Financial Markets Act, 2012 (Act No. 19 of 2012)RegulationsFinancial Markets Act RegulationsChapter VI : Central Counterparties31. Liquidity risk31.4 Access to liquidity |
A central counterparty—
| (a) | must maintain sufficient liquid resources in each relevant currency, and must therefore maintain liquid resources consistent with the distribution of the central counterparty's liquidity needs by currency, as stated in Regulation 31.1; |
| (b) | must have regard to the currencies in which its liabilities are denominated and must take into account the potential effect of stressed conditions on its ability to access foreign exchange markets in a manner consistent with the securities settlement cycles of foreign exchange and securities settlement systems; |
| (c) | may not assume the availability of emergency central bank credit as a part of its liquidity plan; |
| (d) | must obtain a high degree of confidence, through rigorous due diligence, that each provider of its qualifying liquid resources, whether a clearing member of the central counterparty or an external party, has sufficient information to understand and to manage its associated liquidity risks, and that it has the capacity to perform as required under its commitment; provided that where relevant to assess a liquidity provider’s performance reliability with respect to a particular currency, a liquidity provider’s potential access to credit from the central bank of issue may be taken into account; |
| (e) | must ensure that committed lines of credit that are provided against collateral provided by clearing members are not double counted as liquid resources; |
| (f) | must take action to monitor and control the concentration of liquidity risk exposures to individual liquidity providers; |
| (g) | must obtain a high degree of confidence through rigorous due diligence that its liquidity providers have enough capacity to perform according to the liquidity arrangements; |
| (h) | must periodically test its procedures to access pre-arranged funding arrangements, including methods such as drawing down test amounts of the commercial lines of credit, to check the speed of access to the resources and reliability of procedures; |
| (i) | must have detailed procedures within its liquidity plan for using its liquid resources to fulfil its payment obligations during a liquidity shortfall, which must— |
| (i) | clearly state when certain resources must be used; |
| (ii) | describe how to— |
| (aa) | access cash deposits or overnight investments of cash deposits; |
| (bb) | execute same-day market transactions, or |
| (cc) | draw on pre-arranged liquidity lines; |
| (iii) | be regularly tested; and |
| (j) | must establish an adequate plan for the renewal of funding arrangements in advance of their expiration. |