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Financial Markets Act, 2012 (Act No. 19 of 2012)

Regulations

Financial Markets Act Regulations

Chapter VI : Central Counterparties

26. Capital calculation requirements for credit risk

26.5 Eligible collateral for risk mitigation purposes

 

(1) For risk mitigation purposes, the instruments specified below are regarded as eligible collateral, provided that, irrespective of its credit rating, a securitisation or re-securitisation instrument may in no case constitute an eligible instrument for risk mitigation purposes in terms of these Regulations—
(a) Cash, including certificates of deposit or comparable instruments pledged or ceded in securitatem debiti to the central counterparty; provided that—
(i) when cash on deposit, certificates of deposit or comparable instruments are held as collateral at a third-party institution in a non-custodial arrangement, the central counterparty must assign the risk weight related to the third party institution to the exposure amount protected by the collateral;
(ii) the cash or instruments are pledged to the central counterparty;
(iii) the pledge is unconditional and irrevocable; and
(iv) the central counterparty has applied the relevant haircut specified below in respect of currency risk.
(b) Highly liquid securities as indicated in Regulation 31.1(2) which have been—
(i) assigned a rating of BB- or better by a credit rating agency when issued by sovereigns;
(ii) assigned a rating of BBB- or better by a credit rating agency when issued by other institutions, including banks; or
(iii) issued by counterparties qualifying for a 0% risk weight as specified in Table 26(B) in Schedule A.
(c) Any other instruments as determined by the Authority in writing.

 

(2) In respect of the Comprehensive Approach for the recognition of risk mitigation, when a central counterparty obtained collateral of which the value is less than the amount of the central counterparty’s exposure to credit risk, it must recognise the credit protection on a proportional basis, that is, the protected portion of the exposure must be risk weighted in accordance with the relevant provisions of this Regulation and the remainder of the credit exposure must be regarded as unsecured.