, using money maintained by participants at the central bank.
7 The Federal Treasury sends payment orders to SPEI, through Banco de México, to pay pensions and salaries, and to pay providers of services to government agencies.
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3.1.2. Account Holders Service System (SIAC) SIAC is the system used by Banco de México to manage the accounts that banks, other financial institutions, and public‐sector entities maintain at the central bank. Although SIAC was initially used as a payment system, nowadays this function has been almost entirely transferred to SPEI, which is better suited to this task. The main function of SIAC in relation to FMIs is liquidity provision to banks, thereby facilitating the processing of transactions in the financial system. The liquidity Banco de México provides through SIAC, both intraday and longer term, is completely guaranteed with high‐quality assets from debtor banks (see Section 4 c).
At any time during operating hours, participants can transfer the liquidity they obtain from SIAC to SPEI, or to the account that the SSS (DALI) maintains in SPEI.
3.1.3. National Electronic Clearinghouse (CCEN) The CCEN, the acronym by which the National Electronic Clearinghouse is known in Spanish, is a clearinghouse owned and operated by Cecoban, a private company held by a group of commercial banks. The CCEN clears interbank checks, direct debits, deferred credit transfers, and interbank cash purchases. Any bank in Mexico can be a participant in the CCEN, as long as it has been previously certified by Cecoban. The final CCEN settlement is made in the accounts the banks have in SIAC.
3.1.4. Interbank card transactions system (processors) Processors of interbank card transactions are responsible for handling card payment transactions. In this sense, interbank transactions are those in which the issuing bank of the card is not the same bank that manages the point of sale terminal (POS). Interbank transactions are processed, cleared, and settled by processors Prosa and E‐Global, private entities whose owners are commercial banks.
Settlement of the interbank card transaction processors takes place in commercial banks’ accounts.
3.1.5. Payment systems for interbank transfers by means of mobile devices (clearinghouses) Clearinghouses for interbank payments made through mobile devices are responsible for processing interbank transactions requested through mobile devices. In December 2013, the regulation issued by Banco de México for authorizing clearinghouses for interbank payments made through mobile devices came into effect. This regulation establishes rules concerning the organization, functioning and operation these clearinghouses must observe. Currently, one such authorized entity is Transfer.
3.2. Central securities depositories and securities settlement systems Securities Deposit, Administration and Settlement System (DALI) DALI is a securities settlement system run by the company S. D. Indeval, the central securities depository. DALI’s main functions are the custody of equity and debt instruments issued in Mexico, and settlement of securities transactions. Among its participants are pension fund administrators, banks, broker‐dealers, insurance companies, surety companies, Banco de
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México, and foreign banks. Participants in DALI can process operations with their own securities as well as their clients’.
Participants can keep the liquidity they need to operate in DALI in SPEI. Additionally, participants can transfer funds from accounts in DALI to those in SPEI, and subsequently request a liquidity transfer from SPEI back to SIAC.
3.3. Central counterparties 3.3.1. Central Securities Counterparty (CCV) The CCV, the acronym by which the central securities counterparty is known in Spanish, is the entity in charge of clearing and settling all equities operations traded on the Mexican Stock Exchange (BMV). As a CCP, its main function is to position itself between the original counterparties of any transaction to become the buyer for every seller and the seller for every buyer. The CCV is part of the BMV Group. CCV direct participants (settlement agents)8 include banks and broker dealers, which conduct operations in their own name or on behalf of their clients.
3.3.2. Asigna Asigna is the central counterparty for operations traded on the Mexican Derivatives Exchange (MexDer), as well as for operations it accepts via electronic platforms for derivatives trading. Asigna is part of the BMV Group. As with the CCV, Asigna’s main function is to stand between the original counterparties of transactions to become the buyer for every seller and the seller for every buyer of derivatives contracts.
3.4. Trade repositories 3.4.1. Banco de México’s Derivatives Trade Repository Banco de México maintains a repository of information of derivative transactions traded by Mexican counterparties at broker‐dealers and banks. The purpose of this repository is to maintain timely and accurate information on those operations traded in the derivatives market. This repository provides information to other financial authorities and the general public.
3.5. Cross‐border payment systems and foreign‐currency payment systems 3.5.1. Directo a México In 2004, Banco de México and the United States Federal Reserve set up a mechanism to transfer money from the United States to Mexico. By means of this system, any bank or credit union in the United States participating in Directo a México can send payments to any individual with a bank account in Mexico.
8 Settlement agents are CCV stockholders that, in addition to carrying out their own operations, can set up arrangements with non‐settlement agents to become responsible for the operations carried out by the latter, up to a limited amount. Credits and debits resulting from the settlement process, both in cash and securities, take place in the settlement agents’ accounts.
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Settlement in dollars takes place in a payment system in the United States (FedACH), while settlement in pesos occurs in SPEI. The foreign exchange operation takes place at a Mexican development bank, using contracts that minimize foreign‐exchange risk under conditions of market volatility.
3.5.2. Continuous Linked Settlement system (CLS) The CLS is an international foreign‐exchange settlement system. It is operated by the CLS Bank, which is based in New York. CLS settles transactions in 17 of the most important currencies trading on foreign‐exchange markets.
The settlement of each transaction’s currency leg takes place in accounts held in the respective currency’s issuing central bank, by means of the corresponding payment system. In this way, settlement of pesos occurs in SPEI.
3.5.3. U.S. Dollar Interbank Payment System (SPID) The SPID is a payment system which started operating in April 2016. This system is operated by Banco de México and allows banks in Mexico to send electronic transfers between U.S. dollar accounts within Mexico which these banks maintain on behalf of firms.
Participation in the SPID is exclusive to banks in Mexico. The SPID has stringent controls for anti‐money laundering and combating the financing of terrorism (AML/CFT). It operates from 8:00 a.m. to 2:00 p.m. every business day in Mexico. In the SPID, payments are settled using U.S. dollars that have been deposited in central bank accounts by way of correspondent banks in the United States.
The following chart shows the main FMIs in Mexico and their interrelationships.
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4. Banco de México and its relationship with FMIs
This section describes Banco de México’s various roles with respect to FMIs, the main policy issues for the FMIs, and the central bank’s objectives for FMIs. It also describes the provision of intraday liquidity and the central bank’s supervision of FMIs and their participants.
4.1. The central bank’s multiple roles in FMIs Banco de Mexico performs the following main roles with respect to FMIs: regulator, supervisor, operator, and user.
Banco de México as a regulator All the national FMIs are regulated by the central bank. In some cases, the regulatory role lies entirely with Banco de Mexico, whereas in others, the central bank shares its responsibilities as a regulator with another authority. As a regulator, the central bank both proposes and issues regulation. Additionally, it authorizes the internal rules governing the operation of FMIs and their participants. The details concerning Banco de Mexico’s regulatory activities are described in the following sections.
Banco de México as a supervisor Banco de México takes measures to monitor compliance with regulation related to FMIs, both by operators and participating financial institutions. The details concerning Banco de Mexico’s supervisory activities are presented in the following sections.
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Banco de México as an operator Banco de México is the administrator and operator of SPEI and SIAC. The central bank provides electronic funds transfer services through SPEI. Additionally, it provides liquidity to banks and access to central bank accounts for financial institutions and some public entities through SIAC. Furthermore, the central bank and the United States Federal Reserve jointly manage and operate the system that allows users to send money to Mexico, namely, Directo a México. Lastly, Banco de México operates the Derivatives Trade Repository.
Banco de México as a user The central bank implements monetary policy through the national FMIs. The results of the open market operations through which liquidity is provided are formalized as collateralized loans; the resources are credited to banks through SIAC, or alternatively, repos are settled in DALI. Liquidity withdrawal operations are formalized as deposits with resources from banks’ SIAC accounts.
Banco de México, in its role as the financial agent of the federal government, manages and places federal government bonds in domestic currency. Additionally, it acts as a placement agent for the Institute for the Protection of Bank Savings (known by its acronym in Spanish as the IPAB). To conduct these activities, Banco de México uses the DALI system. In the same role, the central bank sends the Federal Treasury’s payments through SPEI. Furthermore, the central bank sends its own payments through SPEI to employees and suppliers.
Additionally, Banco de México is involved in international committees concerning FMIs and it is a board member of the national CSD and SSS. In the first case, participation allows the central bank to be abreast of the latest issues and to have a voice in any decisions to be made, seeking the most beneficial outcome for Mexico. The main group in which the central bank participates as a member is the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS). Banco de México is a shareholder and board member of Indeval, the company that manages and operates the national SSS, DALI. Moreover, the central bank has the right to a veto on Cecoban’s board of directors.
4.2. Banco de México’s policies and objectives concerning FMIs 4.2.1. Policies with respect to systemically important FMIs Systemically important FMIs are those that may affect the stability of the financial system in the event of unexpected circumstances. These FMIs must comply with the Principles for Financial Market Infrastructures published by the CPSS‐IOSCO in 2012. The central bank´s policy for determining the systemically important FMIs considers the value and nature of the operations they process. These FMIs are the securities settlement system (DALI), the central counterparty (CCV and Asigna), the Derivatives Trade Repository operated by Banco de México, and SPEI. In particular, the CCV is considered a systemically important FMI because it is the only Mexican CCP which operates in the stock market. Similarly, Asigna is the only Mexican CCP that operates in the derivatives market, and is thus considered systemically important.
4.2.2. Policy with respect to retail payment system infrastructures Retail payment infrastructures do not have the potential to destabilize the financial system in the face of operational problems because the settled amounts are relatively low. However,
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because of the large volume of payments processed and their extensive use in retail trading, they are important to economic activity. The central bank’s policy on this kind of infrastructure requires adopting best practices in the field, including the PFMI. Additionally, Banco de México’s policy is to encourage these infrastructures to seek synergies and economies of scale.
4.2.3. Banco de México’s particular objectives concerning FMIs In accordance with the provisions of Article 2 of the Banco de México Law, the bank’s general aim with respect to payment systems is to foster their proper operation and promote the sound development of the financial system as a whole.
Banco de México considers FMIs to be among the entities it should monitor in line with its legal powers and considering the trends that led the Committee on Payment and Settlement Systems (CPSS) to change its name to the Committee on Payments and Market Infrastructures (CPMI). The proper functioning of FMIs is a necessary but insufficient condition to achieve stability for the financial system as a whole.
The Banco de México’s objective with respect to FMIs is for these to be secure and efficient in the aim of strengthening and promoting fair competition, as well as fostering innovation and the development of better services in their respective market industries, thereby contributing to the public good through increased financial stability, economic efficiency and financial inclusion.
Banco de México also has the goal of strengthening the FMIs’ business continuity framework to ensure a high level of availability and transparency with participants and the general public in all matters related to their rules, as well as risks and benefits associated with their use.
Additionally, the central bank has particular objectives for each FMI in the country.
SPEI SPEI has the purpose of settling its participants and participants’ customers’ payments in a timely, efficient, secure and inexpensive way, considering both retail payments and those associated with financial markets, with the following specific objectives: The system and its participants should process payments in real time The system must not generate credit or liquidity risks The system should offer a high level of service to users and participants, including business continuity plans and adequate risk management The system should facilitate the provision of services and information to its clients regarding sent transfer orders
DALI Operations should be settled in a timely manner The system should implement a delivery‐versus‐payment structure, with the aim of eliminating the principal risk The system should not generate credit or liquidity risks
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CCV and Asigna The central counterparty should centralize clearing and settlement in securities and derivative financial instruments under a central counterparty framework, in order to lessen the default risk of the obligations of intermediaries. The central counterparty should have a clear and solid risk management framework, which covers the central counterparty´s responsibilities and the participants´ responsibilities, and appropriate incentives should be in place to manage and contain the risks
Banco de México’s Derivatives Trade Repository The repository should register and store information regarding transactions with derivative financial instruments The repository should provide relevant information on derivatives transactions to the authorities and the general public to reinforce public‐policy objectives and improve the transparency of the financial market
SIAC The system should manage the current accounts of depositors at Banco de México The system should provide liquidity to banks for FMI operations The system should have a solid framework in order to manage risks that arise from providing liquidity to banks
CCEN The system should clear and settle checks, deferred electronic transfers and direct debits The system should have a solid credit and liquidity risk management framework The system should allow to any bank to participate, and its services should be efficient
Clearinghouses for card transactions and electronic transfers initiated with a mobile device The clearinghouses should process card transactions and mobile payments in a timely manner The clearinghouses should have a solid clearing and settlement structure for card transactions and mobile payments The terms governing participation in payment processing services should be equitable Clearinghouses that process the same type of transactions should be interoperable
4.3. Intraday liquidity provision The intraday liquidity provision arrangement for FMIs to function properly is described in this section. At the close of operating hours for the SIAC, DALI and SPEI systems, the sum of the various systems’ current account balances should be zero. At the open, banks can obtain intraday liquidity by either overdrawing their current account at the central bank for up to the value of the collateral they pledge to the central bank, or through intraday repo transactions with the central bank. The banks can transfer liquidity between the SIAC, DALI and SPEI systems
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according to their needs at any time during the operating day. At the close, their balances in the SPEI and DALI systems are transferred to SIAC, where banks can take the necessary measures to reduce their current account balances or overdrafts.
The overdraft mechanism allows banks to overdraw their SIAC current accounts, provided that these overdrafts are guaranteed by banks’ deposits with Banco de México; chief among these are monetary regulation deposits (DRM, as they are known in Spanish). Additionally, deposits resulting from open market operations and from the process of determining the Interbank Interest Rate (the TIIE, as it is known in Spanish) can serve as collateral. The use of overdrafts does not generate costs for banks except when the overdraft remains beyond the end of the day; in that case, an interest rate of twice the representative market rate is applied.
The mechanism of intraday repos involves Banco de México’s automatic acceptance of intraday repo transactions with banks. In these operations, banks sell securities to the central bank and promise to repurchase them the same day. The settlement of repo transactions occurs in DALI, where the ownership of the assets is transferred to Banco de México and, in return, the banks receive the resources in their DALI account. Participants then recover their securities with operations settled in DALI before closing time; banks must have the necessary liquidity in the system in order to do this. Banco de México only accepts securities issued by the federal government, IPAB or by the central bank itself, which have very low credit and liquidity risk in the secondary market.9 Additionally, in order to mitigate market risk, Bank of México applies a haircut to the securities’ purchase price. The central bank does not charge an interest rate to banks for resources obtained through this mechanism, except when the bank does not repurchase the security the same day; in that case, twice the representative market rate applies (as is the case with the overdraft mechanism). Banco de México only charges a fixed fee to recover the operating costs for each intraday repo transaction.
4.4. Supervision There are four statutes authorizing the central bank to supervise FMIs: i. The Banco de México Law establishes as one of the central bank’s purposes the aim of fostering the proper functioning of the payment systems, and it empowers the bank to supervise intermediaries and financial institutions based on regulations the central bank issues. ii. The Payment Systems Law authorizes the central bank to monitor the supervisory systems subject to this law. iii. The Securities Market Law empowers the central bank to request information and authorize changes to the internal regulations of central counterparties and securities settlement systems within the scope of its powers. iv. The Transparency and Regulation of Financial Services Law empowers the central bank to supervise clearinghouses.
9 Monetary Regulation Bonds L are securities issued by Banco de México in order to regulate liquidity in the money market and implement monetary policy. These securities are only negotiable with Banco de México directly, and therefore no secondary market for them exists.
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Banco de México supervises both the administrators of FMIs as well as their participants. This is an essential tool the central bank uses to achieve its objectives; supervision allows the bank both to verify that the behavior set out in provisions and best practices is followed, and to evaluate the effectiveness of regulation in order to propose adjustments when necessary. In the event an infringement is detected during the supervision process, the corresponding sanctions are imposed in order to inhibit such conduct.
4.4.1. Supervision of FMIs The central bank supervises both existing and planned FMIs in order to ensure that their operation adheres to the regulation and best practices required by the financial authorities related to security and efficiency. With respect to retail payment FMIs, Banco de México’s supervision process also seeks to promote competition among payment service providers. As for SPEI, Banco de México performs self‐assessment. In addition, the bank reviews the self‐ assessments conducted by the administrators of DALI, CCV, and Asigna systems. Furthermore, on the basis of the results of the self‐assessments, Banco de México takes measures in SPEI and coordinates the actions taken by the administrators of DALI, CCV, and Asigna to comply with the Principles for Financial Market Infrastructures (PFMIs). Additionally, Banco de México oversees the chamber operated by Cecoban and the clearinghouses that process card transactions and mobile payments to ensure compliance with the regulatory provisions.
Off‐site supervision Supervision activities include the collection and analysis of qualitative and quantitative information, monitoring of operations and market development, and authorization of internal rules and operating manuals of FMIs. The intention is to evaluate whether the operation and administration of each FMI adheres to best practices for its type and thus ensure its secure and efficient operation. An important aspect of supervision by Banco de México is to ensure that FMIs comply with the best practices established in the PFMIs; to achieve this, the central bank uses the assessment methodology developed by the CPMI and IOSCO.
On‐site supervision In addition to the actions described above, Banco de México uses on‐site visits to inspect compliance with regulations regarding payment systems. Thus, supervision activities are conducted in a deeper and more thorough manner. The central bank also conducts on‐site supervision at the clearinghouses that process card operations and mobile payments as part of the authorization process.
4.4.2. Supervision of FMI participants Banco de México supervises FMI participants to ensure quality and transparency in the provision of services to their customers in order for them to operate safely and efficiently, as well as to protect the public interest.
Off‐site supervision Supervision activities include monitoring the behavior of FMI participants through systematic reviews of information, including analysis of information stored by the central bank and the
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information periodically requested of institutions. Additionally, the central bank reviews issues that arise following an incident. As part of the supervision process, Banco de México collects, analyzes, and publishes information on operations and payment instruments offered by the participants. It also requires information in order to verify that the institutions are operating in compliance with applicable provisions.
On‐site supervision Supervision consists of scheduled and unscheduled inspections in participants’ offices, branches or of automated equipment, in which the execution of operations is monitored, and the systems and records are verified. This is in order to ascertain compliance with the regulations issued by the central bank.
5. Systemically important FMIs in Mexico
5.1. SPEI 5.1.1. Function SPEI, the most important payment system in the country, processes high value and retail payments generated by financial institutions, firms, and the general public.
5.1.2. Description Banco de México is the owner, administrator, and operator of SPEI. This system became operational in August 2004 and gradually replaced its predecessor, the Extended‐use Electronic Payments System (known by its Spanish acronym, SPEUA), which ceased operations in August 2005. Only financial institutions regulated and supervised by Mexican financial authorities are able to participate in SPEI.
SPEI processes transfer orders nearly in real‐time: settlement cycles occur every three seconds or every 300 payments, whichever comes first, and the results of the settlement cycle are settled immediately in the participant’s cash accounts in SPEI.
a. Participation At the start of SPEI’s operations in 2004, only banks were allowed to participate in the system. However, given the operative, technological, and risk‐management characteristics of SPEI, Banco de México has allowed non‐bank financial institutions to participate in it since 2006.
Currently, direct participants in SPEI include banks and other entities regulated by Banco de México, the National Banking and Securities Commission (known by its Spanish acronym, CNBV), the National Savings System for Retirement (known by its Spanish acronym, CONSAR), or the National Insurance and Bonding Commission (known by its Spanish acronym, CNSF), as well as any other entity authorized by Banco de México.
Natural and legal persons can transfer funds through SPEI by instructing payment orders to the bank that manages their account. Banks which provide these services receive instructions from their customers via various channels such as internet websites, mobile banking applications,
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and branch offices. Participants can transfer funds in Mexican pesos to any customer of any participant.
b. Relationship with other FMIs SPEI is related to several FMIs. Its participants can transfer funds between SPEI accounts and in the SIAC and DALI systems at any time during the FMIs’ operating hours. DALI is a participant in SPEI, and its balance is the sum of cash balances participants have in the system. This structure allows DALI to offer greater security and efficiency in the settlement of its participants’ operations. SPEI also settles peso positions from the international currency settlement system operated by the CLS Bank, also a SPEI participant. Additionally, clearinghouses that process electronic transfers initiated with a mobile device, which are authorized by Banco de México, must operate in SPEI, in order to allow interoperability between these structures and the banking system.
c. Operating hours SPEI maintains a continuous operation structure 24 hours per day, every day of the year. These hours cover both settlement of CLS operations, which occur between midnight and dawn, and retail payments from the public at large, which banks can offer their customers over extended hours. Since November 2015, for some types of retail payments, banks offer 24‐hour service year‐round.
d. Recording operations SPEI uses an open protocol based on messages to communicate with participants, allowing them to connect with SPEI using their own systems and achieve complete automation of payment services, thereby offering better services to their customers. SPEI’s participants use digital certificates to register operations and for other important messages, which guarantees participants’ identity, the nonrepudiation of the message, and the integrity of the information.
e. Settlement SPEI is a hybrid settlement system for payments combining the security benefits of a real‐time gross settlement system with the liquidity efficiency of a deferred net settlement system. In each settlement cycle, which, as mentioned, occurs every few seconds, SPEI determines the pending operations that can be settled with the participants’ account balance by way of an algorithm that ensures the efficient use of resources. At the end of the settlement cycle, the participants’ balances, which are always zero or positive, are modified to reflect the result. The operations that could not be settled are left pending for the next settlement cycle. All operations that cannot be settlement by closing time are cancelled. In accordance with the Payment Systems Law, once SPEI settles a transfer order and sends the corresponding settlement notice to both the issuer and receiver, the order is considered accepted, and an accepted order is final and irrevocable.
Participants can classify transfer orders through SPEI as normal or high priority. In order to facilitate the settlement of transfer orders classified as high priority, participants’ balances are divided into two parts, reserved and unreserved, which each participant manages according to their needs. SPEI attempts to settle high‐priority payment orders first, using the unreserved balance. In the event this balance is insufficient to settle high‐priority transfer orders, SPEI may use the reserved balance for this purpose. Normal priority orders are only settled using the unreserved balance.
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The financial resources with which operations are settled are stored in the participants’ accounts in SPEI, which are denominated in Mexican pesos and do not allow overdrafts. At SPEI’s opening time, participants can obtain liquidity by means of transfers from their SIAC account to the SPEI account. At closing time, balances in SPEI are transferred to the participant’s SIAC account or to a concentration account.
f. Risk management Financial risks are limited in SPEI. First, the system does not grant credit. Second, the settlement asset is central bank money, which eliminates the risk that could emerge from using assets issued by another financial institution. Finally, the system uses an algorithm which efficiently uses participants’ liquidity. Occasionally the participants may lack the necessary resources to settle all payments at a particular moment, which could delay some payments in SPEI. However, Banco de México has mechanisms in place to provide liquidity to the banks in the system, as described in the liquidity provision section of this document.
As for operational risks, the most significant for the system, SPEI was developed in order to facilitate the complete automation of the payments process (also known as straight through processing), which reduces manual participation and the risks it entails.
Additionally, payment instructions are digitally signed by participants to ensure authenticity, non‐repudiation by the issuer, and the integrity of the information contained in the instructions. Other important messages such as settlement notices are digitally signed by Banco de México. Moreover, the communication between SPEI and its participants is encrypted to protect sensitive information.
SPEI has an alternate operation site, with the objective of minimizing the risks related to potential incidents at the primary operation site. Additionally, business continuity plans have been developed to describe the protocols to follow in the event of an interruption or delay in the system’s operation.
The methodology used to manage SPEI’s operational risks consists of a cyclic process which considers analysis, assessment, and risk management. In the analysis phase, risks are identified and quantified in terms of the estimated probability of their occurrence as well as their impact.10 Following the analysis, risks are assessed and a judgement is made as to their tolerability. The risk management phase includes the definition of controls and contingency measures in the event any operational risk materializes; additionally, in order to ensure the functioning of these controls, their performance is assessed.
g. Fee structure SPEI’s fee structure seeks to fully recover the costs of developing, maintaining and operating the system while establishing a price per payment equal to the marginal cost of processing that payment. The fee structure seeks to encourage participants to make optimal use of SPEI while not representing a barrier to entry. More concretely, Banco de México determines a fixed
10 These estimates take into account the yearly incidence, based on the data collection and analysis regarding internal and external events; comments and recommendations from internal and external evaluations are also considered.
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annual fee for each participant based on a review of the system’s overall costs, not the number of transactions processed during that period. Additionally, participants pay a variable monthly fee based on the number of transfer orders sent to the CLS, transfers of resources to SIAC or DALI, returns received, and the amount of information that the participant requests Banco de México to retransmit. Regarding the fees structure participants offer to their customers, regulation prohibits charging for receiving payments, but otherwise allows participants to set prices freely.
5.1.3. Principles that apply to SPEI
The following table highlights the Principles for Financial Market Infrastructures that apply to payment systems,11 specifying issues relevant to SPEI.
Principles that apply to payment Relevant aspects systems Principle 1: Legal basis Applicable. Fundamental to all Financial Market Infrastructures Principle 2: Governance Partly applicable, due to the CPMI/IOSCO exceptions for payment systems operated by central banks. Principle 3: Framework for the Applicable. SPEI has a comprehensive risk comprehensive management of risks management structure. Principle 4: Credit risk Not applicable. SPEI is not exposed to credit risk, it does not extend credit to participants, nor does it establish procedures for participants to extend credit among themselves. Principle 5: Collateral Not applicable. SPEI does not use collateral. Principle 7: Liquidity risk Not applicable. SPEI is not exposed to liquidity risks since it only settles payments that do not rely on overdrafts on participants’ accounts. Participants cannot fail to comply with the system because they do not have financial obligations to it. Principle 8: Settlement finality Applicable. Covered by regulation. Principle 9: Money settlements Applicable. SPEI uses central bank money to settle its operations Principle 12: Exchange‐of‐value Not applicable. SPEI does not process operations settlement systems involving two assets. Principle 13: Participant‐default rules Not applicable. SPEI’s design does not generate and procedures financial obligations by the participants to the system. Principle 15: General business risk Partly applicable, due to the CPMI/IOSCO exceptions for payment systems operated by central banks.
11 The Principles that apply to payment systems are 1 to 5, 7 to 9, 12, 13, 15 to 19, and 21 to 23.
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Principle 16: Custody and investment Not applicable. The assets of Banco de México and risks its participants are safeguarded at the central bank account and are not subject to investment. Principle 17: Operational risk Applicable. This is the main risk to manage. Principle 18: Access and participation Applicable. Access criteria are well established and requirements disclosed to stakeholders. Principle 19: Tiered participation Not applicable. In SPEI there are only direct arrangements participants. Principle 21: Efficiency and Applicable. SPEI efficiently and effectively serves effectiveness the needs of its participants and market. Principle 22: Communication Applicable. SPEI incorporates communication procedures and standards standards in its components. Principle 23: Disclosure of rules, key Applicable. The rules for SPEI’s operation and its procedures, and market data general operating data are publicly available.
5.1.4. Legal framework SPEI, as a system managed by the central bank, is subject to the Banco de México Law, which contains several provisions on payment systems, chief among which are promoting the sound development of the financial system and the proper functioning of the payment systems. The Banco de México Law also empowers the central bank to regulate funds transfer services conducted through credit institutions. Moreover, the Payment Systems Law requires that payments be irrevocable, enforceable, and binding before third parties. SPEI’s internal rules, as well as its access and operational rules as issued by Banco de México, are contained in Circular 17/2010 (SPEI’s Rules), SPEI’s Operations Manual, the CEP Contingency Manual,12 and the Contingency Manual for CLS Bank International (CLS). Additionally, institutions participating in SPEI must enter into a contract with Banco de México in order to define their rights and obligations regarding the provision of services related to this system.
5.1.5. Banco de México’s roles The main roles performed by Banco de México related to SPEI are those of operator, regulator and supervisor. With respect to its regulatory role and according to its functions as a regulator of payment systems, the Payment Systems Law empowers Banco de México to issue provisions that, among other goals, promote the sound development of the financial system and the proper functioning of the payment systems, as well as protect the public interest. Moreover, the Banco de México Law empowers it to supervise brokers and financial institutions subject to its regulation. Banco de México’s role regarding supervision is addressed in section 4 of this document. In addition to its roles as regulator and supervisor, the central bank is SPEI’s owner and administrator. It is also a user as it sends payments through SPEI on behalf of the federal government as its financial agent, in addition to its own payroll and supplier payments, among others.
12 CEP is Spanish acronym for Electronic Proof of Payment. Banco de México provides a CEP for senders and beneficiaries of SPEI payments with the information that the receiving bank provides to Banco de México upon crediting its client’s account.
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5.1.6. Banco de México’s tools for regulating participants Banco de México’s main tool to regulate SPEI’s participants are the rules governing participation in the system’s operations, contained in SPEI’s Rules and Operations Manual. Additionally, Banco de México monitors its participants’ compliance with the rules and contracts through supervision.
5.2. SIAC 5.2.1. Function The Account Holders Service System (known by its Spanish acronym as SIAC) is a system operated by Banco de México that manages current accounts that banks and other financial and public‐sector entities maintain at the central bank, as mandated by law. SIAC’s participants are able to transfer resources among themselves in national currency and in real time, although Banco de México has followed a policy of not promoting this functionality since SPEI can process these operations more efficiently. However, SIAC can operate as a payment alternative for participants in the event that SPEI is in a contingency situation. Nevertheless, SIAC’s characteristics do not allow for participants to process transfers on behalf of their clients. Therefore SPEI, which is a more adequate system for this purpose, has absorbed most of its payment functions. The main functions maintained by SIAC are the management of current accounts and the provision of liquidity. In this regard, SIAC contributes to the smooth functioning of other FMIs by providing liquidity safely and efficiently, in addition to facilitating liquidity management for participants through clear rules and expeditious mechanisms.
The provision of intraday liquidity to FMIs through the SIAC is achieved by two mechanisms: intraday overdrafts on current accounts held by banks at the central bank, which must be guaranteed at all times, and intraday repo transactions with government securities.13
5.2.2. Description SIAC has operated in Mexico since 1990. At that time, it was the only real time electronic payment system and marked a breakthrough in the payment systems field. However, currently, most payments are processed by SPEI, whose characteristics render it more suitable.
SIAC is the system through which the central bank manages the current accounts of financial institutions such as banks and brokerage firms, as well as other state entities such as the Mexican Social Security Institute (IMSS by its Spanish acronym), the Institute for Social Security and Services for State Workers (ISSSTE in Spanish), the Federal Treasury (Tesofe), Petroleos Mexicanos (PEMEX), the Instituto del Fondo Nacional de la Vivienda para los Trabajadores (Infonavit), among others.
The main function of SIAC, in addition to managing these accounts, is to enable the implementation of monetary policy and liquidity provision to the Mexican financial system. In order to avoid shortcomings, the central bank has sought to encourage the use of other systems to process transfers, although SIAC is able to provide interbank transfer services. SIAC allows transfers of funds without restrictions only on the amount, without identifying third‐party senders or beneficiaries. Transactions are processed one by one, and debits and credits are
13 For more detail on intraday liquidity provision by the central bank, see section 4.3 of this document.
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applied immediately. As mentioned, the system is not promoted as a means of processing these transactions, but it retains this functionality for extraordinary cases.
SIAC keeps balances and accounting records of operations by participants and Banco de México. The information is centralized in databases, and account holders have terminals from which they operate in the system. Banco de México develops and maintains the central system and the terminals.
a. Relationship with other FMIs SIAC has real time connections with SPEI and DALI to transfer resources between accounts of those participating in all three FMIs. Additionally, the SIAC uses DALI to provide intraday liquidity through repo operations. Lastly, the CCEN’s net results are settled in banks’ current accounts in SIAC.
When SPEI began operating on a 24/7 schedule for certain types of retail payments in November 2015, SIAC’s liquidity provision procedure for SPEI was adjusted in order to allow banks to maintain liquidity at all times in SPEI through the current account overdraft mechanism.
b. Operating hours SIAC operates each bank business day on a schedule that covers most of the day, beginning the afternoon prior to the settlement date and ending the afternoon of the settlement day. At opening time, the banks’ balances in SIAC are usually zero. Banks obtain intraday liquidity through overdrafts on their current accounts in SIAC, which are backed by monetary regulation deposits. This liquidity is transferred to SPEI and DALI to settle operations in these FMIs. On the morning of the following day, the net results of CCEN are settled in SIAC. During the day, Banco de México has operations in SIAC related to the implementation of monetary policy and operations with government entities in its role as financial agent for the federal government. Before closing time, participating banks’ balances in DALI and SPEI are transferred to SIAC, where a process called market leveling is executed, in which banks conduct transactions among themselves and Banco de México to reduce their balances to zero at the end of each day’s operations. At closing time, overdrafts in the banks’ accounts are penalized with an interest rate of twice the representative market rate.
c. Recording operations SIAC has an efficient and secure communication channel known as SIAC Terminals through which the exchange of operational information between the system administrator, Banco de México, and its account holders is performed. By means of SIAC Terminals, account holders enjoy secure operations and know the availability of resources and the movements that take place daily. Chief among the elements of security and confidentiality are the authentication of terminals and operators.
d. Settlement SIAC is a real time gross settlement system. SIAC receives instructions from its participants to transfer funds, including those sent to DALI or SPEI. It checks the sending participant’s payment capability and, if sufficient, it charges the sender’s account and credits the account of the receiving participant or, as the case may be, the amount is sent to SPEI or DALI. Operations not settled are discarded from the system.
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e. Risk management Since SIAC is a real time gross settlement system, there is no credit risk for participants within the system. Additionally, the exposure of Banco de México to credit risk, due to the liquidity it provides to participants, is covered, as explained in section 4.3.
As for operational risk management, Banco de México has a main computing center and a contingency computing center, both of which can simultaneously process operations. The central bank also has a business continuity plan in place for SIAC which is tested regularly to ensure proper execution. Lastly, given the importance of liquidity provision to the financial system, SIAC has a contingency plan in place that allows the use liquidity of participants have in their accounts in SIAC, SPEI and DALI, even if SIAC were to be unavailable.
f. Fee structure Banco de México establishes the operational rules for SIAC and determines fees for participants, seeking only to recover the costs associated with the development and operation of the system. To this end, each participating institution must pay an annual fee and a monthly fee for each transaction instructed during the period.
5.2.3. Best practices applicable to SIAC Given that the current main function of SIAC related to FMIs is the provision of liquidity to payment‐system participants and its role as a payment system is very limited, Banco de México does not require it to comply with the Principles for Financial Market Infrastructures (PFMIs). However, the central bank seeks implementation by SIAC of some of the best practices in those principles.
Principles that apply to payment Relevant aspects systems Principle 1: Legal basis Applicable. Fundamental to all Financial Market Infrastructures. Principle 2: Governance Partly applicable. There are some exceptions for payment systems operated by central banks, issued by the CPMI/IOSCO. Principle 3: Framework for the Applicable. comprehensive management of risks Principle 4: Credit risk Not applicable. SIAC is a real time gross settlement payment system. However, this applies to liquidity provision, as explained in section 4.3 of this document. Principle 5: Collateral Applicable. Liquidity provision is explained in section 4.3. Principle 7: Liquidity risk Not applicable. SIAC is not exposed to liquidity risk. Principle 8: Settlement finality Applicable. Provided by Payments Systems Law (LSP). Principle 9: Money settlements Applicable. SIAC uses central bank money to settle operations.
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Principle 12: Exchange‐of‐value Not applicable. settlement systems Principle 13: Participant‐default rules Not applicable for transactions settlement. This is and procedures applicable to participants´ obligations with Banco de México related to liquidity provision. Principle 15: General business risk Not applicable. SIAC’s main functions are account management and liquidity provision, and there are some exceptions for payment systems operated by central banks, issued by the CPMI/IOSCO. Principle 16: Custody and investment Not applicable. risks Principle 17: Operational risk Applicable. Principle 18: Access and participation Not applicable. SIAC’s main functions are account requirements management and liquidity provision. Principle 19: Tiered participation Not applicable. There are only direct participants. arrangements Principle 20: FMI links Applicable. Principle 21: Efficiency and Applicable. effectiveness Principle 22: Standards and Applicable. communication procedures Principle 23: Disclosure of rules, key Applicable. procedures, and market data
5.2.4. Legal framework As a FMI and payment system operated by Banco de México, SIAC is governed by Banco de México Law and the provisions issued by Banco de México. Moreover, given that SIAC is operated by Banco de México, it is subject to the Payment Systems Law, which ensures the finality of settled payments and protects them against judicial and administrative challenges by authorities, including those arising from insolvency proceedings.
Moreover, SIAC is subject to Circular 3/2012 in relation to deposit management made by financial institutions at Banco de México, to transfers of resources between accountholders of Banco de México or transfers made to Banco de México through SIAC, as well as liquidity provision through overdrafts on banks’ current accounts and through intraday repo transactions.
Circular 3/2012 also establishes that deposit14 and liquidity15 auctions, which are part of the implementation of monetary policy by Banco de México, shall be made through the SIAC in the manner, terms and conditions set forth in the above‐mentioned Circular and SIAC’s Manual.
14 Deposit auctions are conducted by Banco de México to receive deposits. 15 Liquidity auctions are conducted by Banco de México to endow institutions with liquidity by means of overdrafts or repo operations.
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These last documents constitute the by‐laws of the system in which membership and operation rules are set. Contracts between Banco de México and the participants establish rights and obligations regarding the provision of services related to this system.
5.2.5. Banco de México’s role Banco de México, in addition to performing its supervisory and regulatory functions in terms of the Banco de México and Payments Systems Laws, is involved in the development and operation of the system. As its operator, the central bank manages, executes, and monitors the operations of SIAC participants. Furthermore, it manages the charges arising from processed transactions. Banco de México is also one of the main users of SIAC, as it implements monetary policy through open market operations via SIAC.
5.2.6. Banco de México’s tools for regulating participants Participants´ operations in SIAC are regulated by Banco de México´s issued provisions applicable to operations of financial institutions. Additionally, the Banco de México and Payment System Laws give Banco de México broad powers to oversee payment systems and to sanction participants in the case of noncompliance with the rules it defines.
5.3. DALI 5.3.1. Function The Securities Deposit, Administration and Settlement System (DALI) is the settlement system for securities transactions managed by S.D. Indeval. DALI registers and settles debt and equity securities issued in Mexico and settles direct trading operations, tri‐party repo transactions, and securities lending operations conducted by its depositors in the financial markets. Additionally, DALI offers services to manage the property rights of these securities—that is, the collection of interest, dividends and amortization, exchanges, conversions, subscriptions, mergers, and the segregation and reconstitution of securities. Currently, DALI is the only Central Securities Depository (CSD) in Mexico responsible for providing securities settlement services.
5.3.2. Description Indeval was created in 1978 as a government agency responsible for the custody and transfer of securities mainly pertaining to the stock market, in order to contribute to the development of market infrastructure in Mexico. Indeval became a private entity in 1987, with the brokerage firms, some banks, the Mexican Stock Exchange (BMV), and Banco de México as shareholders. In November 2008, Indeval began the operation of DALI in accordance with Banco de México’s requirement to renovate the settlement system operated until then, the Interactive System for Securities Depository (SIDV).
a. Participation DALI offers settlement services to banks, brokerage firms and other domestic and foreign financial institutions participating as depositors. To become DALI's direct participant, the institution mainly requires: i) compliance with the requirements established in the Rules and Operational Manual, ii) the signing of an adhesion contract, and iii) implementation of the systems and operational and communication processes under DALI’s by‐laws.
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b. Relation with other FMIs DALI is a participant in SPEI. Thus, the cash accounts of DALI participants are guaranteed by central bank money at all times. The sum of the balances of participants in DALI is equivalent to the sum of the balance of DALI in SPEI. Therefore, no credit risk is associated with the settlement asset used by DALI. Moreover, during business hours, DALI’s participants can transfer funds between DALI cash accounts and SPEI and SIAC accounts. DALI also maintains links with SIAC to process transactions relating to the liquidity provision mechanism through intraday repo transactions of Banco de México. At the end of the operating day, DALI transfers depositors’ cash account balances to SPEI accounts, or a bank account previously indicated.
c. Operating hours DALI starts operations at 08:00, GMT ‐6, allowing participants to obtain intraday liquidity from mechanisms provided by Banco de México, through overdrafts in a participant´s SIAC account and through same‐day repo operations. Closing operations in DALI occur after 16:00, when cash balances are transferred through SPEI to DALI participants.
d. Recording operations DALI uses two mechanisms of communication with its participants to access Indeval’s services effectively. The first mechanism, denominated Indeval Financial Protocol (PFI), was designated to establish communication among computers (similar to “host‐to‐host”). This protocol is based on message exchange under the ISO15022 standard, which allows participants to automate processes, and to reduce costs and the incidence of operational errors. The second mechanism, called Portal DALI, is a web interface that allows depositors to access DALI services from the browser on their computer. All instructions sent to DALI include digital signatures, which increases communications security.
e. Settlement DALI creates settlement cycles to process free‐of‐payment securities transfers, cash transfers, and securities’ trading operations. For the latter, securities transfers are subject to the corresponding payment; in other words, the “delivery versus payment” (DvP) structure is followed. The cycles are executed every two minutes or earlier, when accumulated up a certain number of payments, using an algorithm for settlement optimization, in order to avoid accumulation of unprocessed operations and to reduce costs associated with cash or securities liquidity. This cycling frequency implies that DALI operates almost as a real‐time system. The use of the settlement optimization algorithm, combined with its high‐frequency execution, allows participants to reduce costs associated with the cash and securities needed to settle participant transactions. This is particularly important for minor participants with low trading volume and reduced availability of cash and securities.
f. Risk management DALI has rules and procedures to manage the range of risks that arise from custody and settlement of securities. Depositors are not exposed to capital risk, because the trading of securities or repo transactions are performed through a DvP structure, avoiding the possibility that a counterparty will not receive payment after securities are delivered or vice versa. In DALI, participants and Indeval do not face credit risk, because the operating system rules do not allow overdrafts on depositors’ accounts. Therefore, if an instruction generates an account overdraft, the system will not settle it, and it is immediately queued for settlement in the next cycle. This
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information is relayed to the related parties through the system, indicating the cause of failure in the settlement cycle. At the end of the day, remaining queued operations are cancelled.
Regarding operational risk management, DALI’s by‐laws establish several provisions mainly aimed at promoting operational continuity and recovery in case of computer‐system failure.
g. Fee structure The fees charged by Indeval for its services, including those provided by DALI, are contained in its by‐laws. Generally, Indeval charges its depositors a monthly fee for computer services, and it charges each participant the services consumed (e.g., national and international custody, securities management, national and international settlement, collateral management, among others). Indeval fees are part of its by‐laws and require the approval of Banco de México and the CNBV, both of which may request adjustments in accordance with their authority.
5.3.3. Best practices that apply to DALI The following table shows the Principles that apply to DALI.
Principles that apply to central Relevant aspects securities depository and securities settlement systems
Principle 1: Legal basis Applicable. Fundamental to all FMIs. Principle 2: Governance Applicable. Principle 3: Framework for the Applicable. comprehensive management of risks Principle 4: Credit risk Not applicable. DALI does not incur credit risk, because it does not offer credit to participants, nor does it act as a counterparty. Principle 8: Settlement finality Applicable. DALI settlements are final and irrevocable according to the Payment Systems Law. Principle 9: Money settlements Applicable. DALI conducts its money settlements in central bank money. Principle 11: Central securities Applicable. depositories Principle 12: Exchange‐of‐value Applicable. DALI operates under a DvP structure to settlement systems mitigate principal risk.
Principle 15: General business risk Applicable. Principle 16: Custody and investment Applicable. risks Principle 17: Operational risk Applicable. Principle 18: Access and participation Applicable. requirements
Principle 20: FMI links Applicable. DALI holds direct links with SPEI, SIAC and the CCV.
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Principle 21: Efficiency and Applicable. effectiveness Principle 22: Communication Applicable. procedures and standards Principle 23: Disclosure of rules, key Applicable. procedures, and market data
5.3.4. Legal framework DALI’s legal framework is mainly composed of the Payment Systems Law (LSP) and the Securities Market Law (LMV). The LSP is applicable to DALI, because in this system the average monthly amount of the payment obligations accepted for settlement exceeds one hundred investment units (UDIs). The LSP requires DALI and Indeval to comply with the principles of irrevocability, enforceability, and finality in the operations it settles. Likewise, it establishes the requirements of the system’s by‐laws and the powers Banco de México has over the system administrators.
The LMV establishes the requirements under which the Ministry of Finance and Public Credit (the SHCP) grants a license to an entity to operate as a Central Securities Depository. In addition, the LMV establishes the responsible bodies for the management and main features of the activities and services to be provided. The LMV confers powers to Banco de México and the CNBV to authorize, submit comments on, and request changes to Indeval’s by‐laws, which, overall, must contain rules applicable to deposit, clearing and settlement of securities, exercise of property rights, and participant’s rights and obligations.
Moreover, there are secondary regulations governing some related aspects of DALI’s activities, in particular, those contained in the General Provisions Applicable to Institutions for Securities Depository and Stock Exchange issued by the CNBV, and Circular 3/2012 issued by Banco de México.
5.3.5. Banco de México’s role Banco de México has multiple roles with respect to DALI. Mainly, it performs regulating and supervisory functions resulting from the powers conferred by the LSP and LMV. Under the LSP, Banco de México can design and require implementation of forced‐compliance adjustment programs aimed at eliminating irregularities in the system.
Banco de México is also a user of DALI. Through this system, it implements monetary policy, settling operations of securities issued for monetary regulation purposes and other liquidity facilities. Furthermore, Banco de México serves as the federal government’s financial agent and provides liquidity to the financial system (e.g., by implementing repo transactions with banks).
5.3.6. Banco de México’s tools for regulation and supervision The legal framework gives Banco de México broad powers to regulate and to supervise DALI and Indeval. One of its main tools is the ability to regulate internal regulations that Indeval applies to depositors for deposit services and securities settlement. Under the LMV, these
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powers are carried out jointly with the CNBV in the case of the by‐laws, while in the LSP it is expected that the by‐laws are subject to Banco de México´s authorization.
According to LMV provisions, Banco de México should participate as an independent director, with a representative on the Indeval Board of Directors, a body that discusses plans and projects, appoints governing bodies, and determines the company’s asset management strategy.
Finally, Banco de México can carry out functions of oversight and supervision regarding Indeval. Through supervision, the central bank assesses the risks to which the DALI control systems may be subject, and it instructs corrective measures to implement payment systems and financial markets best practices.
5.4. CCV 5.4.1. Function The Central Securities Counterparty (CCV) is the entity acting as a central counterparty responsible for clearing and settlement of securities transactions negotiated on the BMV. In this sense, by acting as a central counterparty, the CCV becomes the reciprocal creditor and debtor of the rights and obligations arising from such transactions. Its main function is to provide certainty to participants on the counterparty credit risk of trading partners, as well as variations in prices resulting from the fact that settlement occurs three days after trading transactions. CCV’s activities are intended to mitigate risks arising from defaults on the obligations of securities transactions made by stock exchange intermediaries (entered on their own accounts or on behalf of third parties through the BMV), and to reduce the number and value of deliveries and payments, as well as transaction costs. Thus, the CCV contributes to safety and efficiency in processing transactions executed by market participants, and reduces counterparty credit risk.
5.4.2. Description In 1997, the guarantee trust for the settlement of transactions made on the BMV was established, and in 2004, it began operations as a central counterparty for securities with a license granted by the SHCP, in the wake of 2001 amendments to the Securities Market Law. Grupo BMV is CCV’s operator and main shareholder. CCV, in performing its functions, provides securities clearing and settlement services.
a. Participation Credit institutions and brokerage firms are entities which may become participants in CCV, as clearing members or non‐clearing members. A clearing member is constituted as a reciprocal creditor and debtor of CCV with respect to the rights and obligations arising from securities transactions made on the BMV and, where applicable, from the securities transactions traded by non‐clearing members.
In order for a credit institution or brokerage firm to be constituted as a clearing member, they must be a depositor at Indeval and maintain at least one cash and one security account, meet applicable technological standards, have the systems required by CCV, and set a limit of
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liability16 for each of its non‐clearing members. Once an institution has obtained authorization by CCV to act as a clearing member, it buys a representative share of CCV’s capital stock and contributes to the corresponding guarantee funds.
A non‐clearing member is a financial intermediary which contracts the services of a clearing member, so that the latter acts as reciprocal creditor and debtor of the CCV with respect to the rights and obligations arising from securities transactions of the former. In this regard, a non‐ clearing member shall, among other things, be constituted as a brokerage firm, be a depositor in Indeval, and maintain at least one cash account and one securities account, contribute to the corresponding guarantee funds, and submit an application to be accredited by the CCV.
b. Relationships with other FMIs CCV is involved with DALI to settle its obligations in securities and cash between it and its participants.
c. Recording operations CCV has a direct link to the BMV. Through this link, the BMV conducts the transactions through which, in CCV, one liability is substituted for another (novation). Once CCV has received the transactions, it estimates the credit risk and determines the necessary amount of collateral needed, commonly known as initial margin. To that extent, clearing members’ transactions must maintain sufficient collateral.
d. Clearing and settlement CCV clears delivery and receipt obligations of securities and cash for each clearing member’s account. If collateral is insufficient to cover the credit exposure in clearing members´ accounts, CCV requires them to deliver the necessary funds, which should be covered in a period no longer than 30 minutes.
CCV settles transactions three days after their recording and novation. To this end, CCV executes on that day periodic settlement cycles in the form of delivery versus payment (DvP).17 Once CCV verifies the transfer of securities and cash in its accounts, it instructs movements of securities and cash to the clearing members’ accounts, accordingly.
e. Risk management When CCV novates transactions and, therefore, becomes the reciprocal creditor and debtor of the rights and obligations arising from the purchase and sale transactions, it faces mainly credit and market risks. Regarding market risk, CCV could be affected by an increase or decrease of the security price over the original traded price. Concerning credit risk, CCV might not fully satisfy its obligations on time due to the possible default of a counterparty.
In order to manage the credit risks to which it is exposed, CCV has a series of procedures and resources known as financial safeguards. Generally, financial safeguards are constituted by the contribution fund, the default fund, the reserve fund, and CCV’s capital.
16 The liability limit is the maximum amount a clearing member sets to cover the deficit a non‐clearing member can have in required collateral to register a new transaction. The amount is fixed according to the criteria issued by the CCV Risk Committee. 17 The obligations are settled in strict chronological order, giving preference to the oldest.
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The contribution fund contains initial margins.18 Securities or cash can constitute this fund. The resources are calculated based on the established single‐tailed confidence level of at least 99 percent of the estimated distribution of the future exposure. Initial margins cannot be mutualized, that is, they can only be used to cover the default of the clearing member who delivers them.
CCV uses the default fund to protect itself from unconventional events not covered by the contribution fund. Its main feature is that CCV can access resources provided by all other clearing members in addition to those of the defaulted clearing member; however, the resources provided by all other clearing members may be only accessed if the resources of the defaulting clearing member are exhausted.
The reserve fund is integrated by contractual penalties and penalties applied to clearing members. On the other hand, clearing members contribute to CCV capital. More than 99 percent of the capital belongs to the BMV and the rest to the clearing members.
In the case of default of any clearing member, CCV, in general terms and in accordance with the provisions of its financial safeguards, will use its financial resources in the following order: 1. Initial margins of the defaulting clearing member 2. Resources deposited in the default fund by the defaulting clearing member 3. 20% of CCV’s capital. 4. Resources deposited in the default fund by all other clearing members 5. 80% of CCV’s capital.
It is worth noting that, in step 4, CCV may require clearing members to reconstitute the resources of the default fund, but only once and no more.
f. Fee structure Clearing members and non‐clearing members must pay CCV for the provision of services related to clearing and settlement of transactions, the annual rent of the system, and collateral management. Regarding clearing and settlement transaction services, fees depend on the monthly cumulative amount of transactions recorded by CCV and cleared or settled through its systems.
5.4.3. Principles applicable to CCV The following table shows the principles applicable to CCV.
Principles applicable to Relevant aspects central counterparties Principle 1: Legal basis Applicable. Principle 2: Governance Applicable. Principle 3: Framework for the Applicable. comprehensive management of risks Principle 4: Credit risk Applicable. Given its characteristics, CCV requires fulfilment of the cover 1 criteria (i.e., CCV should
18 The variation margin acts as a settlement method by using the daily valuation of the contract at market prices.
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maintain sufficient financial resources to meet its obligations in a timely manner upon default of the participant that would cause the largest aggregate credit exposure). Principle 5: Collateral Applicable. Principle 6: Margin Applicable. Principle 7: Liquidity risk Applicable. Given its characteristics, CCV requires fulfilment of the cover 1 criteria (i.e., CCV should maintain sufficient financial resources to meet its obligations in a timely manner upon default of the participant that would cause the largest aggregate liquidity obligation). Principle 8: Settlement finality Applicable. Principle 9: Money settlements Applicable. Money settlements are conducted using DALI. Principle 10: Physical deliveries Principle 12: Exchange‐of‐value Applicable. CCV uses the delivery‐versus‐payment settlement systems service provided by DALI. Principle 13: Participant‐default rules Applicable. and procedures Principle 14: Segregation and portability Applicable. Principle 15: General business risk Applicable. Principle 16: Custody and investment Applicable. risks Principle 17: Operational risk Applicable. Principle 18: Access and participation Applicable. requirements Principle 19: Tiered participation Applicable. arrangements Principle 20: FMI links Applicable. Principle 21: Efficiency and Applicable. effectiveness Principle 22: Communication Applicable. procedures and standards Principle 23: Disclosure of rules, key Applicable. procedures, and market data
5.4.4. Legal Framework The Securities Market Law (LMV) provides the legal framework for central securities counterparties. This law establishes the requirements used by the Ministry of Finance and Public Credit (SHCP) to grant licenses to corporations to operate as central securities counterparties; moreover, it establishes the purpose and minimum capital requirements, the bodies responsible for management, and the activities and services to be provided by CCV as a central securities counterparty. The General Corporations Law (LGSM) and Business Bankruptcy Law (LCM) govern the resolution and liquidation processes, as well as the bankruptcy of central securities counterparties.
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The by‐laws of CCV derive from the LMV and contain, among others, rules applicable to: Procedures and systems through which transactions are cleared and settled, as well as the rights and obligations of the company and its participants. Procedures for risk management. Mechanisms to raise financial resources allowing it to comply with its obligations. Operational and prudential rules. Processes for adoption and supervision of such rules. Self‐regulation rules. Disciplinary and corrective measures, as well as procedures to enforce such measures.
Moreover, as an appendix to the by‐laws, the operational manual describes obligations and rights between CCV and its participants, procedures, deadlines, the default of participants, and other matters related to services, as well as published schedules.
Regarding the provisions of Banco de México, the Provisions applicable to Central Counterparties of Securities related to Credits, Loans and Information to Banco de México (Circular 14/2008) contain the rules for central securities counterparties to contract credits and loans to achieve its corporate purpose, and to provide information to Banco de México.
5.4.5. Banco de México’s role Banco de México, in accordance with the powers conferred by the LMV, acts as regulator for central securities counterparties. Essentially, Banco de México, jointly with the CNBV, can issue regulations on the matter.
5.4.6. Banco de México’s tools for regulation and operation The LMV provides several regulatory powers to Banco de México related to central securities counterparties, which it jointly exercises with the CNBV, notably, the following: To order modifications to risk management procedures and to the manner in which funds are allocated in order to comply with obligations. To issue the necessary regulation in order to promote the proper operation and risk management of CCV, the fulfilment of the transactions in which it is a reciprocal debtor and creditor, efficiency in clearing and settlement procedures and systems, and the adequate investment of resources. Regarding information requirements, both the CNBV and Banco de México have powers to request any information and documents they see fit, within the scope of their authority, through general provisions. In relation to self‐regulatory standards, these authorities have veto powers.
In addition, by‐laws and amendments must be submitted for prior authorization to Banco de México and the CNBV, which may make observations and amendments when they conclude that the by‐laws do not abide by the provisions of the LMV or to sound market practices. Moreover, Banco de México may issue provisions to allow central securities counterparties to contract credits and loans to correctly pursue its corporate purpose.
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At the behest of Banco de México or the CNBV, or prior opinion of such authorities and granting of the right to be heard, the SHCP under certain criteria may revoke CCV’s license to operate as a central securities counterparty.19
5.5 Asigna 5.5.1. Function Asigna Trust for Settlement and Clearing (Asigna) operates as a clearinghouse for derivatives; its purpose is to act as a central counterparty for derivative contracts traded on the Mexican Derivatives Exchange (MexDer), as well as derivative contracts received from trading platforms. Asigna settles and clears credit exposures from derivative transactions it receives, through different policies, procedures and methodologies that allow Asigna to identify, measure, and manage risks assumed through its role as a central counterparty.
5.5.2. Description Asigna was established as a trust in 1998 in BBVA Bancomer, S.A., part of the commercial banking group, Grupo Financiero BBVA Bancomer, and authorized by the SHCP. Until August 2014, the law allowed Asigna only to settle and clear transactions executed on MexDer. Afterwards, it was allowed to receive derivative transactions traded on other trading platforms.
a. Participation Asigna’s direct participants are clearing members, which must be constituted as management and payment trusts and obtain the approval of the derivatives clearinghouse. It should be noted that the SHCP, after receiving the opinion of the CNBV and Banco de México, reserves the right to veto the approvals. Anyone may be constituted as a clearing member, as long as this is through commercial banks or brokerage firms as trustees. Clearing members are co‐obligors with Asigna on contracted responsibilities on their own accounts or on behalf of customers.
b. Recording operations Asigna has two mechanisms for acting as a central counterparty for a transaction. In the case of transactions negotiated through MexDer, Asigna automatically becomes a central counterparty after the sale and purchase agreement of a derivative transaction. Subsequently, the operation is assigned directly to the accounts of each client kept by the clearing member in Asigna. The direct assignation in Asigna operations depends on the compliance risk controls established by the clearing member, which are executed before the transaction on MexDer. On the other hand, in the case of transactions on other trading platforms, Asigna interposes itself as a central counterparty through the novation of the previously executed contracts. Through novation, the original agreement between the parties is extinguished and replaced by two new contracts, one between Asigna and the seller, and another between Asigna and the buyer. To carry out the novation of an executed transaction on platforms, the participants must meet the risk control requirements established by Asigna for all participants. Under the applicable regulations, pre‐transactional risk control requirements must consider the exposure limits of clearing members, and the operational limits established by the clearing members applicable to their clients.
19 In the cases referred to in Article 320 of the LMV.
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c. Clearing and settlement The clearing structure consists of grouping and offsetting the risks of contracts according to the correlation between them and their underlying risks. This is done for each clearing member account and, in turn, for each subaccount maintained for each customer. The results of the clearing determine the financial resources that clearing members must transfer to Asigna, for the management and risk mitigation services performed, both, on behalf of the clearing member and on behalf of its customers. Clearing is performed every 10 minutes during the day, and for each execution, Asigna conducts a valuation of the positions of every account and subaccount held by the clearing member, and determines the requirements for the financial resources to be transferred. At the end of the operating day, Asigna informs the clearing members of the financial resources to be transferred the next day and thus settle their current risk exposures. This process occurs through daily settlements20. However, Asigna may require the transfer of these resources during the operational day in the event that the exposure limits permitted by the clearinghouse are exceeded, or if specific market conditions present themselves. This process is known as extraordinary settlement.
d. Risk management Asigna establishes rules, procedures and methodologies to identify, measure, monitor and manage the risks assumed in its role as a central counterparty. Once Asigna interposes itself as a central counterparty in a derivative contract, it requests the delivery of posted collateral from the clearing members as initial margin to cover future credit exposure from derivative contracts. To accomplish this, Asigna estimates the economic loss that the default of a participant contract or contracts would represent to it, given the time it would take to close the defaulted contracts. Particularly, the initial margin is calculated based on the estimated distribution of future exposure and assuming a confidence level for a single tail of 99 percent.21 Clearing members may require a higher initial margin from their clients based on their credit risk profile. Eligible collateral is accounted for in the contributions fund established by Asigna and is identified through segregation at the client and clearing‐member level. In order to include market price variations on the current exposure, Asigna debits and credits the variation margin among participant accounts. Asigna evaluates open positions that are marked to market and transfers the corresponding amounts to a counterparty to settle any loss (or gain) generated by these positions. At the end of the derivative contract, on the due date, and according to the exercise of the derivative contract (e.g., delivery of the underlying contracts), Asigna may require its participants to transfer additional margin to mitigate liquidity risk and default risk, in the case of delivery of the obligated party’s underlying contract, through the already mentioned guarantees. Thus, Asigna mitigates the risks to which it is exposed alongside the life of the derivative contracts in which it acts as a central counterparty.
Asigna must ensure, with a high degree of certainty, that it maintains the necessary financial resources to cover its current and future credit risk exposures against its clearing members and
20 Corresponds to the net amount of all financial resources requested by Asigna. The net amount covers variation margins (mark to market) of the swap contracts and collateral held in Asigna. The daily settlement includes, but is not be limited to: i) option premiums; ii) option exercise ; iii) initial margin; iv) default fund contributions; v) interests, yields and fees; vi) swap coupons; vii) variation margins; viii) delivery margins; ix) payment of the underlying assets; and viii) price alignment interest. 21 Asigna clears and reduces initial margin contributions based on the “Theoretical Intermarket Margining System” (TIMS) used by international derivatives markets. This system calculates margin at subportfolio level and accounts for relevant product risk factors and portfolio effects across products.
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their clients. Asigna has a compelling framework for stress testing under a broad range of scenarios, including at least the default of the clearing member with the largest aggregate credit exposure. In accordance with international best practices, also known as cover 1, Asigna has established rules, procedures, and a methodology for performing these tests and communicating the results to senior management and the results that determine the resources requirement. Asigna mutualizes the financial resources required for such tests, which must be transferred by all clearing members to the compensation fund. According to Asigna´s policies, rules, and procedures, this fund will mutualize losses generated from the management of the default of a participant, in order to allow Asigna to fulfil its obligations as a central counterparty. The resources provided by clearing members to the compensation fund should be only in cash and denominated in Mexican pesos.
Additionally, Asigna must have a minimum amount of equity equivalent to 15 million investment units (UDIs). Banco de México may require Asigna to maintain a greater amount, taking into account the risks that Asigna incurs, considering the international standards in this regard. On the other hand, the clearing members must also maintain a minimum amount of equity, which would be administered by its trustee. If the clearing member only operates with Asigna on its own, it must have at all times an equivalent amount of equity over 2.5 million UDIs or the amount determined in terms of the methodology established by Asigna. If a clearing member operates on behalf of a third party, or both on its own and on behalf of third parties, Asigna must have at all times an equivalent amount of equity over 5 million UDIs, or the amount determined in terms of the methodology established by Asigna. The methodology in question must be approved by Banco de México.
In case of default of any of the clearing members, Asigna, in general terms, and in accordance with its financial safeguards, uses its financial resources in the following order: 1. Initial margin of the defaulted client. 2. Funds deposited by the clearing member in the compensation fund. 3. Minimum amount of equity of the clearing member. 4. 50% of the Asigna minimum amount of equity.22 5. Resources provided by other clearing members to the compensation fund. 6. The remaining 50% of Asigna minimum amount of equity.
In the fifth step of the previous list, Asigna may require the clearing member to reconstitute the financial resources of the compensation fund, on up to two occasions. Subsequently, clearing members may exert their option to retire from Asigna, according to the terms and conditions established by it. Asigna will use the remainder of its minimum amount of equity to cover its payment obligations in order to reduce the exposure of the clearinghouse. For this potentiality, Asigna has established mechanisms of close‐out positions and the liquidation and termination of contracts related to the positions in default.
Additionally, Asigna maintains a collateral risk management framework for the financial resources it operates, the risks that come from the management of eligible collateral, and the settlement of its operations. In the case of eligible collateral, the regulation establishes the
22 The equity of Asigna is the sum of the minimum equity established in Tripartite Rules (15 million of UDIS), any surplus and any requirement that central bank may request to Asigna. The equity of Asigna is part of its financial safeguard in case of a default event.
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types of collateral Asigna can accept, including cash and government securities with low credit risk, liquidity risk, and market risk. Banco de México may authorize collateral different from those types set out in the regulation. Asigna has established prudential measures for valuation practices and the development of haircuts, which are regularly tested and take into account stressed market conditions. Similarly, in order to reduce the need for pro‐cyclical adjustments, Asigna establishes policies and procedures to review and calibrate the haircuts. The collateral amounts are settled through commercial banks, including cash, securities and currencies. Asigna has rules and procedures to clearly define the point at which the settlement is final. Securities settlements occur through a credit institution depositor in DALI; and cash settlements, by a credit institution participant through SPEI.
e. Fee structure The charges made by Asigna for services rendered are determined by the technical committee of the trust of the central counterparty. In order to establish fees, the committee should take into consideration the administrative costs of the clearinghouse and, when necessary, increase the equity of Asigna. Asigna publishes clearing and settlement fees on its website. In accordance with the Tripartite Rules, Asigna must notify the authorities (the SHCP, CNBV and Banco de México) of intended amendments to the fee structure. The authorities may object to these amendments.
5.5.3. Best practices applicable to Asigna The following table shows the Principles that apply to Asigna.
Principles that apply to central Relevant aspects
counterparties
Principle 1: Legal basis Applicable. Principle 2: Governance Applicable. Principle 3: Framework for the Applicable. comprehensive management of risks Principle 4: Credit risk Applicable. Due to its characteristics, Asigna is required to fulfill cover 1 criteria (i.e., it must have sufficient resources to comply with its obligations in a timely manner upon the default of the participant with the largest credit risk exposure). Principle 5: Collateral Applicable. Principle 6: Margin Applicable. Principle 7: Liquidity risk Applicable. Due to its characteristics, Asigna is required to fulfill cover 1 criteria (i.e., Asigna must have sufficient resources to comply with its obligations in a timely manner upon the default of the participant with the largest liquidity risk exposure). Principle 8: Settlement finality Applicable.
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Principle 9: Money settlements Applicable. Implemented via SPEI through an intermediary bank. Principle 10: Physical deliveries Applicable. Principle 12: Exchange‐of‐value Applicable. Asigna uses the DvP service provided by settlement systems DALI, through an intermediary bank. Principle 13: Participant‐default rules Applicable. and procedures Principle 14: Segregation and portability Applicable. Principle 15: General business risk Applicable. Principle 16: Custody and investment Applicable. Investment assets are set at the regulation risks level. Principle 17: Operational risk Applicable. The objective recovery time is set at the level of CNBV regulation, or 2 hours, to be reduced to 30 minutes. Principle 18: Access and participation Applicable. requirements Principle 19: Tiered participation Applicable. arrangements Principle 20: FMI links Not applicable. Asigna does not maintain direct links to other FMIs, only indirect links with SPEI and DALI, and these do not generate credit and liquidity risk. Principle 21: Efficiency and Applicable. effectiveness Principle 22: Communication Applicable. procedures and standards Principle 23: Disclosure of rules, key Applicable. procedures, and market data
5.5.4. Legal framework The legal framework for the operation of Asigna is established mainly in the Rules Applicable to Participants of Derivative Markets (Tripartite Rules), jointly issued by the SHCP, CNBV, and Banco de México. The Tripartite Rules set out the criteria for becoming a central counterparty, the obligations assumed for the services provided, and the risk‐management methodologies to be followed.
Additionally, Asigna is subject to the Prudential Provisions Applicable to Participants of Futures and Options Exchanges issued by the CNBV, which take into account the opinions of Banco de México and the SHCP, and aim to establish guidelines for the operation of central counterparties, such as minimum standards for the integration of the technical committee of the central counterparty and the establishment of internal control systems and transaction monitoring features.
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5.5.5. Banco de México’s role The Tripartite Rules confer on Banco de México, within the scope of its powers, supervisory authority over derivative clearinghouses and clearing members. In addition, the central bank has various powers to promote the proper operation and risk management of the central counterparty, and compliance in operations in which Asigna is a reciprocal creditor and debtor.
5.5.6. Banco de México’s tools for regulation The Tripartite Rules confer on Banco de México various powers, jointly with the CNBV, regarding the regulation of derivatives clearinghouses established in Mexico. In this order, Banco de México has several regulatory tools applicable to Asigna, among which are the following: the approval of the methodology to set the amount of the minimum initial contributions to be transferred by each clearing member to Asigna, the methodology to define the creation of the compensation fund and a clearing member’s minimum amount of equity, and the clearinghouse’s liquidity plan. Furthermore, as mentioned, Banco de México may require a higher minimum amount of equity of the clearinghouse and approve the assets that in which it can be invested.
Overall, Banco de México has powers to request amendments to the clearinghouse and clearing members’ by‐laws when it concludes they are unsuitable or may deter healthy practices in the market.
5.6. Banco de México’s Derivatives Trade Repository 5.6.1. Function In accordance with the task of promoting both the sound development of the financial system and the optimal functioning of the payment systems, Banco de México provides trade data registration and repository services for derivate transactions conducted by national counterparties. Specifically, the report on the derivative transaction’s main economic terms aims to provide accurate and timely information on the derivative market, for different proposes. These may include systemic risk analysis, market regulation and surveillance, prudential supervision and crisis management. Moreover, the Banco de México trade repository provides other financial authorities23 with reliable, complete, and timely access to its data, in the aim of supporting public policy projects, improving the authorities’ resources for fulfilling their mandates, and improving market transparency for derivative financial instruments. Banco de México publishes on its web page aggregate data on open positions and transaction volumes on a daily basis. Due to its powers of information‐sharing with foreign authorities and in order to access information held in foreign trade repositories, Banco de México’s trade repository is considered to be a key instrument for enhancing market transparency, as well as a prudential policy tool for systemic risk assessment.
5.6.2. Description Trade repositories are entities characterized by the maintenance of an electronic database of derivatives market transactions, mainly with the aim of obtaining information on derivative financial transactions in the OTC market. Trade repositories have emerged as a new type of FMI
23 Banco de México has the capacity to share trade derivatives information with foreign financial authorities provided an information exchange agreement signed by Banco de México exists with the requesting foreign financial authority.
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and have grown in importance because of the severe lack of transparency in the OTC derivatives markets faced by authorities during the global financial crisis of 2008. In this context, this infrastructure has gained importance, especially due to its data dissemination functions among financial authorities in various jurisdictions.
Currently, there exist some provisions with respect to the reporting of derivatives transactions in Mexico. The Rules for derivative transactions (Circular 4/2012), issued by Banco de México, requires credit institutions, securities firms, investment companies, limited‐scope financial institutions, and the Rural Financial Institution to report their derivatives transactions to Banco de México. Since 2005, Banco de México has provided trade data registration and repository services. The main characteristics of the reported data are established in standard reporting forms.
For each transaction, Banco de México trade repository information comprises the following: unique product identifier; unique legal identifier or a unique identification for the counterparties not subject to the reporting requirement; product identification; asset class; product type; notional traded amount; valuation methodology; and exchange currency, among other contract terms.
Banco de México is responsible for creating and maintaining the standards and definitions used for the reported data. In the case of a derivative transaction traded between two entities to which the reporting requirement apply, both counterparties must report the transaction and make the confirmation report.24 Banco de México quality checks on the derivatives information reports are performed via a validation process consisting of four major stages. First, a batch of field validation is performed, in which the system verifies that the data submitted in each field is compatible with the allowable values for each field. The second process is the consistency validation, referring to the validation performed once the information is submitted, including the comparison of consistency between counterparties (only for inter‐bank transactions); each transaction held between them has to be consistent in all fields. The third phase involves a wider validation procedure carried out by the end of the month, using aggregated information obtained by Banco de México through different requirements, such as accounting statements, capitalization and steering liquidity forms, as well as other aggregated information; with this information certain reported fields are verified. Finally, also by the end of each month, the reporting institutions have to recognize and review the economic terms of all outstanding transactions, via the confirmation of each of their transactions in the data base.
Among the mechanisms used to identify reporting errors and ensure the quality of the OTC derivatives transactions data at the Trade Repository is the format, content and syntax validation process. If reporting errors are detected after the report has been made, Banco de México’s trade repository notifies the reporting counterparty in order for them to report the transactions again within two business days.
24 The reporting information system has a mechanism to avoid double counting. Banco de México’s trade reporting system is capable of identifying each unique transaction (considering the transaction date, the unique identifier, and other economic contract terms, and defined by a unique transaction number).
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Access to TR data enables authorities to detect financial market risk exposures. The market aggregate information disclosure and its availability for public consultation through the Banco de Mexico website benefit the general public and provide for market transparency.
5.6.3. Legal framework Several Mexican laws empower different financial institutions to trade derivative transactions and delegate Banco de México the authority to regulate and supervise the conditions under which those transactions will be carried out. For that reason, Banco de México published its Rules for derivative transactions, Circular 4/2012; this regulation requires banks and brokerage firms to report their derivatives transactions to the central bank. Moreover, regarding exchange of information, the Credit Institutions Law states that the information collected by Banco de Mexico and protected by confidentiality provisions can be shared with foreign financial authorities provided they sign an information‐sharing agreement with Banco de Mexico.
5.6.4. Principles that apply to Banco de México’s Derivatives Trade Repository.
Principles applicable to trade Relevant Issues repositories Principle 1: Legal Framework Applicable. Principle 2: Governance Applicable. Principle 3: Framework for the Applicable. comprehensive management of risk Principle 15: General business and Applicable. But not significant as operations are operational risk management conducted by Banco de México.
Principle 17: Operational risk Applicable.
Principle 18: Access and participation Applicable. requirements Principle 19: Tired participation Not applicable due to operational structure. arrangements Principle 20: FMI links Not applicable. No links with other FMIs. Principle 21: Efficiency Applicable.
Principle 22: Communication Applicable. procedures and standards Principle 23: Disclosure of rules, key Applicable. procedures, and market data Principle 24: Disclosure of market data Applicable. This is the most important principle by trade repositories applicable to TRs, given that it is related to information sharing with Mexican and foreign financial authorities and public dissemination of aggregated derivative transactions information.
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5.6.5. Banco de México’s role Banco de México itself operates the Banco de México derivatives trade repository and acts as its regulator.25 Banco de México has two committees in charge of supervising and promoting the central bank’s proper functioning, including the management of reporting systems and information storage. Those committees are the Internal Control System Monitoring and Audit Committees.
Banco de México’s oversight powers are applicable to foreign trade repositories registered in Mexico and central counterparties that provide trade reporting services. Circular 4/2012 enables Banco de México to apply supervisory powers to the foreign trade repositories registered in Mexico. The Tripartite Rules define Banco de México supervisory powers regarding central derivatives counterparties that provide trade repository services, as authorized by Banco de México, the CNBV and the SHCP.
Banco de México is also a user of the trade reporting system and a source of information, not only for national but also for international authorities, in the aim of supervising and controlling financial market risks.
6. Retail payment infrastructures in Mexico 6.1. National Electronic Clearinghouse (CCEN) 6.1.1. Role Cecoban is the operator of CCEN26 and is the only company authorized by Banco de México to provide clearing services for interbank operations for checks, deferred electronic funds transfers (TEFs), and direct debits. On day 1, CCEN concentrates and processes information from the amounts operated in the three services to generate files for clearing27. The next day, Cecoban transmits the files to Banco de México. The central bank calculates the difference between the creditor and debtor positions for each participant in order to establish the value of the final obligations to be settled in SIAC.
In this regard, the importance of CCEN in the economy is that it facilitates electronic funds transfers and deferred debits between clients of different banks and decreases the transaction costs for system participants.
25According to the Tripartite Rules, Banco de México has only the supervisory role with respect to the trade repositories information services issued by the central derivatives counterparties. 26 Cámara de Compensación Electrónica Nacional, as the National Electronic Clearinghouse is known in Spanish. 27 Along with adjustments and returns.
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6.1.2. Description In 1982, Banco de México and commercial banks created the Banking Computer Center trust, or Cecoban. In 1997, the trust was extinguished, and Cecoban became a private company owned by 37 financial institutions, which own and operate CCEN.
a. Participation To participate in CCEN, commercial banks and development banks must be Cecoban shareholders through contribution to Cecoban’s capital. All shareholders must own the same number of shares. In this sense, Cecoban should allow entry to shareholders and provide clearing services on equal terms to all banks that meet the standards, technical requirements, and obtain authorization by the competent authorities.
b. Relationship with other FMIs Settlement is made with cash accounts kept by participants in SIAC.
c. Registering operations Participating banks send CCEN amounts for transactions with payment instruments: Interbank checks, which are physical documents received by a bank and issued by another bank. Deferred electronic funds transfers, in which the customer instructs his bank to charge his account and send the funds to an account in another bank. That payment will be credited at least one business day after instruction. Direct debits, in which the owner of a deposit account authorizes a third party (e.g., a telephony service provider) to debit that account.
d. Clearing and settlement With the information received, CCEN runs a process to determine bilateral positions between each pair of participants for each payment instrument and sends that information to Banco de México´s Clearinghouses System (SICAM), which is responsible for clearing and determines the final net position of every participant in order to settle those positions in the current accounts participating banks maintain in SIAC.
On a normal trading day, the banks send the information on payments processed with each payment instrument to CCEN. Cecoban validates the information and notifies banks of the results before 8:30 p.m.
Through the SICAM and according to the files returned by the banks, Cecoban delivers to Banco de México, at 7:30 the following day, the information on payment instruments that each institution presented, as well as information concerning refunds and adjustments. Based on this information, the SICAM calculates net positions for each institution.28
28 The net positions consider exchange fees for interbank transactions.
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For participants with a net debit position calculated by the SICAM, instructions are sent to charge the value to the accounts that these entities have in the SIAC. Subsequently, through the same system, instructions are issued to credit the corresponding amounts on the accounts of participants with a net credit balance.
When an entity has a net debt position, Banco de México verifies that its resources (the account balance in the SIAC or unused collateral with Banco de México) meet the required obligations.
e. Risk Management To minimize financial risks, institutions may grant credit lines to each other, which may be used up to the amount that is required according to the results of the clearing process and the payment capability of the lending bank in the SIAC. The credit line granted to any other institution may not exceed 30% of the net capital of the borrower institution.
To mitigate operational risks, Cecoban has two operating sites, one primary and one alternate. These sites have the necessary infrastructure to provide service without interruption in case of contingency. Also, the infrastructure has a private network that supports communication with each participant.
F. Fees The fees charged by Cecoban for the services offered are tiered and depend on the number of transactions presented by each participant. In accordance with monthly trading volume, each bank is charged the sum of its transaction fees, which consist of two parts: a fixed fee and a progressively tiered fee.
6.1.3. Best practices that apply to CCEN Due to the value of the payments processed by CCEN, it is not considered a systemically important FMI, so Banco de México does not require compliance with PFMIs. However, the central bank encourages CCEN to implement some of the PFMI best practices.
PFMIs that apply to the CCEN Key aspects Principle 1: Legal basis Applicable. Fundamental to all FMIs. Principle 2: Governance Applicable. Principle 3: Framework for the Partially applicable. The requirement is to identify and comprehensive management of risks manage relevant risks. Principle 4: Credit risk Partially applicable. The requirement is to manage risk, but not to meet the coverage requirements for the failure of one or two participants. Principle 5: Collateral Not applicable due to CCEN’s operating structure. Principle 7: Liquidity risk Partially applicable. The requirement is to manage risk, but not to meet the coverage requirements for the failure of one or two participants.
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Principle 8: Settlement finality Not applicable. The amount is settled according to level, and finality is not considered indispensable. However, settlement is made in the SIAC, where transactions are firm and irrevocable by law. Principle 9: Money settlements Not applicable. The amount is settled according to level, and money settlements are not considered indispensable. However, settlement is made in the SIAC, with money from the participants in central bank accounts. Principle 13: Participant‐default rules Applicable. and procedures Principle 15: General business risk Not applicable. Due to the amounts involved, this principle does not apply to CCEN. Principle 16: Custody and investment Not applicable. Because of operating structure, this risks principle does not apply to CCEN. Principle 17: Operational risk Applicable. Principle 18: Access and participation Applicable. requirements Principio 19: Mechanisms of Not applicable. Due to operating structure, this participation with several levels principle does not apply to CCEN. Principle 20: Connection with FMI Applicable. Principio 21: Efficiency and Applicable. effectiveness Principle 22: Rules and communication Applicable. procedures Principle 23: Disclosure of rules, key Applicable. procedures and market data
6.1.4. Legal framework Circular 3/2012 (Disposiciones Aplicables a las Operaciones de las Instituciones de Crédito y de la Financiera Rural), establishes, among other things, the characteristics that a potential clearinghouse must submit to Banco de México to act as such. Some of them are: the establishment of an administrative board and a manual that defines the operational rules and implementation procedures consistent with sound banking practices; the obligations of the participants to engage the services of a clearinghouse; and the characteristics, limits, and execution of the credit lines which participants can grant each other upon the settlement of the documents in question. The provisions mentioned in the manual and amendments to it require approval by Banco de México before becoming effective.
In conjunction with Circular 3/2012, there is an operating manual for each of the payment instruments for which Cecoban provides service. These operating manuals describe the rules and operating procedures of CCEN, participants, and settlement institutions.
6.1.5. Banco de México’s role Banco de México regulates CCEN. Through Circular 3/2012, the central bank establishes the rules for the conformation and operation of the clearinghouses of checks, deferred electronic fund transfers, and direct debits.
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In accordance with Cecoban’s statutes, Banco de México is also a member of CCEN’s administrative board. The central bank holds this position with a voice but no vote, and with the authority to veto intended resolutions.
6.1.6. Banco de México’s tools for regulation Banco de México authorizes changes to Cecoban’s internal rules, operation manuals, and statutes. Moreover, the bank may induce changes in the operation of this clearinghouse by issuing regulations.
6.2. Clearinghouses for card payments 6.2.1. Role Currently, there are two clearinghouses that provide routing, clearing and settlement services for domestic interbank card transactions: Prosa and E‐Global. These clearinghouses transmit information on card payments and cash withdrawals, and compute the difference between credit and debit positions for each participant, in order to establish the value of final obligations so they can be settled at a settlement bank via SPEI payment instructions.
The importance of Prosa and E‐Global as clearinghouses is that they facilitate the operations with payment cards of different banks´ customers and reduce transactional costs among system participants.
6.2.2. Description According to Banco de México´s Circular 4/2014 (Reglas Aplicables a las Cámaras de Compensación para Pagos con Tarjeta), these clearinghouses are operators of centralized processing mechanisms through which are implemented the actions corresponding to the exchange, between acquirers and issuers, of requests for payment authorization, payment authorizations, payment rejections, returns, adjustments or other financial obligations related to payment cards, including clearing.
a. Participation Prosa and E‐Global provide the routing services required for payment authorization and payment request messages for further clearing and settlement. In this sense, for an entity to receive services from these clearinghouses, it must sign a provision‐of‐services contract, in which the characteristics of the services provided and subsequent considerations are detailed.
b. Relation with other FMIs The settlement of the net balances of the operations processed in Prosa and E‐Global is made via SPEI through a settlement bank. The clearinghouses do not have a direct connection with SPEI.
c. Registering operations The process by which information in an interbank transaction is transmitted, and debits and credits to the cardholder and the payments receiver are made, is as follows: 1. The user uses his card to make a purchase.
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2. From the device used for that operation (point of sale), a request for authorization of the transaction is sent to the acquirer bank, which in turn transmits it to the clearinghouse. 3. The clearinghouse sends the information to the issuer bank of the cardholder, either directly or through another clearinghouse when the issuer does not have a contract with the first clearinghouse. 4. The issuer bank checks the account balance or the credit line of the cardholder and runs processes to verify that the transaction is authentic. 5. The issuer sends an answer to the acquirer bank indicating if the operation proceeds or not. Subsequently, the issuer banks transmits the answer to the device used for the operation. 6. Provided the operation was accepted, the user receives the goods or services, while the issuer bank retains (provides) the amount of the operation from the cardholder´s account or credit line. 7. At the end of the operating day, merchants perform a cut‐off of the card payments charged during the day, and they send the results to the clearinghouses through their acquiring banks, so that the clearing and settlement processes take place. 8. Once the issuer bank receives the resulting figures from the authorized‐payments clearing process, it charges the corresponding amount (previously provided) from the cardholder´s account. 9. Finally, once the operation is settled by the issuer bank, the acquiring bank credits the beneficiary´s account with the corresponding amount.
Cash withdrawals made at ATMs are processed in a similar way by the clearinghouses.
d. Clearing and settlement Regarding the clearing process, every banking day, Prosa and E‐Global determine the positions of each participant on card payments and cash withdrawals. Subsequently, they instruct the settlement of the resulting balances through the respective settlement banks.
Overdrawn institutions must send corresponding credits to the settlement bank by means of SPEI payment instructions. Through the same payment system, each settlement bank makes the corresponding credits to the accounts of the participants with a credit balance. The settlement ends no later than 3:30 p.m.
e. Risk management In order to mitigate financial risk, payment card structures are financially responsible in the event of a failure in the settlement by any of the participants; in other words, they must vouch for missing amounts if necessary.29 Currently, there are three card structures operating in Mexico: MasterCard, Visa and Carnet.
Regarding operational risk management, the Condiciones para el Intercambio entre Cámaras de Compensación para Pagos con Tarjeta describes the security structures and standards that Prosa and E‐Global, as well as any potential new clearinghouse, must meet. They emphasize
29 In the rare event that the amount provided by the card company is not sufficient for settlement, the settlement agent shall allocate the available resources among the affected participants, in proportion to the bilateral amount generated against the defaulting participant.
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communication protocol requirements, measures for the confidentiality of sensitive information, and business continuity planning. f. Fee structure When Circular 4/2014 went into effect, the clearinghouses ceased to apply fee structures that generated some price distortions, such as the bundling of services and volume discounts. Additionally, charges between clearinghouses for transmitting information or connection to each other were eliminated.
6.2.3. Best practices applied to card payment clearinghouses Due to the value of the transactions processed, Prosa and E‐Global are not considered to be systemically important FMIs, so Banco de México does not require compliance with the PFMIs. However, the central bank seeks implementation of some of the best practices within the PFMIs in these clearinghouses.
Principles that apply to card Key aspects payments clearinghouses Principle 1: Legal basis Applicable. Fundamental to all FMIs. Principle 2: Governance Applicable. Principle 3: Framework for the Partially applicable. The requirement is to identify and comprehensive management of risk manage relevant risks. Principle 4: Credit risk Partially applicable. The requirement is to manage risk, but not necessarily to meet the hedge requirements for the failure of one or two participants. Principle 5: Collateral Not applicable due to operating structure. Principle 7: Liquidity risk Partially applicable. The requirement is to manage risk, but not necessarily to meet the hedge requirements for the failure of one or two participants. Principle 8: Settlement finality Not applicable. The range of amounts that settle are not considered essential. Principle 9: Money settlements Not applicable. The range of amounts that settle are not considered essential. Principle 12: Exchange‐of‐value Not applicable. Operations that settle two assets are settlement systems not conducted. Principle 13: Participant‐default rules Applicable. and procedures Principle 15: General business risk Not applicable. The range of amounts that settle are not considered essential. Principle 16: Custody and investment Not applicable due to operating structure. risks Principle 17: Operational risk Applicable. Principle 18: Access and participation Applicable. requirements Principle 19: Mechanisms of Not applicable due to operating structure. participation with several levels Principle 20: Connection with FMI Not applicable. No interaction with other FMIs.
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Principle 21: Efficiency and Applicable. effectiveness Principle 22: Rules and communication Applicable. procedures Principle 23: Disclosure of rules, key Applicable. procedures and market data
6.2.4. Legal framework The Transparency and Financial Services Arrangement Act (or LTOSF, as it is known in Spanish) defines a clearinghouse, sets out Banco de México powers on these infrastructures, and establishes some operational and rate characteristics that must be accomplished.
On the basis of the LTOSF, Circular 4/2014 establishes the terms and conditions applicable to clearinghouse functioning and operations where the purpose is to process card payment instructions, and also establishes the requirements with which such clearinghouses must comply and the procedures to be followed to request Banco de México authorization to organize and operate in that capacity. In addition, Circular 4/2014 establishes the obligation of the participants in the card payment network to define and deliver to Banco de México for its authorization a document that integrates the conditions for the exchange between card payments clearinghouses.
Finally, the Condiciones para el Intercambio entre Cámaras de Compensación para Pagos con Tarjeta establishes the operating procedures related to clearinghouse interconnections, payments processing, and the procedures to pay obligations arising from the transactions processed.
6.2.5. Banco de México’s role Banco de México is the card payments clearinghouses regulator. Generally, the LTOSF regulates clearinghouses. Banco de México issued Circular 4/2014, which sets the rules to organize and operate as a card payments clearinghouse.
As a result of the application of the clearinghouse regulations, various benefits have been achieved in terms of competition,30 efficiency, security, and transparency in the system.
6.2.6. Banco de México’s tools to regulate card payments clearinghouses Banco de México has the power to authorize clearinghouses to act as such, and to authorize and request changes to a clearinghouse’s internal rules. In addition, Banco de México may require such clearinghouses to provide information, carry out inspections and supervisions, as well as penalize cases of non‐compliance.
The Condiciones para el Intercambio entre Cámaras de Compensación para Pagos con Tarjeta, authorized by Banco de México, establishes the card transactions operating procedures. They instruct participants in the card payments network to create an executive committee made up of representatives of the different types of market participants in the card payments network
30 Mitigation of distortions in prices charged clearing card payments resulted in the reduction of fees charged to smaller scale participants, which promotes a more progressive and competitive structure.
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(e.g., issuers, acquirers, clearinghouses, trademarks and payment facilitators), which should serve as an organism that regulates operating structure, proposes modifications to the exchange conditions between clearinghouses, and requests Banco de México authorizations.
6.3. Clearinghouses for mobile payments 6.3.1. Role In March 2015, Banco de México authorized the first mobile‐payment clearinghouse, the Mobile Payments Operator Society of Mexico (or OPM, as it is known in Spanish).31 Among other functions, the OPM processes information on transfers initiated through mobile devices and calculates the difference between the asset and debtor positions for each participant, in order to establish the value of the final obligations to be settled by payment instructions via SPEI.
In this regard, the OPM’s importance as a mobile‐payment clearinghouse is that it facilitates payments with payment instruments to customers from different banks and lowers transaction costs between system participants.
6.3.2. Description Currently, several banks offer services in the Mexican mobile transfer market. However, most of them use SPEI to send transfers to other bank accounts. Therefore, this explanation will focus on the OPM, since this infrastructure allows the routing of interbank transfer applications and authorizations through mobile devices for their subsequent clearing and settlement between different participants.
In accordance with the Reglas para Cámaras de Compensación de Transferencias a través de Dispositivos Móviles (Circular 3/2013) issued by Banco de México, the OPM is a central entity through which payment instructions are exchanged to complete electronic funds transfers between deposit accounts initiated from a mobile device. In this sense, the OPM sends and receives messages related to transfers made by participants through mobile devices, determines the debit and credit balances among its participants resulting from the exchanges of the orders in question, and instructs participants to liquidate the corresponding positions through transfers in SPEI.
a. Participation For a legally constituted corporation to receive OPM services, it must sign a services provision contract establishing the general terms and conditions governing the provision of services.
In addition, the OPM should allow access by potential participants, on equal terms, from any credit institution or any clearinghouse authorized by Banco de México.
b. Relationship with other FMIs Participants settle net transfer balances through SPEI on mobile devices that have been cleared by the clearinghouse.
c. Registering operations
31 Two banks and a telephone operator constituted that society.
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What follows is a description of the process of registration, clearing and settlement of transactions between accounts which are not hosted by Transfer, a mobile payment clearing house. For this purpose, the receiver has an account that is not associated with Transfer, while the originator does have an associated account.
The process begins when the originator sends (at any time of day and any day of the week) a text message (SMS) with the receiver’s cell phone number and the amount of the transfer. Upon receiving the operation instruction, the transferring entity determines its viability. If the validations are correct, the originator receives an SMS to enter the PIN and confirmation of the transaction. The clearinghouse makes the charge to the originator in real‐time and instructs the receiver bank to make the payment for its account holder.32
d. Clearing and settlement Regarding clearing, the OPM determines twice during each banking day the net positions of each participant resulting from the transfer orders exchange and sends a compensation file to each participant. The first clearing file is generated at 8:00 a.m., and the second at 4:00 p.m. Each clearing file includes the generation date and time, the total number of transfers and the details on each, and the debit or credit balance of each participant. By submitting the clearing file, the clearinghouse instructs participants to settle balances with each other within 24 hours through SPEI fund transfers. In this way, the use of SPEI for payments settlement facilitates system interoperability. 33
e. Risk Management In order to reduce financial risks, the clearinghouse imposes collateral requirements on its participants to address the obligations derived from participation in the infrastructure.
In addition, to reduce operational risks, the OPM stores all information related to its own accounts and transaction processing in a main data computer center and in a backup that hosts a copy of this information.
f. Fees Finally, with regard to the fees charged by the OPM to institutions for services rendered, two rate structures are followed. In the first, the participant pays a fee to the OPM for clearing services for each transaction. In the second, the participant pays a higher fee to the OPM for clearing services and the hosting of accounts for each transaction carried out. 34 Thus, the contracting of services is not conditioned on the acquisition of other services, nor are discounts applied depending on operation volume or participant characteristics.
In addition, the OPM should allow access to potential participants, including any credit institutions or clearinghouses authorized by Banco de México, on equal terms.
32 Transfer reception is made from 6:00 a.m. to 5:30 p.m. during banking days. 33 The OPM allows interoperability between different banks, but not between telephone operators. 34 In addition to the above, there is a fee for installation, integration, and platform development, which is paid once a new participant obtains access to the platform independently of hiring a hosting service.
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6.3.3. Best practices that apply to mobile‐payment clearinghouses
Because of the value of the transactions processed, the OPM is not considered a systemically important FMI, and thus Banco de México does not require compliance with the PFMIs. However, the central bank encourages the OPM to implement some of the best practices.
Principles that apply to Relevant aspects mobile‐payments clearinghouses Principle 1: Legal basis Applicable. Fundamental to all FMIs. Principle 2: Governance Not applicable. Principle 3: Framework for the Partially applicable. The requirement is to identify and comprehensive management of risk manage relevant risks. Principle 4: Credit risk Partially applicable. The requirement is to manage risk, but not to meet the hedge requirements for the failure of one or two participants. Principle 5: Collateral Not applicable due to operating structure. Principle 7: Liquidity risk Partially applicable. The requirement is to manage risk, but not to meet the hedge requirements for the failure of one or two participants. Principle 8: Settlement finality Not applicable. The range of settled amounts is not considered essential. Principle 9: Money settlements Not applicable. The range of settled amounts is not considered essential. Principle 12: Exchange‐of‐value Does not apply. Does not perform operations that settlement systems settle two assets. Principle 13: Participant‐default rules Applicable. and procedures Principle 15: General business risk Not applicable. The range of settled amounts is not considered essential. Principle 16: Custody and investment Not applicable due to operating structure. risks Principle 17: Operational risk Applicable. Principle 18: Access and participation Applicable. requirements Principle 19: Tiered participation Not applicable due to operating structure. arrangements Principle 20: FMI links Not applicable. Does not interact with other FMIs. Principle 21: Efficiency and Applicable. effectiveness Principle 22: Communication Applicable. procedures and standards Principle 23: Disclosure of rules, key Applicable. procedures and market data
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6.3.4. Legal framework The LTOSF defines a clearinghouse, sets out the Banco de México powers over these infrastructures, and establishes some operational and fee characteristics that must be accomplished.
Based on the LTOSF, Circular 3/2013 establishes the terms and conditions applicable to the functioning and operation of these clearinghouses, as well as the requirements to meet and the procedures to be followed to request Banco de México authorization to organize and operate in that capacity. Finally, the Manual de Operaciones para Cámaras de Compensación de Transferencias a través de Dispositivos Móviles establishes the OPM operating process, as well as internal standards to which the clearinghouse and its participants adhere.
6.3.5. Banco de México’s role Banco de México is the regulator of the OPM, a mobile‐payment clearinghouse. The LTOSF regulates clearinghouses. Banco de México issued Circular 3/2013, which sets the rules for mobile‐payment clearinghouses.
6.3.6. Banco de México’s tools to regulate mobile payment clearinghouses Circular 3/2013 establishes that mobile‐payment clearinghouses must provide Banco de México with information and documentation related to: (i) participants in the clearinghouse; (ii) the volume and transfer amounts made through mobile payments by each of the clearinghouse participants; (iii) the volume and refund amounts of mobile payments exchanged for each of the clearinghouse participants; and (iv) contingency events recorded.
It also establishes that if the OPM intends to make any changes to its bylaws or internal rules, it must obtain prior written authorization from Banco de México, while its internal rules must adhere to central bank regulation issued on the matter.
6.4. Payment technologies 6.4.1. Description and scope Technological innovation has given rise to new ways to make payments electronically, in most cases more efficiently. In particular, the development of the market for electronic payment funds (electronic money) is noteworthy. Electronic money is defined as a monetary value that is digitally stored via electronic or magnetic means and is denominated in legal‐tender currency and issued against funds received in the same currency with the purpose of transferring funds, potentially units of the same monetary value, among third parties. Electronic money offers the possibility of making payments to entities different from the issuer or exchanged for legal‐ tender funds. Access to bank account services and personal savings are excluded from electronic money products. In this regard, Banco de México is monitoring the development of this market in order to identify the benefits associated with this type of product as well as any potential risk for the users.
In addition to electronic money, virtual wallets and virtual assets are other innovations seen in recent years.
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An electronic wallet (e‐wallet) is a service that mainly allows users to make payments using software executed from an electronic device (e.g., smartphone, tablet, or computer). To make the transaction, an electronic wallet serves as a pseudonym of a financial product (e.g., bank account, credit or debit card, prepaid or gift card). That is, the consumer enters information on the financial product in the electronic wallet which can be used to make payments in shops.
Because virtual wallets are a means of access to already regulated financial products, they do not represent a challenge to monetary policy or financial stability, provided they comply with measures that ensure user information security and privacy. Therefore, these developments should help to reduce transaction costs and improve payment system efficiency, by providing users with more convenient access to financial products.
On the other hand, virtual assets are storage mechanisms, and they exchange electronic information to which certain users assign a value, but without the support of any institution, so they are not a legal tender.35 These innovations have two main characteristics: they are assets, and some of them use distributed accounting records that allow for electronic value exchange without intermediaries.
As to the first characteristic, like any other assets, value is determined on the basis of supply and demand. From the point of view of supply, computerized protocols usually determine the rate of asset creation. From the point of view of demand, price volatility is high because use is more related to speculative adoption purposes, which are still limited.
Among the main disadvantages of these assets, in addition to high volatility, are lack of legal protection and potential use in illicit activities. In addition, if adoption becomes widespread, they could lead to difficulties for monetary and financial authorities (e.g., loss of seigniorage revenue for central banks).
The second characteristic that some virtual assets have is the use of distributed accounting records, the main innovation. Users generally store the cryptographic information that gives them access to virtual asset values in digital wallets. To transfer values, users send a message to the network, where an algorithm handles registry and validates it. Structures of the virtual asset registration and validation process vary and offer differences in terms of speed, efficiency, and safety; however, most of them have in common the elimination of a central entity to process and validate the transactions.
One of the key potential benefits of distributed accounting records is the reduction of transaction costs: the possibility of sending a payment without a central entity allowing certain transactions (e.g., remittances), which are made faster and at lower cost.
6.4.2. Banco de México’s policy regarding new payment technologies As mentioned, virtual wallets are a means of access to regulated financial products, so that, to the extent that the products are safe, Banco de México has not been faced with the need to issue regulation or alert users or financial institutions of potential consequences of their use.
35 March 10, 2014 press release by Banco de México.
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Virtual assets have not seen significant penetration in Mexico, and do not currently pose greater risk to the financial system or the payment systems. However, Banco de México has warned the public about the risks inherent in the acquisition of these assets and their use as substitutes for conventional means of payment. Some of the characteristics of virtual assets on which Banco de México has warned the public are the following:
These assets are not legal tender in Mexico, as Banco de México has not issued or supported them. Similarly, they are not foreign currency, because no foreign monetary authority issues or supports them. They do not have legal tender‐of‐payment obligations, so their function as a means of payment is not guaranteed, given that merchants and other individuals are not required to accept them. Banco de México does not regulate or supervise them. The regulated institutions in the Mexican financial system are not allowed to use them or perform operations with them. Other jurisdictions have indicated their use in illegal operations, including those related to fraud and money laundering. There is no warranty or regulation to ensure that consumers or merchants that acquire such assets can recover their money. Because of their highly speculative nature, the price in Mexican pesos or in terms of other currencies set by people who accept trade with these assets shows great volatility.
In addition to warning the public about the potential risks associated with the use of virtual assets, Banco de México will monitor their development, since innovations may occur that help to increase the efficiency of financial markets and the payment systems.
7. Cross‐border and foreign‐currency‐denominated payments
Cross‐border and foreign‐currency‐denominated payments are those that involve the transfer or receipt of funds from other jurisdictions or in currencies other than Mexican pesos. Banco de México is involved with three infrastructures related to this type of payment: Directo a México,36 the Continuous Linked Settlement, and the domestic U.S. dollar interbank payment system, known by its Spanish acronym SPID.37 Additionally, Banco de México, in fulfillment of its mandate, strives to ensure that the global payment system that involves transactions with firms and individuals in Mexico functions properly.
7.1. Banco de México’s policy regarding cross‐border and foreign‐currency‐ denominated payments
36 Meaning, “Direct to Mexico.” 37 SPID is the Spanish acronym for Sistema de Pagos Interbancarios en Dólares.
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Cross‐border payments are important to economic activity and the development of international trade. Banco de México’s policy with respect to these payments is that they be conducted securely, efficiently, and in accordance with best practices, while strictly abiding by the regulations of each jurisdiction involved. Additionally, the central bank’s policy of secure and efficient payment systems operated according to best practices applies to systems that settle in foreign currencies.
7.2. Domestic U.S. dollar interbank payment system (SPID) 7.2.1. Function SPID is a payment system that efficiently settles funds transfers between legal persons’ U.S. dollar accounts in Mexico. The system began operating in April 2016.
7.2.2. Description The growing integration of Mexico in the global economy implies that a substantial fraction of transactions in many production chains is denominated in U.S. dollars, even when the related activity occurs within the country. As a result, it is essential for firms with obligations in dollars to have access to a safe and efficient mechanism for dollar funds transfers.
Before SPID began operating, there were three mechanisms through which to conduct funds transfers between dollar accounts with domestic banks: i) through foreign correspondent banking services with banks in the United States, ii) with checks in dollars, through the clearinghouse that serves that purpose, and iii) through domestic banks’ dollar accounts with other domestic banks.
SPID allows for reduced use of the three mechanisms currently in place for transfers between two dollar accounts belonging to legal persons who are clients of participating banks in Mexico. Additionally, the system: i) gives authorities greater operations visibility and traceability, ii) establishes strict controls for anti‐money laundering and combatting the financing of terrorism (AML/CFT), to which firms seeking to use the system are subject, iii) provides a safe, quick, and inexpensive electronic funds transfer alternative to dollar payments in checks and cash, iv) reduces the liquidity needs and cost for this sort of operation, since banks and firms can keep their operating balance in one place, and v) enhances competition in the foreign‐exchange and dollar‐funds‐transfers markets.
a. Participation Participation is limited to commercial and development banks that offer dollar accounts, provided they offer this service only to legal persons based in Mexico that keep a deposit account in dollars with the bank. Additionally, participating institutions must fulfill enhanced due‐diligence requirements related to AML/CFT, as well as strict requirements concerning business continuity, cybersecurity, and verification of information contained in their clients’ files.
b. Relationship with other FMIs Funding and settlement in SPID are achieved through the participants’ dollar accounts in the SIAC, another of Banco de México’s FMIs. The liquidity and funding structure is detailed later in this section.
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Before SPID, dollar transfers between firms in Mexico could be conducted through the clearinghouse operated by Cecoban and settled by Banco Monex, through foreign correspondent banking, or through domestic banks’ dollar accounts at other domestic banks. SPID represents an alternative to at least partially substitute the use of these infrastructures with an efficient and inexpensive system that also offers more rigorous controls from an AML/CFT standpoint.
c. Hours of operation SPID’s hours of operation are 8:00 a.m. to 2:00 p.m. every business day in Mexico, and participants process payment orders from their clients up to 30 seconds before closing time, having conducted the required AML/CFT checks without any time limit in which to do so. Additionally, receiving participants have 15 minutes after closing time during which they may only process payment returns.
d. Registering operations SPID uses an open protocol based on messages to communicate with its participants, which allows them to connect to SPID with their own systems, thereby completely automating their payment services and allowing them to offer better services to their clients. Participants use digital certificates to register operations and other important messages, guaranteeing the participant’s identity, non‐repudiation of a message by the participant, and the integrity of the information.
Messages sent through SPID contain detailed information on the issuer and beneficiary of the funds transfer. The message includes fields that allow rigorous AML/CFT checks, including the issuer’s IP address, a unique field in payment systems that is useful for conducting preventive processes.
e. Funding and settlement Dollar liquidity can be deposited or withdrawn through the same mechanism that is currently used to fund dollar accounts in SIAC, through participants’ and Banco de México’s correspondent banks in the United States. A participant can add funds to their SPID account by transferring dollars from their account in SIAC and their account in SPID, as well as through transfers received in the system. Analogously, a participant can withdraw their balance by transferring dollars to their account in SIAC or through the settlement of payments sent in SPID.
Settlement of transfer orders takes place in frequent settlement cycles in which the system’s algorithm determines which pending orders can be settled efficiently with the available cash balance in participants’ accounts.
Transfers in SPID are settled exclusively using the resources that banks have in the system, and no credit is extended by Banco de México or among banks. In the event that a participant does not have sufficient funds to settle an instructed operation, the transfer will not be completed, and SPID will place it in a queue to be settled later in the day. If, by the end of the hours of operation, any orders have been queued due to insufficient resources, these are canceled, and Banco de México keeps a record of the queued operations.
Participants may fund their SPID accounts through Banco de México’s correspondent bank between 8:00 a.m. and 1:30 p.m., Mexico City time, every day that is both a business day in
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Mexico and in the United States. Participants that instruct their correspondent bank to make a transfer to Banco de México’s correspondent bank must register the transfer in SIAC between 7:45 p.m. and 1:30 p.m. on a business day in Mexico. In order to withdraw funds from their SPID account, participants may instruct a transfer to be made to their dollar account in SIAC and send the funds to their correspondent banks in the United States from there.
f. Risk management Financial risks are limited in SPID since the system does not extend credit and settles payments with funds kept by participants in the system. While there is a risk involved in using a correspondent bank to maintain the system’s operating balance, this type of risk is already managed and for much larger amounts in the central bank’s foreign reserves operations through the contracting of several banks’ correspondent banking services and the establishment of limits for each bank according to the risk it represents.
As for operational risks, SPID, like SPEI, was developed with the aim of facilitating straight‐ through processing of payments, which minimizes manual input and the risk that entails. Additionally, the system has an alternate operation site and business continuity plans in place should operation be interrupted or delayed.
As is the case with SPEI, payment instructions are digitally signed by participants to ensure their authenticity, non‐repudiation by the issuer, and the integrity of the information contained therein. Other important messages such as settlement notices are digitally signed by Banco de México. Furthermore, all communication between the system and its participants is encrypted to protect confidential information.
g. Fee structure The fee structure is designed to encourage the optimal use of the system and not constitute a barrier to entry, while recovering SPID’s development, maintenance, and operating costs. Banco de México charges a fixed annual fee and a monthly fee based on the number of payments instructions made by each participant.
h. Anti‐money laundering and combatting the financing of terrorism (AML/CFT) Banco de México is committed to following the best practices regarding AML/CFT. Each of SPID’s participants must conduct the required checks based on the risk profile of each of its clients wishing to send payments through the system, and has until the end of the hours of operation in which to do so. The review processes are conducted according to each participant’s internal policies, following guidelines established by Banco de México for the automated monitoring of unusual behavior and screening of officially recognized lists of persons associated with illicit funds, terrorism, or the financing thereof.
Additionally, SPID’s Rules establish requirements for banks to identify their clients using this service and to include in the payment message information to identify the client that instructs the payment as well as the beneficiary. In order to provide the dollar funds transfer service to a firm, banks must have the client’s tax identification number (known by the Spanish acronym RFC, with the disambiguation code known as the homoclave), as well as a valid electronic signature (now known as the e.firma, previously the FIEL), and must verify validity and authenticity periodically.
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The system centralizes the information on dollar funds transfers, providing details on each of these to the authorities and facilitating the use of tools to monitor, prevent, and possibly restrict payments that may be related to illicit activity. In particular, an analysis of SPID transfers can be incorporated in the indicators and information models that have been developed to analyze transfers processed through SPEI in order to identify patterns and unusual typologies that may pose a risk to the preventive processes of financial institutions that participate in SPID.
7.2.3. Best practices that apply The following table shows the Principles that apply to SPID.
Principles that apply Relevant aspects to payment systems Principle 1: Legal basis Applicable. Fundamental for all FMIs Principle 2: Governance Partially applies due to CPMI/IOSCO exceptions for systems operated by central banks. Principle 3: Framework for the Framework for managing operational risks. comprehensive management of risks Principle 4: Credit risk Does not apply since the central bank does not extend credit in SPID, nor do participants do so among themselves in the system. Principle 5: Collateral Does not apply since SPID does not use collateral. Principle 7: Liquidity risk SPID is not exposed to liquidity risk since it only settles payments that do not overdraw accounts, ensuring that participants cannot default. Principle 8: Settlement finality Considered in the Law. Principle 9: Money settlements SPID uses funds that participants deposit at Banco de México’s correspondent bank in the United States to make the money settlements derived from the system’s operations. Principle 12: Exchange‐of‐value Does not apply since SPID does not conduct settlement systems operations that involve settling two assets. Principle 13: Participant‐default rules Does not apply since, by design, SPID does not and procedures generate financial obligations.
Principle 15: General business risk Partially applies due to CPMI/IOSCO’s exceptions for systems operated by a central bank. Principle 16: Custody and investment There is a risk involved in operating with a risks correspondent bank; however, Banco de México already manages this risk through foreign reserves.
Principle 17: Operational risk Constitutes the main risk that must be managed. Principle 18: Access and participation Considered in SPID’s Rules. requirements Principle 19: Tiered participation Does not apply, since all participants are direct arrangements participants.
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Principle 21: Efficiency and Applicable. effectiveness Principle 22: Communication Applicable. procedures and standards Principle 23: Disclosure of rules, key Applicable. procedures, and market data
7.2.4. Legal framework SPID, as a system managed by the central bank, is subject to the Banco de México Law, which, in addition to the objective of promoting the sound development of the financial system and the proper functioning of payment systems, empowers the central bank to regulate funds transfers through financial institutions. The internal rules and participation and functioning rules are defined in Regulation 4/2016 (SPID’s Rules) as well as is operating manual, issued by Banco de México. Additionally, participating institutions sign a contract with Banco de México that defines the rights and obligations with respect to the provision of services related to the system.
The requirements related to AML/CFT are based on the general provisions of article 115 of the Credit Institutions Law.
7.2.5. Banco de México’s role Banco de México’s main roles with respect to SPID are regulator and supervisor. In its role as regulator, and in accordance with the central bank’s function of regulating the payment systems, the Payments Systems Law empowers it to issue provisions with the aim of promoting the sound development of the financial system, the proper functioning of the payment systems, and the protection of the public interest, among other things. The Banco de México Law also empowers it to supervise intermediaries and financial entities subject to the regulations it issues. In addition to its roles as regulator and supervisor, the central bank is the owner, manager, and operator of SPID.
7.2.6. Tools for regulation Banco de México’s main tools for regulating SPID’s participants are the system’s operating rules and the participation requirements contained in SPID’s Rules, in addition to operating manuals. Banco de México also monitors compliance with the rules and contracts by supervising participants.
7.3. Directo a México 7.3.1. Function Directo a México’s function is to offer money transfer services from bank accounts in the United States to bank accounts in Mexico on favorable terms for both the senders and recipients.
7.3.2. Description Directo a México’s operators are Banco de México and the United States Federal Reserve System. In October 2003, these authorities connected their payment systems with the initial objective of sending payments to United States government pensioners living in Mexico. As of
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February 2004, customers of financial institutions registered with Directo a México can send payments to any bank account in Mexico.
Individuals in the United States can request transfers to an account in Mexico from a branch office of a financial institution registered with Directo a México. In order to do so, they must have the beneficiary’s name, the beneficiary’s standardized banking code (known by its Spanish acronym, CLABE), the name of the bank where the beneficiary has the account, and the amount to be sent. The following day the corresponding amount in pesos is deposited in the beneficiary’s account. No deduction is made to the amount received by the beneficiary in Mexico. The customer sending the money pays the commission for the service. The exchange rate applied to any money sent through Directo a México is one of the best in the market, Banco de México’s FIX38 minus 0.21%.
a. Participation Participation in Directo a México is open to all commercial banks in the United States, which need only register for the service. Mexican banks need not register since all SPEI participants are able to receive transfers to credit their clients’ accounts.
b. Relationship with other FMIs Directo a México is connected to the FedACH payment system in the United States and to the SPEI payment system in Mexico.
c. Registering and settling operations Clients of participating banks in the United States order funds transfers. The same day, the banks instruct the transfers to the Federal Reserve System through the FedACH payment system. The following day the Federal Reserve System sends the transfer instructions and dollar amount to Banco de México, which then converts the dollars to pesos through an exchange operator. The central bank subsequently sends the peso amounts to the beneficiaries’ accounts through SPEI. Finally, receiving banks in Mexico credit the payments to the beneficiaries’ accounts.
d. Risk management By design there are no strictly financial risks in Directo a México (SPEI’s risks are described in the respective section of this document). The operational risk scenarios for Directo a México are identified and their management is described in the operating manual, and include, among others, the impossibility of using the normal mechanism to receive the Federal Reserve System’s files, the unavailability of the exchange operator, as well as prolonged unavailability of SPEI.
e. Fee structure Directo a México’s fee structure seeks to offer competitive prices to end‐users. The client, when using Directo a México, pays low commissions (usually less than five dollars per transfer) and a convenient exchange rate is applied; additionally, the commission and the exchange rate are the same for every transfer independently of the amount sent.
38 The FIX is the interbank reference exchange rate to settle liabilities denominated in foreign currency payable in Mexico, which Banco de México determines and publishes every business day in Mexico.
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7.3.3. Legal framework Directo a México is regulated by operational procedures and rules of operation.
7.3.4. Best practices that apply The following table shows the Principles that may apply to Directo a México.
Principles that apply Relevant aspects to Directo a México Principle 1: Legal basis Applicable. Fundamental for all FMIs Principle 2: Governance Applicable. Principle 3: Framework for the Applicable. comprehensive management of risks Principle 4: Credit risk Does not use credit. Principle 5: Collateral Does not use collateral. Principle 7: Liquidity risk Liquidity risk does not exist. Principle 8: Settlement finality Applicable. Principle 9: Money settlements Central bank money is used. Principle 12: Exchange‐of‐value Does not apply. settlement systems Principle 13: Participant‐default rules Does not apply since by design the system does not and procedures create financial obligations for participants. Principle 15: General business risk Does not apply since it is operated by central banks. Principle 16: Custody and investment Does not apply due to operational structure. risks Principle 17: Operational risk Applicable. Principle 18: Access and participation Applicable. requirements Principle 19: Tiered participation Does not apply due to operational structure. arrangements Principle 21: Efficiency and Applicable. effectiveness Principle 22: Communication Applicable. procedures and standards Principle 23: Disclosure of rules, key Applicable. procedures, and market data
7.3.5. Tools for regulation Since Banco de México is the system’s operator, it has ample powers to ensure its proper functioning, gather information, and conduct oversight procedures, as well as mechanisms to induce changes to the system’s operation.
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7.4. Continuous Linked Settlement
Continuous Linked Settlement (CLS) is a system that processes operations in the global foreign exchange market. Its owners are some of the major financial institutions participating in the global foreign exchange market.
7.4.1. Function The CLS’s function is to offer its participants exchange operation settlement in a payment‐ versus‐payment structure that eliminates settlement risk (also known as Herstatt risk).39 CLS is the system that settles most operations in the global market for participating currencies. At the end of 2015, there were 17 participating currencies.
7.4.2. Description CLS is a non‐profit entity that was born as the private sector’s answer to their regulators’ concerns surrounding the risks involved in exchange operations. It began operating in 2002 with seven participating currencies. As of 2008, it settled Mexican peso operations as well. CLS operates through CLS Bank, chartered in New York.
a. Participation CLS’s participation criteria are defined in its own internal rules. Among other things, the rules demand that a directly participating institution be a bank or the equivalent, become a stockholder of CLS, and comply with the financial and operational requirements. Direct participants can offer settlement services in CLS to other institutions that act as third parties. CLS does not have a relationship with third parties, since these entities operate through the direct participant that offers the service.
b. Relationship with other FMIs CLS requires real‐time participation in payment systems for all currencies that are settled in the system to ensure its proper functioning.
c. Hours of operation Settlement and funding processes take place in a five‐hour interval, between 7:00 a.m. and 12:00 p.m. Central European Time. Payment systems in the issuing countries of participating currencies must be open and available during the hours of operation.
d. Registering operations Before the settlement date, participants register their operations and those of third parties through CLS’s systems, which authenticate, match, and store the operations by infrastructure. Participants can rescind operations prior to their settlement date.
e. Settlement Every day CLS operates a settlement cycle. For the settlement process, every participant has an account with CLS in each participating currency. CLS keeps an account at central banks and has
39 Settlement risk in exchange operations materializes when a participant delivers the agreed currency to the counterpart and does not receive the corresponding amount in the other currency. This risk is exacerbated by time difference between the jurisdictions where settlement takes place.
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access to each participating currency’s issuing country’s payment system. Throughout the settlement cycle, participants send funds to CLS in the various currencies through the respective payment system, while CLS settles each operation on its books and delivers funds to participants through the respective payment systems.
Prior to the beginning of the settlement cycle, CLS conducts a multilateral clearing based on existing operations for the settlement date and calculates the net amount per currency that each participant is to receive (long position) or deliver (short position). At the beginning of the day, CLS informs each participant of these amounts and specifies the amount and times in which to cover short positions. Participants with short positions then send, through the respective payment systems, the net payments specified by CLS. CLS settles each operation on its books with the amounts received in its accounts at central banks and delivers net payments to participants with long positions through the corresponding payment system.
This infrastructure offers its participants liquidity windows. During the settlement cycle, participants overdraw their accounts; this can be interpreted as CLS allowing participants to settle an operation on its books when the participant does not have sufficient resources in that currency (participants can increase their balances in an account when they send resources to CLS’s account at the respective central bank or when they settle operations in their favor on CLS’s books). Overdrafts must be covered at all times by balances participants maintain in other currencies so as to keep an overall non‐negative balance. These overdrafts have two limits, one for each currency and one for the sum of overdrafts participants may have in all currencies.
f. Risk management CLS manages its participants’ settlement risk by coordinating both legs of exchange operations and executing payment‐versus‐payment settlements. It also reduces liquidity risk by clearing operations and only requesting or delivering net balances in each currency, as well as by allowing overdrafts in participants’ accounts with CLS to facilitate settlement. Additionally, this infrastructure has liquidity arrangements in place with banks in case a participant does not cover its overdraft at the end of the settlement cycle. In this case, CLS and the liquidity provider would conduct an overnight swap operation in which the provider would send CLS the missing currency and CLS would send the corresponding amount in the currency or currencies covering the overdraft. As for credit risk, overdrafts extended by CLS are covered at all times by balances in other currencies at the same FMI, to which a haircut is applied to mitigate market risk.
CLS has a policy, framework, and specific procedures in place for the comprehensive management of operational risk. The FMI considers all internal and external sources of operational risk and manages them on an institutional foundation that has procedures to identify, mitigate, and report these risks. Operational risk management is part of the comprehensive framework for risk management in place.
g. Fee structure CLS’s fee structure considers the number of operations each participant processes in CLS, as well as the amount processed. Fees are established as a function of the range of the volume and value operated by each participant.
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7.4.3. Legal framework CLS’s regulatory framework is based on rules, operational procedures, contracts, and laws, mainly in the United States and the United Kingdom. CLS Bank is chartered in New York, and therefore operates under the regulation that applies to banks in that jurisdiction. Additionally, settlement finality in participating currencies depends on the legal framework of the respective issuing bank, and thus, CLS regularly examines all relevant jurisdictions in order to guarantee that settlement remains final and irrevocable. In Mexico, the Payments Systems Law and the Credit Institutions Law are the legal basis for finality of CLS payments settled in SPEI and the inability to seize CLS’s settlement account. Banco de México Regulation 17/2010 concerning SPEI’s Rules establishes CLS’s participation in SPEI, and Regulation 3/2012 specifies the contingency mechanism to be used in cases where it is not possible to use the SPEI account to send payments in Mexican pesos to CLS.
7.4.4. Best practices that apply The following table shows the Principles that apply to CLS.
Principles that apply Relevant aspects to payment systems Principle 1: Legal basis Applicable. Fundamental for all FMIs. Principle 2: Governance Applicable. Principle 3: Framework for the Applicable. comprehensive management of risks Principle 4: Credit risk Applicable. Principle 5: Collateral Applicable. Principle 7: Liquidity risk The cover 1 criterion applies, which requires the FMI to settle its liabilities when faced with a participant default creating the greatest liquidity exposure. Principle 8: Settlement finality Applicable. Principle 9: Money settlements Each leg of the exchange operation is settled in the account with the respective issuing central bank. Principle 12: Exchange‐of‐value A payment‐versus‐payment structure is in place. settlement systems Principle 13: Participant‐default Applicable. rules and procedures Principle 15: General business risk Applicable. Principle 16: Custody and Applicable. investment risks Principle 17: Operational risk Applicable. Principle 18: Access and Applicable. participation requirements Principle 19: Tiered participation Applicable. arrangements
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Principle 21: Efficiency and Applicable. effectiveness Principle 22: Communication Applicable. procedures and standards Principle 23: Disclosure of rules, key Applicable. procedures, and market data
7.4.5. Tools for regulation CLS’s main regulator and only supervisor is the United States Federal Reserve, which presides over the infrastructure’s Oversight Committee, comprised of the central banks that issue participating currencies. Participation on the Committee is Banco de México’s main tool for regulating CLS.
7.5. Foreign correspondent banking 7.5.1. Description Foreign correspondent banking is comprised of relationships that domestic banks establish with foreign banks to use the banking services they offer or to offer their own banking services. In either case, the purpose of the respondent is to allow for operations in the correspondent bank´s country.
The general way in which payments work through correspondent banking is as follows. If bank A wishes to make a payment to bank B in another jurisdiction with which it does not have an account, it uses the services of an intermediary bank C, a correspondent. In the event that bank C is able to send payments to bank B, either because it has an account with bank B or because both banks participate in the same payment system, the chain ends there. Otherwise, if bank C does not have a direct way to send payments to bank B, it can use the services of its own correspondent bank D, and so on until the payment chain reaches bank B.
Among the types of operations that domestic banks use abroad are electronic funds transfers, trade documents, letters of credit, settlement of credit and debit card operations, and cash management services.
The mechanisms of foreign correspondent banking consist of various elements that allow domestic banks to establish correspondent banking relationships with foreign banks. Among these elements are laws and rules, trade and technological agreements, and electronic messaging service providers.
In Mexico, most banks participate in correspondent banking relationships as respondents and some as providers of correspondent banking services.
7.5.2. Banco de México’s policy with respect to foreign correspondent banking Banco de México’s policy with respect to correspondent banking services is to strive for a network of correspondents that allows for cross‐border operations and facilitates global trade. Additionally, it is the policy of the central bank that the country’s financial institutions strictly abide by the regulations of the jurisdictions in which they have correspondent banking
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relationships, especially regulation concerning anti‐money laundering and combatting the financing of terrorism.
8. Information technology security
8.1. Background The number and severity of cybersecurity incidents that affect the operation of all types of companies have been increasing, making information technology security a priority issue for all industries, especially for the financial system.
8.2. Risks to cybersecurity
The safe and efficient operation of FMIs is essential to maintain and promote financial stability and economic growth. If not properly managed, FMIs could create problems that affect other local and international financial markets. In this sense, a FMI’s level of operational resilience, especially with regard to computer security, can be a decisive factor in how reliable and robust a financial system can be.
Cyber risks have a very particular nature. While these risks can be handled as part of a FMI’s operational risk structures, their special characteristics present major challenges.
Persistent, motivated attackers carry out sophisticated computer attacks. Attackers do not necessarily seek to obtain profit, but to provoke disruptive events that result in uncertainty for the users of the services or entities under attack. This implies that, unlike other risks, cyber‐attacks are difficult to identify and completely eradicate, and sometimes, the extent of the damage is difficult to determine. FMIs increasingly depend on technology to carry out their daily operation. This implies that there is a wide range of entry points through which FMIs can be attacked and compromised. Because of this dependency, cyber‐attacks and IT incidents can originate from many sources, including FMI participants, other FMIs, or service and technology providers. It is also possible that the FMI suffering an attack or IT incident can spread these attacks itself to other FMIs. Unlike operational disruptions caused by physical events, IT incidents or cyber‐attacks are unrelated to how big or small an organization is. A small player can represent more risk from the IT security point of view than a large or critical participant. IT risks face not only external sources. Disgruntled or careless employees are also sources of possible cyber incidents that should be assessed and prevented. The nature of cyber incidents can disable the measures established to ensure business continuity. For example, systems that maintain multiple copies of a FMI’s operational information, designed to protect sensitive information in a physical event (such as a computer or data network malfunction) may in some cases spread malicious or inconsistent information in case of a cyber‐attack. Cyber‐attacks and IT incidents can be difficult to detect and can spread rapidly within an organization. In addition, technological advances continuously create new vulnerabilities and forms of cyber‐attacks. Therefore, FMIs must maintain updated protection and
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monitoring structures that limit the ability of the attackers to cause damage to operations. FMIs should implement economic and organizational efforts to achieve this goal.
Banco de México, recognizing the importance of cyber security, collaborates with international working groups to analyze the evolution of cyber‐attacks and IT incidents. This work can generate general guidelines that serve as a reference for FMIs to develop security infrastructure in line with their operational characteristics. Guidelines help them to prevent, mitigate and, if necessary, recover operations quickly and reliably in case an event of that nature materializes.
8.3. Banco de México’s policy regarding cybersecurity In regard to cyber security, Banco de México seeks the implementation of effective cyber and operational security measures by FMIs and in particular its own payment systems, , promoting robust mechanisms and procedures based on international guidelines and standards, in order to prevent and, where necessary, minimize the effects that IT incidents may have on the operation of those infrastructures.
9. Final considerations
As described throughout this document, Banco de México establishes its objectives and policies with respect to FMIs and takes the necessary measures to exercise those policies and to fulfill those objectives. The central bank constantly assesses the environment surrounding FMIs, direct and indirect participants, and the markets they serve in order to identify the risks and opportunities that arise with new trends, markets, and even new FMIs, in addition to identifying applicable best practices. In this sense, Banco de México will make the necessary adjustments to its objectives, policies and actions, and will reflect them in any later editions of this document that may be published in the future.
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Statistical appendix
The main operational statistics for selected FMIs are shown below (each month’s daily average).
SPEI SIAC
Month Number of Value Month Number of Value operations (millions of pesos) operations (millions of pesos)
Apr‐15 1,459,461 969,330 Apr‐15 216 28,135 May‐15 1,244,060 955,849 May‐15 227 33,240 Jun‐15 1,216,669 1,004,656 Jun‐15 227 29,879 Jul‐15 1,363,492 958,445 Jul‐15 227 29,828 Aug‐15 1,208,465 962,392 Aug‐15 228 24,104 Sep‐15 1,281,817 998,769 Sep‐15 219 28,568 Oct‐15 1,531,990 972,336 Oct‐15 220 24,546 Nov‐15 1,484,546 982,973 Nov‐15 225 38,698 Dec‐15 1,405,302 1,054,596 Dec‐15 209 26,741 Jan‐16 1,587,663 993,375 Jan‐16 214 27,011 Feb‐16 1,351,500 983,112 Feb‐16 222 23,514 Mar‐16 1,428,129 1,053,028 Mar‐16 231 29,657 Average 1,380,258 990,738 Average 222 28,660
Source: Banco de México Source: Banco de México
DALI Number of Month Value operations (millions of pesos) (thousands) Apr‐15 15 3,107,199 May‐15 15 3,034,257 Jun‐15 15 3,050,625 Jul‐15 15 3,093,473 Aug‐15 15 3,082,376 Sep‐15 14 2,926,209 Oct‐15 15 2,987,706 Nov‐15 15 2,947,506 Dec‐15 14 2,771,445 Jan‐16 14 2,943,325 Feb‐16 16 2,943,169 Mar‐16 16 3,024,900 Average 15 2,992,682
Source: Indeval
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Clearing and settlement Clearing and settlement Month operations in Asigna Month operations in CCV Number of Number of Value Value operations operations (millions of pesos) (millions of pesos) (thousands) (thousands) Apr‐15 45 6,422 Apr‐15 178 12,907 May‐15 113 15,892 May‐15 194 12,989 Jun‐15 63 9,694 Jun‐15 188 13,031 Jul‐15 36 5,832 Jul‐15 182 13,613 Aug‐15 51 8,700 Aug‐15 224 13,959 Sep‐15 85 13,865 Sep‐15 207 11,422 Oct‐15 50 7,194 Oct‐15 234 12,498 Nov‐15 46 6,973 Nov‐15 227 13,063 Dec‐15 90 13,951 Dec‐15 213 12,068 Jan‐16 49 7,820 Jan‐16 233 16,492 Feb‐16 79 12,016 Feb‐16 250 14,271 Mar‐16 47 9,093 Mar‐16 321 15,973 Average 63 9,788 Average 221 13,524
Source: Asigna Source: CCV
Payments processed by CCEN
Transfers Direct debit payments Checks Month Payments Value Payments Value Payments Value processed (millions of processed (millions of processed (millions of (thousands) pesos) (thousands) pesos) (thousands) pesos) Apr‐15 91 2,795 102 378 331 9,280 May‐15 93 2,764 89 326 340 9,782 Jun‐15 90 2,691 93 354 336 9,793 Jul‐15 89 2,805 94 350 322 9,410 Aug‐15 90 2,796 92 342 309 9,245 Sep‐15 92 2,807 106 383 314 9,456 Oct‐15 90 2,883 99 361 305 9,303 Nov‐15 110 3,333 110 403 337 10,244 Dec‐15 105 3,469 107 451 338 11,678 Jan‐16 93 2,925 106 402 285 9,036 Feb‐16 98 2,945 111 414 308 9,389 Mar‐16 104 3,141 115 428 313 9,633 Average 95 2,946 102 383 320 9,687
Source: Banco de México
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E‐Global Prosa Number of Number of Month Value Month Value operations operations (millions of pesos) (millions of pesos) (thousands) (thousands) Apr‐15 1,711 1,078 Apr‐15 3,155 1,536 May‐15 1,795 1,166 May‐15 3,305 1,654 Jun‐15 1,764 1,137 Jun‐15 3,248 1,625 Jul‐15 1,796 1,184 Jul‐15 3,272 1,657 Aug‐15 1,848 1,201 Aug‐15 3,437 1,733 Sep‐15 1,792 1,139 Sep‐15 3,280 1,635 Oct‐15 1,811 1,156 Oct‐15 3,281 1,635 Nov‐15 2,113 1,477 Nov‐15 3,634 2,000 Dec‐15 2,070 1,523 Dec‐15 3,877 2,354 Jan‐16 1,849 1,290 Jan‐16 3,481 1,901 Feb‐16 1,882 1,227 Feb‐16 3,303 1,816 Mar‐16 1,924 1,267 Mar‐16 3,461 1,794 Average 1,863 1,237 Average 3,395 1,778
Source: E‐global Source: Prosa
Directo a México Month Number of Value operations (U.S. dollars) Apr‐15 1,762 1,027,520 May‐15 1,891 1,120,997 Jun‐15 1,727 1,056,064 Jul‐15 1,850 1,137,432 Aug‐15 1,856 1,109,390 Sep‐15 1,703 1,010,897 Oct‐15 1,648 1,003,890 Nov‐15 1,788 1,065,236 Dec‐15 1,804 1,077,795 Jan‐16 1,731 1,036,951 Feb‐16 1,982 1,178,399 Mar‐16 1,734 1,058,141 Average 1,790 1,073,559
Source: Banco de México
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CLS: Total gross settlement CLS: Gross settlement in MXN Value Month Number of Value Month Number of (millions of U.S. operations (million U.S. dollars) operations dollars) Jan‐15 900,716 5,113,789 Jan‐15 7,744 40,508 Feb‐15 823,444 4,800,682 Feb‐15 10,362 43,118 Mar‐15 976,129 5,234,361 Mar‐15 11,432 50,490 Apr‐15 793,594 4,524,142 Apr‐15 8,892 38,575 May‐15 813,456 4,621,273 May‐15 8,903 41,858 Jun‐15 918,704 5,118,660 Jun‐15 9,249 47,783 Jul‐15 823,084 4,523,186 Jul‐15 8,399 39,183 Aug‐15 881,705 4,599,090 Aug‐15 9,158 39,196 Sep‐15 847,006 4,857,706 Sep‐15 10,080 45,698 Oct‐15 Oct‐15 Nov‐15 Nov‐15 Dec‐15 Dec‐15 Average 864,204 4,821,432 Average 9,357 42,934
Source: CLS Source: CLS
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Annex
The Principles that apply to each type of infrastructure are shown below.
PS CSD SSS CCP TR Principle 1: Legal basis Principle 2: Governance Principle 3: Framework for the comprehensive management of risks Principle 4: Credit risk Principle 5: Collateral Principle 6: Margin Principle 7: Liquidity risk Principle 8: Settlement finality Principle 9: Money settlements Principle 10: Physical deliveries Principle 11: Central securities depositories Principle 12: Exchange‐of‐value settlement systems Principle 13: Participant‐default rules and procedures Principle 14: Segregation and portability Principle 15: General business risk Principle 16: Custody and investment risks Principle 17: Operational risk Principle 18: Access and participation requirements Principle 19: Tiered participation arrangements Principle 20: FMI links Principle 21: Efficiency and effectiveness Principle 22: Communication procedures and standards Principle 23: Disclosure of rules, key procedures, and market data Principle 24: Disclosure of market data by trade repositories
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List of acronyms
BIS Bank for International Settlements BMV Bolsa Mexicana de Valores, the Mexican Stock Exchange CCEN Cámara de Compensación Electrónica Nacional, the National Automated Clearinghouse CCP Central Counterparty CCV Contraparte Central de Valores, the Central Securities Counterparty CEP Comprobante Electrónico de Pagos, the Electronic Proof of Payment CLABE Clave Bancaria Estandarizada, the standardized banking code CLS Continuous Linked Settlement CNBV Comisión Nacional Bancaria y de Valores, the National Banking and Securities Commission CNSF Comisión Nacional de Seguros y Fianzas, the National Insurance and Bonds Commision CONSAR Comisión Nacional del Sistema de Ahorro para el Retiro, the National Commission for the Retirement Savings System CPMI Committee on Payments and Market Infrastructures CPSS Committee on Payments and Settlements Systems CSD Central Securities Depository DALI Sistema de Depósito, Administración y Liquidación de Valores, the Securities Deposit, Administration and Settlement System DRM Depósitos de Regulación Monetaria, Monetary Regulation Deposits DvP Delivery versus Payment E‐Global Servicios Electrónicos Globales, S.A. de C.V., a card payment clearinghouse FedACH Federal Reserve Automated Clearinghouse FIX Interbank reference exchange rate to settle liabilities in foreign currencies payable in Mexico. FMI Financial Market Infrastructure IMSS Instituto Mexicano del Seguro Social, the Mexican Social Security Institute Infonavit Instituto del Fondo Nacional de la Vivienda para los Trabajadores, the Institute for the National Workers’ Housing Fund IOSCO International Organization of Securities Commissions IPAB Instituto para la Protección al Ahorro Bancario, the Bank Savings Protection Institute ISSSTE Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado, the Institute for State Workers’ Security and Social Services LCM Ley de Concursos Mercantiles, the Business Bankruptcy Law LGSM Ley General de Sociedades Mercantiles, the General Corporations Law LMV Ley del Mercado de Valores, the Securities Market Law LSP Ley de Sistemas de Pagos, the Payments Systems Law LTOSF Ley para la Transparencia y Ordenamiento de los Servicios Financieros, the Transparency and Financial Services Arrangement Law MexDer Mercado Mexicano de Derivados, the Mexican Derivatives Market
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OPM Sociedad Operadora de Pagos Móviles de México, the Mobile Payment Operator PEMEX Petróleos Mexicanos, Mexican state‐owned petroleum company PFI Protocolo Financiero Indeval, Indeval’s Financial Protocol PFMIs Principles for Financial Market Infrastructures PIN Personal Identification Number Prosa Procesos Automatizados S.A. de C.V., a card payment clearinghouse PS Payment system PvP Payment versus Payment RTGS Real‐time Gross Settlement System S.D. Indeval Instituto para el Depósito de Valores, S.A. de C.V., the Securities Depository Institute SHCP Secretaría de Hacienda y Crédito Público, the Ministry of Finance and Public Credit SIAC Sistema de Atención a Cuentahabientes, the Account Holders Service System SICAM Sistema para Liquidación de Cámaras, the Clearinghouse Settlement System SIDV Sistema Interactivo para el Depósito de Valores, the Interactive System for Securities Deposits SMS Short Message Service SOFOMES Sociedades Financieras de Objeto Múltiple, or Multi‐purpose Financial Institutions SSS Securities Settlement System SPEI Sistema de Pagos Electrónicos Interbancarios, the Interbank Electronic Payment System SPEUA Sistema de Pagos Electrónicos de Uso Ampliado, the Extended‐use Electronic Payment System TD Trade depository Tesofe Tesorería de la Federación, the Federal Treasury TIIE Tasa de Interés Interbancaria de Equilibrio, the interbank interest rate Udis Unidades de Inversión, or Investment Units (indexed to inflation)
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