When transferring eligible marketable assets issued in a central securities depository (CSD) or international central securities depository (ICSD), counterparties make use of the securities settlement systems (SSSs) which are regularly assessed by the Eurosystem and deemed eligible.
(Due to their specific characteristics, eligible non-marketable assets cannot be transferred through an SSS).
Eligible assets may be used to collateralise all types of Eurosystem credit operations, not only at domestic level but also across national borders (cross-border mobilisation). The cross-border mobilisation of marketable assets in Eurosystem credit operations may be conducted via the correspondent central banking model (CCBM) or through eligible links between securities settlement systems (SSSs). In addition, collateral may be mobilised via triparty collateral management services (TCMS) provided by eligible triparty agents (TPAs); TPAs can be used both at domestic level (in combination with eligible SSSs or eligible links) and on a cross-border basis, via the CCBM (also in combination with eligible links via the CCBM). Finally, collateral may be mobilised on accounts of NCBs with a non-domestic (I)CSD as authorised on an exceptional basis by the Governing Council.
- CCBM: The CCBM enables Eurosystem counterparties to use eligible marketable assets issued (i.e. registered or deposited) or held in other euro area countries as collateral.
- Eligible links: Eligible marketable assets may be mobilised by using links between national SSSs where such links have been positively assessed under the Eurosystem User Assessment Framework. Once the assets have been transferred to another SSS via eligible links, they can be used through local procedures in the same way as domestic collateral. The CCBM may also be used in combination with eligible links.
- Eligible TPAs: TPAs provide TCMS which allow institutions to manage their collateral assets in an efficient manner. The TPA acts on behalf of the collateral giver and collateral taker. In the context of Eurosystem credit operations, Eurosystem counterparties serve as collateral givers and Eurosystem NCBs as collateral takers.
For the cross-border mobilisation of non-marketable assets in Eurosystem credit operations, distinct CCBM procedures have been established.
For details on domestic mobilisation of eligible marketable assets and eligible non-marketable assets in Eurosystem credit operations, counterparties should consult local NCBs.
Triparty collateral management services (TCMS) provided by triparty agents (TPAs) allow market participants to optimise the use of their securities portfolios when collateralising credit and other exposures stemming from different products and instruments (e.g. repo, securities lending, central bank credit, secured loans and exposures arising from over-the-counter transactions).
The Eurosystem makes use of cross-border TCMS – in addition to their domestic use – in the context of Eurosystem credit operations. TPAs carry out the following services on behalf of the Eurosystem: checking/verifying the eligibility of assets against the list of eligible assets published by the ECB on its website on a daily basis, carrying out the daily asset valuation process (based on information sent by the relevant NCB to the TPA), checking the eligibility of the mobilisation channels (e.g. direct links), carrying out close link checks (when necessary) and processing payments related to corporate actions.
In order to be considered eligible for use in Eurosystem credit operations, a TPA needs to be positively assessed by the Eurosystem against a set of user standards applicable to both the cross-border and domestic use of TCMS. The general objective of these standards is to ensure the safety and efficiency of the services provided by TPAs in relation to Eurosystem credit operations.
To ensure the continuous compliance of TPAs with the user standards, the Eurosystem regularly conducts assessment reviews and monitors the implementation of its recommendations by TPAs.
Eurosystem standards for the use of TPAs
- Standard 1: Legal soundness - TPAs, in particular as regards their legal arrangements for TCMS as concluded with the relevant central bank, should function on a sound legal basis and should provide for adequate protection of the rights of the NCBs and the ECB in respect of collateral mobilised by and through them for the purposes of Eurosystem credit operations.
- Standard 2: Substitution of collateral and the processing of corporate actions – TPAs shall ensure that the substitution of collateral and the processing of corporate actions related to assets used in Eurosystem credit operations are executed in a way that does not expose the Eurosystem to credit risk, including settlement bank risk.
- Standard 3: Eligibility of assets and mobilisation channels - TPAs shall put in place processes which properly cater for specific Eurosystem requirements as regards the eligibility of assets and collateral mobilisation channels.
- Standard 4: Collateral realisation – TPAs shall have in place operational measures to ensure that, in the case of a default of an eligible counterparty, the instructions for the transfer of collateral to the realisation account of a central bank are executed without delays and or mistakes.
- Standard 5: Data confidentiality – TPAs shall ensure that the data provided by the central banks for the purpose of managing the collateral related to Eurosystem credit operations are used on a confidential basis and exclusively for the purpose of Eurosystem credit operations.
- Standard 6: Opening days and operating hours – The opening days and operating hours for the TCMS provided by TPAs shall comply with Eurosystem requirements for conducting credit operations.
The Eurosystem makes use of securities settlement systems (SSSs) and links between SSSs operated by central securities depositories (CSDs) and international central securities depositories (ICSDs) to settle its credit operations based on adequate collateral.
In order to be eligible for use in Eurosystem credit operations, SSSs and links between them must be positively assessed under the Eurosystem’s User Assessment Framework (UAF). Links to non-euro area European Economic Area (EEA) SSSs must also be positively assessed under the UAF to be eligible for use in Eurosystem credit operations.
User assessments are carried out to ensure that Eurosystem credit operations are conducted according to procedures which: i) prevent Eurosystem central banks from assuming inappropriate risks; and ii) ensure the same level of safety for all Eurosystem credit operations, regardless of the settlement method.
To ensure the continuous compliance of SSSs and links under the UAF, the Eurosystem conducts regular assessment reviews and monitors the implementation of its recommendations by CSDs/ICSDs.
The assessment of SSSs and links between SSSs that are to be used in Eurosystem credit operations is conducted under a two-layer approach. For user standards which overlap with oversight requirements, the Eurosystem, in its user capacity, relies on the oversight assessments of CSDs/ICSDs; this constitutes the first layer of the user assessment. For user standards that reflect specific requirements related to the use of the securities market infrastructure for settlement of Eurosystem credit operations and are therefore not covered by oversight standards a dedicated assessment is conducted by the Eurosystem; this constitutes the second layer of the user assessment (see below for further details of second layer).
Eurosystem user standards of the UAF
- Standard 1: Legal soundness - All SSSs and the links between such systems must have a sound legal basis, ensuring that the settlement of payment and securities transfers is final, and must provide for adequate protection for the rights of the NCBs and the ECB in respect of securities held in their accounts in such systems.
- Standard 2: Settlement in central bank money - SSSs shall enable the use of central bank money for the delivery-versus-payment (DvP) settlement of Eurosystem credit operations. If DvP settlement is not used, collateral shall be pre-deposited on a free-of-payment (FOP) basis.
- Standard 3: No undue custody risk - SSSs shall employ adequate measures to protect collateral provided to the Eurosystem by counterparties in credit operations against custody risk.
- Standard 4: Intraday Finality of settlement - SSSs shall provide facilities to settle Eurosystem credit operations with intraday finality.
- Standard 5: Operating hours and days - The operating hours and opening days of SSSs shall comply with Eurosystem requirements for conducting credit operations.