Haircuts

The Initial Margin Contributions can be covered with certain domestic and foreign securities, both equity and government, these securities are transferred and guarded by SD Indeval “Institución para el Depósito de Valores, S.A. de C.V. (S.D. Indeval)”.The international government securities and Dollars of the United States of America are guarded there by a Custodian Bank and an Agent Bank.

The securities are received applying a discount “haircut” to the price of the securities in order to provide an adequate coverage of risk for the volatility of the market. The price is published by the price supplier Valuación Operativa y Referencias de Mercado, S.A. de C.V.”"The discount is determined by the Risk Management Subcommittee based on the" Value at Risk” and “Expected Shortfall " measures, estimated by the “Block Maxima” methodology, which allows to adjust heavy tailed return distributions.

In order to measure the credit risk of issuers, whose securities are accepted as Margins, the Merton methodology has been implemented. This method determines the probability of default, so that those issues that exhibit significant default probability, judged by the Risk Management Subcommittee Risk Management, will not be accepted as Margins.

Finally, we mention that indicators describing the liquidity of assets (securities) accepted as Margins, has been introduced to the analysis, to ensure that these securities satisfy the liquidity standards of the Risk Management Subcommittee, allowing their negotiation in the market considering their discounts, even under extreme conditions.

Haircuts to securities accepted as Initial Margin Contributions, determined by Asigna are as follows:

Haircuts to Initial Margin Contributions
Security	Type	Haircut
Stocks*	1	20.00%
Brems	XA	0.80%
BPAT´s	IT	5.00%
Bonde182	LS	5.00%
Bondes D	LD	1.50%
BPA's	IP	1.50%
Taxed Cetes	BI	3.00%
BPA´s 182	IS	5.00%
T-Bills	D4SP	6.00%
Dollar	*CSP	6.50%

* Accepted underlying assets: ARA *, ALFA A, AMX L, AXTEL CPO, BIMBO A, CEMEX CPO, FEMSA UBD, GCARSO A1, GEO B, GFNORTE O, GFINBUR O, GMODELO C,GMEXICO B, ICA *, KIMBER A, MEXCHEM *, NAFTRAC, SORIANA B.TELMEX L,TELMEX INT L, TELEVISA CPO, URBI *WALMART V.

Non-Paralel Haircuts by liquidity bands applied to Fixed Interes Rate Government Development Bonds, Denominated “M” in all terms
Security	Type	Term	Haircut
Bond	M	T ≤ 1 year	6.00%
Bond	M	1 < T ≤ 5 years	13.00%
Bond	M	5 < T ≤ 10 years	18.00%
Bond	M	10 < T ≤ 15 years	20.00%
Bond	M	15 < T ≤ 20 years	21.00%
Bond	M	T > 20 years	23.00%

Non-Paralel Haircuts by liquidity bands applied to US Treasury Bills, US Treasury Notes, US Treasury Bonds in all terms
Security	Type	Term	Haircut
T-Note & T-Bond	D5SP & D6SP	T ≤ 1 year	6.00%
T-Note & T-Bond	D5SP & D6SP	1 < T ≤ 5 years	14.00%
T-Note & T-Bond	D5SP & D6SP	5 < T ≤ 10 years	17.00%
T-Note & T-Bond	D5SP & D6SP	10 < T ≤ 15 years	17.00%
T-Note & T-Bond	D5SP & D6SP	15 < T ≤ 20 years	18.00%
T-Note & T-Bond	D5SP & D6SP	T > 20 years	19.00%

Non-Paralel Haircuts by liquidity bands applied to fixed interest rate government bonds linked to inflation (udibonos)
Security	Term	Haircut
UDIBONOS	T ≤ 1 año	10.00%
UDIBONOS	1 < T ≤ 5 años	15.00%
UDIBONOS	5 < T ≤ 15 años	20.00%