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CROSS-BORDERSETTLEMENTINFRASTRUCTUREFORUMBRIEFNo.2

COMPARATIVEANALYSISOF

COLLATERALELIGIBILITYCRITERIA

FEBRUARY2024

I.Introduction

KeytasksoftheCross-BorderSettlementInfrastructureForum(CSIF)aretoconductastudyonthecollateraleligibilityoftheregion'slocalcurrency(LCY)bondsandtodiscusspossibleimplementationoftheCross-BorderCollateralArrangement(CBCA)andtheCentralBankLiquidityBridge.Thesetasksaresetoutinthe

ASEAN+3AsianBondMarketsInitiative(ABMI)

Mid-TermRoadmap,2023-2026.2

Collateralplaysapivotalroleinsupportingsecured

financialtransactions.Andtheimportanceofeligible

collateralcriteriahasbeenincreasinglyrecognizedsincetheglobalfinancialcrisis.Thisimportancemayeven

increasefurtherasriskmanagementpracticesevolveandfinancialinstitutionsstepupeffortstorespondtoglobalfinancialregulatorychanges.

Theglobalfinancialcrisisdrovecentralbanksand

marketparticipantstoconsiderrevampingtheir

eligibilitycriteriaforcollateral.Tobeeligiblefor

collateral,assetsmustsupportsufficientmarketliquidity

inviewofvaluationandbetransferableacross

participantsaswellasmarkets.

Overall,soundeligibilitycriteriaforcollateraland

efficientcollateraltransactionswouldcontributetoboththedevelopmentofLCYbondmarketsand

financialstabilityintheregion.Inparallel,facilitatingcollateraltransactionsrequirearobustcollateral

framework,liquiddomesticbondmarkets,and

interoperablemarketinfrastructures.

HIGHLIGHTS

Eligiblecollateralplaysapivotalroleinsupportingfinancialtransactions.Theimportanceofeligible

collateralcriteriahasgarneredsignificantattentionasfinancialmarketinfrastructuresandfinancial

institutionsstepuptheireffortstorespondtoglobalfinancialregulatorychanges.

Centralbankstendtotakeamoreconservative

approachinsettingcollateralciteriacomparedtoothercollateralframeworks.Thisbehavioraccountsfor

variousrestrictionsimposedbyindividualcentralbanksnaccordancewithrelevantlawsandregulations.

Centralcounterparties(CCPs)inthemarketsof

developedeconomiesprovideunderlyingcollateralbasketsforCCP-clearedrepotransactions.

GlobalfinancialregulatoryframeworksextensivelyaffectCCPsandfinancialinstitutionsinconductingsecuredfinancialtransactionsandcollateralrisk

management.

Tofacilitatethedevelopmentoflocalcurencybondmarketsintheregion,itisimportantto(expand

eligiblecollateralcriteria,(il)revampmarket

nfrastructures,(i)revisemarketregulations,and

(v)conductfurtherstudy.

1ThisbriefwaswrittenbyLeelarkPark,CSIFconsultant,withsupportfromSatoruYamadera,advisor,andJiwoongChoi,financialsectorspecialist,bothoftheEconomicResearchandDevelopmentImpactDepartmentoftheAsianDevelopmentBank(ADB);

MatthiasSchmidt,ASEAN+3BondMarketForum(ABMF)consultant;andYvonneOsonia,ADBconsultant.

2ASEAN+3referstothe10membersoftheAssociationofSoutheastAsianNations(ASEAN)plusthePeople'sRepublicofChina,Japan,andtheRepublicofKorea.

2ComparativeAnalysisofCollateralEligibilityCriteria

Inthisregard,itiscrucialtoidentifythecollateral

eligibilitycriteriaapplicabletofinancialtransactionsinthemarkets.

Cross-BorderSettlementInfrastructureForum

TheAsianBondMarketsInitiative(ABMI)was

launchedin2003bythefinanceministersofthe

AssociationofSoutheastAsianNations(ASEAN)plusthePeople’sRepublicofChina(PRC),Japan,andtheRepublicofKorea(collectivelyknownas

ASEAN+3)toboostthedevelopmentoflocal

currencybondmarkets.TheAsianDevelopment

BankhasbeenactingastheABMISecretariatsinceitsinception.

TheCross-BorderSettlementInfrastructureForum

(CSIF),whichhascentralbanksandcentral

securitiesdepositories(CSDs)asmembersand

ASEAN+3governmentofficialsasobservers,isasubforumunderABMIthatpromotesmoreactiveintraregionalportfolioinvestmentsbycreatinganefficientregionalsettlementintermediary.

Cross-bordertransactionsinbondsandother

securitiesarecurrentlyprocessedthrough

custodiansandacorrespondentbankingnetwork

(dependingoncurrency),generatinganinevitabletimelagbetweenthetimeoftradeandthedeliveryofsecuritiesandmoney,thusincreasingcreditriskandsettlementrisk.Toaddressthisproblem,the

CSIFmemberorganizationsagreedtoestablisha

centralsecuritiesdepository(CSD)–real-timegrosssettlement(RTGS)linkage,whichdirectlylinksthesettlementsystemsofcentralbanksandCSDs.ThelinkagesamongnationalCSDsandcentralbanks’

real-timegrosssettlementsystemsindifferentregionalmarketsareexpectedtofacilitate

intraregionalportfolioinvestmentsandtheuseof

localcurrencybondsascollateral,whichotherwisehavebeenlockedinonshoremarkets,byenabling

cross-border,cross-currencydelivery-versus-

paymentofcross-bordersecuritiestransactions,aswellaspayment-versus-paymentoflocalcurrenciesintheregionwithoutatimelag.

Thisstudyprovidescomparativeanalysisofcollateral

eligibilitycriteriaacrosskeyframeworks,withaviewtomanaginguncertainty,inefficiency,andcomplexity—allofwhichareissuesthatfinancialmarketinfrastructures(FMIs)andmarketparticipantsmustdealwithin

managingtheircollateralarrangements.

Tothisend,thisstudyanalyzesandcomparesthe

similaritiesanddifferencesineligiblecollateralcriteriaacrosskeyframeworksofcentralbanks,central

counterparties(CCPs),andglobalfinancialregulatoryframeworks.

II.GeneralCollateralEligibilityCriteria

Thissectionpresentsthegeneraldescriptionofeligiblecollateralcriteriainfinancialtransactions.

Theestablishmentofsecuritiesaseligiblecollateral

helpstoprotectcentralbanksandmarketparticipants

fromfinanciallossesbyfocusingonassetsofsufficientlyhighquality.TheEuropeanCentralBank(ECB)suggeststhefollowinggeneralcollateralrequirementstobe

desirableforeligiblecollateral:3

?Legalcertainty.Collateralneedstobeincontrovertibleintermsoflegalstatus.

?Minimumcreditquality.Marketparticipantsshouldalwayssetacreditqualitythresholdforcollateral.

?Simplicity.Thestructureofcollateralanditsinherentrisksshouldbesimple.

?Operationalefficiency.Thefeaturesofcollateralshouldensuresmooth,safe,andspeedyhandlingbytakers.

?Marketneutrality.Collateralcriteriashouldavoidmarketdistortion.

?Markettransparencyandpriceavailability.Collateralneedstobetradedonmarketswithestablishedrules.

?Marketliquidityofcollateral.Collateralshouldbesoldeasily,quickly,andwithoutdepressingpricesifacounterpartydefaults.

Inaddition,manycentralbanksexplicitlystipulatethe

collateralcriteriawithhighcreditratings.Forinstance,

inthecaseoftheUnitedStatesFederalReservesystem,severalcriteriaaremandatory:4

3ECB.2017.TheEurosystemCollateralFrameworksExplained.OccasionalPaperSeries.No.189.Frankfurt.pp.12–13.

4TheFederalReserve.CollateralEligibility–SecuritiesandLoans.

/Pages/Collateral/collateral

_eligibility.

Cross-BorderSettlementInfrastructureForumBriefNo.23

?Apledginginstitutionmusthaverightsinthe

securitiesthataresufficienttograntanenforceablesecurityinteresttothereservebank.

?Securitiesshouldnotbesubjecttoanyregulatoryorotherconstraintsthatimpairtheirliquidation.

?Securitiesmustmeettheregulatorydefinitionof“investmentgrade”ataminimum,andinsomecasesmustbeof"AAA"ratingquality(where

indicated).

TheBankofJapan(BOJ)alsospecifiesguidelinesforeligiblecollateral.Theseinclude:(i)maintainingthesoundnessofthecentralbank’sassets,(ii)ensuringsmoothbusinessoperationsofthecentralbankandefficientuseofcollateral,and(iii)utilizingmarket

information.

Likewise,globalregulatoryframeworksalsoprovide

generaleligiblecriteriaforcollateral.Forinstance,thePrinciplesforFinancialMarketInfrastructures(PFMI),whichformthemostrepresentativeglobalstandardforcollateral,recommendthatanFMIshould:5

?limittheuseofassetsascollateralwithlowcredit,liquidity,andmarketrisks;

?establishprudentvaluationpractices;

?setandenforceappropriatelystableand

conservativehaircutsandconcentrationlimits;and

?mitigatetherisksassociatedwithitsusewhenacceptingcross-bordercollateral.

Toincludeassetsascollateral,theserequirementsmayneedtobecarefullyconsideredandadopted.

III.CollateralEligibilityCriteria

Thissectionexplainsindetailthecollateraleligibilitycriteriaacrossthreekeyframeworks:

(i)centralbankframeworkscoveringopenmarket

operation(OMO)repotransactionsformonetarypolicyimplementationandforeigncurrency(FCY)-denominatedcollateralfortheCBCAorstanding

facilities;

(ii)aCCPframeworkcoveringunderlyingcollateralforCCP-clearedreposandmargincollateralpoolsforover-the-counter(OTC)derivatives;6and

(iii)globalregulatoryframeworkscoveringthePFMI,BaselIIIliquiditycoverageratio(LCR),andmarginrequirementsfornon-centrallycleared

derivatives(NCCDs).

1.CentralBankCollateralFrameworks

CollateralCriteriaforOpenMarketOperationRepoTransactions

Thissectionfocusesonthecollateraleligibilitycriteria

ofOMOrepotransactionsofcentralbankstoimplementmonetarypolicy.

Thecollateralcriteriaofcentralbanksareimportantindeterminingtheaccessibilityoffinancialinstitutionstocentralbankliquidity.7Ingeneral,centralbanks’

collateralframeworksarebasedonlegalcertainty,creditquality,operationalefficiency,marketneutrality,and

transparencywithregardtolargetransactions.

Inpractice,severalcollateralcriteriafactorscanbeobservedacrosscentralbanks.WhencentralbanksconducttheirOMOusingrepotransactions,they

typicallybuyaspecificsetofassets.Thesegenerallyincludegovernmentbondsandvariousdebt

instrumentsissuedbyboththepublicsector

(e.g.,centralbanksandgovernmentagencies)andthe

privatesector(includingcreditinstitutionsandcorporations).

Table1showstheeligiblecollateralcriteriaacceptedaspartofthemonetarypolicyoperationsofcentralbanksinmajoreconomies.Themaineligibilitycriteriarefertotheissuerofassets,creditstandards,andforeigncurrency.

Intermsoftheissuerofassets,theBOJ,Eurosystem,

andRiksbankacceptawiderangeofassetsascollateral,includingbondsfromthepublicsectoraswellasthe

privatesector.However,eachcentralbankincludedinTable1appliesdifferentstandardsfordebtinstrumentsissuedbytheprivatesector(e.g.,creditinstitutionsandcorporations)andsupranationals.Inthecasesofthe

BankofEngland(BOE)andtheFederalReserve,for

example,theeligibilitycriteriaforOMOrepocollateralarelimitedbasicallytopublicsectorbonds.

5ThePFMIwereestablishedbytheBankforInternationalSettlements’(BIS)CommitteeonPaymentsandMarketInfrastructuresandtheInternationalOrganizationofSecuritiesCommissionsin2012.SelectedpartsofthePFMIrecommendationsarecitedinthetext.

6ECB.2013.CollateralEligibilityRequirements:AComparativeStudyacrossSpecificFrameworks.Frankfurt.p.7.

7ADB.2022.LocalCurrencyCollateralforCross-BorderFinancialTransactions:PolicyRecommendationsfromtheCSIF.Manila.p.8.

4ComparativeAnalysisofCollateralEligibilityCriteria

Table1:EligibleCollateralCriteriaforOpenMarketOperationRepoTransactionsofCentralBanksinMajorEconomies

FederalReserveSystem

Eurosystem

BOE

Riksbank

BOJ

IssuerofAsset

Government

P

P

P

P

P

PublicSector

P

P

P

P

P

CentralBank

P

P

P

CreditInstitutions

P

P

Corporations

P

P

P

Supranationals

P

P

P

MinimumCreditStandard

BBB–

A–

BBB

ForeignCurrency

CAD,EUR,USD

DKK,EUR,GBP,JPY,NOK,USD

EUR,GBP,USD

BOE=BankofEngland,BOJ=BankofJapan,CAD=Canadiandollar,DKK=Denmarkkrone,EUR=euro,GBP=poundsterling,JPY=Japaneseyen,NOK=Norwegiankrone,USD=UnitedStatesdollar.

Source:BankforInternationalSettlement’sMarketCommittee.2022.Compendium:MonetaryPolicyFrameworksandCentralBankMarketOperations.Basel.

Concerningcreditstandards,centralbankstypicallyrequirethatsuchstandardsaresethigh.

Asforforeigncurrency,threecentralbanksincludedinTable1(theBOE,theBOJ,andRiksbank)accept

foreignassetsdenominatedinglobalreserve

currencies—suchastheeuro,USdollar,andpound

sterling—inadditiontocollateraldenominatedintheir

domesticcurrencies.Notwithstanding,theFederal

ReserveandEurosystemaresomecentralbank

examplesthathavelimitedtheiracceptedcurrencytodomesticonly.

Incontrast,forASEANplusthePeople’sRepublicof

ChinaandtheRepublicofKorea(i.e.,ASEAN+3exceptforJapan),asshowninTable2,collateralcriteriafortheOMOofregionalcentralbanksaremoreconservative

thanthatofcentralbanksindevelopedeconomiesin

termsoftheissuerofassetsandforeigncurrency.Almostallregionalcentralbanksacceptaspecificrangeofassetsissuedbygovernments,publicinstitutions,andcentral

banks.Ingeneral,theydonotacceptdebtinstrumentsissuedbytheprivatesector.OnlyBankNegaraMalaysia(BNM)recognizescorporatebondsascollateralfor

OMOrepotransactionswithahighcreditrating.

RegardingFCY-denominatedcollateral,similartothe

FederalReserveandtheEurosystem,mostregional

centralbanksdonotacceptassetsdenominatedin

foreigncurrenciesforOMOrepotransactions.OnlytheBangkoSentralngPilipinasacceptsFCY-denominatedobligationsoftheGovernmentofthePhilippinesas

collateralforitsrepotransactions.

CollateralCriteriaforCross-BorderCollateral

ArrangementorStandingFacilities

InordertoprovideLCYliquiditytodomesticfinancialinstitutionsthroughtheCBCAorstandingfacilities,

centralbanksmayacceptFCY-denominatedcollateralwithabroaderrangeofcurrencies.Basically,themajorcollateralfortheCBCAorstandingfacilitiescomprisehigh-qualitygovernmentbonds,centralbankbills,andgovernment-guaranteedbonds.

CBCAisamonetarypolicyinstrumentinwhichthe

centralbanksofthetwoparticipatingcountriesenter

intoareciprocalarrangementtoprovideliquidityto

financialinstitutionsacceptingFCY-denominated

assetsascollateral.Inotherwords,itisapolicytoolthathelpsacentralbanksmoothlysupplyliquiditytoforeignfinancialinstitutionsoperatinginitsmarketwithFCY-

denominatedbondsheldintheirhomecountries.Inthis

Cross-BorderSettlementInfrastructureForumBriefNo.25

Table2:EligibleCollateralCriteriafortheOpenMarketOperationRepoTransactionsofCentralBanksinASEAN+2

BI

BNM

BOK

BOT

BSP

MAS

PBOC

SBV

IssuerofAsset

Government

P

P

P

P

P

P

P

P

PublicSector

P

P

P

P

P

CentralBank

P

P

P

P

P

P

P

CreditInstitutions

Corporates

P

Supranationals

MinimumCreditStandard

A–

AAA

ForeignCurrency

USD

BI=BankIndonesia,BNM=BankNegaraMalaysia,BOK=BankofKorea,BOT=BankofThailand,BSP=BangkoSentralngPilipinas,MAS=MonetaryAuthorityofSingapore,PBOC=People’sBankofChina,SBV=StateBankofVietnam,USD=UnitedStatesdollar.

Note:ASEAN+2referstothe10membersoftheAssociationofSoutheastAsianNations(ASEAN)plusthePeople’sRepublicofChinaandtheRepublicofKorea.

Source:BankforInternationalSettlement’sMarketCommittee.2022.Compendium:MonetaryPolicyFrameworksandCentralBankMarketOperations.Basel.

regard,centralbanksacceptvarioustypesofassets

denominatedinarangeofforeigncurrencies.8

TobeeligibleasFCYcollateralfortheCBCAorstandingfacilities,assetsneedtomeetspecificrequirements,

rangingfromforeignexchangerisktocounterparty

creditrisk,toensuresufficientqualityandproperriskmanagementofcentralbanks.

Table3presentsFCY-denominatedcollateralcriteriafortheCBCAorstandingfacilitiesofcentralbanksin

majoreconomiesaswellaseconomiesfromASEAN+3.

ThecentralbankslistedinTable3acceptvarioustypesofforeignassetsascollateralfortheCBCAorstandingfacilitieswitharangeofcurrencies.Themajortypesofcollateralincludegovernmentbonds,government-

guaranteedbonds,andcentralbankbills.TheeligiblecollateralcriteriaoftheBOEismoregeneraland

includesabroaderrangeofassetssuchasasset-backed

securitiesandcorporatebondswithhighcredit

standards.

8Footnote7,p.16.

Intermsofcurrency,centralbanksprovideLCYliquiditytotheirfinancialinstitutions.Theydosobyaccepting

LCY-orFCY-denominatedassetsascollateralthroughtheCBCAorstandingfacilities.

Almostallcentralbanksinmajoreconomiesaccept

FCY-denominatedcollateralfortheCBCAorstandingfacilities.However,intheregion,onlyafewcentral

banks—BankIndonesia,BNM,BOJ,BankofThailand,andtheMonetaryAuthorityofSingapore(MAS)—allofwhichintroducedtheCBCA,acceptFCY-denominatedcollateraltoprovideLCYliquidity.

Themajorcurrenciesrecognizedincludetheeuro,

USdollar,poundsterling,andJapaneseyen.Bycontrast,somecentralbanks(e.g.,BNM,FederalReserve,MAS,andRiksbank)acceptanextensiverangeofmajoror

regional-currency-denominatedassetsascollateral.

6ComparativeAnalysisofCollateralEligibilityCriteria

Table3:FCY-DenominatedCollateralforCross-BorderCollateralArrangementsandStandingFacilitiesofCentralBanks

FederalReserveSystem

Euro-system

BOE

Riksbank

BOJ

BI

BNM

BOT

MAS

TypeofAsset

GovernmentBonds

P

P

P

P

P

P

P

P

P

Government

-GuaranteedBonds

P

P

P

P

CentralBankBills

P

P

P

P

P

P

ABS,CorporateBonds

P

ForeignCurrency

AUD,

CAD,

CHF,

DKK,

EUR,

GBP,

JPY,

SEK

JPY,

USD

CAD,

EUR,

USD

DKK,EUR,GBP,JPY,NOK,USD

EUR,

GBP,

USD

JPY

EUR,

GBP,JPY,

USD,

EMEAP

-member

currencies

JPY,

MYR,

SGD

EUR,

GBP,

JPY,

MYR,

THB,

USD

ABS=asset-backedsecurities,AUD=Australiandollar,BI=BankIndonesia,BNM=BankNegaraMalaysia,BOE=BankofEngland,BOJ=BankofJapan,BOT=BankofThailand,CAD=Canadiandollar,CHF=Swissfranc,DKK=Danishkrone,EMEAP=Executives’MeetingofEastAsiaandPacificCentralBanks,EUR=euro,FCY=foreigncurrency,GBP=poundsterling,JPY=Japaneseyen,

NOK=Norwegiankrone,MAS=MonetaryAuthorityofSingapore,MYR=Malaysianringgit,SEK=Swedishkrona,SGD=Singaporedollar,THB=Thaibaht,USD=UnitedStatesdollar.

Sources:AsianDevelopmentBank.2022.LocalCurrencyCollateralforCross-BorderFinancialTransactions:PolicyRecommendationsfromtheCSIF.Manila;BankforInternationalSettlements’MarketCommittee.2022.Compendium:MonetaryPolicyFrameworksandCentralBankMarketOperations.Basel.

2.CentralCounterpartyCollateralFrameworks

CCPsmanagetheirriskexposuretotheclearing

members,employingasetofmanagementinstrumentssuchasminimumcreditratingsandmargin

requirements.Thescopeofeligiblecollateralforeachclearingbusinessisdefinedbasedonthesepolicies.

Therefore,allCCPshavebasicpoliciesandproceduresofacceptingcollateralwithlowriskinrelationtocredit,liquidity,andmarket.

ThecollateralframeworksofCCPsrelatedtothe

(i)underlyingcollateralpoolforCCP-clearedrepos,and(ii)initialmargincollateralforcentrallyclearedrepos

andOTCderivativesarepresentedinthissection.

9Footnote6,p.21.

UnderlyingCollateralPoolforCentralCounterparty-ClearedRepo

Forrepotransactions,ifthepartiesagreethataspecificbasketbeusedratherthanaspecificasset,the

transactionisreferredtoasa“generalcollateral”(GC)repo.GCreferstoeitherthe“narrow”or“broad”setofcollateral.9

Table4introducesthenarroweligiblecollateralbasketsforCCPrepo-clearingarrangementsinmajorglobal

markets.Itincludesfourdifferentnarrowbaskets:

(i)theECBand(ii)INTMXQbaskets,bothoperatedbyEurexClearing;(iii)the€GCPlusbasket1operatedby

LCHSAinEuropeanmarkets;and(iv)generalcollateralfinancing(GCF)repooperatedbytheFixedIncome

ClearingCorporationintheUSmarket.

Cross-BorderSettlementInfrastructureForumBriefNo.27

Table4:NarrowCollateralBasketsforCentralCounterpartyRepoinMajorGlobalMarkets

CCP

EurexClearing

LCHSA

FICC

GCPooling

ECBBasket

INTMXQBasket

€GCPlusBasket1(LCRequivalent)

GCFRepo

IssuerofAsset

Governments,

centralbanks,

agencies,

supranationals,

financialandpublic

corporations,

andcorporates

Centralgovernments,

agencies,

supranationals,

andcreditinstitutions

Centralgovernments,

centralbanks,

localgovernments,

supranationals,agencies,

coveredbonds,and

corporates

USTreasurybonds;

MBSbyFannieMae,Freddie

Mac,andGinnieMae;

non-mortgage-backedUS

agencysecurities;and

STRIPS

Coverage

Approximately3,000securities

Approximately

1,500securities

Approximately

3,300securities

MinimumCreditStandard

A–

AA–

GBs:A–

Others:AA–

Currency

EUR

AUD,CAD,CHF,DKK,

EUR,GBP,JPY,NOK,

SEK,andUSD

EUR

USD

AUD=Australiandollar,CAD=Canadiandollar,CCP=centralcounterparty,CHF=Swissfranc,DKK=Denmarkkrone,

ECB=EuropeanCentralBank,EUR=euro,FICC=FixedIncomeClearingCorporation,GBP=poundsterling,GBs=governmentbonds,GC=generalcollateral,GCF=generalcollateralfinancing,JPY=Japaneseyen,LCR=liquiditycoverageratio,MBS=mortgage-backedsecurities,NOK=Norwegiankrone,SEK=Swedenkrona,STRIPS=SeparateTradingofRegisteredInterestandPrincipalofSecurities,

US=UnitedStates,USD=USdollar.

Source:VariousCCPs.

Intermsofissuersofassets,theECBbasketincludes

assetssuchasgovernmentbonds,centralbankbills,andevenhigh-qualitycorporatebondsandcoveredbondswithacreditratingofA–/A3creditorabove.The

€GCPlusbasket1(LCRequivalent),whichisalsothe

narrowbasketoperatedbyLCHSAasaCCP,includesarestrictiverangeofsecuritiesissuedbygovernments,

centralbanks,agencies,andsupranationals,andcoveredbondswitharatinghigherthanA–forgovernment

bondsandAA–oraboveforotherbondsthatmeettheBaselIIILCRrequirement.

TheFixedIncomeClearingCorporationasaCCPinthe

USmarketalsooperatesthesimilarrepobasket,

GCFrepo.Thebasketincludesanarrowsetofpublicsectorsecuritiesofhighquality.

Asforthecurrencyofthethreebasketsabove(i.e.,ECBbasket,€GCPlusbasket1,andGCFrepo),thecurrencydenominationofeligiblecollateralisdomesticonly.

WithrespecttotheINTMXQbasketoperatedby

EurexClearing,itcontainsonlyFCY-denominated

assetsissuedbycentralgovernments,creditinstitutions

andagencies(onlycoveredbondsallowed),and

supranationalsmeetingcertainrequirementssuchasahighcreditrating(atleastAA).Therefore,thisbasketmaybesuitableforcross-borderrepotransactions.

Overall,thenarrowcollateralbasketshavecommonfeaturesintermsoftheunderlyingcollateralpoolforCCP-clearedrepos.Theyincludethemostliquid

collateralandhighcreditstandards(e.g.,minimumcombinedcreditratingofA–).

Besidesthenarrowbaskets,CCPsinEuropeanmarkets

alsoprovidethebroadbasketssuchastheECB

extendedbasketand€GCPlusbasket2.Thebroad

basketscontainawiderrangeofcollateralwithlowercreditstandardsthanthenarrowbaskets.

InrelationtotheECBextendedbasketofEurexClearing,itincludesthesamerangeofassetsastheECBbasket.

However,thecreditstandardrequirementisless

conservativethanthatoftheECBbasket.Forinstance,theminimumcreditratingrequirementofthebasketneedstobeBBB–/Baa3.Accordingly,whiletheECBbasketonly

includesapproximately3,000securitiesascollateral,the

8ComparativeAnalysisofCollateralEligibilityCriteria

Table5:EligibleCollateralforCentralCounterpartyRepoTransactionsinASEAN+3

Markets

CN

HK

JP

KR

MY

TH

CCP

CSDC

HKSCC

JSCC

KRX

Bursa

Malaysia

TCH

IssuerofAsset

Centralgovernments

P

P

P

P

P

P

Centralbanks

P

P

P

P

P

Publicsectorinstitutions

(Otherthancentralgovernments)

P

P

P

Supranationals

P

P

P

Creditinstitutions

(Coveredbonds)

P

P

P

Corporates

(Otherthancreditinstitutions)

P

P

P

P

ASEAN+3=10membersoftheAssociationofSoutheastAsianNations(ASEAN)plusthePeople’sRepublicofChina,Japan,andthe

RepublicofKorea;CN=People’sRepublicofChina;CSDC=ChinaSecuritiesDepository&ClearingCo.,Ltd.;HK=HongKong,China;HKSCC=HongKongSecuritiesClearingCompanyLimited;JP=Japan;JSCC=JapanSecuritiesClearingCorporation;KR=RepublicofKorea;KRX=KoreaExchange;MY=Malaysia;TCH=ThaiClearingHouse;TH=Thailand.

Source:Variouscentralcounterparties.

ECBextendedbasketcontainsapproximately10,000

securitiesascollateral.

The€GCPlusbasket2ofLCHSAcontainsabroader-

basedsetofsecuritiesincludingdebtinstrumentsissuedbycreditinstitutionsanduncoveredbonds(including

bankcertificatesofdeposit),inadditiontothecollateralrangeofbasket1withlowercreditstandards(current

minimumratingoftheassetsisBBB–).

Asaresult,assetsinthebroadbasketsaresubjecttoadditionalrestrictions(i.e.,haircutsandconcentrationlimits)becauseofriskmanagementconsiderations.

ContrarytotheCCPsinmajorglobalmarkets,regionalCCPstypicallydonotprovideGCbasketsforrepo

transactions.Thisispartlybecause,unlikedevelopedmarkets,regionalbondmarketsarenotintegratedwithoneanotherandthelinkagesamongFMIsarealsolessdeveloped.

Asshown