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S.D. INDEVAL / Securities Clearing and

Settlement System

Luis Cano, Risk Management Specialist

October 8, 2007

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Mission (INDEVAL)

• Provide the financial sector with the public interest services of safekeeping, custody, management, clearing and settlement of securities within a framework of maximum assurance and security.

• Strive to cover customers needs under transparent and effective services with high quality standards.

• In order to fulfil its mission INDEVAL depends on solid finances, adequate technology, adopting and developing the best business practices and on its human resources.

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Services and Functions• Custody and Management of Securities.-

– Securities safekeeping in physical or electronic book-entry form with authorized custodians.

– Physical securitied deposit and withdrawal at the depository’s vault;

• Domestic Transactions– Electronic securities transfers– Electronic money transfers– Trade clearing and “DVP¨ settlement– Money Market settlement of transactions, and– Collateral Management

• International Transactions– Settlement of transactions executed on the international markets– Corporate action processing on foreign issues– Tax services on US shares

• Information Services– Assign ISIN codes to security issues– Services to issuers

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Corporate Structure

IndevalCSD

CCV 51%CCP

(Equities)

Asigna 21.3%CCP

(Derivatives)

Bursatec 1%(Technology

Provider)

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Mexican Financial Infrastructure

CCP

CCP

IndevalCSD

PaymentSystems

IssuersEquities & Debt

RepresentativesBanksBroker firms

InvestorsInstitutionalRetail

BrokersBanks, Custodians Broker firms

Mexican Stock Exchange

Supervised:• Central Bank• CNBV

CSD, Custodians Derivatives

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Delivery Means

Collateral Management

Pre-settlement Settlement

ParticipantsParticipants

Match

Clearing

SafekeepingVault

( )

SafekeepingAccounts( )

Collateralized Repos

Indeval’s Components

Indeval’s Financial Protocol Web Site

Securities SettlingSystem (SLV)

Securities Lending Corporate

Action Processing

(Issuers)

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Pre-Trade

Trade Post-Trade

Pre-Settlement

Settlement Post-Settlement

Securities and transactions INDEVAL - CSD

Transaction cycle

CCV

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Centralized Settlement

INDEVALINDEVALDVPDVP

Settlement by securities transferSettlement by securities transfer followed by net settlement by funds transferfollowed by net settlement by funds transfer

OVER-THE-COUNTER TRANSACTIONS (OTC)BANKINGGOVERNMENTALBrady’s & UMS

Corporate Debt

Shares issued abroad

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Amount in Custody USD 809 billion Government Securities USD 238 billion

Bank Securities USD 43 billion

Shares and Private Debt USD 528 billion

Number of securities 4,783

Non-Local Custody USD 25 billion Registered USD 4 billion

Global BMV market USD 6 billion Eurobonds USD 15 billion

Number of Securities 638

Average daily settlement (June 2007) USD 208 billion

Average transaction amount USD 24 billion

Indeval Statistics

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Indeval Statistics

Shares andPrivate Debt

USD 528 billion

GovernmentSecurities

USD 238 billion

BankSecurities

43 MM USD

65%30%

5%

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Trade

Incorporationof Transactions

Appointment of Agents for the

Payment of Transactions

CollateralRequirement

Is there sufficient collateral

transacitons Pending settlement

NO

Registration Process

Clearing

Settlement

YES

Transactional Process for Settlement

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Life-cycle of a Transaction

TT T+1T+1 T+3T+3 T+4T+4 T+5T+5 T+6T+6

DefaultedDefaultedTransaction Transaction

Non-recurring Non-recurring cash settlementcash settlement

Securities LendingAgents in default

TradeTradeSettlement of Settlement of

Transaction in defaultTransaction in default

Non-recurringNon-recurringPeriod Period

T+2T+2 T+7T+7

Extended settlement Extended settlement periodperiod

Buy- In /Buy- In /Sell -OutSell -Out

T+8T+8

ClearingClearingCycleCycle

8:308:30

15:0015:00

20:0020:00

15:3015:30

15:4515:45

16:0016:00

Collateral requirementsCollateral requirementsNovation orNovation orregistrationregistration

------------------------------------------------------------------------------------------------------Market ClosingMarket Closing --------------------------------------------------------------------------------------------------------------------------------

Securities LendingCCV

Last settlementcycle

SettlementCycles

Transaction in default

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Clearing /Settlement

• Transaction Clearing: For each counterparty and issue, there will be a net resulting from the

lesser amount of securities compared tof the total amount received versus the total amount delivered.

• Price differential due to Clearing:Since the clearing is performed with agreed prices, there will be a price differential which comes from the Clearing of Transactions.

CCV shall net the price differentials from Clearings for all issues, for each pair of participants; thereby generating a global differential that will be sent for settlement.

•Net payment to DVP:

DVP criteria shall be applied to the settlement of the remainder of non-cleared securities which are party to a net settlement.

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System of Financial Safeguards

The System of Financial Safeguards (SSF) is a set of measures aiming to guarantee compliance with obligations derived from Transactions where CCV performs as a reciprocal creditor and debtor.

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ReserveFund

Equity80%

Equity20%

Sale of the AL shares suspended

Contribution FundAgent was suspended

Clearing Fund Settling Agent was Suspended

Mutualized Clearing Fund

Financial Safeguards

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CCV Statistics

Monthly Average 2007:

Change2006 – 2007:

Transaccion Volumes 340,000 40%

Trade Amounts 13.3 billion USD 49%

Numer of Fails 839 -23%

Amounts of Fails 36 million USD -24%

Resolved in 1 day: 31 million USD -18%

Resolved in 2 or more days: 5 million USD -12%

Amount of fails resolved by securities lending

42 million USD 97%