Key takeaways
- Regulatory easing to boost local repo market: Banco de México’s Circulars 7/2024 and 13/2024 have relaxed rules for domestic repurchase agreement (repo) transactions, reducing legal barriers and aligning Mexican practices more closely with international standards to encourage transactions of onshore securities repo.
- Historical differences and restrictions: The regulation of repo transactions in Mexico has traditionally been more restrictive compared to global standards, requiring additional collateral and imposing term limits. These differences stem from local laws and regulations issued by Banco de México, which have limited the use of agents that provide additional services for the administration and custody of securities (Tri-Party Repo) and the execution of repo types such as open and evergreen repos.
- The rise of Tri-Party: As regulators and market participants encourage the growth of Mexico’s repo market, the emergence of Tri-Party repo could help Mexican financial institutions achieve economies of scale, reduce the inefficiencies of manual asset moves, and optimize collateral management.
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What are the specific regulatory changes taking effect in Mexico with regard to repo?
On May 16, 2024, Banco de México issued Circular 7/2024 to align domestic repurchase agreement (repo) transaction rules for Mexican financial institutions with modernized international standards. As a result, repos (known as “reportos” in Mexico) can be contracted as new transaction types (such as open and evergreen) and under new structures (such as Tri-Party), reducing legal barriers and supporting growth in the onshore repo market.
What is the reason for this legislative shift?
The change broadens repo options to remove legal barriers and grow Mexico’s local repo market. Even though Mexico is the second-largest emerging market economy for daily repo Brazil, some transactions are still executed offshore under the Global Master Repurchase Agreement (GMRA).
When it comes to collateral, how have those legal barriers historically differentiated repo in Mexico from repo in other markets?
Globally, a repo is a collateralized sale of securities for cash with an agreement to repurchase later at a higher price. In Mexico’s reporto framework, the transferred securities are treated as an instrument of the repo, which can require the seller to post additional cash or securities as extra collateral.
What about changes to maximum term limits for repo in Mexico?
Beginning with their 1932 origin, repos in Mexico had a maximum term of 45 days, as they were designed primarily for liquidity. In Mexico, banks, broker-dealers, pensions funds, non-bank financial institutions, insurance companies, bonding companies, and mutual funds utilize repo transactions. Banco de México’s Circular 3/2007, effective January 2007, ended this term limit. The elimination of this time-frame restriction for financial entities and, more recently, for large corporations highlights the challenges Mexico has faced in using repo transactions for securities finance in addition to liquidity management. Some 98% of repo transactions in Mexico are overnight, according to Banco de México, meaning that repos focused on speculation, credit, or risk management are exceedingly rare.
How do Reporto Regulations hinder the implementation of repo agreements and Tri-party agent use in Mexico?
Mexico’s repo framework differs from GMRA standards (margining, settlement, structure, and definitions) and requires local counterparties to use the Local Master Agreement for Securities Purchase and Repo Transactions1 approved by the Mexican Banks Association (ABM) and the Mexican Broker Dealers Association (AMID). Prior rules limited collateral substitution, prohibited open repos, and imposed counterparty and maturity constraints, so Tri-Party offered little benefit and encouraged banks to book repos through foreign branches where GMRA-style margining could be used.
How does Circular 7/2024 change Reporto Regulations?
The changes help market participants entering into repo transactions to adhere to international standards as closely as possible while utilizing the Local Reporto Master Agreement.
Key outcomes include:
- Collateral substitution is now allowed
- Repo terms must end at least one banking day before the underlying securities mature (or require timely substitution under defined rules)
- Tri-Party custody/agents are permitted for eligible Mexican and recognized foreign institutions
- Petróleos Mexicanos (Pemex) and Comisión Federal de Electricidad (CFE) must use the local agreement and exchange collateral
- Forward-starting repos (settling more than four banking days after trade date) are treated as derivatives and require Banco de México authorization
What types of new repo transactions does Circular 7/2024 allow for in Mexico?
- Open repo: No fixed end date; either party may terminate on any banking day with notice, but it must settle within 365 days.
- Evergreen repo: No fixed end date; renews automatically unless either party opts to end or extend.
How can J.P. Morgan provide a solution?
Mexico’s repo reforms enable seller-delivered securities to be used as collateral for securities finance. A Mexican schedule to the J.P. Morgan Tri-party Collateral Management Service Agreement for repos was finalized in December 2025 to support compliant local trades. The new rules allow firms to rely on a Tri-Party agent for collateral management, and J.P. Morgan’s Tri-Party capability can help Mexican participants scale, streamline collateral movements, and improve collateral efficiency.
References
El Contrato Marco para Operaciones de Compraventa de Valores y Reporto
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