Financial Markets Act, 2012 (Act No. 19 of 2012)RegulationsFinancial Markets Act RegulationsChapter VI : Central Counterparties38. Collateral requirements38.2 Concentration limits |
| (1) | A central counterparty must establish and implement policies and procedures to ensure that the collateral remains sufficiently diversified to allow its liquidation within a defined holding period without a significant market impact. |
| (2) | The policies and the procedures must determine the risk mitigation measures to be applied when the concentration limits specified in subregulation (3) are exceeded. |
| (3) | A central counterparty must determine concentration limits at the level of— |
| (a) | individual issuers; |
| (b) | type of issuer; |
| (c) | type of asset; |
| (d) | each clearing member; and |
| (e) | all clearing members. |
| (4) | Concentration limits must be determined in a conservative manner taking into account all relevant criteria, including: |
| (a) | securities issued by issuers of the same type in terms of economic sector, activity, geographic region; |
| (b) | the level of credit risk of the securities or of the issuer based upon an internal assessment by the central counterparty, which assessment must employ a defined and objective methodology that must not fully rely on external opinions; |
| (c) | the liquidity and the price volatility of the securities. |
| (5) | When determining the concentration limit for a central counterparty’s exposure to an individual issuer, a central counterparty must aggregate and treat as a single risk its exposure to all securities issued by the issuer or by a group entity, explicitly guaranteed by the issuer or by a group entity, and to securities issued by undertakings whose exclusive purpose is to own means of production that are essential for the issuer’s business. |
| (6) | A central counterparty must— |
| (a) | monitor the adequacy of its concentration limit policies and procedures on a regular basis; |
| (b) | review its concentration limit policy and procedure at least annually and whenever a material change occurs that affects the risk exposure of the central counterparty; |
| (c) | inform the Authority and the clearing members of the applicable concentration limits and of any amendment to these limits; and |
| (d) | if it materially breaches a concentration limit set out in its policies and procedures, inform the Authority immediately and rectify the breach as soon as possible. |