| (1) | When determining collateral, a licensed central counterparty must— |
| (a) | accept highly liquid collateral with minimal credit, liquidity and market risk to cover its initial and on-going exposure to its clearing members; |
| (b) | be confident of the collateral’s value in the event of liquidation and of its capacity to use that collateral quickly, especially in stressed market conditions; |
| (c) | avoid concentrated holdings of certain assets where this would significantly impair the ability to liquidate such assets quickly without significant adverse price effects; |
| (d) | take into account the liquidity risk following the default of a market participant and the concentration risk on certain assets that may result in establishing the acceptable collateral and the relevant haircuts; |
| (e) | apply adequate haircuts to asset values that reflect the potential for their value to decline over the interval between their last revaluation and the time by which they can reasonably be assumed to be liquidate; |
| (f) | where it accepts cross-border collateral— |
| (i) | have appropriate legal and operational safeguards to ensure that it can use the cross-border collateral in a timely manner; |
| (ii) | consider foreign-exchange risk where collateral is denominated in a currency different from that in which the exposure arises, and set haircuts to address the additional risk to a high level of confidence; |
| (iii) | identify and address any significant liquidity effects; |
| (iv) | mitigate the risks associated with its use and ensure that the collateral can be used in a timely manner; |
| (v) | have the capacity to address potential operational challenges of operating across borders, such as differences in time zones or operating hours. |
| (2) | A licensed central counterparty must employ robust procedures and processes to control all material risks, which must include— |
| (a) | a robust risk-management process relating to collateral management; |
| (b) | a duly articulated strategy for the use of collateral which must form an intrinsic part of a central counterparty's general risk management strategy and overall liquidity strategy; |
| (c) | continuous assessment of the collateralised exposure on the basis of the counterparty’s creditworthiness; |
| (d) | the ability to obtain and analyse sufficient financial information to determine the counterparty’s risk profile and its risk-management and operational capabilities; |
| (e) | the marking to market of collateral and revaluing its collateral at regular intervals but at a minimum daily; |
| (f) | clearly established and maintained policies and procedures in respect of collateral management, which must be subject to regular review in order to ensure that the policies and procedures remain appropriate and effective and which policies and procedures must include: |
| (i) | the terms of collateral agreements, types of collateral and enforcement of collateral terms (for example, waivers of posting deadlines); |
| (ii) | the management of legal risks; |
| (iii) | the administration of agreements; and |
| (iv) | the prompt resolution of disputes, such as valuation of collateral or positions, acceptability of collateral, fulfilment of legal obligations and the interpretation of contract terms; |
| (g) | policies and procedures which are supported by collateral management systems capable of tracking the location and status of posted collateral; and |
| (h) | a duly defined policy with respect to the amount of concentration risk that the central counterparty is prepared to accept, that is, a policy in respect of the taking as collateral of large quantities of instruments issued by the same obligor which must provide that the central counterparty will take into account collateral and purchased credit protection when it assesses the potential concentrations in its credit portfolio. |
| (3) | A central counterparty may accept the following instruments as collateral— |
| (a) | Sovereign bonds of the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Norway, South Africa, Spain, Sweden, United Kingdom and the United States of America; |
| (c) | Separate Trading of Registered Interest and Principal of Securities (STRIPS); |
| (d) | Debentures issued by the South African Reserve Bank; |
| (f) | Cash of the following currencies: Rand, dollars, sterling and euros; and |
| (g) | any other instruments approved by the Authority. |
| (4) | A central counterparty must establish and implement a collateral management system that- |
| (a) | is well-designed and operationally flexible; |
| (b) | accommodates changes in the on-going monitoring and management of collateral; |
| (c) | allows for the timely calculation and execution of margin calls, the management of margin call disputes, and the accurate daily reporting of levels of initial and variation margin; |
| (d) | tracks the extent of reuse of securities held as collateral; |
| (e) | has functionality to accommodate the timely deposit, withdrawal, substitution, and liquidation of collateral. |
| (5) | A central counterparty must establish and implement transparent and predictable policies and procedures to assess and continuously monitor the liquidity of assets accepted as collateral and take remedial action where appropriate. |
| (6) | A central counterparty must review its eligible asset policies and procedures at least annually; such a review must also be carried out whenever a material change occurs that affects the central counterparty’s risk exposure. |
38.1 Haircuts
38.2 Concentration limits
38.3 Re-use of collateral collected as initial margin
38.4 Valuing collateral
