Download Securities and the use of collateral in the context of intraday

Securities and the use of collateral in the
context of intraday and monetary credit
Content
Introduction
1 The use of collateral
1.1 Delivery methods: pledging or repo
5
Notes
20
Practical procedure
22
Glossary of terms
26
Further information
27
7
8
1.2 Asset categories
9
1.3 Credit standards
11
1.4 Risk control measures
12
1.5 Valuation of underlying assets
14
2 Delivery procedures
15
2.1 Using Euroclear Nederland or Euroclear Bank directly
2.2 Using the approved direct links
16
2.3 The ccbm model
17
2.4Collateral service charges
19
15
Introduction
De Nederlandsche Bank frequently receives inquiries concerning collateral
management, many of which relate to the pledging of collateral in order to
obtain credit from De Nederlandsche Bank (DNB).
In its role as ‘banker’s bank’, dnb extends intraday credit and monetary loans in euro. Intraday credit is extended by the central banks of the eu member states
which, together with the European Central Bank (ecb),
form the European System of Central Banks (escb).
Monetary loans in euro are extended only by the central banks of the euro area countries that are united
with the ecb in the Eurosystem.
Chapter 2 describes the operational aspects of using collateral and details the procedures to be followed.
One important aspect is that of timing: when does collateral have to be presented to (or withdrawn from)
dnb to ensure the size of the credit facility is effectively
changed on the desired date. This chapter also lists and
explains the direct links between securities depositories
and explains cross-border collateralisation of assets
through national central banks.
This brochure answers frequently asked questions on
the use of collateral. For a full description, please refer
to ‘The implementation of monetary policy in the Euro
area’, published by the ecb1 and the ‘Monetary policy
transactions Manual’ published by dnb.2 The present
brochure is for information purposes only and is not legally binding.
On page 22 we present a practical example of steps one needs to take in order to (de)collateralise assets. A glossary of terms and a list of useful addresses conclude this brochure.
Chapter 1 explains in general terms how collateral is
used, listing the different collateralisation methods (section 1.1) and what types of assets may be collateralised
(section 1.2). Next is a description of the Eurosystem
credit assessment framework, ecaf (section 1.3), followed
by a section on several risk mitigation measures applied
to the different types of collateral (section 1.4). Finally,
the different collateral valuation methods are explained
(section 1.5).
Chapter 1: The use of collateral
Lending by DNB to financial sector market parties is subject to the condition that
parties provide sufficient collateral in the form of financial assets. Two types of
lending facilities are distinguished: intraday credit and monetary lending.
dnb provides loans during the day (‘intraday credit’) to
credit institutions3 to promote the smooth operation of the European target payment system. Only credit
institutions established in the Netherlands, which are
subject to regulatory supervision and hold an account
with dnb are eligible to receive intraday credit. Banks
need intraday credit to make large-value payments to
other banks and credit institutions. Through a link between top and the pan-European payment system
target4, dnb provides eu-wide payment facilities to credit institutions. Of the collateralised assets in the
books of dnb, a substantial part is used to obtain such
intraday credit.
Monetary loans are extended to any credit institution
which has an establishment in the Netherlands and is
subject to minimum reserve requirements. Monetary
lending is effected by means of the Eurosystem’s two
monetary policy instruments. These instruments are: open
market operations and the marginal lending facility.
The Eurosystem uses these instruments to influence
market liquidity.
The most important open market operations are the so-called Main Refinancing Operations. A Main Refinancing Operation has a maturity of one week.
Other open market operations include Longer-term Refinancing Operations (with maturities of three
months) and fine-tuning and structural operations
which are carried out with non-standardised frequencies
and at non-standardised maturities.
The ecb requires credit institutions to hold minimum
reserves5 on an account they hold with their respective
central bank. The Eurosystem’s minimum reserve system pursues the aim of stabilising money market interest rates and of creating (or enlarging) a structural
liquidity shortage. The minimum reserve of each credit
institution is determined in relation to certain items on
its balance sheet. Compliance with these requirements
is determined on the basis of an institution’s average
daily reserve holdings over the maintenance period.
Credit institutions may also borrow liquidity through
one of the Eurosystem’s standing facilities, the marginal
lending facility. This facility may be used at the end of
the day by credit institutions which have a residual
overdraft on their payment /minimum reserve account
with dnb. Like all other Eurosystem loans, these loans
also need to be secured by sufficient and adequate collateral.
Securities and the use of collateral in the context of intraday and monetary credit
1.1 Delivery methods: pledging or repo
Before a credit facility may be actually provided, the assets deposited as collateral are first re-valued under
risk control measures (see section 1.4). Next, part of the
pool’s value is blocked and the corresponding amount
debited from the institution’s refinancing account and
credited to its cash reserve account. Alternatively, part
of the pool may be blocked for special purposes. The
rest of the credit facility will be made available in the
form of a credit line.
There are two ways to supply underlying assets as collateral for intraday credit or monetary lending. Assets may be pledged to dnb, or they may be sold and
repurchased in a repurchase transaction, or repo. Both
methods fall under the term reverse transactions. dnb
usually applies the pledging method, unless a repo is legally prescribed. A repo is required in the case of
cross-border collateralisation of assets residing in countries where the repo method is standard. An
example of the latter is the use of French collateral via Banque de France.
Repo
The repo method used by some countries for lending
operations is fundamentally different from the pledging
method. A repo is a sale of assets under an agreement to
repurchase them from the buyer after a stated period
and at a stated price. The difference between the selling
price and the (re)purchasing price represents the interest
accruing during the interval.
Pledging
In pledging, the borrowing institution’s collateral pool is
used to cover the various types of credit extended to
that credit institution. There is no direct link between
specific loans and specific underlying assets in the collateral pool.
The most marked difference between both methods is
that a repo does establish a direct connection between
specific assets and the credit provided against them:
every security acquired in a repo represents a positive
balance in the cash account. As under the pledging method, the value of the assets used in a repo is first adjusted under risk control measures. Next, the assets’
adjusted value is transferred directly to the counter­
party’s payment / cash account held with dnb.
Pledged assets may be used both to obtain intraday credit in the form of a credit line and as underlying assets for obtaining monetary loans, which translates
into a positive balance in the borrower’s cash account.
For collateralisation purposes, a credit institution will
transfer assets it holds in an account held with a central
securities depository ((i)csd), to the collateral account
held there by dnb. In this account the assets are then
added to the collateral pool of that credit institution
with dnb.
Chapter 1: The use of collateral
Table 1 graphically shows the difference between the
pledge and repo methods.
Balance on payment /
cash account (repo)
0 balance
Credit line based on
pledged assets (pledge)
}
Another purpose served by these criteria is that of guaranteeing equal treatment (a ‘level playing field’) to
credit institutions using different kinds of assets. Finally
the criteria also aim to increase operational efficiency
by introducing standards for various types of assets.
Total credit facility
on the payment/
cash account
The Eurosystem has developed a single framework for
eligible assets.6 This single framework, referred to as the
Single List, came into effect on 1 January 2007, replacing
the earlier two-tier system. The single framework comprises two asset classes:
• Marketable assets;
• Non-marketable assets (i.e. credit claims and retail
mortgage-backed debt instruments).
1.2 Asset categories
National Central Banks (ncbs) will only extend credit to
credit institutions if it is secured by sufficient and adequate collateral. Not all assets are accepted as collateral by ncbs. To be accepted as collateral assets
must meet certain eligibility criteria set down by the Eurosystem. In other words, they must be ‘eligible assets’. The eligibility criteria aim to prevent the Euro­system from incurring losses on the value of collateralised assets. This aim is achieved by imposing
standards on the creditworthiness of the issuer (debtor)
of the assets and by applying haircuts.
Securities and the use of collateral in the context of intraday and monetary credit
Table 2 lists the eligibility criteria for both marketable and non-marketable assets.
Eligibility criteria
Marketable assets
Non-marketable assets
Type of asset
ECB debt certificates
Other marketable debt
instruments
Credit claims
Retail Mortgage-Backed Debt
instruments (RMBDs)
Credit standards
The asset must meet high credit
standards. The high credit
standards are assessed using
ECAF rules for marketable assets
The debtor/guarantor must meet high
credit standards. The creditworthiness
is assessed using ECAF rules for
credit claims.
The asset must meet high
credit standards. The high
credit standards are assessed
using ECAF rules for RMBDs.
Place of issue
European Economic Area (EEA)
Not applicable
Not applicable
Settlement/handling procedures
Place of settlement: euro area.
Instruments must be centrally
deposited in book-entry form with
central banks or an SSS fulfilling
the ECB´s minimum standards.
Eurosystem procedures
Eurosystem procedures
Type of issuer/debtor/guarantor
Central banks, Public sector,
Private sector, International and
supranational institutions
Public sector, Non-financial corporations, International and supranational
institutions
Credit institutions
Place of establishment of the
issuer/debtor or guarantor
Issuer: EEA or non-EEA G10
countries.
Guarantor: EEA
Euro area
Euro area
Acceptable markets
Regulated markets
Non-regulated markets accepted
by the ECB
Not applicable
Not applicable
Currency
Euro
Euro
Euro
Minimum size
Not applicable
Minimum size at the time of
submission of the credit claim:
Between 1 January 2007 and 31
December 2011:
-in Netherlands: € 1,000,000
-cross border use: € 500,000
As from 1 January 2012: common
threshold of € 500,000 in euro area.
Not applicable
Governing laws related to credit
claims
Not applicable
Governing law for credit claim
agreement and mobilisation: law of
a Member State of the euro area.
The total number of different laws
applicable to counterparty, creditor,
debtor, guarantor, credit claim
agreement and mobilisation
agreement shall not exceed two.
Not applicable
Cross-border use
Yes
Yes
Yes
10
Chapter 1: The use of collateral
A 0.10% probability of default over a one-year period is
considered equivalent to a ‘Single A’ credit rating.
Dutch registered private claims on government bodies or other eligible debtors that are covered by a
government guarantee (e.g. housing associations) are
deemed to be equivalent to credit claims.
For a marketable asset issued or guaranteed by a regional
government, local authority or public sector entity (pse)
located in the euro area a different procedure for credit
assessment is followed in the absence of an ecai credit
assessment. The issuer or guarantor is allocated to one
of three classes in accordance with the Capital Requirements Directive (crd). Then an implicit credit assessment is derived from the ecai credit assessment of the
central government of the country where the issuer or
guarantor is established. Table 3 provides an overview.
1.3 Credit standards
The Eurosystem credit assessment framework (ecaf7) defines the procedures, rules and techniques which ensure that the Eurosystem requirement of high credit
standards is met. In the assessment of the credit
standard of eligible assets the Eurosystem uses information from credit assessment systems belonging
to one of four sources, namely:
• External credit assessment institutions (ecai’s, i.e.
Fitch, Standard & Poor’s, Moody’s, etc.);
• ncb’s’ in-house credit assessment systems (icas’s);
• Counterparties’ internal ratings-based systems (irb);
• Third-party providers’ rating tools (rt’s).
Also, in the assessment of the credit standard, the Eurosystem considers institutional criteria and features
guaranteeing similar protection, such as guarantees.
Table 3 Credit assessments for euro area regional
government, local authority and pse issuers/guarantors
In order to ensure consistency, accuracy and comparability of these four credit assessment sources,
the Eurosystem has devised acceptance criteria for each of the sources and regularly monitors their credit
assessment performance against the credit quality
threshold. The Eurosystem’s benchmark minimum requirement for high credit standards (its credit quality
threshold), is defined in terms of a ‘Single A’8 credit assessment.
11
Allocation of issuers,
debtors or guarantors
following the CRD
ECAF derivation of the
implicit credit assessment of the issuer,
debtor or guarantor
belonging to the
corresponding class
Class 1
Regional governments,
local authorities and PSEs
that, according to
competent supervisory
authorities, can be treated
equally to the central
government for capital
requirements purposes
Allocated the ECAI credit
assessment of the central
government of the country
in which it is established
Class 2
Regional governments,
local authorities and PSEs
that, according to
competent supervisory
authorities, can be treated
equally to (credit) institutions for capital requirements purposes
Allocated a credit
assessment one credit
quality step below the
ECAI credit assessment of
the central government of
the country in which it is
established
Class 3
Other PSEs
Treated like private sector
issuers or debtors
Securities and the use of collateral in the context of intraday and monetary credit
1.4 Risk control measures
Marketable assets
Eligible marketable assets are allocated to one of four liquidity categories (see Table 4) based on issuer classification and asset type. The haircut applied (see tables 5 and 6) depends on two additional factors:
residual maturity and coupon structure (zero, fixed or
inverse floater).
To protect the Eurosystem against defaulting borrowers,
risk control measures are applied to the assets under­
lying Eurosystem credit. Under these measures, the credit extended on collateral deposited is reduced by
certain risk-based percentages. The risk control measure
with respect to collateral is known as valuation haircut.
This implies that the value of the underlying assets9 is
calculated as the market value of the assets less a certain
percentage.
Table 4 Liquidity categories for marketable assets
Category I
Category II
Category III
Category IV
Central government debt
instruments
Local and regional government
debt instruments
Traditional covered bank bonds
Asset-backed securities
Debt instruments issued by
central banks
Jumbo covered bank bonds
Credit institutions debt instruments
Agency debt instruments
Debt instruments issued by
corporate and other issuers
Supranational debt instruments
12
Chapter 1: The use of collateral
Table 5 Valuation haircuts applied to marketable assets
Category I
Category II
Category III
Category IV
Residual maturity
(years)
Fixed coupon
Zero coupon
Fixed coupon
Zero coupon
Fixed coupon
Zero coupon
Fixed coupon
Zero coupon
0-1
0.5
0.5
1
1
1,5
1,5
2
2
1-3
1,5
1,5
2,5
2,5
3
3
3,5
3,5
3-5
2,5
3
3,5
4
4,5
5
5,5
6
5-7
3
3,5
4,5
5
5,5
6
6,5
7
7-10
4
4,5
5,5
6,5
6,5
8
8
10
> 10
5,5
8,5
7,5
12
9
15
12
18
Table 6 Valuation haircuts applied to marketable inverse floating rate debt instruments
Residual maturity (years)
Inverse floater coupon
0-1
2
1-3
7
3-5
10
5-7
12
7-10
17
> 10
25
Credit claims are subject to specific valuation haircuts
(see Table 7), according to the residual maturity, type of
interest payment and the valuation method applied by
the ncb.
Non-marketable assets
Non-marketable retail mortgage-backed debt instruments
(rmbd’s) are subject to a valuation haircut of 20%.
13
Securities and the use of collateral in the context of intraday and monetary credit
Table 7 Valuation haircuts applied to credit claims with fixed coupon
Residual maturity (years)
Fixed coupon and a valuation based on a
theoretical price assigned by the NCB
Fixed coupon and a valuation according to
the outstanding amount assigned by the
NCB
0-1
7
9
1-3
9
15
3-5
11
20
5-7
12
24
7-10
13
29
> 10
17
41
The haircut applied to credit claims with variable coupons is 7%, irrespective of the valuation method applied by the ncb. dnb applies the outstanding value
method for credit claims.
then reduced by the risk control measures (valuation
haircuts) described in section 1.4.
Table 8 shows the calculation methods for the resulting
credit provided on the basis of a fixed-rate central government bond with a residual maturity of 2.5 years. In
this example, a coupon rate of 4.5% is assumed, accrued
over a 4 month (=112 day) period. Given the residual
maturity a valuation haircut of 1.5% is applied (see table 5).
1. 5 Valuation of underlying assets
When valuing the underlying assets used, dnb applies
the following principles:
• For each eligible marketable asset a representative price source to be used for the calculation of the market value is defined;
• The value of the marketable asset is calculated on the
basis of the most representative price on the previous
business day preceding the valuation date;
• The market or theoretical value of a marketable debt
instrument is calculated including accrued interest.
Table 8 Calculation of collateral value
The value of the collateral is calculated as the sum total of the values of individual holdings, which reflect
market price and accrued interest. This total value is
14
Par value
1,000.00
Market price (100.87)
1,008.70
Accrued interest (r=4.5%, t=112)
(+) 13.81
Subtotal
1,022.51
Valuation haircut (1.5%, see table 5, Category I)
(-) 15.34
Collateral value
1,007.17
Chapter 2: Delivery procedures
Changes in the collateral pool lead to a recalculation of the credit facility. When
assets are deposited, an eligibility check (see section 1.2) and a credit quality check
(see section 1.3) are performed. The value is calculated, taking into account the risk
control measures (see section 1.4). After the actual entry of the assets in the books
of DNB, the credit line of the credit institution on its payment / cash account is
increased.
Before assets are withdrawn from the pool, dnb will
check whether the then resulting credit facility would
be sufficient to cover outstanding obligations. Only
then will the withdrawal be carried out.
When using credit claims as collateral credit institutions
need to send an mt598 to dnb to record the credit claim
in the ecms12 database. At the same time the credit institution sends the physical documents (the loan document and pledge agreement) to dnb. After debtor
confirmation and eligibility assessment dnb sends an
mt598 back to the credit institution and mobilisation of
the credit claims as collateral can start.
A credit institution may deposit assets into its collateral
pool by transferring them directly from its account with the central securities depository (csd) Euroclear
Nederland or the international csd (icsd) Euroclear
Bank, to the account of dnb held with this (i)csd. Alternatively, both the credit institution and dnb may
use the approved direct links between csd’s. Finally, euro-denominated assets not issued in the Netherlands
may be transferred to dnb via the local ncb: this method is also known as the ccbm model. Each of the
three delivery methods is explained in the next sections.
Changes to the collateral pool (i.e. mobilisation of eligible assets) are made by means of standard swift
messages (mt540 and mt542).
2.1 U
sing Euroclear Nederland or Euroclear
Bank directly
Credit institutions that also hold accounts in csd Euroclear Nederland or icsd Euroclear Bank (in the case
of Eurobonds), may pledge assets from these accounts
to the custody account held by dnb within the same
(i)csd. Once dnb has received a deposit confirmation
from the depository, dnb will update the credit institution’s collateral pool and hence the total value of
this institution’s credit facility.
dnb uses the collateral management system ecms (Euro
Collateral Management System10). ecms is a system
which is shared with nbb, the Belgian central bank.
Characterised by a high degree of straight through processing (stp), ecms relies on harmonised standards
and procedures.11 ecms accepts only free-of-payment (fop)
instructions, regardless of the delivery method. 15
Securities and the use of collateral in the context of intraday and monetary credit
The information flow is illustrated by diagram 1.
By exception same day settlement is possible. Credit institutions that want to use the latter possibility need to
communicate this explicitly to dnb for each transaction.
Diagram 1 Pool change effected through csd
Euroclear Nederland or icsd Euroclear Bank
Table 9 Euroclear Nederland and Euroclear Bank
time limits for depositing collateral at dnb
2 confirmation
DNB
07:00
1 instruction
17:30
DNB operating times
Euroclear Netherlands FoP
2 confirmation
1 instruction
Euroclear Bank FoP, overnight
Euroclear Bank FoP, daylight
17:30
S-1 17:00
17:00
1 instruction
Euroclear
NL / Bank
Bank
2.2 Using the approved direct links
Direct links enable borrowers to use eligible marketable
assets located in another emu Member State to obtain
credit from dnb. Eligible non-marketable assets cannot
be transferred through direct links. Direct links involve
a cross-border relationship between central securities depositories (csd’s). Each depository holds an account
with other csd’s, thus creating bilateral links between
each pair. Such a link enables assets issued in the country of one csd, to be held through another csd. In the Netherlands, the csd is Euroclear Nederland. Diagram 2 illustrates one such link.
Table 9 shows when instructions should be sent to dnb
by a credit institution in order to deposit assets in its
collateral pool on the date desired by that credit institution. Thirty minutes after receipt of instructions
via the swift network, the total credit facility is adjusted
for the collateral movement.
In the case of Euroclear Bank, to ensure settlement on
day S, credit institutions must send instructions to dnb
on day S-1 due to Euroclear Bank’s overnight settlement
process. Please be aware that when instructing the with­
drawal of collateral from the pool account with dnb,
the credit facility will be lowered immediately after the
receipt of the credit institution’s instruction to do so.
16
Chapter 2: Delivery procedures
Diagram 2 Pool change effected through the use of a
direct link
2.3 The ccbm model
The abbreviation ccbm stands for Correspondent Central
Banking Model. This term refers to a co-operative system
involving euro area ncb’s and the ecb.14 ccbm enables
credit institutions to deposit assets with the ncb of
another euro area state in order to obtain credit (liquidity)
from dnb. The model is unique in that it allows collateral
to be transferred from any csd in the euro area to the
respective ncb.15
3 confirmation
DNB
1 instruction
3 confirmation
2 transfer
Euroclear
Nederland
1 instruction
Collateral pool deposits and withdrawals by Dutch credit
institutions in the context of ccbm involve dnb in its
role as Home Central Bank (hcb). This means that dnb
will extend loans to credit institutions in the Netherlands
on the basis of collateral held, at the request of dnb, by
a fellow ncb in the Eurozone, referred to as the Correspondent Central Bank (ccb). dnb will then count these
assets as part of the collateral pool against which credit
may be obtained. The precise procedure of the ccbm
depends on whether the eligible assets are earmarked for
each individual transaction or whether they are held in
a pool of underlying assets.16
1 instruction
Euroclear
France
Bank
Table 10 lists the ecb-approved direct links to Euroclear
Nederland.13 The table shows when instructions should
be sent to dnb by a credit institution in order to deliver
assets from its collateral pool on the date desired by
that credit institution. dnb will process these instructions
within thirty minutes, thus updating the credit facility.
Table 10 Approved direct links time limits for
depositing collateral at dnb
07:00
The assets must meet the same ecb eligibility criteria as all other assets used as collateral for central bank lending.17 Broadly speaking both marketable and nonmarketable assets may be used in ccbm collateralisation.
Due to their specific characteristics specific ccbm solutions18 have been implemented for the mobilisation
of non-marketable assets (i.e. credit claims and rmbd).
Diagram 3 illustrates the ccbm model.
17:30
DNB operating times
OEKB (AT)
15:30
Clearstream Frankfurt (DE)
15:30
Iberclear (ES)
15:30
Euroclear France (FR)
S-1 16:30
Monte Titoli (IT)
15:30
17
Securities and the use of collateral in the context of intraday and monetary credit
Diagram 3 Using the ccbm model for marketable
assets
3 confirmation
CCB
DNB (HCB)
1 instruction
1 matching
3 confirmation
3 confirmation
CSD
1 instruction
2 transfer
1 instruction
Custodian
Bank
CCBM: Correspondent Central Banking Model
CSD: Central Securities Depository
CCB: Correspondent Central Bank
HCB: Home Central Bank
The speed with which foreign assets are transferred to
dnb and vice versa depends on local time limits. Within
the ccbm, a standardised maximum instruction processing time of half an hour applies. The ccbm is available
to counterparties between 9:00 and 16:00 cet on each
Eurosystem business day. Also the counterparty must
ensure that the collateral for securing monetary policy operations is delivered to the account of the correspondent central bank by 16:45 cet at the latest.
Table 11 charts the processing hours of the ccbm model. 18
Chapter 2: Delivery procedures
Table 11 ccbm time limits
ESCB
Collateralisation methods used
by local NCB (as an HCB)
for marketable and
non-marketable assets
Processing times
BE
Pooling
Earmarking
09:00
16:00
16:30
DE
Yes
No
09:00
16:00
16:30
GR
Yes
No
09:00
16:00
16:30
ES
Yes
No
09:00
16:00
16:30
FR19
No
No
09:00
16:00
16:30
IE
No
Yes
09:00
16:00
16:30
LU
Yes
No
09:00
16:00
16:30
AT
Yes
No
09:00
16:00
16:30
PT
Yes
No
09:00
16:00
16:30
FI
Yes
No
09:00
16:00
16:30
SI
Yes
No
09:00
16:00
16:30
IT
Yes
No
09:00
16:00
16:30
2.4 Collateral service charges
dnb may also be asked to perform the opposite role of
ccb, when another ncb, acting as the hcb, requests dnb
to receive Dutch assets. dnb then acts as the custodian
of those assets, while the other ncb (the hcb) provides
credit against them. Given its readership, this brochure
will not go any further into this aspect.
For its services as custodian dnb charges a custody fee
and a transaction fee. The custody fee is calculated (on a daily basis) as a share of the nominal value and is
billed quarterly. Information to borrowers is sent daily
by means of a ‘Statement of Holdings’ through an mt535
swift message. In addition to the collateral information
sent via the swift network, and to encourage a more
19
Securities and the use of collateral in the context of intraday and monetary credit
flexible use of collateral information within credit institutions, dnb offers optional Overviews of Collateral
Value, which are sent by email.
In order to promote Straight through Processing (stp),
dnb will send confirmations of securities orders through
swift (mt544 and mt546) and expects all securities orders
to be sent over the swift network as well. Charges relating to the use of swift are included in the basic
custody fee.
1See www.ecb.int. Go to “Monetary policy” and see section
“Backgrounders”.
2 See www.dnb.nl, under “Payments” and “Downloads”.
3See glossary of terms for the definition of a credit institution. Dutch
credit institutions are listed in the Register pursuant to Section 1:107
of the Financial Supervision Act.
4As of 18 February 2008 DNB will migrate to TARGET2, the future
RTGS of the Eurosystem which is based on a single platform
infrastructure.
5For a description of which institutions are subject to minimum
reserve requirements see ‘The implementation of monetary policy
in the Euro area’ and also the Statute of the ESCB, section 19.
6For a comprehensive list of the eligible marketable assets, see the
ECB website (www.ecb.int), under “Monetary policy”, section
“Collateral”. Eligible non-marketable assets are not published by the
ECB; NCBs are responsible for the eligibility assessment of nonmarketable assets. To check for eligibility of a non-marketable asset,
please refer to the NCB.
7For detailed information on ECAF, see the ECB publication ‘The
implementation of monetary policy in the euro area’, section 6.3.
8“Single A” means a minimum long-term rating of “A-” by Fitch or
Standard & Poor’s, or “A3” by Moody’s.
9In case of a repo DNB will not accept underlying assets falling due
before the maturity date of the monetary policy operation.
10ECMS was jointly developed with the Belgian central bank.
11See for detailed instructions the publication ‘ECMS SWIFT Templates’ on DNB’s website www.dnb.nl, under “Payments” and
“Downloads”.
12DNB’s SWIFT BIC for changes in the collateral pool is
ECMSNL2ACCB.
13An updated list of direct links is to be found on the ECB website
under “Monetary policy”, “Collateral”, “Mobilise collateral” and
“Links between SSSs”.
14CCBM is also available to counterparties of the Bank of England,
Danmarks Nationalbank and Sveriges Riksbank.
15For full details, please refer to the ECB website for the brochure
‘CCBM- procedures for Eurosystem counterparties’.
16For more on the earmarking and pooling methods see the brochure
‘CCBM- procedures for Eurosystem counterparties’.
17For Finnish assets to be deposited in the collateral pool, additional
requirements apply: a sub account in the name of the credit
institution must be opened with the central bank of Finland, and a
‘deed of pledge’ is required for the right of pledge on the Finnish
assets to be duly registered.
18For detailed information see the brochure ‘CCBM-procedures for
Eurosystem counterparties’ (annex 2), available on the ECB website.
19The collateralisation method used by the Banque de France when
acting as HCB is repo with global margining for marketable and nonmarketable assets.
20
Practical procedure
21
Securities and the use of collateral in the context of intraday and monetary credit
Practical procedure
Assuming you have read the theoretical framework, we will now explain the steps
you should take in order to deposit assets into your collateral pool. (If you wish to
withdraw
assets from the pool, begin at Step 3.)
Practical procedure
Assuming you have read the theoretical framework, we will now explain the steps you should take in order to
step
1 assets into your collateral pool. (If you wish to withdraw assets from the pool, begin at Step 3.)
deposit
Once you have selected the security you wish to deposit, you may verify on the ecb website (www.ecb.int) whether it
is eligible. An asset is eligible if it is listed in the Eligible Assets Database. See the example below.
STEP 1
Once you have selected the security you wish to deposit, you may verify on the ECB website (www.ecb.int)
whether it is eligible. An asset is eligible if it is listed in the Eligible Assets Database. See the example below.
Please enter the search criteria to query the Eligible Assets Database
ISIN Code:
Other
registration
number:
Asset Type:
Bond
Medium-term note
(Treasury) bill / commercial paper / certificate of deposit
Private loan to central government
Reference
Market:
Duesseldorfer Boerse (Amtlicher Handel, Geregelter Markt)
(MTS): w holesale market for governement securities
AIAF, Mercado de Renta Fija
Amtlicer Wertpapierhandel-Wiener Boerse
Arvopaperiporssi(Stock Exchange)
Athens Stock Exchange
Baden-Wuerttembergische Wertpapierboerse (Amtlicher Handel, Geregelter Markt)
Boerse Berlin-Bremen (Amtlicher Handel, Geregelter Markt)
Denomination:
Austria, Schillings
Belgium, Francs
European Economic and Monetary Union, Euros
Finland, Markkaa
Issuance Date
from:
to:
(DD/MM/YYYY)
Maturity Date from:
to:
(DD/MM/YYYY)
22
Denomination:
Issuance Date
Austria, Schillings
Belgium, Francs
European Economic and Monetary Union, Euros
Finland, Markkaa
Practical procedure
from:
to:
(DD/MM/YYYY)
Maturity Date from:
to:
(DD/MM/YYYY)
Country of
location:
Austria
Belgium
Belgium-Luxembourg
Bulgaria
Issuer Name:
Other Issuer
Name:
Issuer
Residence:
Issuer Group:
Austria
Belgium
Bulgaria
Canada
Agency - Credit Institution
Agency - Non Credit Institution
Central Bank
Central Government
Guarantor
Name:
Other
Guarantor
Name:
Guarantor
Residence:
Guarantor
Group:
Coupon
Definition:
Valuation
Haircut
Austria
Belgium
Bulgaria
Cyprus
Agency - Credit Institution
Agency - Non Credit Institution
Central Bank
Central Government
Fixed
Inverse floater
Variable
Zero
from:
% to:
%
23
Coupon
Definition:
Fixed
Inverse floater
Securities and the use of collateral
in the context of intraday and monetary credit
Variable
Zero
Valuation
Haircut
from:
% to:
Sort by:
<none>
and then by:
<none>
%
STEP
step
2 2
theselected
selectedassets
assets are
are eligible,
eligible, you
useuse
thethe
table
below
to determine
in what
they may
bemay be delivered
If Ifthe
youmay
maythen
then
table
below
to determine
in way(s)
what way(s)
they
delivered
to
(or,
in
the
case
of
a
withdrawal,
by)
DNB.
to (or, in the case of a withdrawal, by) dnb.
Direct
Approved direct link
Approved
CCBM direct link
Direct
yes/no
yes/no
yes/no
yes / no
yes / no
CCBM
yes / no
Country of issue
BEof issue
Country
DE
BE
GR
DE
FR
IE
GR
IT
FR
LU
IE
NL
AT
IT
PT
LU
SI
FI
NL
ES
AT
EUROCLEAR
PT
STEP 3
Direct
Approved direct link
CCBM
X link
Approved direct
Direct
X
X
X
x
x
X
X
X
X
X
X
CCBM
x
x
x
x
x
X
X
x
x
X
X
x
X
X
X
X
X
x
x
x
x
SI
x
FI
x
Find the deadline by which your instruction should reach DNB in the appropriate table so that you may realise
ES
x
x
the desired increase or decrease of your credit line at the desired time.
EUROCLEAR
Method
Direct
x
Table
9
24
Practical procedure
step 3
Find the deadline by which your instruction should reach dnb in the appropriate table so that you may realise the desired increase or decrease of your credit line at the desired time.
Method
Table
Direct
9
Approved direct link
10
CCBM
11
step 4
Initiate the deposit or withdrawal procedure by sending the appropriate instruction messages to dnb and to your custodian through swift.
step 5
dnb will increase (or decrease) your credit line on the basis of the value of the assets deposited (withdrawn).
Should you have any questions after reading this brochure, please do not hesitate to call the Investment Services section of dnb at telephone number +31 20 524 2474. You may also contact Investment Services by e-mail at [email protected]
25
Securities and the use of collateral in the context of intraday and monetary credit
Glossary of terms
Intraday credit: credit extended for a period of less than one business
day. It may be extended by central banks to even out mismatches in
payment settlements and can take the form of (i) a collateralised
overdraft or (ii) a lending operation against a pledge or in a repurchase
agreement.
Inverse floating rate instrument: a structured note where the rate of
interest paid to the note holder varies inversely with changes in a
certain reference interest rate.
Link between two securities settlement systems: a link consists of
all the procedures and arrangements for the transfer of securities
between two such systems through a book-entry process.
Longer-term refinancing operation: a regular open market operation
executed by the Eurosystem in the form of a reverse transaction.
Longer-term refinancing operations are executed through monthly
standard tenders and have a maturity of three months.
Main refinancing operation: a regular open market operation executed
by the Eurosystem in the form of a reverse transaction. Main refinancing operations are conducted through weekly standard tenders and
normally have a maturity of one week.
Open market operation: an operation executed on the initiative of the
central bank in the financial market. With regard to their aims, regularity
and procedures, Eurosystem open market operations can be divided
into four categories: main refinancing operations, longer-term refinancing operations, fine-tuning operations and structural operations. As for
the instruments used, reverse transactions are the main open market
instrument of the Eurosystem and can be employed in all four categories of operations.
Repo operation: a liquidity-providing reverse transaction based on a
repurchase agreement.
Repurchase agreement: an arrangement whereby an asset is sold
while the seller simultaneously obtains the right and obligation to
repurchase it at a specific price on a future date or on demand. Such an
agreement is similar to collateralised borrowing, with the difference
that ownership of the securities is not retained by the seller. The
Eurosystem uses repurchase agreements with a fixed maturity in its
reverse transactions.
Reverse transaction: an operation whereby the national central bank
buys or sells assets under a repurchase agreement or conducts credit
operations against collateral.
Securities settlement system (SSS): a system which permits the
holding and transfer of securities or other financial assets, either free of
payment (FOP) or against payment (delivery versus payment).
Treaty: the Treaty establishing the European Community (or EC Treaty).
It comprises the original EEC Treaty (Treaties of Rome) as amended.
Valuation haircut: a risk control measure applied to underlying assets
used in reverse transactions, implying that the central bank calculates
the value of underlying assets as the market value of the assets
reduced by a certain percentage (haircut). The Eurosystem applies
valuation haircuts reflecting features of the specific assets, such as the
residual maturity.
Central securities depository (CSD): an entity which holds and
administers securities or other financial assets, holds the issuance
accounts and enables transactions to be processed by book entry.
Assets may exist either physically (but immobilised within the CSD) or
in dematerialised form (i.e. only as electronic records).
Collateral pooling system: a system for the management of assets
deposited as collateral to secure various transactions with the central
bank. A pooling system differs from an ‘earmarking’ system in that
individual underlying assets are not associated with individual
transactions.
Correspondent Central Banking Model (CCBM): a mechanism
established by the ESCB with the aim of enabling counterparties to use
underlying assets in a cross-border context. In the CCBM, national
central banks act as custodians for each other. This implies that each
national central bank has a securities account in its securities administration for each of the other national central banks (and for the ECB).
Credit institution: refers in this document to an institution covered by
the definition contained in Article 1(1) of Directive 2000/12/EC of the
European Parliament and of the Council of 20 March 2000 relating to
the taking up and pursuit of the business of credit institutions, as
amended by Directive 2000/28/EC of the European Parliament and of
the Council of 18 September 2000. Thus, a credit institution is: (i) an
undertaking whose business is to receive deposits or other repayable
funds from the public and to grant credit for its own account; or (ii) an
undertaking or any other legal person, other than those under (i), which
issues means of payment in the form of electronic money. ‘Electronic
money’ shall mean monetary value as represented by a claim on the
issuer which is: (a) stored on an electronic device; (b) issued on receipt
of funds of an amount not lower in value than the monetary value
issued; and (c) accepted as a means of payment by undertakings other
than the issuer.
Custodian: an entity which undertakes the safekeeping and admini­
stration of securities and other financial assets on behalf of others.
Depository: an agent with the primary role of recording securities
either physically or electronically and keeping records of the ownership
of these securities
Euro area: the term by which the EU Member States which have
adopted the euro as their single currency in accordance with the Treaty
are collectively defined.
European System of Central Banks (ESCB): refers to the ECB and the
national central banks of the EU Member States (see Eurosystem).
Eurosystem: Comprises the ECB and the national central banks of the
EU Member States of the euro area. The decision-making bodies of the
Eurosystem are the Governing Council and the Executive Board of the
ECB.
Fixed-rate instrument: a financial instrument for which the coupon is
fixed throughout the life of the instrument.
Floating-rate instrument: a financial instrument for which the coupon
is periodically reset relative to a reference index to reflect changes in
short or medium-term market interest rates. Floating rate instruments
have either pre-fixed coupons or post-fixed coupons.
26
Further information
For questions on operational matters:
De Nederlandsche Bank N.V.
Payments and Securities Department
Investment Services
P.O. Box 98
1000 AB Amsterdam
Telephone:
Fax:
E-mail:
+31 20 524 2474
+31 20 524 2521
[email protected]
De Nederlandsche Bank N.V.
Payments and Securities Department
Relationship management
P.O. Box 98
1000 AB Amsterdam
Telephone:
Fax:
E-mail:
+31 20 524 3209
+31 20 524 2880
[email protected]
De Nederlandsche Bank N.V.
Communication and Information Department
P.O. Box 98
1000 AB Amsterdam
Telephone:
Internet:
E-mail:
+31 20 524 9111
www.dnb.nl
[email protected]
Information Centre
Visitors to the Information Centre of De Nederlandsche Bank receive an
introduction to the bank and its duties. Please consult the bank’s
website (www.dnb.nl) or contact the Information Centre directly at
telephone number +31 20 524 3339.