PIB 4.13.4 Guidance
In order to recognise the effects of
Credit Riskmitigation of the types of Collateralset out in Rules PIB 4.13.5 to PIB 4.13.7, an Authorised Firmmust ensure that the relevant requirements in PIB Rule 4.13.8 are complied with.
PIB 4.13.5 PIB 4.13.5(1) For an
Authorised Firmusing the FCSA, eligible financial Collateralcomprises:(a) cash (as well as certificates of deposit or other similar instruments issued by the Authorised Firm) on deposit with the Authorised Firm;(b) gold;(c) any debt security:(i) with an Original Maturityof one year or less that has a short-term Credit Quality Gradeof 3 or better as set out in PIB section 4.12; or(d) any debt security issued by a bank that does not have an external credit assessment by a recognised ECAIif it fulfils the following criteria:(i) any debt security which is listed on a regulated exchange;(ii) the debt security is classified as senior debt, not subordinated to any other debt obligations of its Issuer;(iii) all other rated debt securities issued by the same Issuerwhich rank equally with the mentioned debt security have a long term or short term (as applicable) Credit Quality Gradeby a recognised ECAIof "3" or better;(iv) the Authorised Firmis not aware of information to suggest that the issue would justify a Credit Quality Gradeof below "3" as indicated in (iii) above; and(v) the Authorised Firmcan demonstrate to the DFSAthat the market liquidity of the debt security is sufficient to enable the Authorised Firmto dispose the debt security at market price.(e) any equity security (including convertible bonds) that is included in a main index; or(f) any Unitin a Collective Investment Fundwhere:(i) a price for the units is publicly quoted daily; and(ii) at least 90% of the deposited property of the Fundis invested in instruments listed in this Rule.(2) Cash-funded credit-linked notesissued by an Authorised Firmagainst Exposuresin the Non-Trading Bookwhich fulfil the criteria for eligible Credit Derivativesmust be treated as cash collateralised transactions.(3) Cash, mentioned in (1)(a), includes cash on deposit, certificates of deposit or other similar instruments issued by the Authorised Firmthat are held as Collateralat a third-party bank in a non-custodial arrangement and that are pledged or assigned to the Authorised Firm. This is subject to the pledge or assignment being unconditional and irrevocable. Under the FCSA, the risk weight to be applied to the Exposurecovered by such Collateralmust be the risk weight of the third-party bank.
PIB 4.13.5 Guidance1. For the purposes of Rule PIB 4.13.5 and PIB 4.13.6, eligible financial
Collateralexcludes any T1 Capital instrument or T2 Capital instrument issued by any entity in the Financial Groupof the Authorised Firm, which is held by the Authorised Firmor any of its Financial Groupentities as Collateral.2. For an Authorised Firmusing Unitsof a Fundunder the FCSA approach, the use or potential use by that Fundof Derivativeinstruments solely to hedge investments listed in PIB Rule 4.13.5 should not preclude the Unitsin that Fundfrom being recognised as eligible financial Collateral.
Authorised Firmusing the FCCA, eligible financial Collateralcomprises:(a) any instrument listed in PIB Rule 4.13.5;(b) any equity Security(including a convertible bond) that is traded on a regulated exchange;(c) any Unitin a Collective Investment Fundwhich invests in equity securities referred to in (b), where:(i) a price for the Unitsis publicly quoted daily; and(ii) at least 90% of the deposited property of the Fundis invested in instruments listed in this Ruleand PIB Rule 4.13.5.
PIB 4.13.7 PIB 4.13.7
In the case of any
Counterparty Risk Exposuresin Rules PIB 4.13.5. and PIB 4.13.6 arising from an SFT which are included in the Trading Book, eligible financial Collateralincludes all instruments which an Authorised Firmmay include in its Trading Book.
PIB 4.13.7 Guidance
Authorised Firmusing Unitsof a Fundunder the FCSA approach, the use or potential use by that Fundof Derivativeinstruments solely to hedge investments listed in PIB Rule 4.13.5 should not preclude the Unitsin that Fundfrom being recognised as eligible financial Collateral.