| (b) | Specific matters related to level one and level two high-quality liquid assets |
| (i) | No asset or instrument shall qualify as— |
| (A) | a level one high-quality liquid asset as envisaged in section 1 of the Act unless the said asset or instrument constitutes— |
| (i) | a marketable security or instrument that, as a minimum— |
| (aa) | is assigned a zero per cent risk-weight in terms of the provisions of the Standardised Approach for credit risk specified in regulation 23(8) of these Regulations, provided that the securities or instruments envisaged in this subitem (i)(aa) shall exclude any security or instrument specified or envisaged in subitems (ii) and (iii) below; |
| (bb) | trades in large, deep and active repo or cash markets, characterised by a low level of concentration; |
| (cc) | has a proven record as a reliable source of liquidity in all relevant markets, including the repurchase, resale or sale markets, even during stressed market conditions; and |
| (dd) | does not constitute an obligation of a financial institution or any of its associated or affiliated entities, that is, the holder of the relevant security or instrument shall not have any recourse to the relevant financial institution or any of the affiliated entities of that financial institution; |
| (ii) | a debt security issued in Rand by the central government of the RSA or the Reserve Bank; or |
| (iii) | a debt security issued in foreign currency by the central government of the RSA or the Reserve Bank, provided that the amount related to such instruments shall not exceed the bank's stressed net cash outflows in that specific foreign currency stemming from the bank's operations in the jurisdiction where the bank's liquidity risk is incurred; |
| (B) | a level two high-quality liquid asset as envisaged in section 1 of the Act unless the said asset or instrument— |
| (i) | constitutes a marketable security or instrument that, as a minimum— |
| (aa) | is assigned a twenty per cent risk-weight in terms of the provisions of the Standardised Approach for credit risk specified in regulation 23(8) of these Regulations; |
| (bb) | trades in large, deep and active repo or cash markets, characterised by a low level of concentration; |
| (cc) | has a proven record as a reliable source of liquidity in all relevant markets, including the repurchase, resale or sale markets, even during stressed market conditions, that is, during stressed market conditions— |
| (i) | the maximum decline in the price of the relevant asset or instrument did not exceed ten per cent; or |
| (ii) | the maximum increase in the haircut of the relevant asset or instrument did not exceed ten percentage points, |
over a 30-day period during a relevant period of significant liquidity stress; and
| (dd) | does not constitute an obligation of a financial institution or any of its associated or affiliated entities; |
| (ii) | constitutes a corporate debt security, bond or instrument that, as a minimum— |
| (aa) | is not issued by a financial institution or any of its associated or affiliated entities; |
| (bb) | has a long-term credit rating from an eligible institution of at least AA- or, in the absence of a credit assessment by an eligible institution, is internally rated with a probability of default (PD) corresponding to an external long-term credit rating of at least AA-, provided that— |
| (i) | in the absence of a long-term rating, a bond or instrument with a short-term rating equivalent in quality to the aforesaid long-term rating of AA- may be included in this category of qualifying assets or instruments; |
| (ii) | when the corporate bond or instrument is held by a bank for local currency liquidity needs arising from its operations in that particular local jurisdiction, the bank may apply the relevant local rating scales, instead of the relevant international or global rating scale, of an eligible institution; |
| (iii) | in the event of a split rating the bank shall determine the appropriate rating in accordance with the relevant requirements specified in regulation 23(5) of these Regulations; |
| (cc) | trades in large, deep and active repo or cash markets, characterised by a low level of concentration; and |
| (dd) | has a proven record as a reliable source of liquidity in all relevant markets, including the repurchase, resale or sale markets, even during stressed market conditions, that is, during stressed market conditions— |
| (i) | the maximum decline in the price of the relevant asset or instrument did not exceed ten per cent; or |
| (ii) | the maximum increase in the haircut of the relevant asset or instrument did not exceed ten percentage points, |
over a 30-day period during a relevant period of significant liquidity stress,
Provided that for purposes of this subregulation (12), corporate debt securities, bonds or instruments shall include only plain vanilla instruments, the valuation of which shall be readily available based on standard methods of valuation and shall not depend on private knowledge, that is, any complex structured product
| (iii) | constitutes an asset or instrument as envisaged in sub-paragraphs (ii) and (iii) below. |
| (ii) | A bank may include in its level two high-quality liquid assets, the assets or instruments specified or envisaged in subparagraph (iii) below, provided that— |
| (A) | the assets or instruments specified or envisaged in subparagraph (iii) below— |
| (i) | shall not comprise more than fifteen per cent of the bank's total amount of high-quality liquid assets; |
| (ii) | shall be included within the bank's overall forty per cent limit relating to the aggregate amount of level two high-quality liquid assets envisaged in subregulation (12)(a)(viii) above; |
| (iii) | shall for purposes of these Regulations be referred to as the level 2B portfolio of high-quality liquid assets; |
| (B) | the aforesaid overall forty per cent limit related to level two high-quality liquid assets and the fifteen per cent limit in respect of the level 2B high-quality liquid assets shall be determined after the application of any relevant required or specified haircut, and after taking into account any relevant unwind of short-term securities financing transactions and collateral swap transactions maturing within 30 calendar days that involve the exchange of high-quality liquid assets, for which purposes short-term transactions mean transactions with a maturity date up to and including 30 calendar days. |
| (iii) | Subject to the relevant provisions and requirements of subparagraph (ii) above, a bank may include in its portfolio of level two high-quality liquid assets— |
| (A) | residential mortgage backed securities (RMBS), provided that— |
| (i) | the said residential mortgage backed securities— |
| (aa) | shall not be issued by, and the underlying assets have not been originated by, the bank or any of its affiliated or associated entities; |
| (bb) | shall have a long-term credit rating issued by an eligible institution of AA or higher, or in the absence of a long-term rating, a short-term rating equivalent in quality to the aforesaid long-term rating; |
| (cc) | shall trade in large, deep and active repo or cash markets characterised by a low level of concentration; |
| (dd) | shall have a proven record as a reliable source of liquidity in the relevant repo or sale markets, even during stressed market conditions, that is, during stressed market conditions— |
| (i) | the maximum decline in the price of the relevant securities did not exceed twenty per cent; or |
| (ii) | the maximum increase in the haircut of the relevant securities did not exceed twenty percentage points, |
over a 30-day period during a relevant period of significant liquidity stress;
| (ii) | the relevant underlying asset pool shall be restricted to residential mortgages, and shall not contain any structured product; |
| (iii) | the relevant underlying mortgages shall be “full recourse’’ loans, that is, in the case of foreclosure the mortgage owner shall remain liable for any shortfall in the sales proceeds from the property, and the relevant average loan-to-value ratio (LTV) shall not exceed eighty per cent at the time the RMBS is issued; |
[Regulation 26(12)(b)(iii)(A)(iii) substituted by section 7(e) of Notice No. 724, GG44003, dated 18 December 2020]
| (iv) | the relevant securitisation structure or scheme shall be subject to "risk retention" requirements or regulations that require the issuer to retain an interest in the securitised assets; and |
| (v) | the bank shall apply to the relevant current market value of such residential mortgage-backed securities a haircut of no less than twenty five per cent; |
| (B) | corporate debt securities, including commercial paper, provided that— |
| (i) | the corporate debt securities— |
| (aa) | shall not be issued by a financial institution or any of its affiliated or associated entities; |
| (bb) | shall have a long-term credit rating issued by an eligible institution between A+ and BBB-, or in the absence of a long-term rating, a short-term rating equivalent in quality to the said long-term rating, provided that when the corporate debt security has no credit assessment issued by an eligible institution, the security shall have an internal rating with a PD that corresponds to an external credit assessment or rating of between A+ and BBB-; |
| (cc) | shall trade in large, deep and active repo or cash markets characterised by a low level of concentration; |
| (dd) | shall have a proven record as a reliable source of liquidity in the relevant repo or sale markets, even during stressed market conditions, that is, during stressed market conditions— |
| (i) | the maximum decline in the price of the relevant securities did not exceed twenty per cent; or |
| (ii) | the maximum increase in the haircut of the relevant securities did not exceed twenty percentage points, |
over a 30-day period during a relevant period of significant liquidity stress;
| (ii) | this category of corporate debt securities, including commercial paper, shall include only plain vanilla assets of which the valuation is readily available based on standard methods of valuation, and shall not depend on private knowledge, that is, any complex structured product or subordinated debt shall be excluded from this category of instruments; and |
| (iii) | the bank shall apply to the relevant current market value of such corporate debt securities a haircut of no less than fifty per cent; |
| (C) | common equity shares, provided that— |
| (i) | the common equity shares— |
| (aa) | shall not be issued by a financial institution or any of its affiliated or associated entities; |
| (bb) | shall be exchange traded and centrally cleared; |
| (cc) | shall be a constituent of the relevant major stock index specified in writing by the Registrar or the relevant supervisory authority in the home jurisdiction or where the liquidity risk is incurred; |
| (dd) | shall be denominated in Rand or the relevant domestic currency of the jurisdiction where the bank's liquidity risk is incurred; |
| (ee) | shall trade in large, deep and active repo or cash markets characterised by a low level of concentration; and |
| (ff) | shall have a proven record as a reliable source of liquidity in the relevant repo or sale markets, even during stressed market conditions, that is, during stressed market conditions— |
| (i) | the maximum decline in the share price did not exceed forty per cent; or |
| (ii) | the maximum increase in the haircut of the relevant shares did not exceed forty percentage points, |
over a 30-day period during a relevant period of significant liquidity stress; and
| (ii) | the bank shall apply to the relevant current market value of such common equity shares a haircut of no less than fifty per cent; |
| (D) | the undrawn amount of any contractually committed liquidity facility (CLF) provided by the Reserve Bank, provided that— |
| (i) | the relevant amount shall not be otherwise included in any other relevant portfolio of high-quality liquid assets, that is, the bank shall in no case double count any relevant amount related to any relevant asset, instrument or facility; |
| (ii) | when the bank includes any relevant amount of such facility within its portfolio of level 2B assets or instruments, the facility shall for purposes of these Regulations be referred to as a Restricted-use Committed Liquidity Facility (RCLF); |
| (aa) | shall be secured by unencumbered collateral of a type specified in writing by the Reserve Bank, which collateral— |
| (i) | shall be held in a form that supports immediate transfer to the Reserve Bank should the facility need to be drawn; |
| (ii) | shall be sufficient to cover the total size of the relevant facility, after any relevant haircut has been taken into consideration; |
| (iii) | that is used to support the RCLF shall not simultaneously be used or included as part of any relevant portfolio of high-quality liquid assets, that is, as stated hereinbefore, the bank shall in no case double count any relevant amount related to any relevant asset or instrument; |
| (bb) | shall in normal times be subject to a commitment fee calculated on the aggregate amount of the relevant drawn and undrawn portions of the facility, which commitment fee shall be at least equal to the greater of: |
| (i) | 75 basis points per annum; or |
| (ii) | at least 25 basis points per annum above the difference in yield on any relevant asset or instrument used to secure the RCLF and the yield on a representative portfolio of high-quality liquid assets, after adjustment for any material differences in credit risk; |
| (iv) | during periods of market-wide stress the commitment fee on the aggregate amount of the relevant drawn and undrawn portions of the RCLF may be reduced, but shall remain subject to any relevant minimum requirements specified in writing by the Governor in respect of CLFs that may otherwise be made available to banks by the Reserve Bank; |
| (v) | for as long as the bank remains solvent, the RCLF contract— |
| (aa) | shall be irrevocable prior to the maturity thereof; and |
| (bb) | shall not make provision for any ex-post credit decision by the Reserve Bank; |
| (vi) | the commitment period of any relevant RCLF shall exceed the 30-day stress period envisaged in this subregulation (12); |
| (vii) | when the Reserve Bank makes RCLFs available to banks, the Reserve Bank shall disclose— |
| (aa) | the cases in which the said facilities may not be available to all banks, and the cases in which the said facility may be available to banks; |
| (bb) | any relevant further conditions that may apply for the inclusion of RCLFs within the banks' portfolios of high-quality liquid assets; |
| (cc) | the period when it considers there to be a market-wide stress that justifies an easing of the RCLF terms, as envisaged hereinbefore. |
| (iv) | Subject to the provisions of sub-paragraph (v) below, in order to determine the extent of a bank's available unencumbered assets that may be used as collateral to raise additional high-quality liquid assets or secured funding in secondary markets or may be eligible as collateral at the Reserve Bank or other relevant central banks, and as such may potentially be an additional source of liquidity when required, a bank shall report to the Registrar the amount, type and location of such available unencumbered assets— |
| (A) | that may serve as collateral for secured borrowing in secondary markets at prearranged or current haircuts at reasonable costs; |
| (B) | that are eligible to obtain secured funding from the Reserve Bank or other relevant central banks at prearranged (when available) or current haircuts at reasonable costs for standing facilities, that is, excluding any emergency assistance arrangement, |
| (i) | which information shall include collateral that has already been accepted at the Reserve Bank or at another relevant central bank but which remains unused; |
| (ii) | in respect of which assets the bank has in place operational procedures to monetise the relevant collateral when required, |
Provided that the bank shall report any collateral received that the bank is permitted to deliver or re-pledge separately, as well as the part of such collateral that is so delivered or re-pledged by the bank at each relevant reporting date.
| (v) | As part of or in addition to the required information specified in sub-paragraph (iv) above, |
| (A) | a bank shall categorise the relevant assets according to significant currency, for which purposes a currency shall be regarded as significant when the aggregate amount relating to available unencumbered collateral denominated in that currency amounts to five per cent or more of the relevant total amount of unencumbered collateral available to raise additional high-quality liquid assets or secured funding in secondary markets or from relevant central banks; |
| (B) | a bank shall report to the Registrar the haircut or estimated haircut that the secondary market or relevant central bank would require for each relevant asset, provided that in the case of a relevant central bank haircut, the bank shall report the haircut required by the relevant central bank for matching funding under normal circumstances, that is, for example, the Reserve Bank for rand-denominated funding under normal circumstances, the European Central Bank for euro-denominated funding under normal circumstances, and the Bank of Japan for yen funding under normal circumstances; |
| (C) | a bank shall, instead of the relevant notional amounts, report to the Registrar the expected monetised value of the relevant collateral; |
| (D) | a bank shall report to the Registrar the location where the respective assets are actually held, and the business units or lines that have access to those assets. |
[Regulation 26(12)(b) substituted by regulation (2)(c) of Notice No. R. 309 dated 10 April 2015]
