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On February 21st, 2017, the Foreign Exchange Commission, composed by officials from the Ministry of Finance and Bank of Mexico, and which is responsible for Mexico's foreign exchange policy, announced (see press release) the implementation of a new foreign exchange market mechanism, which consists of non-deliverable forward (NDF’s) auctions, which will be settled in Mexican Pesos, The mechanism aims to maintain the proper functioning of the local exchange market, while supplying market participants with a foreign exchange hedging instrument, in order to mitigate exposure to FX risk.. The most important operational details of the mechanism are summarized below (for further details, see circular 3/17, currently published only in Spanish).

      • The program can size up to 20 billion US dollars taking into consideration the total nominal amount outstanding.
      • The maximum tenor of the NDF’s will be 12 months.
        Since the settlement of the forward is non-deliverable, the stock of international reserves is unaffected by the sale of these instruments.
      • Only local banks that can operate derivatives are allowed to present tenders for these instruments,
      • Auctions will be interactives, will last two minutes, and the allotment will be done at multiple price.
      • Bank of Mexico will roll over the total amount outstanding of the NDFs until the Foreign Exchange Commission deems it necessary.

The first auction took place on March 6th, 2017, for a total notional amount of one billion usd distributed along six maturities (see the results for the last auction and the historical series)