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  1. Home
  2. Single Rulebook Q&A
  3. 2023_6732 Clarification on the need for a prearranged and highly reliable funding arrangement to liquidate collateral referred to in Article 11, paragraph 2
Question ID
2023_6732
Legal act
Regulation (EU) No 909/2014 (CSDR) - only RTS 2017/390
Topic
Market infrastructures
Article
59
Paragraph
4
Subparagraph
c
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) 2017/390 - RTS on prudential requirements of CSDs (CSDR-related)
Article/Paragraph
11(2) and 38
Name of institution / submitter
National Bank of Belgium
Country of incorporation / residence
Belgium
Type of submitter
Competent authority
Subject matter
Clarification on the need for a prearranged and highly reliable funding arrangement to liquidate collateral referred to in Article 11, paragraph 2
Question

What type of arrangement is required under Article 11, paragraph 2, subparagraph (c), point (i)?

Background on the question

Article 11, paragraph 2, subparagraph (c) sets out that a CSD-banking service provider should have a prearranged funding arrangement in accordance with point (e) of Article 59(4) of Regulation 909/2014 and specified in Article 38 of the RTS to be able to liquidate the instruments accepted as collateral under this paragraph within 5 days. In addition, that subparagraph also requires the CSD-banking service provider to hold sufficient qualifying liquid resources (QLR) to a sufficient amount to ensure that it covers the time gap for liquidating such collateral in case of default of the participant.

 

Article 38 sets out what the requirements for “prearranged and highly reliable funding arrangements” (PAFA) are. This Article, on multiple occasions, indicates that such arrangements are meant to convert collateral into cash, with the help of liquidity providers (i.e. repo arrangements or similar). In addition, this is confirmed by the fact that Article 59(4) of Regulation 909/2014, to which Article 11, para 2, subpara (c), point (i) refers, specifically introduces prudential requirements for liquidity risks.

 

This is distinct from the liquidation process of collateral, which, in our view, is the act of selling the instruments, and resolves the credit risk and market risk. Nevertheless, Article 11, paragraph 2, subparagraph (c), point (i) does require the CSD-banking service provider to have PAFA to liquidate the instruments within five days.

 

In addition to the above, we note that Article 11, paragraph 2, subparagraph (c), point (ii) also requires the CSD-banking service provider to hold sufficient QLR to cover the time gap for liquidating the collateral. Therefore, the liquidity risk is already covered by QLR.

Submission date
24/02/2023
Rejected publishing date
21/04/2023
Rationale for rejection

This question has been rejected because it is considered that EBA guidance or clarification is not needed with regard to the issue that it raises. For example, this can be the case where it is considered that the existing regulatory framework is sufficiently clear and unambiguous, or where different practices may be possible but it is not currently necessary to harmonise these further through the Q&A process.

The Single Rule Book Q&A tool has been established to provide explanations and non-binding interpretations on questions relating to the practical application or implementation of the provisions of legislative acts referred to in Article 1(2) of the EBA’s founding Regulation, as well as associated delegated and implementing acts, and guidelines and recommendations, adopted under these legislative acts.

For further information on the purpose of this tool and on how to submit questions, please see “Additional background and guidance for asking questions”.

Status
Rejected question

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