Financial Markets Act, 2012 (Act No. 19 of 2012)RegulationsFinancial Markets Act RegulationsChapter VI : Central Counterparties31. Liquidity risk31.3 Assessment of liquidity risk |
(1) | A central counterparty must— |
(a) | establish a liquidity risk management framework which must include effective operational and analytical procedure to, identify, measure and monitor its settlement and funding flows on an on-going and timely basis, including its use of intraday liquidity; and |
(b) | regularly assess the design and operation of the liquidity management framework, including considering the results of the stress tests. |
(2) | A central counterparty’s liquidity risk management framework must— |
(a) | ensure with a high level of confidence that the central counterparty is able to effect payment and settlement obligations in all relevant currencies as they fall due, including where appropriate intraday; |
(b) | include the assessment of its potential future liquidity needs under a wide range of potential stress scenarios, which must include the default of clearing members from the date of a default until the end of a liquidation period and the liquidity risk generated by its investment policy and procedures in extreme but plausible market conditions; |
(c) | include a liquidity plan which is documented and retained and approved by the controlling body after consulting the risk committee; |
(d) | include the central counterparty’s procedures for— |
(i) | managing and monitoring, at least on a daily basis, its liquidity needs across a range of market scenarios; |
(ii) | maintaining sufficient liquid financial resources to cover its liquidity needs and distinguish among the use of the different types of liquid financial resources; |
(iii) | the daily assessment and valuation of the liquid assets available to the central counterparty and its liquidity needs; |
(iv) | identifying sources of liquidity risk; |
(v) | assessing timescales over which the central counterparty's liquid financial resources should be available; |
(vi) | considering potential liquidity needs stemming from clearing members ability to swap cash for non-cash collateral; |
(vii) | the processes in the event of liquidity shortfalls; |
(viii) | the replenishment of any liquid financial resources it may employ during a stress event; |
(e) | address the liquidity needs stemming from the central counterparty’s relationships with any entity towards which the central counterparty has a liquidity exposure including: |
(i) | clearing members; |
(ii) | settlement banks; |
(iii) | payment systems; |
(iv) | securities settlement systems; |
(v) | nostro agents; |
(vi) | custodians; |
(vii) | liquidity providers; |
(viii) | interoperable central counterparties; and |
(ix) | service providers. |
(3) | A central counterparty must assess the liquidity risk it faces including where the central counterparty or its clearing members cannot settle their payment obligations when due as part of the clearing or settlement process, taking also into account the investment activity of the central counterparty. |
(4) | A central counterparty must take into account any interdependencies across the entities listed in subregulation (2)(e) and multiple relationships that an entity listed in subregulation (2)(e) may have with a central counterparty in its liquidity risk management framework. |
(5) | A central counterparty must establish a daily report on the needs and resources under subregulations (2)(d)(i) to (iii) and a quarterly report on its liquidity plan, which must be documented and retained in accordance with Regulation 42. |