2000X0776 — EN — 01.01.2001 — 000.001 — 1
This document is meant purely as a documentation tool and the institutions do not assume any liability for its contents
►B GUIDELINE OF THE EUROPEAN CENTRAL BANK
of 31 August 2000
on monetary policy instruments and procedures of the Eurosystem
(ECB/2000/7)
(►C12000/776/EC ◄)
(OJ L 310, 11.12.2000, p. 1)
Corrected by:
►C1Corrigendum, OJ L 123, 4.5.2001, p. 35 (776/2000)
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GUIDELINE OF THE EUROPEAN CENTRAL BANK
of 31 August 2000
on monetary policy instruments and procedures of the Eurosystem
(ECB/2000/7)
(►C12000/776/EC ◄)
THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,
Having regard to the Treaty establishing the European Community
(hereinafter referred to as the ‘Treaty’) and in particular to the firstindent of Article 105(2) and to Articles 12.1 and 14.3 of the Statute ofthe European System of Central Banks and of the European CentralBank (ECB) (hereinafter referred to as the ‘Statute’), in conjunction with
the first indent of Article 3.1, Article 18.2 and the first paragraph of
Article 20,
Whereas:
(1)The achievement of a single monetary policy entails the need to
define the instruments to be used by the national central banks of
Member States that have adopted the euro inaccordan ce with the
Treaty (respectively NCBs and participating Member States) andthe European Central Bank (Eurosystem) in the implementationof such policy in a manner which is uniform throughout theparticipating Member States.
(2)The ECB is vested with the authority to establish the necessaryGuidelines for the implementation of the single monetary policyand the NCBs have an obligation to act in accordance with suchGuidelines.
(3)In accordance with Articles 12.1 and 14.3 of the Statute, ECBGuidelines form an integral part of Community law,
HAS ADOPTED THIS GUIDELINE:
Article 1
Principles, instruments, procedures and criteria for the implemen-
tation of the single monetary policy of the Eurosystem
The single monetary policy shall be implemented in accordance with the
principles, instruments, procedures and criteria specified in Annexes Iand II to this Guideline. The NCBs shall take all the appropriate
measures to carry out the monetary policy operations in accordance with
the principles, instruments, procedures and criteria specified in AnnexesI and II to this Guideline.
Article 2
Verification
The NCBs shall forward details of the texts and means by which they
intend to comply with this Guideline to the ECB by 15 October 2000 atthe latest.
Article 3
Final provisions
1. This Guideline is addressed to the NCBs of participating Member
States.
2. This Guideline shall enter into force on 1 January 2001.3. This Guideline shall be published in the Official Journal of the
European Communities .2000X0776 — EN — 01.01.2001 — 000.001 — 2
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ANNEX I
THE SINGLE MONETARY POLICY IN STAGE THREE
General documentation on Eurosystem monetary policy instruments and
procedures
November 20002000X0776 — EN — 01.01.2001 — 000.001 — 3
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CONTENTS
Introduction 7
CHAPTER 1
1.Overview of the monetary policy framework 8
1.1. The European System of Central Banks 81.2. Objectives of the Eurosystem 81.3. Eurosystem monetary policy instruments 8
1.3.1. Openmarket operation s 8
1.3.2. Standing facilities 91.3.3. Minimum reserves 91.4. Counterparties 9
1.5. Underlying assets 101.6. Modifications to the monetary policy framework 10
CHAPTER 2
2.Eligible counterparties 11
2.1. General eligibility criteria 112.2. Selection of counterparties for quick tenders and bilateral operations 112.3. Sanctions in the event of non-compliance with counterparty obligations 122.4. Suspension or exclusion on grounds of prudence 12
CHAPTER 3
3.Open market operations 13
3.1. Reverse transactions 133.1.1. General considerations 133.1.2. Main refinancing operations 133.1.3. Longer-term refinancing operations 143.1.4. Fine-tuning reverse operations 14
3.1.5. Structural reverse operations 15
3.2. Outright transactions 153.3. Issuance of ECB debt certificates 163.4. Foreignexchan ge swaps 173.5. Collectionof fixed-term deposits 18
CHAPTER 4
4.Standing facilities 18
4.1. The marginal lending facility 184.2. The deposit facility 19
CHAPTER 5
5.Procedures 20
5.1. Tender procedures 205.1.1. General considerations 205.1.2. Tender operations calendar 222000X0776 — EN — 01.01.2001 — 000.001 — 4
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5.1.3. Announcement of tender operations 23
5.1.4. Counterparties' preparation and submission of tender bids 24
5.1.5. Tender allotment procedures 25
5.1.6. Announcement of tender results 285.2. Procedures for bilateral operations 295.3. Settlement procedures 30
5.3.1. General considerations 30
5.3.2. Settlement of open market operations 305.3.3. End-of-day procedures 31
CHAPTER 6
6.Eligible assets 31
6.1. General considerations 31
6.2. Tier one assets 32
6.3. Tier two assets 34
6.4. Risk control measures 36
6.4.1. Initial margins 37
6.4.2 Risk control measures for tier one assets 376.4.3 Risk control measures for tier two assets 39
6.5. Valuation principles for underlying assets 41
6.6. Cross-border use of eligible assets 426.6.1. Correspondent central banking model 426.6.2. Cross-border links 43
CHAPTER 7
7.Minimum reserves 44
7.1. General considerations 44
7.2. Institutions subject to minimum reserves 457.3. Determination of minimum reserves 45
7.4. Maintenance of reserve holdings 47
7.5. Reporting and verification of the reserve base 487.6. Non-compliance with minimum reserve obligations 48
Annexes
1. Examples of monetary policy operations and procedures 49
2. Glossary 60
3. Selection of counterparties for foreign exchange intervention operations and foreign
exchange swaps for monetary policy purposes 67
4. The reporting framework for the money and banking statistics of the European Central Bank 68
5. The Eurosystem websites 756. Procedures and sanctions to be applied in the event of non-compliance with counterparty
obligations 76
List of Charts, Tables and Boxes
Charts
1. Normal time frame for the operational steps for standard tenders 212000X0776 — EN — 01.01.2001 — 000.001 — 5
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2. Normal time frame for the operational steps for quick tenders 22
3. The correspondent central banking model 42
4. Links between securities settlement systems 43
Tables
1. Eurosystem monetary policy operations 102. Normal trade days for the main and the longer-term refinancing operations 23
3. Normal settlement dates for Eurosystem open market operations 31
4. Eligible assets for Eurosystem monetary policy operations 34
Boxes
1. Issuance of ECB debt certificates 16
2. Foreignexchan ge swaps 173. Operational steps for tender procedures 21
4. Allotment of fixed rate tenders 25
5. Allotment of variable rate tenders in euro 266. Allotment of variable rate foreign exchange swap tenders 27
7. Risk control measures 36
8. Levels of valuationhaircuts applied to eligible tier on e assets 379. Calculation of initial margins and valuation haircuts 38
10. Level of valuationhaircuts applied to eligible tier two assets 39
11. Reserve base and reserve ratios 4612. Calculation of the remuneration of holdings of required reserves 472000X0776 — EN — 01.01.2001 — 000.001 — 6
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Abbreviations
Countries
BE Belgium
DK Denmark
DE Germany
GR GreeceES SpainFR France
IE Ireland
IT ItalyLU Luxembourg
NL Netherlands
AT AustriaPT Portugal
FI Finland
SE SwedenUK United Kingdom
JP Japan
USA United States
Others
BIS Bank for International Settlements
BPM4 IMF Balance of Payments Manual (4th edition)
BPM5 IMF Balance of Payments Manual (5th edition)
CDs certificates of depositcif cost, insurance and freight at the importer's border
CPI Consumer Price Index
ECB European Central BankECU European Currency Unit
EMI European Monetary Institute
ESA 95 European System of Integrated Accounts 1995ESCB European System of Central Banks
EU EuropeanUn ion
EUR eurofob free onboard at the exporter's border
GDP gross domestic product
HICP Harmonised Index of Consumer PricesILO International Labour Organisation
IMF International Monetary Fund
MFIs Monetary Financial InstitutionsNCBs National Central Banks
repos repurchase agreements
SITC Rev. 3 Standard International Trade Classification (revision 3)
In accordance with Community practice, the EU countries are listed in this
document using the alphabetical order of the country names in the national
languages.2000X0776 — EN — 01.01.2001 — 000.001 — 7
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Introduction
This document presents the operational framework chosen by the Eurosystem(1)
for the single monetary policy in Stage Three of Economic and Monetary Union.
The document, which forms part of the Eurosystem's legal framework for
monetary policy instruments and procedures, is intended to serve as the ‘General
documentation’ on the monetary policy instruments and procedures of the
Eurosystem, particularly aiming to provide counterparties with the information
they need in relation to the Eurosystem's monetary policy framework.
The ‘General documentation’ does not in itself confer rights on counterparties nor
impose obligations. The legal relationship between the Eurosystem and its
counterparties is established in appropriate contractual or regulatory arrange-
ments.
This document is divided into seven chapters: Chapter 1 gives an overview of the
operational framework for the monetary policy of the Eurosystem. In Chapter 2
eligibility criteria for counterparties taking part in Eurosystem monetary policy
operations are specified. Chapter 3 describes open market operations, while
Chapter 4 presents the standing facilities available to counterparties. Chapter 5
specifies procedures applied in the execution of monetary policy operations. In
Chapter 6 the eligibility criteria for underlying assets in monetary policy
operations are defined. Chapter 7 presents the Eurosystem's minimum reserve
system.
Annexes to the document contain examples of monetary policy operations, a
glossary, criteria for the selectionof coun terparties to Eurosystem foreign
exchange intervention operations, a presentation of the reporting framework for
the money and banking statistics of the European Central Bank, a list of the ECB
and National Central Bank websites and a description of the procedures and
sanctions to be applied in the event of non-compliance with counterparty
obligations.2000X0776 — EN — 01.01.2001 — 000.001 — 8
(1) The Governing Council of the European Central Bank has agreed to use the term
‘Eurosystem’ as an expression denoting the composition in which the European Systemof Central Banks performs its basic tasks, i.e. the national central banks of the MemberStates which have adopted the single currency in accordance with the Treaty establishing
the European Community and the European Central Bank.
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CHAPTER 1
1.OVERVIEW OF THE MONETARY POLICY FRAMEWORK
1.1.The European System of Central Banks
The European System of Central Banks (ESCB) consists of the
European Central Bank (ECB) and the National Central Banks of the
EU Member States(1). The activities of the ESCB are carried out in
accordance with the Treaty establishing the European Community
(Treaty) and the Statute of the European System of Central Banks and of
the European Central Bank (Statute of the ESCB). The ESCB is
governed by the decision-making bodies of the ECB. In this respect, the
Governing Council of the ECB is responsible for the formulation of
monetary policy, while the Executive Board is empowered to implement
monetary policy according to the decisions and guidelines laid down by
the Governing Council. To the extent deemed possible and appropriate
and with a view to ensuring operational efficiency, the ECB shall have
recourse to the National Central Banks(2) to carry out the operations
which form part of the tasks of the Eurosystem. The Eurosystem
monetary policy operations are executed on uniform terms and
conditions in all Member States(3).
1.2.Objectives of the Eurosystem
The primary objective of the Eurosystem is to maintain price stability,
as defined in Article 105 of the Treaty. Without prejudice to the primary
objective of price stability, the Eurosystem has to support the general
economic policies in the European Community. In pursuing its
objectives, the Eurosystem has to act in accordance with the principle
of an open market economy with free competition, favouring an
efficient allocation of resources.
1.3.Eurosystem monetary policy instruments
Inorder to achieve its objectives, the Eurosystem has at its disposal a set
of monetary policy instruments; the Eurosystem conducts open market
operations, offers standing facilities and requires credit institutions to
hold minimum reserves on accounts with the Eurosystem.
1.3.1.Open market operations
Open market operations play an important role in the monetary policy of
the Eurosystem for the purposes of steering interest rates, managing the
liquidity situation in the market and signalling the stance of monetary
policy. The Eurosystem has available five types of instruments for the
conduct of open market operations. The most important instrument is
reverse transactions (applicable on the basis of repurchase agreements or
collateralised loans). The Eurosystem may also useoutright transactions,
the issuance of debt certificates, foreign exchange swaps and the
collection of fixed-term deposits. Open market operations are initiated
by the ECB, which also decides on the instrument to be used and the
terms and conditions for their execution. They can be executed on the
basis of standard tenders, quick tenders or bilateral procedures(4). With
regard to their aim, regularity and procedures, the Eurosystem's open
market operations can be divided into the following four categories (see
also Table 1):
— The main refinancing operations are regular liquidity-providing
reverse transactions with a weekly frequency and a maturity of two
weeks. These operations are executed by the National Central Banks2000X0776 — EN — 01.01.2001 — 000.001 — 9
(1) It should be noted that National Central Banks of Member States which have not adopted
the single currency in accordance with the Treaty establishing the European Community(Treaty) retain their powers in the field of monetary policy according to national law and
are thus not involved in the conduct of the single monetary policy.
(
2) Throughout this document, the term ‘National Central Banks’ refers to the National
Central Banks of the Member States which have adopted the single currency inaccordance with the Treaty.
(
3) Throughout this document, the term ‘Member State’ refers to a Member State which has
adopted the single currency in accordance with the Treaty.
(4) The different procedures for the execution of Eurosystem open market operations, i.e.
standard tenders, quick tenders and bilateral procedures, are specified in Chapter 5.Standard tenders are executed within a time frame of 24 hours from the tenderannouncement to the certification of the allotment result. All counterparties fulfilling the
general eligibility criteria specified in Section 2.1 may participate in standard tenders.
Quick tenders are executed within a time frame of one hour. The Eurosystem may selecta limited number of counterparties to participate in quick tenders. The term bilateralprocedures refers to any case in which the Eurosystem conducts a transaction with one ora few counterparties without using tender procedures. Bilateral procedures include
operations executed through stock exchanges or market agents.
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on the basis of standard tenders. The main refinancing operations
play a pivotal role inpursuin g the purposes of the Eurosystem's open
market operations and provide the bulk of refinancing to the
financial sector.
— The longer-term refinancing operations are liquidity-providing
reverse transactions with a monthly frequency and a maturity of
three months. These operations aim to provide counterparties with
additional longer-term refinancing and are executed by the National
Central Banks on the basis of standard tenders. In these operations,
the Eurosystem does not, as a rule, intend to send signals to the
market and therefore normally acts as a rate taker.
— Fine-tuning operations are executed on an ad hoc basis with the aim
of managing the liquidity situation in the market and of steering
in terest rates, inparticular inorder to smooth the effects onin terest
rates caused byunexpected liquidity fluctuations in the market. Fine-
tuning operations are primarily executed as reverse transactions but
can also take the form of outright transactions, foreign exchange
swaps and the collection of fixed-term deposits. The instruments and
procedures applied in the conduct of fine-tuning operations are
adapted to the types of transactions and the specific objectives
pursued in the operations. Fine-tuning operations are normally
executed by the National Central Banks through quick tenders or
bilateral procedures. The Governing Council of the ECB will decide
whether, under exceptional circumstances, fine-tuning bilateral
operations may be executed by the ECB itself.
— In addition, the Eurosystem may carry out structural operations
through the issuance of debt certificates, reverse transactions and
outright transactions. These operations are executed whenever the
ECB wishes to adjust the structural positionof the Eurosystem vis-à-
vis the financial sector (on a regular or non-regular basis). Structural
operations in the form of reverse transactions and the issuance of
debt instruments are carried out by the National Central Banks
through standard tenders. Structural operations in the form of
outright transactions are executed through bilateral procedures.
1.3.2.Standing facilities
Standing facilities aim to provide and absorb overnight liquidity, signal
the general stance of monetary policy and bound overnight market
interest rates. Two standing facilities are available to eligible counter-
parties on their own initiative, subject to their fulfilment of certain
operational access conditions (see also Table 1):
— Counterparties can use the marginal lending facility to obtain
overnight liquidity from the National Central Banks against eligible
assets. Under normal circumstances, there are no credit limits or
other restrictions on counterparties' access to the facility apart from
the requirement to present sufficient underlying assets. The interest
rate on the marginal lending facility normally provides a ceiling for
the overnight market interest rate.
— Counterparties can use the deposit facility to make overnight
deposits with the National Central Banks. Under normal circum-
stances, there are no deposit limits or other restrictions to
counterparties' access to the facility. The interest rate on the deposit
facility normally provides a floor for the overnight market interest
rate.
The standing facilities are administered in a decentralised manner by the
National Central Banks.
1.3.3.Minimum reserves
The Eurosystem's minimum reserve system applies to credit institutions
in the euro area and primarily pursues the aims of stabilising money
market interest rates and creating (or enlarging) a structural liquidityshortage. The reserve requirement of each institution is determined in
relation to elements of its balance sheet. In order to pursue the aim of
stabilising interest rates, the Eurosystem's minimum reserve system
enables institutions to make use of averaging provisions. Compliance
with the reserve requirement is determined on the basis of the
institutions' average daily reserve holdings over a one-month main-
tenance period. Institutions' holdings of required reserves are
remunerated at the rate of the Eurosystem's main refinancing operations.
1.4.Counterparties
The Eurosystem monetary policy framework is formulated with a view
to ensuring participation of a broad range of counterparties. Institutions
subject to minimum reserves according to Article 19.1 of the Statute of2000X0776 — EN — 01.01.2001 — 000.001 — 10
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the ESCB may access the standing facilities and participate in open
market operations based on standard tenders. The Eurosystem may
select a limited number of counterparties to participate in fine-tuning
operations. For outright transactions, no restrictions are placed a priori
on the range of counterparties. For foreign exchange swaps conducted
for monetary policy purposes, active players in the foreign exchange
market are used. The set of counterparties for these operations is limited
to those institutions selected for Eurosystem foreign exchange
intervention operations which are located in the euro area.
1.5.Underlying assets
Pursuant to Article 18.1 of the Statute of the ESCB, all Eurosystem
credit operations (i.e. liquidity-providing operations) have to be based
onadequate collateral. The Eurosystem accepts a wide ran ge of assets
underlying its operations. A distinction is made, essentially for purposes
internal to the Eurosystem, between two categories of eligible assets:
‘tier one’ and ‘tier two’ respectively. Tier one consists of marketable
debt instruments fulfilling uniform euro area-wide eligibility criteria
specified by the ECB. Tier two consists of additional assets, marketable
and non-marketable, which are of particular importance for national
financial markets and banking systems and for which eligibility criteria
are established by the National Central Banks, subject to ECB approval.
No distinction is made between the two tiers with regard to the quality
of the assets and their eligibility for the various types of Eurosystem
monetary policy operations (except that tier two assets are normally not
used by the Eurosystem in outright transactions). Eligible assets may be
used on a cross-border basis, by means of the correspondent central
banking model (CCBM) or through eligible links between EU securities
settlement systems (SSS), to collateralise all types of Eurosystem
credit(5). All assets eligible for Eurosystem monetary policy operations
can also be used as underlying assets for intraday credit.
1.6.Modifications to the monetary policy framework
The Governing Council of the ECB may, at any time, change the
instruments, conditions, criteria and procedures for the execution of
Eurosystem monetary policy operations.2000X0776 — EN — 01.01.2001 — 000.001 — 11
(5) See Sections 6.6.1 and 6.6.2.
TABLE 1
Eurosystem monetary policy operations
Monetary policy operationsTypes of transactions
Maturity Frequency Procedure
Provisionof liquidity Absorptionof liquidity
Open market operations
Main refinancing operations Reverse transactions — Two weeks Weekly Standard tendersLonger-term refinancing opera-
tionsReverse transactions — Three months Monthly Standard tenders
Fine-tuning operations — Reverse transactions
— Foreignexchan ge swaps— Foreignexchan ge swaps
— Collectionof fixed-term
deposits
— Reverse transactionsNon-standardised Non-regular — Quick tenders
— Bilateral procedures
Outright purchases Outright sales — Non-regular Bilateral procedures
Structural operations Reverse transactions Issuance of debt certificates Standardised/non-standardised Regular and non-regular Standard tend ers
Outright purchases Outright sales — Non-regular Bilateral procedures
Standing facilities
Marginal lending facility Reverse transactions — Overnight Access at the discretion of counterpartiesDeposit facility — Deposits Overnight Access at the discretion of counterparties▼B2000X0776 — EN — 01.01.2001 — 000.001 — 12
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CHAPTER 2
2.ELIGIBLE COUNTERPARTIES
2.1.General eligibility criteria
Counterparties to Eurosystem monetary policy operations must fulfil
certaineligibility criteria(6). These criteria are defined with a view to
giving a broad range of institutions access to Eurosystem monetary
policy operations, enhancing equal treatment of institutions across the
euro area and ensuring that counterparties fulfil certain operational and
prudential requirements:
— Only institutions subject to the Eurosystem's minimum reserve
system according to Article 19.1 of the Statute of the ESCB are
eligible to be counterparties. Institutions which are exempt from
their obligations under the Eurosystem's minimum reserve system
(see Section 7.2) are not eligible to be counterparties to Eurosystem
standing facilities and open market operations.
— Counterparties must be financially sound. They should be subject to
at least one form of EU/EEA harmonised supervision by national
authorities(7). However, financially sound institutions subject to
non-harmonised national supervision of a comparable standard can
also be accepted as counterparties, e.g. branches established in the
euro area of institutions that have their head office outside the
EuropeanEcon omic Area.
— Counterparties must fulfil any operational criteria specified in the
relevant contractual or regulatory arrangements applied by the
respective National Central Bank (or the ECB), so as to ensure the
efficient conduct of Eurosystem monetary policy operations.
These general eligibility criteria are uniform throughout the euro area.
Institutions fulfilling the general eligibility criteria may:
— access the Eurosystem standing facilities, and
— participate in Eurosystem open market operations based on standard
tenders.
Institutions may access the Eurosystem standing facilities and open
market operations based on standard tenders only through the National
Central Bank of the Member State in which the institution is established.
If an institution has establishments (head office and branches) in more
than one Member State, each establishment has access to these
operations through the National Central Bank of the Member State in
which it is located, notwithstanding the fact that the tender bids of an
institution may only be submitted by one establishment (either the head
office or a designated branch) in each Member State.
2.2.Selection of counterparties for quick tenders and bilateral opera-
tions
For outright transactions, no restrictions are placed a priori on the range
of counterparties.
For foreign exchange swaps executed for monetary policy purposes,
counterparties must be able to conduct large-volume foreign exchange
operations efficiently under all market conditions. The range of
counterparties to foreign exchange swaps corresponds to the counter-
parties located inthe euro area which are selected for Eurosystem
foreign exchange intervention operations. The criteria and proceduresapplied for the selection of counterparties for foreign exchange
intervention operations are presented in Annex 3.
For other operations based on quick tenders and bilateral procedures
(fine-tuning reverse transactions and the collection of fixed-term
deposits), each National Central Bank selects a set of counterparties
from among the institutions established in its Member State which fulfil
the general counterparty eligibility criteria. In this respect, activity in the
money market is the prime selection criterion. Other criteria which
might be taken into account are, for example, the efficiency of the
trading desk and the bidding potential.2000X0776 — EN — 01.01.2001 — 000.001 — 13
(6) For outright transactions, no restrictions are placed a priori on the range of
counterparties.
(7) Harmonised supervisionof credit institutions is based onthe Directive 2000/12/EC of the
European Parliament and of the Council of 20 March 2000 relating to the taking up and
pursuit of the business of credit institutions, (OJ L 126, 26.5.2000, p. 1).
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In quick tenders and bilateral operations, the National Central Banks
deal exclusively with the counterparties which are included in their
respective set of fine-tuning counterparties. If, for operational reasons, a
National Central Bank cannot deal in each operation with all its fine-
tuning counterparties, the selection of counterparties in this Member
State will be based ona rotationscheme inorder to en sure equitable
access.
The Governing Council of the ECB will decide whether, under
exceptional circumstances, fine-tuning bilateral operations may be
carried out by the ECB itself. If the ECB were to carry out bilateral
operations, the selection of counterparties would in such cases be made
by the ECB according to a rotation scheme among those counterparties
in the euro area which are eligible for quick tenders and bilateral
operations in order to ensure equitable access.
2.3.Sanctions in the event of non-compliance with counterparty
obligations
The ECB shall impose sanctions, in accordance with Council Regulation
(EC) No 2532/98 of 23 November 1998 concerning the power of the
European Central Bank to impose sanctions (OJ L 318, 27.11.1998, p.
4), the European Central Bank Regulation (EC) No 2157/1999) of 23
September 1999 on the powers of the European Central Bank to impose
sanctions (ECB/1999/4) (OJ L 264, 12.10.1999, p. 21), Council
Regulation(EC) No 2531/98 of 23 November 1998 onthe application
of minimum reserves by the European Central Bank and the European
Central Bank Regulation (EC) No 2818/98 of 1 December 1998 on the
applicationof min imum reserves (ECB/1998/15) (OJL 356, 30.12.1998,
p. 1), on institutions which do not comply with obligations arising from
ECB Regulations and Decisions relating to the application of minimum
reserves. The relevant sanctions and the procedural rules for their
application are specified in the abovementioned Regulations. Inaddition, in the case of serious infringements of the minimum reserve
requirements, the Eurosystem may suspend counterparties from
participationinopenmarket operation s.
In accordance with provisions in the contractual or regulatory
arrangements applied by the respective National Central Bank (or by
the ECB), the Eurosystem shall impose financial penalties on counter-
parties or suspend counterparties from participation in open market
operations if counterparties fail to comply with their obligations under
the contractual or regulatory arrangements applied by the National
Central Banks (or by the ECB) as set out below.
This relates to cases of infringement of tender rules (if a counterparty is
not able to transfer a sufficient amount of underlying assets to settle the
amount of liquidity it has been allotted in a liquidity-providing operation
or if it is not able to deliver a sufficient amount of cash to settle the
amount it has been allotted in a liquidity-absorbing operation), and of
bilateral transactions (if a counterparty is not able to deliver a sufficient
amount of eligible underlying assets or if it is not able to deliver a
sufficient amount of cash to settle the amount agreed in bilateral
transactions).
This also applies to cases of non-compliance by a counterparty with the
rules for the use of underlying assets (if a counterparty is using assets
which are or which have become ineligible, e.g. due to close links
between, or identity of issuer and counterparty), and to non-compliance
with the rules for end-of-day procedures and access conditions to the
marginal lending facility (if a counterparty which has a negative balance
on the settlement account at the end of the day does not fulfil the access
conditions for the marginal lending facility).
In addition, a suspension measure to be taken vis-à-vis the non-
complying counterparty may be applied to branches of the same
institution located in other Member States. Where, as an exceptional
measure, this is required given the seriousness of a case of non-
compliance, as evidenced by its frequency or duration, for instance, a
counterparty may be suspended from all future monetary policy
operations for a certain period of time.
Financial penalties imposed by National Central Banks in the event of
non-compliance in relation to a breach of the rules concerning tender
operations, bilateral transactions, underlying assets, end-of-day proce-
dures or the access conditions to the marginal lending facility shall be
calculated at a pre-specified penalty rate (as set out in Annex 6).2000X0776 — EN — 01.01.2001 — 000.001 — 14
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2.4.Suspension or exclusion on grounds of prudence
In accordance with provisions in the contractual or regulatory
arrangements applied by the respective National Central Bank (or by
the ECB), the Eurosystem may suspend or exclude counterparties'
access to monetary policy instruments on the grounds of prudence.
In addition, suspension or exclusion of counterparties may be warranted
in some cases falling within the notion of the ‘default’ of a counterparty
as defined in the contractual or regulatory arrangements applied by the
National Central Banks.
CHAPTER 3
3.OPEN MARKET OPERATIONS
Open market operations play an important role in the Eurosystem's
monetary policy, pursuing the aims of steering interest rates, managing
the liquidity situation in the market and signalling the stance of
monetary policy. With regard to their aim, regularity and procedures,
Eurosystem open market operations can be divided into four categories:
main refinancing operations, longer-term refinancing operations, fine-
tuning operations and structural operations. As for the instruments used,
reverse transactions are the main open market instrument of the
Eurosystem and can be employed in all four categories of operations,
whereas debt certificates may be used for structural absorption
operations. In addition, the Eurosystem has three other instruments
available for the conduct of fine-tuning operations: outright transactions,
foreign exchange swaps and the collection of fixed-term deposits. In the
following sections, specific features of the different types of open
market instruments used by the Eurosystem are presented in detail.
3.1.Reverse transactions
3.1.1.General considerations
a) Type of instrument
Reverse transactions refer to operations where the Eurosystem buys
or sells eligible assets under repurchase agreements or conducts
credit operations against eligible assets as collateral. Reverse
transactions are used for the main refinancing operations and the
longer-term refinancing operations. In addition, the Eurosystem can
use reverse transactions for structural and fine-tuning operations.
b) Legal nature
The National Central Banks may execute reverse transactions either
in the form of repurchase agreements (i.e. the ownership of the asset
is transferred to the creditor, while the parties agree to reverse the
transaction through a re-transfer of the asset to the debtor at a future
point in time) or as collateralised loans (i.e. an enforceable security
interest is provided over the assets but, assuming fulfilment of the
debt obligation, the ownership of the asset is retained by the debtor).
Further provisions for reverse transactions based on repurchase
agreements are specified in the contractual arrangements applied by
the respective National Central Bank (or the ECB). Arrangements for
reverse transactions based on collateralised loans take account of the
different procedures and formalities required to enable the establish-
ment and subsequent realisation of a relevant interest in the collateral
(e.g. a pledge) which apply in different jurisdictions.
c) Interest terms
The difference between the purchase price and the repurchase price
in a repurchase agreement corresponds to the interest due on the
amount of money borrowed or lent over the maturity of the
operation, i.e. the repurchase price includes the respective interest to
be paid. The interest rate on a reverse transaction in the form of a
collateralised loan is determined by applying the specified interest
rate on the credit amount over the maturity of the operation. The
interest rate applied to Eurosystem reverse open market operations is
a simple interest rate with the day-count convention ‘actual/360’.
3.1.2.Main refinancing operations
The main refinancing operations are the most important open market
operations conducted by the Eurosystem, playing a pivotal role in
pursuing the aims of steering interest rates, managing the liquidity
situation in the market and signalling the stance of monetary policy.
They also provide the bulk of refinancing to the financial sector. The2000X0776 — EN — 01.01.2001 — 000.001 — 15
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operational features of the main refinancing operations can be
summarised as follows:
— They are liquidity-providing operations.
— They are executed regularly each week(8).
— They normally have a maturity of two weeks(9).
— They are executed in a decentralised manner by the National Central
Banks.
— They are executed through standard tenders (as specified in Section
5.1).
— All counterparties fulfilling the general eligibility criteria (as
specified inSection2.1) may submit ten der bids for the main
refinancing operations.
— Both tier one and tier two assets (as specified in Chapter 6) are
eligible as underlying assets for the main refinancing operations.
3.1.3.Longer-term refinancing operations
The Eurosystem also executes regular refinancing operations with a
three-month maturity, which are aimed at providing additional longer-
term refinancing to the financial sector. These operations represent only
a limited part of the global refinancing volume. In these operations, the
Eurosystem does not, as a rule, intend to send signals to the market and
therefore normally acts as a rate taker. Accordingly, longer-term
refinancing operations are usually executed in the form of variable rate
tenders and from time to time the ECB indicates the operation volume to
be allotted in forthcoming tenders. Under exceptional circumstances, the
Eurosystem may also execute longer-term refinancing operations
through fixed rate tenders.
The operational features of the longer-term refinancing operations can
be summarised as follows:
— They are liquidity-providing operations.
— They are executed regularly each month(10).
— They normally have a maturity of three months(11).
— They are executed in a decentralised manner by the National Central
Banks.
— They are executed through standard tenders (as specified in Section
5.1).
— All counterparties fulfilling the general eligibility criteria (as
specified in Section 2.1) may submit tender bids for the longer-
term refinancing operations.
— Both tier one and tier two assets (as specified in Chapter 6) are
eligible as underlying assets for the longer-term refinancing
operations.
3.1.4.Fine-tuning reverse operations
The Eurosystem can execute fine-tuning operations in the form of
reverse open market transactions. Fine-tuning operations aim to manage
the liquidity situation in the market and to steer interest rates, in
particular inorder to smooth the effects onin terest rates caused by
unexpected liquidity fluctuations in the market. The potential need for
rapid action in the case of unexpected market developments makes it
desirable for the Eurosystem to retaina high degree of flexibility inthe
choice of procedures and operational features in the conduct of these
operations:
— They can take the form of liquidity-providing or liquidity-absorbing
operations.
— Their frequency is not standardised.— Their maturity is not standardised.— Liquidity-providing fine-tuning reverse transactions are normally
executed through quick tenders, although the possibility of using
bilateral procedures is not excluded (see Chapter 5).2000X0776 — EN — 01.01.2001 — 000.001 — 16
(8) The main and the longer-term refinancing operations are executed in accordance with the
Eurosystem's pre-announced tender operations calendar, which can be found on the
ECB's website (www.ecb.int; see also Section 5.1.2); information can also be found on
the websites of the National Central Banks (see Annex 5).
(9) The maturity of the main and the longer-term refinancing operations may occasionally
vary depending on, inter alia, bank holidays in Member States.
(10) See footnote 8.
(11) See footnote 9.
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— Liquidity-absorbing fine-tuning reverse transactions are executed, as
a rule, through bilateral procedures (as specified inSection5.2).
— They are normally executed in a decentralised manner by the
National Central Banks (the Governing Council of the ECB will
decide whether, under exceptional circumstances, bilateral fine-
tuning reverse operations may be executed by the ECB).
— The Eurosystem may select, according to the criteria specified in
Section 2.2, a limited number of counterparties to participate in fine-
tuning reverse operations.
— Both tier one and tier two assets (as specified in Chapter 6) are
eligible as underlying assets for fine-tuning reverse operations.
3.1.5.Structural reverse operations
The Eurosystem may execute structural operations in the form of reverse
open market transactions aimed at adjusting the structural position of the
Eurosystem vis-à-vis the financial sector. The operational features of
these operations can be summarised as follows:
— They are liquidity-providing operations.
— Their frequency can be regular or non-regular.
— Their maturity is not standardised a priori.— They are executed through standard tenders (as specified in Section
5.1).
— They are executed in a decentralised manner by the National Central
Banks.
— All counterparties fulfilling the general eligibility criteria (as
specified inSection2.1) may submit ten der bids for structural
reverse operations.
— Both tier one and tier two assets (as specified in Chapter 6) are
eligible as underlying assets for structural reverse operations.
3.2.Outright transactions
a) Type of instrument
Outright open market transactions refer to operations where the
Eurosystem buys or sells eligible assets outright onthe market.
Outright open market operations are executed only for structural and
fine-tuning purposes.
b) Legal nature
An outright transaction implies a full transfer of ownership from the
seller to the buyer with no connected reverse transfer of ownership.
The transactions are executed in accordance with the market
conventions for the debt instrument used in the transaction.
c) Price terms
Inthe calculationof prices, the Eurosystem acts inaccordan ce with
the most widely accepted market convention for the debt instruments
used in the transaction.
d) Other operational features
The operational features of Eurosystem outright transactions can be
summarised as follows:
— They cantake the form of liquidity-providin g (outright purchase)
or liquidity-absorbing (outright sales) operations.
— Their frequency is not standardised.
— They are executed through bilateral procedures (as specified in
Section5.2).
— They are normally executed in a decentralised manner by the
National Central Banks (the Governing Council of the ECB will
decide whether, under exceptional circumstances, fine-tuning
outright operations may be executed by the ECB).
— No restrictions are placed a priori on the range of counterparties
to outright transactions.
— Only tier one instruments (as specified in Section 6.1) are
normally used as underlying assets in outright transactions.
3.3.Issuance of ECB debt certificates
a) Type of instrument
The ECB may issue debt certificates with the aim of adjusting the
structural position of the Eurosystem vis-à-vis the financial sector so
as to create (or enlarge) a liquidity shortage in the market.2000X0776 — EN — 01.01.2001 — 000.001 — 17
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b) Legal nature
The certificates constitute a debt obligation of the ECB vis-à-vis the
holder of the certificate. The certificates are issued and held in a
book-en try form insecurities depositories inthe euro area. The ECB
does not impose any restrictions on the transferability of the
certificates. Further provisions related to the certificates will be
contained in the terms and conditions for ECB debt certificates.
c) Interest terms
The certificates are issued indiscoun t form, i.e. they are issued at
below the nominal amount and are redeemed at maturity at the
nominal amount. The difference between the issue amount and the
redemption amount equals the interest accrued on the issue amount,
at the agreed interest rate, over the maturity of the certificate. The
interest rate applied is a simple interest rate with the day-count
convention ‘actual/360’. The calculation of the issue amount is
showninBox 1.
d) Other operational features
The operational features of the issuance of ECB debt certificates can
be summarised as follows:
— The certificates are issued inorder to absorb liquidity from the
market.
— The certificates can be issued on a regular or non-regular basis.— The certificates have a maturity of less thantwelve mon ths.— The certificates are issued through standard tenders (as specified
inSection5.1).
— The certificates are tendered and settled in a decentralised
manner by the National Central Banks.
— All counterparties fulfilling the general eligibility criteria (as
specified inSection2.1) may submit ten der bids for the
subscriptionof ECB debt certificates.
3.4.Foreign exchange swaps
a) Type of instrument
Foreign exchange swaps executed for monetary policy purposes
consist of simultaneous spot and forward transactions of the euro
against foreign currency. They are used for fine-tuning purposes,
mainly with the aim of managing the liquidity situation in the market
and steering interest rates.
b) Legal nature
Foreign exchange swaps executed for monetary policy purposes refer
to operations where the Eurosystem buys (or sells) euro spot against
a foreign currency and, at the same time, sells (or buys) it back
forward at a specified repurchase date. Further provisions for foreign2000X0776 — EN — 01.01.2001 — 000.001 — 18
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exchange swaps are specified in the contractual arrangement applied
by the respective National Central Bank (or the ECB).
c) Currency and exchange rate terms
As a rule, the Eurosystem operates only in widely traded currencies
and in accordance with standard market practice. In each foreign
exchange swap operation, the Eurosystem and the counterparties
agree on the swap points for the transaction. The swap points are the
difference between the exchange rate of the forward transaction and
the exchange rate of the spot transaction. The swap points of the euro
vis-à-vis the foreign currency are quoted according to general market
conventions. The exchange rate terms of foreign exchange swaps are
specified inBox 2.
d) Other operational features
The operational features of foreign exchange swaps can be
summarised as follows:
— They cantake the form of liquidity-providin g or liquidity-
absorbing operations.
— Their frequency is not standardised.
— Their maturity is not standardised.
— They are executed through quick tenders or bilateral procedures
(see Chapter 5).
— They are normally executed in a decentralised manner by the
National Central Banks (the Governing Council of the ECB will
decide whether, under exceptional circumstances, bilateral
foreignexchan ge swaps may be executed by the ECB).
— The Eurosystem may select, according to the criteria specified in
Section 2.2 and Annex 3, a limited number of counterparties to
participate inforeignexchan ge swaps.
3.5.Collection of fixed-term deposits
a) Type of instrument
The Eurosystem may invite counterparties to place remunerated
fixed-term deposits with the National Central Bank in the Member
State inwhich the coun terparty is established. The collectionof
fixed-term deposits is envisaged only for fine-tuning purposes in
order to absorb liquidity inthe market.2000X0776 — EN — 01.01.2001 — 000.001 — 19
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b) Legal nature
The deposits accepted from counterparties are for a fixed term and
with a fixed rate of interest. No collateral is given by the National
Central Banks in exchange for the deposits.
c) Interest terms
The interest rate applied to the deposit is a simple interest rate with
the day-count convention ‘actual/360’. Interest is paid at maturity of
the deposit.
d) Other operational features
The operational features of the collection of fixed-term deposits can
be summarised as follows:
— The deposits are collected inorder to absorb liquidity.
— The frequency with which deposits are collected is not
standardised.
— The maturity of the deposits is not standardised.— The collectionof deposits is n ormally executed through quick
tenders, although the possibility of using bilateral procedures is
not excluded (see Chapter 5).
— The collection of deposits is normally executed in a decentralised
manner by the National Central Banks (the Governing Council of
the ECB will decide whether, under exceptional circumstances,
the bilateral collectionof fixed-term deposits may be executed by
the ECB)(
12).
— The Eurosystem may select, according to the criteria specified in
Section 2.2, a limited number of counterparties for the collection
of fixed-term deposits.
CHAPTER 4
4.STANDING FACILITIES
4.1.The marginal lending facility
a) Type of instrument
Counterparties may use the marginal lending facility to obtain
overnight liquidity from National Central Banks at a pre-specified
interest rate against eligible assets (as specified in Chapter 6). The
facility is intended to satisfy counterparties' temporary liquidity
needs. Under normal circumstances, the interest rate on the facility
provides a ceiling for the overnight market interest rate. The terms
and conditions of the facility are identical throughout the euro area.
b) Legal nature
The National Central Banks may provide liquidity under the
marginal lending facility either in the form of overnight repurchase
agreements (i.e. the ownership of the asset is transferred to the
creditor, while the parties agree to reverse the transaction through a
re-transfer of the asset to the debtor on the next business day) or as
overnight collateralised loans (i.e. an enforceable security interest is
provided over the assets but, assuming fulfilment of the debt
obligation, ownership of the asset is retained by the debtor). Further
provisions for repurchase agreements are specified in the contractual
arrangements applied bythe respective National Central Bank.
Arrangements for providing the liquidity in the form of collateralised
loans take account of the different procedures and formalities
required to enable the establishment and subsequent realisation of a
relevant interest in the collateral (a pledge) which apply in different
jurisdictions.
c) Access conditions
Institutions fulfilling the general counterparty eligibility criteria
specified in Section 2.1 may access the marginal lending facility.
Access to the marginal lending facility is granted through the
National Central Bank in the Member State in which the institution is
established. Access to the marginal lending facility is granted only2000X0776 — EN — 01.01.2001 — 000.001 — 20
(12) Fixed-term deposits are held on accounts with the National Central Banks; this would be
the case even if such operations were to be executed in a centralised manner by the
ECB.
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on days when the relevant national RTGS (real-time gross
settlement) system and the relevant SSS(s) are operational(13).
At end-of-day, counterparties' intraday debit positions on their
settlement account with the National Central Banks are automatically
considered to be a request for recourse to the marginal lending
facility. The procedures for end-of-day access to the marginal
lending facility are specified in Section 5.3.3.
A counterparty may also be granted access to the marginal lending
facility by sending a request to the National Central Bank in the
Member State inwhich the coun terparty is established. Inorder for
the National Central Bank to process the request onthe same day, the
request must be received by the National Central Bank at the latest
30 minutes after the actual closing time of TARGET(14). As a
general rule, the closing time for the TARGET system is 6 p.m. ECB
time (CET). The deadline for requesting access to the marginal
lending facility is postponed by an additional 30 minutes on the last
Eurosystem business day of a reserve maintenance period(15). Inthe
request, the amount of credit is to be stated and, if underlying assets
for the transaction have not already been pre-deposited with the
National Central Bank, the underlying assets to be delivered for the
transaction are to be specified.
Apart from the requirement to present sufficient underlying eligible
assets, there is no limit to the amount of funds to be advanced under
the marginal lending facility.
d) Maturity and interest terms
The maturity of credit extended under the facility is overnight. For
counterparties participating directly in TARGET, the credit is repaid
on the next day on which the relevant national RTGS system and the
relevant SSS(s) are operational, at the time at which those systems
open.
The interest rate is announced in advance by the Eurosystem and is
calculated as a simple interest rate with the day-count convention
‘actual/360’. The ECB may change the interest rate at any time, with
effect not earlier than the following Eurosystem business day(16).
Interest under the facility is payable with the repayment of the credit.
e) Suspension of the facility
Access to the facility is granted only in accordance with the
objectives and general monetary policy considerations of the ECB.
The ECB may adapt the conditions of the facility or suspend it at any
time.
4.2.The deposit facility
a) Type of instrument
Counterparties can use the deposit facility to make overnight
deposits with National Central Banks. The deposits are remunerated
at a pre-specified interest rate. Under normal circumstances, the
interest rate on the facility provides a floor for the overnight market
interest rate. The terms and conditions of the deposit facility are
identical throughout the euro area(17).2000X0776 — EN — 01.01.2001 — 000.001 — 21
(13) National Central Banks which have their national RTGS system operational when the
TARGET Interlinking component is closed shall grant access to the standing facilities.
The closing time for access to the standing facilities will then be 30 minutes after theclosing time of the relevant national RTGS system.
(
14) In some Member States, the National Central Bank (or some of its branches) may not be
open for the purpose of conducting monetary policy operations on certain Eurosystem
business days due to national or regional bank holidays. In this case, the relevant
National Central Bank is responsible for informing the counterparties in advance of thearrangements to be applied for access to the marginal lending facility in relation to thebank holiday.
(
15) TARGET closing days are announced on the ECB's website (www.ecb.int); information
can also be found on the websites of the National Central Banks (see Annex 5).
(16) Throughout this document, the term ‘Eurosystem business day’ refers to any day on
which the ECB and at least one National Central Bank are open for the purpose ofconducting Eurosystem monetary policy operations.
(
17) Operational differences resulting from the existence of different account structures
across the National Central Banks may exist across euro area countries.
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b) Legal nature
The overnight deposits accepted from counterparties are remunerated
at a fixed rate of interest. No collateral is given to the counterparty in
exchange for the deposits.
c) Access conditions(18)
Institutions fulfilling the general counterparty eligibility criteria
specified inSection2.1 may access the deposit facility. Access to the
deposit facility is granted through the National Central Bank in the
Member State inwhich the in stitutionis established. Access to the
deposit facility is granted only on days when the relevant national
RTGS system is open.
To be granted access to the deposit facility, the counterparty must
send a request to the National Central Bank in the Member State in
which the counterparty is established. In order for the National
Central Bank to process the request on the same day, the request
must be received by the National Central Bank at the latest 30
minutes after the actual closing time of TARGET, which is, as a
general rule, 6 p.m. ECB time (CET)(19). The deadline for requesting
access to the deposit facility is postponed by an additional 30
minutes on the last Eurosystem business day of a reserve
maintenance period(20). Inthe request, the amoun t to be deposited
under the facility is to be stated.
There is no limit to the amount a counterparty may deposit under the
facility.
d) Maturity and interest terms
The maturity of deposits under the facility is overnight. For
counterparties participating directly in TARGET, deposits held
under the facility mature on the next day on which the relevant
national RTGS system is operational, at the time at which the system
opens. The interest rate is announced in advance by the Eurosystem
and is calculated as a simple interest rate with the day-count
convention ‘actual/360’. The ECB may change the interest rate at
any time, with effect not earlier than the following Eurosystem
business day. Interest on the deposits is payable at maturity of the
deposit.
e) Suspension of the facility
Access to the facility is granted only in accordance with the
objectives and general monetary policy considerations of the ECB.
The ECB may adapt the conditions of the facility or suspend it at any
time.
CHAPTER 5
5.PROCEDURES
5.1.Tender procedures
5.1.1.General considerations
Eurosystem open market operations are normally executed in the form
of tender procedures. The Eurosystem tender procedures are performed
insix operation al steps as specified inBox 3.
The Eurosystem distinguishes between two different types of tender
procedures: standard tenders and quick tenders. The procedures for
standard and quick tenders are identical except for the time frame and
the range of counterparties.2000X0776 — EN — 01.01.2001 — 000.001 — 22
(18) Owing to the existence of different account structures across the National Central
Banks, the ECB may allow National Central Banks temporarily to apply access
conditions which are slightly different from those referred to here. The National Central
Banks will provide information on any such deviations from the access conditionsdescribed inthis documen t.
(
19) In some Member States the National Central Bank (or some of its branches) may not be
open for the purpose of conducting Eurosystem monetary policy operations on certain
Eurosystem business days owing to national or regional bank holidays. In such cases,
the relevant National Central Bank is responsible for informing the counterparties inadvance of the arrangements to be made for access to the deposit facility in relation tothe bank holiday.
(
20) TARGET closing days are announced on the ECB's website (www.ecb.int); information
can also be found on the websites of the National Central Banks (see Annex 5).
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a) Standard tenders
Standard tenders are executed within 24 hours from the announce-
ment of the tender to certification of the allotment result (where the
time between the submission deadline and the announcement of the
allotment result is approximately two hours). Chart 1 gives an
overview of the normal time frame for the operational steps for
standard tenders. The ECB may decide to adjust the time frame in
individual operations, if deemed appropriate.
The main refinancing operations, the longer-term refinancing
operations and structural operations (with the exception of outright
transactions) are always executed in the form of standard tenders.
Counterparties fulfilling the general eligibility criteria specified in
Section 2.1 may participate in standard tenders.
CHART 1
Normaltimeframefortheoperationalstepsforstandardtenders
(times are stated in ECB time (CET))
Note:The figures refer to the operational steps as defined in Box 3.2000X0776 — EN — 01.01.2001 — 000.001 — 23
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b) Quick tenders
Quick tenders are normally executed within one hour from the
announcement of the tender to certification of the allotment result.
The normal time frame for the operational steps for quick tenders is
specified inChart 2. The ECB may decide to adjust the time frame in
individual operations, if deemed appropriate. Quick tenders are only
used for the execution of fine-tuning operations. The Eurosystem
may select, according to the criteria and procedures specified in
Section 2.2, a limited number of counterparties to participate in
quick tenders.
CHART 2
Normal time frame for the operational steps for quick tenders
Note:The figures refer to the operational steps as defined in Box 3.
c) Fixed rate and variable rate tenders
The Eurosystem has the option of conducting either fixed rate
(volume) or variable rate (interest) tenders. In a fixed rate tender, the
ECB specifies the interest rate in advance and participating
counterparties bid the amount of money they want to transact at
the fixed interest rate(21). In a variable rate tender, counterparties bid
the amounts of money and the interest rates at which they want to
enter into transactions with the National Central Banks(22).
5.1.2.Tender operations calendar
a) Main and longer-term refinancing operations
The main and the longer-term refinancing operations are executed
according to an indicative calendar published by the Eurosystem(23).
The calendar is published at least three months before the start of the
year for which it is valid. The normal trade days for the main and the
longer-term refinancing operations are specified in Table 2. The ECB
aims to ensure that counterparties in all Member States can
participate in the main and the longer-term refinancing operations.
Therefore, when compiling the calendar for these operations, the
ECB makes appropriate adjustments to the normal schedule so as to
take into account bank holidays in the individual Member States.2000X0776 — EN — 01.01.2001 — 000.001 — 24
(21) In fixed rate foreign exchange swap tenders, the ECB fixes the swap points of the
operation and the counterparties offer the amount of currency kept as fixed that theywish to sell (and buy back) or buy (and sell back) at that rate.
(
22) In variable rate foreign exchange swap tenders, the counterparties bid the amount of the
currency kept as fixed and the swap point quotation at which they wish to enter into theoperation.
(
23) The calendar for the Eurosystem's tender operations can be found on the ECB's website
(www.ecb.int); information can also be found on the websites of the National Central
Banks (see Annex 5).
▼B
TABLE 2
Normal trade days for the main and the longer-term refinancing operations
Type of operationNormal trade day (T)
Main refinancing operations Each Tuesday
Longer-term refinancing operations The first Wednesday of each minimum
reserve maintenance period
b) Structural operations
Structural operations through standard tenders are not executed
according to any pre-specified calendar. However, structural
operations are normally conducted and settled only on days which
are NCB business days(24) inall Member States.
c) Fine-tuning operations
Fine-tuning operations are not executed according to any pre-
specified calendar. The ECB may decide to conduct fine-tuning
operations on any Eurosystem business day. Only National Central
Banks of Member States where the trade day, the settlement day and
the reimbursement day are NCB business days participate in such
operations.
5.1.3.Announcement of tender operations
Eurosystem standard tenders are publicly announced by means of wire
services. In addition, National Central Banks may announce the tenderoperationdirectly to coun terparties without access to wire services. The
public tender announcement message normally contains the following
information:
— the reference number of the tender operation,
— the date of the tender operation,
— the type of operation(provisionor absorptionof liquidity an d the
type of monetary policy instrument to be used),
— the maturity of the operation,
— the type of auction(fixed rate or variable rate ten der),— the method of allotment (‘Dutch’ or ‘American’ auction, as defined
inSection5.1.5. d),
— the intended operation volume (normally only in the case of the
longer-term refinancing operations),
— the fixed tender interest rate/price/swap point (in the case of fixed
rate tenders),
— the minimum/maximum accepted interest rate/price/swap point (if
applicable),
— the start date and the maturity date of the operation (if applicable) or
the value date and maturity date of the instrument (in the case of the
issuance of debt certificates),
— the currencies involved and the currency, the amount of which is
kept fixed (inthe case of foreignexchan ge swaps),
— the reference spot exchange rate to be used for the calculation of
bids (inthe case of foreignexchan ge swaps),
— the maximum bid limit (if any),— the minimum individual allotment amount (if any),
— the minimum allotment ratio (if any),
— the time schedule for the submissionof bids,— the denomination of the certificates (in the case of the issuance of
debt certificates),
— the ISIN code of the issue (inthe case of the issuan ce of debt
certificates).2000X0776 — EN — 01.01.2001 — 000.001 — 25
(24) Throughout this document, the term ‘NCB business day’ refers to any day on which the
National Central Bank of a specific Member State is open for the purpose of conducting
Eurosystem monetary policy operations. In some Member States branches of theNational Central Bank may be closed on NCB business days owing to local or regionalbank holidays. In such cases, the relevant National Central Bank is responsible forinforming the counterparties in advance of the arrangements to be made for transactions
involving those branches.
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With a view to enhancing transparency in its fine-tuning operations, the
Eurosystem normally announces quick tenders publicly in advance.
However, under exceptional circumstances, the ECB may decide not to
announce quick tenders publicly in advance. The announcement of
quick tenders follows the same procedures as those for standard tenders.
In a quick tender, regardless of whether it is announced publicly or not,
the selected counterparties are contacted directly by the National Central
Banks.
5.1.4.Counterparties' preparation and submission of tender bids
Counterparties' tender bids must be in a form that follows the pro forma
example provided by the National Central Banks for the relevant
operation. The tender bids must be submitted to the National Central
Bank of a Member State in which the institution has an establishment
(head office or branch). The tender bids of an institution may only be
submitted by one establishment (either the head office or a designated
branch) in each Member State.
In fixed rate tenders, counterparties shall state in their bids the amount
of money that they are willing to transact with the National Central
Banks(25).
In variable rate tenders, counterparties may submit bids for up to ten
different interest rate/price/swap point levels. In each bid they shall state
the amount of money that they are willing to transact with the National
Central Banks, and the respective interest rate(26)(27). The interest rates
bid must be expressed as multiples of 0,01 percentage point. In the case
of a variable rate foreign exchange swap tender, the swap points are to
be quoted according to standard market conventions and bids must be
expressed as multiples of 0,01 swap point.
For the main refinancing operations, the minimum bid amount is EUR
1 000000. Bids exceeding the minimum bid amount must be expressed
as multiples of EUR 100 000. The same minimum bid and multiple
amounts are applied in fine-tuning and structural operations. The
minimum bid amount is applied to each individual interest rate/price/
swap point level.
For the longer-term refinancing operations, each National Central Bank
defines a minimum bid amount in the range from EUR 10000 to EUR1 000000. Bids exceeding the minimum bid amount must be expressed
as multiples of EUR 10000. The minimum bid amount is applied to
each individual interest rate level.
The ECB may impose a maximum bid limit inorder to preven t
disproportionately large bids. Any such maximum bid limit is always
specified in the public tender announcement message.
Counterparties are expected always to be in a position to cover the
amounts allotted to them by a sufficient amount of eligible underlying
assets(
28). The contractual or regulatory arrangements applied by the
respective National Central Bank allow the imposition of penalties if a
counterparty is not able to transfer a sufficient amount of underlying
assets or cash to settle the amount it has been allotted in a tender
operation.
Bids are revocable up to the tender submission deadline. Bids submitted
after the deadline specified in the tender announcement message are
invalid. Respect of the deadline is judged by the National Central Banks.
The National Central Banks discard all the bids of a counterparty if the
aggregate amount bid exceeds any maximum bid limit established by
the ECB. The National Central Banks also discard any bid which is
below the minimum bid amount or which is below any minimum or
above any maximum accepted interest rate/price/swap point. Further-
more, the National Central Banks may discard bids which are
incomplete or which do not follow the pro forma example. If a bid is
discarded, the respective National Central Bank informs the counter-
party about its decision prior to the tender allotment.2000X0776 — EN — 01.01.2001 — 000.001 — 26
(25) In fixed rate foreign exchange swaps, the amount of the currency kept fixed that the
counterparty is willing to transact with the Eurosystem is to be stated.
(26) With regard to the issuance of ECB debt certificates, the ECB may decide that bids are
to be expressed inthe form of a price rather thananin terest rate. Insuch cases, prices
shall be quoted as a percentage of the nominal amount.
(27) In variable rate foreign exchange swaps, the amount of the currency kept fixed that the
counterparty is willing to transact with the Eurosystem and the respective swap pointlevel are to be stated.
(
28) Or to settle in cash in the case of liquidity-absorbing operations.
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5.1.5.Tender allotment procedures
a) Fixed rate tender operations
In the allotment of a fixed rate tender, the bids received from
counterparties are added together. If the aggregate amount bid
exceeds the total amount of liquidity to be allotted, the submittedbids will be satisfied pro rata, according to the ratio of the amount to
be allotted to the aggregate amount bid (see Box 4). The amount
allotted to each counterparty is rounded to the nearest euro.
However, the ECB may decide to allot a minimum amount/ratio to
each bidder infixed rate ten ders.
b) Variable rate tenders in euro
In the allotment of liquidity-providing variable rate tenders in euro,
bids are listed in diminishing order of offered interest rates. Bids
with the highest interest rate levels are satisfied as having priority
and bids with successively lower interest rates are accepted until the
total liquidity to be allotted is exhausted. If, at the lowest interest rate
level accepted (i.e. the marginal interest rate), the aggregate amount
bid exceeds the remaining amount to be allotted, the remaining
amount is allocated pro rata among the bids according to the ratio of
the remaining amount to be allotted to the total amount bid at the
marginal interest rate (see Box 5). The amount allotted to each
counterparty is rounded to the nearest euro.2000X0776 — EN — 01.01.2001 — 000.001 — 27
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In the allotment of liquidity-absorbing variable rate tenders (which
may be used for the issuance of debt certificates and the collection of
fixed-term deposits), bids are listed in increasing order of offered
interest rates (or diminishing order of offered prices). Bids with the
lowest interest rate (highest price) levels are satisfied as having
priority and bids with successively higher interest rates (lower price
bids) are accepted until the total liquidity to be absorbed is
exhausted. If, at the highest interest rate (lowest price) level
accepted (i.e. the marginal interest rate/price), the aggregate bidamount exceeds the remaining amount to be allotted, the remaining
amount is allocated pro rata among the bids according to the ratio of
theremaining amount to be allotted to the total bid amount at the
marginal interest rate/price (see Box 5). For the issuance of debt
certificates, the amount allotted to each counterparty is rounded to2000X0776 — EN — 01.01.2001 — 000.001 — 28
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the nearest multiple of the denomination of the debt certificates. For
other liquidity-absorbing operations, the amount allotted to each
counterparty is rounded to the nearest euro.
The ECB may decide to allot a minimum amount to each successful
bidder invariable rate ten ders.
c) Variable rate foreign exchange swap tenders
In the allotment of liquidity-providing variable rate foreign exchange
swap tenders, bids are listed in increasing order of swap point
quotations(29). The bids with the lowest swap point quotations are
satisfied as having priority and successively higher swap point
quotations are accepted until the total amount of the fixed currency
to be allotted is exhausted. If, at the highest swap point quotation
accepted (i.e. the marginal swap point quotation), the aggregate
amount bid exceeds the remaining amount to be allotted, the
remaining amount is allocated pro rata among the bids according to
the ratio of the remaining amount to be allotted to the total amount
bid at the marginal swap point quotation (see Box 6). The amount
allotted to each counterparty is rounded to the nearest euro.
2000X0776 — EN — 01.01.2001 — 000.001 — 29
(29) Swap point quotations are listed in increasing order taking into account the sign of the
quotation, which depends on the sign of the interest rate differential between the foreign
currency and the euro. If, for the maturity of the swap, the foreign currency interest rate
is higher than the corresponding interest rate for the euro, the swap point quotation ispositive (euro quoted at premium against the foreign currency). Conversely, if theforeign currency interest rate is lower than the corresponding interest rate for the euro,the swap point quotation is negative (euro quoted at discount against the foreign
currency).
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In the allotment of liquidity-absorbing variable rate foreign exchange
swap tenders, bids are listed in diminishing order of offered swap
point quotations. The bids with the highest swap point quotations are
satisfied as having priority and successively lower swap point
quotations are accepted until the total amount of the fixed currency
to be absorbed is exhausted. If, at the lowest swap point quotation
accepted (i.e. the marginal swap point quotation), the aggregate
amount bid exceeds the remaining amount to be allotted, the
remaining amount is allocated pro rata among the bids according to
the ratio of the remaining amount to be allotted to the total amount
bid at the marginal swap point quotation (see Box 6). The amount
allotted to each counterparty is rounded to the nearest euro.
d) Type of auction
Forvariable rate tenders, the Eurosystem may apply either single rate
or multiple rate auctionprocedures. Ina sin gle rate auction(Dutch
auction), the allotment interest rate/price/swap point applied for all
satisfied bids is equal to the marginal interest rate/price/swap point
(i.e. the interest rate/price/swap point at which the total allotment
was exhausted). Ina multiple rate auction(Americanauction ), the
allotment interest rate/price/swap point is equal to the interest rate/
price/swap point offered for each individual bid.
5.1.6.Announcement of tender results
The results of standard and quick tenders are announced publicly by
means of wire services. In addition, National Central Banks may
announce the allotment result directly to counterparties without access
to wire services. The public tender result message normally contains the
following information:
— reference number of the tender operation,
— the date of the tender operation,
— the type of operation,
— the maturity of the operation,
— the total amount bid by Eurosystem counterparties,— the number of bidders,
— the currencies involved (in the case of foreign exchange swaps),
— the total amount allotted,
— the percentage of allotment (in the case of fixed rate tenders),
— the spot exchange rate (in the case of foreign exchange swaps),— the marginal interest rate/price/swap point accepted and the
percentage of allotment at the marginal interest rate/price/swap
point (in the case of variable rate tenders),2000X0776 — EN — 01.01.2001 — 000.001 — 30
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— the minimum bid rate, maximum bid rate and weighted average
allotment rate (in the case of multiple rate auctions),
— the start date and the maturity date of the operation (if applicable) or
the value date and maturity date of the instrument (in the case of the
issuance of debt certificates),
— the minimum individual allotment amount (if any),
— the minimum allotment ratio (if any),
— the denomination of the certificates (in the case of the issuance of
debt certificates),
— the ISIN code of the issue (inthe case of the issuan ce of debt
certificates).
The National Central Banks will directly certify the individual allotment
result to successful counterparties.
5.2.Procedures for bilateral operations
a) General considerations
The National Central Banks may execute operations on the basis of
bilateral procedures(30). Bilateral procedures may be used for fine-
tuning open market operations and structural outright operations.
Bilateral procedures are defined in a broad sense as any procedures
where the Eurosystem conducts a transaction with one or a few
counterparties without a tender. In this respect, two different types of
bilateral procedures can be distinguished: operations where counter-
parties are contacted directly by the Eurosystem, and operations
executed through stock exchanges and market agents.
b) Direct contact with counterparties
In this procedure, the National Central Banks directly contact one or
a few domestic counterparties, which are selected according to the
criteria specified in Section 2.2. According to the precise instructions
given by the ECB, the National Central Banks decide whether to
enter into a deal with the counterparties. The transactions are settled
through the National Central Banks.
If the Governing Council of the ECB were to decide that, under
exceptional circumstances, bilateral operations could also be
executed by the ECB itself (or by one or a few National Central
Banks acting as the operating arm of the ECB), the procedures for
such operations would be adapted accordingly. In this case, the ECB
(or the National Central Bank(s) acting as the operating arm of the
ECB) would directly contact one or a few counterparties in the euro
area, selected according to the criteria specified in Section 2.2. The
ECB (or the National Central Bank(s) acting as the operating arm of
the ECB) would decide whether to enter into a deal with the
counterparties. The transactions would nevertheless be settled in a
decentralised manner through the National Central Banks.
Bilateral operations through direct contact with counterparties can be
applied for reverse transactions, outright transactions, foreignexchange swaps and the collection of fixed-term deposits.
c) Operations executed through stock exchanges and market
agents
The National Central Banks can execute outright transactions
through stock exchanges and market agents. For these operations,
the range of counterparties is not restricted a priori and the
procedures are adapted to the market conventions for the debt
instruments transacted. The Governing Council of theECB will
decide whether, under exceptional circumstances, the ECB itself (or
one or a few National Central Banks acting as the operating arm of
the ECB) may execute fine-tuning outright operations through stock
exchanges and market agents.2000X0776 — EN — 01.01.2001 — 000.001 — 31
(30) The Governing Council of the ECB will decide whether, under exceptional
circumstances, fine-tuning bilateral operations may also be executed by the ECB itself.
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d) Announcement of bilateral operations
Bilateral operations are normally not announced publicly in advance.
In addition, the ECB may decide not to announce the results of
bilateral operations publicly.
e) Operating days
The ECB may decide to conduct fine-tuning bilateral operations on
any Eurosystem business day. Only National Central Banks of
Member States where the trade day, the settlement day and the
reimbursement day are NCB business days participate in such
operations.
Outright bilateral operations for structural purposes are normally
conducted and settled only on days which are NCB business days in
all Member States.
5.3.Settlement procedures
5.3.1.General considerations
Money transactions relating to the use of Eurosystem standing facilities
or to participationinopenmarket operation s are settled onthe
counterparties' accounts with the National Central Banks (or on the
accounts of settlement banks participating in TARGET). Money
transactions are settled only after (or at the moment of) the final
transfer of the assets underlying the operation. This implies that
underlying assets either need to have been pre-deposited in a safe
custody account at the National Central Banks or to be settled on an
intraday delivery-versus-payment basis with the said central banks. The
transfer of underlying assets is executed via the counterparties' securities
settlement accounts with SSSs fulfilling the ECB's minimum stan-
dards(31). Counterparties without a safe custody account with a National
Central Bank or a securities settlement account with an SSS fulfilling
the ECB's minimum standards may settle the transactions of underlying
assets through the securities settlement account or the safe custody
account of a correspondent credit institution.
Further provisions related to the settlement procedures are defined in the
contractual arrangements applied by the National Central Banks (or the
ECB) for the specific monetary policy instruments. The settlement
procedures may differ slightly between National Central Banks owing to
differences in national law and operational practices.
5.3.2.Settlement of open market operations
Open market operations based on standard tenders (the main refinancing
operations, the longer-term refinancing operations and structural
operations) are normally settled on the first day following the trade
day on which all relevant national RTGS and all relevant SSSsare open.
As a matter of principle, the Eurosystem aims to settle the transactions
related to its openmarket operation s at the same time inall Member
States with all counterparties that have provided sufficient underlying
assets. However, owing to operational constraints and the technical
features of SSSs, the timing within the day of the settlement of open
market operations may differ across the euro area. The time of
settlement of the main and the longer-term refinancing operations
normally coincides with the time of reimbursement of a previous
operation of corresponding maturity.
The Eurosystem aims to settle openmarket operation s based onquick
tenders and bilateral procedures on the trade day. However, the
Eurosystem may, for operational reasons, occasionally apply other
settlement dates for these operations, in particular for outright
transactions (for fine-tuning as well as structural purposes) and foreign
exchange swaps (see Table 3).2000X0776 — EN — 01.01.2001 — 000.001 — 32
(31) The description of the standards for the use of eligible securities settlement systems
(SSSs) inthe euro area an d anupdated list of the eligible lin ks betweenthese systems
can be found on the ECB's website (www.ecb.int).
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TABLE 3
Normal settlement dates for Eurosystem open market operations (1)
Monetary policy instrumentSettlement date for operations
based on standard tendersSettlement date for operations
based onquick ten ders or bilat-
eral procedures
Reverse transactions T+1 (2)T
Outright transactions — According to market
convention for underlying
assets
Issuance of debt certificates T+1 —
Foreignexchan ge swaps — T, T+1 or T+2
Collectionof fixed-term
deposits—T
(1) T refers to the trade day. The settlement date connotation refers to Eurosystem business days.
(2) If the normal settlement date for the main or the longer-term refinancing operations coincides with a
bank holiday, the ECB may decide to apply a different settlement date, including same-day settlement.The settlement dates for the main and the longer-term refinancing operations are specified in advance inthe Eurosystem's tender operations calendar (see Section 5.1.2).
5.3.3.End-of-day procedures
The end-of-day procedures are specified in documentation related to the
national RTGS systems and the TARGET system. As a general rule, the
closing time for the TARGET system is 6 p.m. ECB time (CET). No
further payment orders are accepted for processing in the national RTGS
systems after the closing time, although remaining payment orders
accepted before the closing time are still processed. Counterparties'
requests for access to the marginal lending facility or to the deposit
facility must be submitted to the respective National Central Bank at the
latest 30 minutes after the actual closing time of TARGET(32)(33).
Any negative balances on the settlement accounts (in the national RTGS
systems) of eligible counterparties remaining after the finalisation of the
end-of-day control procedures are automatically considered to be a
request for recourse to the marginal lending facility (see Section 4.1).
CHAPTER 6
6.ELIGIBLE ASSETS
6.1.Eligible assets
Article 18.1 of the Statute of the ESCB allows the ECB and the National
Central Banks to transact in financial markets by buying and selling
underlying assets outright or under repurchase agreements and requires
all Eurosystem credit operations to be based on adequate collateral.
Consequently, all Eurosystem liquidity-providing operations are based
on underlying assets provided by the counterparties either in the form of
the transfer of ownership of assets (in the case of outright transactions or
repurchase agreements) or in the form of a pledge granted over relevant
assets (inthe case of collateralised loan s)(34).
With the aim of protecting the Eurosystem from incurring losses in its
monetary policy operations, ensuring the equal treatment of counter-
parties and enhancing operational efficiency, underlying assets have to
fulfil certaincriteria inorder to be eligible for Eurosystem mon etary
policy operations.
It is recognised that the harmonisation of eligibility criteria throughout
the euro area would contribute to ensuring equal treatment and2000X0776 — EN — 01.01.2001 — 000.001 — 33
(32) The deadline for requesting access to the Eurosystem's standing facilities is postponed
by an additional 30 minutes on the last Eurosystem business day of a minimum reservemaintenance period.
(
33) See also footnote 13 for the cases of National Central Banks having their national RTGS
system operational when the TARGET Interlinking component is closed.
(34) Liquidity-absorbing outright and reverse open market operations are also based on
underlying assets. For underlying assets used in liquidity-absorbing reverse open marketoperations, the eligibility criteria are identical to those applied for underlying assetsused in liquidity-providing reverse open market operations. However, neither initial
margins nor valuation haircuts are applied in liquidity-absorbing operations.
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operational efficiency. At the same time, due attention has to be paid to
existing differences in financial structure across Member States. A
distinction is therefore made, essentially for purposes internal to the
Eurosystem, betweentwo categories of assets eligible for Eurosystem
monetary policy operations. These two categories are referred to as ‘tier
one’ and ‘tier two’ respectively:
— tier one consists of marketable debt instruments fulfilling uniform
euro area-wide eligibility criteria specified by the ECB,
— tier two consists of additional assets, marketable and non-market-
able, which are of particular importance to national financial
markets and banking systems and for which eligibility criteria are
established by the National Central Banks, subject to the minimum
eligibility criteria established by the ECB. The specific eligibility
criteria for tier two applied by the respective National Central Banks
are subject to approval by the ECB.
No distinction is made between the two tiers with regard to the quality
of the assets and their eligibility for the various types of Eurosystem
monetary policy operations (except for the fact that tier two assets are
not normally used by the Eurosystem in outright transactions). The
assets eligible for Eurosystem monetary policy operations can also be
used as underlying assets for intraday credit(35).
Tier one and tier two assets are subject to the risk control measures
specified inSection6.4.
Eurosystem counterparties may use eligible assets on a cross-border
basis, i.e. they may obtain funds from the National Central Bank of the
Member State inwhich they are established by makin g use of assets
located inan other Member State (see Section6.6).
6.2.Tier one assets
The ECB establishes and maintains a list of tier one assets. This list is
available to the public(36).
Debt certificates issued by the ECB are listed as tier one assets. Debt
certificates issued by the National Central Banks prior to the adoption of
the euro intheir respective Member State are also in cluded inthe tier
one list.
The following eligibility criteria are applied to other tier one assets (see
also Table 4):
— They must be debt instruments(37),
— They must meet high credit standards. In the assessment of the credit
standard of debt instruments, the ECB takes into account, inter alia ,
available ratings by market agencies, as well as certain institutional
criteria which would ensure particularly high protection of the
holders(38),
— They must be located inthe euro area (so that realisationis subject
to the law of a Member State of the euro area), transferable in book-
entry form and deposited with a National Central Bank or with a
central securities depository which fulfils the minimum standards
established by the ECB(39),
— They must be denominated in euro(40),
— They must be issued (or guaranteed) by entities established in the
EEA(41),2000X0776 — EN — 01.01.2001 — 000.001 — 34
(35) In addition, the ECB may allow the National Central Banks to consider as eligible for
intraday credit certain types of assets which are not eligible as underlying assets forEurosystem monetary policy operations (see footnote 47).
(
36) This list is published and updated weekly on the ECB's website (www.ecb.int).
(37) Debt instruments convertible into equity (or with similar characteristics) and debt
instruments which afford rights subordinate to the claims of holders of other debtinstruments of the issuer are excluded from tier one.
(
38) Debt instruments issued by credit institutions which do not comply strictly with the
criteria set out inArticle 22(4) of the UCITS Directive (Coun cil Directive 88/220/EEC
(OJ L 100, 19.4.1988, p. 31) amending Council Directive 85/611/EEC (OJ L 375,31.12.1985, p. 3)) are accepted in tier one only if each issue as such is awarded a rating(by a rating agency) which indicates, in the view of the Eurosystem, that the debtinstrument meets high credit standards.
(
39) The description of the standards for the use of eligible SSSs in the euro area and an
updated list of the eligible links between these systems can be found on the ECB'swebsite (www.ecb.int).
(
40) Expressed as such or in the national denominations of the euro.
(41) The requirement that the issuing entity must be established in the EEA does not apply to
international and supra-national institutions.
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— They must, at least, be listed or quoted ona regulated market as
defined according to the Investment Services Directive(42), or listed,
quoted or traded oncertain non-regulated markets as specified bythe
ECB(43). Furthermore, market liquidity may be taken into account
by the ECB when determining the eligibility of individual debt
instruments.
Despite their inclusion in the tier one list, National Central Banks shall
not accept as underlying assets debt instruments issued or guaranteed by
the counterparty, or by any other entity with which the counterparty has
close links, as defined according to Directive 2000/12/EC relating to the
taking up and pursuit of the business of credit institutions(44)(45).
Despite their inclusion in the tier one list, National Central Banks may
decide not to accept as underlying assets the following instruments:
— Debt instruments falling due for repayment before the maturity date
of the monetary policy operation for which they are being used as
underlying assets(46);
— Debt instruments with an income flow (e.g. a coupon payment)
occurring in the period until the maturity date of the monetary policy
operation for which they are being used as underlying assets.
All tier one assets may be used in a cross-border context, implying that a
counterparty can receive credit from the National Central Bank of the
Member State in which the counterparty is established by making use of
tier one instruments located in another Member State (see Section 6.6).
Tier one assets are eligible for all monetary policy operations which are
based on underlying assets, i.e. reverse and outright open market
transactions and the marginal lending facility.
6.3.Tier two assets (47)
In addition to debt instruments fulfilling the eligibility criteria for tier
one, National Central Banks may consider as eligible other assets, tier
two assets, which are of particular importance to their national financial
markets and banking systems. Eligibility criteria for tier two assets are
established by the National Central Banks in accordance with the2000X0776 — EN — 01.01.2001 — 000.001 — 35
(42) Directive 93/22/EEC, Council Directive of 10 May 1993 on investment services in the
securities field, (OJ L 141, 11 June 1993, p. 27).
(43) Debt instruments issued by credit institutions which do not comply strictly with the
criteria set out inArticle 22(4) of the UCITS Directive (Directive 88/220/EECamending Directive 85/611/EEC) are accepted in tier one only if they are listed orquoted on a regulated market as defined according to the Investment Services Directive
(Directive 93/22/EEC) and comply with the requirements of the Prospectus Directive
(Council Directive 89/298/EEC (OJ L 124, 5.5.1989, p. 8)).
(
44) Article 1(26), of Directive 2000/12/EC of the European Parliament and of the Council
of 20 March 2000 relating to the taking up and pursuit of the business of creditinstitutions, reads as follows:‘Close links shall mean a situation in which two or more natural or legal persons are
linked by:
(a) participation, which shall mean the ownership, direct or by way of control, of 20 %
or more of the voting rights or capital of an undertaking, or
(b) control, which shall mean the relationship between a parent undertaking and a
subsidiary, inall the cases referred to inArticle 1(1) an d (2) of Directive 83/349/
EEC, or a similar relationship between any natural or legal person and an
undertaking; any subsidiary undertaking of a subsidiary undertaking shall also beconsidered a subsidiary undertaking of the parent undertaking which is at the headof those undertakings. A situation in which two or more natural or legal persons arepermanently linked to one and the same person by a control relationship shall also
be regarded as constituting a close link between such persons.’
(
45) This provision does not apply to (i) close links between the counterparty and the public
authorities of EEA countries; (ii) trade bills, for which at least one entity (other than acredit institution) is liable in addition to the counterparty; (iii) debt instruments whichcomply strictly with the criteria set out inArticle 22(4) of the UCITS Directive
(Directive 88/220/EEC amending Directive 85/611/EEC); or (iv) cases in which debt
instruments are protected by specific legal safeguards comparable to (iii).
(
46) If the National Central Banks were to allow the use of instruments with a maturity
shorter than the monetary policy operations for which they serve as underlying assets,counterparties would be required to replace such assets at, or prior to, maturity.
(
47) In addition to the tier two assets eligible for Eurosystem monetary policy operations, the
ECB may authorise National Central Banks to grant intraday credit against debtinstruments which are considered eligible for intraday credit by non-participating EUcentral banks and which are: 1) located in EEA countries outside the euro area; 2) issuedby entities established in EEA countries outside the euro area; 3) denominated in EEA
currencies (or other widely traded currencies). The ECB's authorisation will be subject
to the preservation of operational efficiency and the exercise of appropriate control overthe specific legal risks relating to such debt instruments. Within the euro area, these debtinstruments may not be used on a cross-border basis (i.e. counterparties may use thesedebt instruments only for receiving funds directly from the National Central Bank which
has been authorised by the ECB to grant intraday credit against these assets).
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minimum eligibility criteria stated below. The specific national
eligibility criteria for tier two assets are subject to approval by the
ECB. The National Central Banks establish and maintain national lists
of eligible tier two assets. These lists are available to the public(48).
Tier two assets have to fulfil the following minimum eligibility criteria
(see also Table 4):
— They must be either debt instruments (marketable or non-market-
able) or equities (traded on a regulated market as defined according
to the Investment Services Directive(49)). Equities issued by credit
institutions and debt instruments issued by credit institutions which
do not comply strictly with the criteria set out in Article 22(4) of the
UCITS Directive are normally not eligible for inclusion in the tier
two lists. However, the ECB may authorise National Central Banks
to include such assets in their tier two lists subject to certain
conditions and restrictions;
TABLE 4
Eligible assets for Eurosystem monetary policy operations
Criteria Tier one Tier two
Type of asset — ECB debt certificates;
— Other marketable debt
instruments (1).— Marketable debt instru-
ments;
— Non-marketable debt
instruments;
— Equities traded ona
regulated market.
Settlement procedures Instruments must be
centrally deposited in
book-entry form with
national central banks or
a SSS fulfilling the ECB's
minimum standardsAssets must be easily acces-
sible to deposited inbook-
entry form the National
Central Bank which has
with National Central Banks
or a included them in its tier
two list.
Type of issuer — Eurosystem
— Public sector— Private sector (
2)
— International and
supra-national institu-
tions— Public sector
— Private sector (3)
Credit standard The issuer (guarantor)
must be deemed finan-
cially sound by the ECBThe issuer/debtor (guar-
antor) must be deemed
financially sound by the
National Central Bank
which has included the asset
inits tier two list
Place of establishment of
the issuer (or guarantor)EEA(4) Euro area
Locationof asset Euro area (5) Euro area (5)
Currency Euro(6) Euro(6)2000X0776 — EN — 01.01.2001 — 000.001 — 36
(48) These lists are published and updated weekly on the ECB's website (www.ecb.int). For
non-marketable tier two assets and debt instruments with restricted liquidity and special
features, National Central Banks may decide not to disclose information on individual
issues, issuers/debtors or guarantors in the publication of their national tier two lists, butshall offer alternative information to ensure that counterparties throughout the euro areacaneasily ascertainthe eligibility of a specific asset.
(
49) Directive 93/22/EEC, Council Directive of 10 May 1993 on investment services in the
securities field.
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Criteria Tier one Tier two
Memo item: Cross-border
useYes Yes
(1) Debt instruments convertible into equity (or with similar characteristics) and debt instruments
which afford rights subordinate to the claims of holders of other debt instruments of the issuer are
excluded from tier one.
(2) Debt instruments issued by credit institutions which do not comply strictly with the criteria set out
in Article 22(4) of the UCITS Directive (Directive 88/220/EEC amending Directive 85/611/EEC)are accepted in tier one only under the following three conditions: First, each issue as such needs tobe awarded a rating (by a rating agency) which indicates, in the view of the Eurosystem, that the
debt instrument meets high credit standards. Second, the debt instruments need to be listed or
quoted on a regulated market as defined according to the Investment Services Directive (Directive93/22/EEC). Third, the debt instruments need to comply with the requirements of the ProspectusDirective (Directive 89/298/EEC).
(
3) Equities issued by credit institutions and debt instruments issued by credit institutions which do not
comply strictly with the criteria set out in Article 22(4) of the UCITS Directive are normally not
eligible for inclusion in tier two lists. However, the ECB may authorise National Central Banks toinclude such assets in their tier two lists subject to certain conditions and restrictions.
(
4) The requirement that the issuing entity must be established in the EEA does not apply to
international and supra-national institutions.
(5) So that realisationis subject to the law of a Member State of the euro area.
(6) Expressed as such or in the national denominations of the euro.
— They must be debt obligations against or equities of (or be
guaranteed by) entities which are deemed to be financially sound
by the National Central Bank which has included the assets in its tier
two list;
— They must be easily accessible to the national central bank which
has included the assets in its tier two list;
— They must be located inthe euro area (so that realisationis subject
to the law of a Member State of the euro area);
— They must be denominated in euro(50);
— They must be issued (or guaranteed) by entities established in the
euro area.
Despite their inclusion in the tier two lists, National Central Banks shall
not accept as underlying assets debt obligations against or equities of the
counterparty, or any other entity with which the counterparty has close
links, as defined according to Article 1(26), of Directive 2000/12/EC
relating to the taking up and pursuit of the business of credit
institutions(51)(52).
Despite their inclusion in the tier two lists, National Central Banks may
decide not to accept as underlying assets the following assets:
— Debt instruments falling due for repayment before the maturity date
of the monetary policy operation for which they are used as
underlying assets(53),
— Debt instruments with an income flow (e.g. a coupon payment)
occurring in the period until the maturity date of the monetary policy
operation for which they are being used as underlying assets;
— Equities with a payment of any kind (including in specie) or with
any other right attached to them which may affect their suitability to
be used as underlying assets for the period until the maturity date of
the monetary policy operation for which they are being used as
underlying assets.
Tier two assets eligible for Eurosystem monetary policy operations may
be used in a cross-border context, implying that a counterparty can
receive funds from the National Central Bank of the Member State in
which the counterparty is established by making use of assets located in
another Member State (see Section 6.6).2000X0776 — EN — 01.01.2001 — 000.001 — 37
(50) Expressed as such or in the national denominations of the euro.
(51) See footnote 44.
(52) This provision does not apply to (i) close links between the counterparty and the public
authorities of EEA countries; (ii) trade bills, for which at least one entity (other than acredit institution) is liable in addition to the counterparty; (iii) debt instruments which
comply strictly with the criteria set out inArticle 22(4) of the UCITS Directive
(Directive 88/220/EEC amending Directive 85/611/EEC); or (iv) cases in which debtinstruments are protected by specific legal safeguards comparable to (iii).
(
53) If the National Central Banks were to allow the use of instruments with a maturity
shorter than the monetary policy operations for which they serve as underlying assets,
counterparties would be required to replace such assets at, or prior to, maturity.
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Tier two assets are eligible for reverse open market transactions and the
marginal lending facility. Tier two assets are not normally used in
Eurosystem outright transactions.
6.4.Risk control measures
Risk control measures are applied to the assets underlying Eurosystem
monetary policy operations in order to protect the Eurosystem against
the riskof financial lossif underlying assets have to be realised owing to
the default of a counterparty. The risk control measures at the disposal
of the Eurosystem are described inBox 7.
6.4.1.Initial margins
The Eurosystem applies initial margins, which correspond to a certain
percentage of the amount of liquidity provided which is to be added to
the requirement for the value of the underlying assets. Two different
initial margins are applied, taking into account the exposure time for the
Eurosystem:
— a margin of 1 % for intraday and overnight transactions; and
— a margin of 2 % for transactions with an original maturity of more
than one business day.
No initial margins are applied in liquidity-absorbing operations.2000X0776 — EN — 01.01.2001 — 000.001 — 38
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6.4.2.Risk control measures for tier one assets
In addition to the initial margins applied to the amount of liquidity
provided, the Eurosystem applies specific risk control measures
according to the types of underlying assets offered by the counterparty.
The appropriate risk control measures for tier one assets are determined
by the ECB, taking into consideration differences in the legal systems of
the Member States. Risk control measures for tier one assets are broadly
harmonised across the euro area(54). The risk control framework for tier
one assets includes the following main elements:
— Individual debt instruments are subject to specific ‘valuation
haircuts’. The haircuts are applied by deducting a certain percentage
from the market value of the underlying asset. The haircuts are
differentiated according to the residual maturity and coupon
structure of the debt instruments as described in Box 8,
— No valuation haircuts are applied in liquidity-absorbing operations,
— Depending on both the jurisdiction and national operational systems,
National Central Banks allow for the pooling of underlying assets
and/or require the earmarking of the assets used in each individual
transaction. In pooling systems, the counterparty makes a pool of
sufficient underlying assets available to the central bank to cover the
related credits received from the central bank, thus implying that
individual assets are not linked to specific credit operations. By
contrast, in an earmarking system, each credit operation is linked to
specific identifiable assets,
— The assets are subject to a daily valuation. On a daily basis, National
Central Banks calculate the required value of underlying assets
taking into account changes to outstanding credit volumes, the
valuation principles outlined in Section 6.5 and the required initial
margins and valuation haircuts,2000X0776 — EN — 01.01.2001 — 000.001 — 39
(54) Owing to operational differences across Member States in respect of the procedures for
counterparties' delivery of underlying assets to the National Central Banks (in the formof a pool of collateral pledged with the National Central Bank or as repurchaseagreements based on individual assets specified for each transaction), minor differencesmay occur with regard to the timing of the valuation and other operational features of
the marginframework.
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— If, after valuation, the underlying assets do not match the
requirements as calculated on that day, symmetric margin calls are
performed. Inorder to reduce the frequen cy of margincalls,
National Central Banks may apply a trigger point. If applied, this
trigger point is 1 % of the amount of liquidity provided. Depending
on the jurisdiction, National Central Banks may require margin calls
either to be effected through the supply of additional assets or by
means of cash payments. This implies that if the market value of the
underlying assets falls below the lower trigger point, counterparties
have to supply additional assets (or cash). Similarly, if the market
value of the underlying assets, following their revaluation, were to
exceed the upper trigger point, the national central bank would
returnexcess assets (or cash) to the coun terparty (see Box 9),
2000X0776 — EN — 01.01.2001 — 000.001 — 40
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— In pooling systems, by definition, counterparties may substitute
underlying assets on a daily basis,
— In earmarking systems, the substitution of underlying assets may be
permitted by National Central Banks,
— The ECB may at any time decide to remove individual debt
instruments from the list of eligible tier one instruments(55).
6.4.3.Risk control measures for tier two assets
The appropriate risk control measures for tier two assets are compiled
by the National Central Bank which has included the asset in its tier two
list. The application of risk control measures by National Central Banks
is subject to ECB approval. The Eurosystem aims at ensuring non-
discriminatory conditions for tier two assets across the euro area when
establishing the appropriate risk control measures. Within this frame-
work, the valuationhaircuts applied to tier two assets reflect the specific
risks associated with these assets and are at least as stringent as the
valuationhaircuts applied to tier on e assets. Tier two assets are
classified in four different haircut groups, reflecting differences in their
intrinsic characteristics and in their liquidity (see Box 10). The risk
control measures are based on interest rate volatility, the level of interest
rates, an assumed liquidation horizon and the relevant maturity of the
asset.
2000X0776 — EN — 01.01.2001 — 000.001 — 41
(55) If, at the time of exclusion from the tier one list, a debt instrument is being used in a
Eurosystem credit operation, it will have to be removed within 20 business days
calculated from the time of exclusionfrom the list.
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1. Equities
2. Marketable debt instruments with limited liquidity
The majority of the tier two assets fall into this category. Although
there may be some differences in the degree of liquidity, the assets
are similar ingen eral inthat they have a small secon dary market,
prices may not be quoted daily and normal size trades can generate
price effects.
3. Debt instruments with restricted liquidity and special
features
These are assets which, while enjoying some aspects of market-
ability, do require extra time to be liquidated inthe market. This is
the case for assets which are generally non-marketable but which
have special features that introduce some marketability, including
market auctionprocedures (if there is a n eed to liquidate the assets)
and a daily price valuation.
4. Non-marketable debt instruments
These instruments are in practice non-marketable and therefore have
little or no liquidity.
The inclusion of tier two assets in one of the aforementioned groups
is proposed by National Central Banks and is subject to the ECB's
approval.2000X0776 — EN — 01.01.2001 — 000.001 — 42
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For tier two assets with interest rate resetting features, in which the
resetting is made in an unequivocal and clear manner following
market standards and subject to the ECB's approval, the relevant
maturity is the one given by the resetting maturity regardless of the
liquidity group inwhich it is in cluded.
The National Central Banks apply the same trigger point (if any) for
the executionof margincalls for tier two assets as that for tier on e
assets. In addition, National Central Banks may apply limits to their
acceptance of tier two assets, they may require additional guarantees
and they may at any time decide to remove individual assets from
their tier two lists.
6.5.Valuation principles for underlying assets
When determining the value of underlying assets used in reverse
transactions, the Eurosystem applies the following principles:
— For each marketable asset eligible intier on e or tier two, the
Eurosystem specifies a single reference market to be used as a price
source. This also implies that for assets listed, quoted or traded on
more than one market, only one of these markets is used as a price
source for the relevant asset,
— For each reference market, the Eurosystem defines the most
representative price to be used for the calculation of market values.
If more than one price is quoted, the lowest of these prices (normally
the bid price) is used,
— The value of marketable assets is calculated onthe basis of the most
representative price on the business day preceding the valuation
date,
— In the absence of a representative price for a particular asset on the
business day preceding the valuation date, the last trading price is
used. If no trading price is available, the National Central Bank will
define a price, taking into account the last price identified for the
asset inthe referen ce market,
— The market value of a debt instrument is calculated including
accrued interest,
— Depending on differences in national legal systems and operational
practices, the treatment of income flows (e.g. coupon payments)
related to anasset which are received durin g the life of a reverse
transaction may differ between National Central Banks. If the
income flow is transferred to the counterparty, National Central
Banks ensure that the relevant operations will still be fully covered
by a sufficient amount of underlying assets before the transfer of the
income takes place. The National Central Banks aim at ensuring that
the economic effect of the treatment of income flows is equivalent to
a situation in which the income is transferred to the counterparty on
the payment day(56),
— For non-marketable tier two assets, the National Central Bank which
has included the assets in its tier two list specifies separate valuation
principles.
6.6.Cross-border use of eligible assets
Eurosystem counterparties may use eligible assets on a cross-border
basis, i.e. they may obtain funds from the National Central Bank of the
Member State inwhich they are established by makin g use of assets
located in another Member State. Underlying assets may be used on a
cross-border basis in the settlement of all types of operations in which
the Eurosystem provides liquidity against eligible assets. A mechanism
has been developed by the National Central Banks (and by the ECB) to
ensure that all eligible assets may be used on a cross-border basis. This
is the correspondent central banking model (CCBM), under which
National Central Banks act as custodians (‘correspondents’) for each
other (an d for the ECB) inrespect of assets accepted intheir local
depository or settlement system. The model may be used for all eligible
assets. Specific solutions may be used for non-marketable assets or tier
two assets with restricted liquidity and special features which cannot be
transferred through an SSS(57). The CCBM may be used to collateralise2000X0776 — EN — 01.01.2001 — 000.001 — 43
(56) National Central Banks may decide not to accept as underlying assets in reverse
transactions debt instruments with an income flow (e.g. a coupon payment) or equities
with a payment of any kind (or with any other right attached to them which may affecttheir suitability as underlying assets) occurring in the period until the maturity date ofthe monetary policy operation (see Sections 6.2 and 6.3).
(
57) Details are provided inthe ‘CCBM brochure’ published onthe ECB's website
(www.ecb.int).
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all kinds of Eurosystem credit operations(58). Inadditionto the CCBM,
eligible links between SSSs can be used for the cross-border transfer of
securities(59).
6.6.1.Correspondent central banking model
The correspondent central banking model (CCBM)is illustrated in Chart
3 below.
CHART 3
The correspondent central banking model
All National Central Banks maintain securities accounts with each other
for the purpose of the cross-border use of eligible assets. The precise
procedure of the CCBM depends on whether the eligible assets are
earmarked for each individual transaction or whether they are held in a
pool of underlying assets(60).
— Inanearmarkin g system, as soonas its bid for credit is accepted by
the National Central Bank of the Member State in which the
counterparty is established (i.e. the ‘home central bank’), the
counterparty instructs (via its own custodian, if necessary) the SSS
inthe coun try inwhich its securities are held to tran sfer them to the
central bank of that country for the account of the home central
bank. Once the home central bank has been informed by the
correspondent central bank that the collateral has been received, it
transfers the funds to the counterparty. Central banks do not advance
funds until they are certain that the counterparties' securities have
been received bythe correspondent central bank. Where necessary to
meet settlement deadlines, counterparties may be able to pre-deposit
assets with correspondent central banks for the account of their
home central bank using the CCBM procedures;
— In a pooling system, the counterparty is at any time able to provide
the correspondent central bank with securities for the account of the
home central bank. Once the home central bank has been informed
by the correspondent central bank that the securities have been2000X0776 — EN — 01.01.2001 — 000.001 — 44
(58) The ECB may authorise National Central Banks to grant intraday credit against certain
types of ‘foreign’ debt instruments (see footnote 47). However, within the euro area,such debt instruments may not be used on a cross-border basis.
(
59) Eligible assets may be used through an account of a central bank in an SSS located in a
country other than that of the central bank in question if the Eurosystem has approved
the use of such account. As of August 2000, the Central Bank of Ireland has beenauthorised to open such an account in Euroclear. This account can be used for alleligible assets held in Euroclear, i.e. including eligible assets transferred to Euroclearthrough eligible links.
(
60) See Section 6.4.1 and the ‘CCBM brochure’ for further explanations.
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received, it will add these securities to the pool account of the
counterparty.
The CCBM is available to counterparties from 9 a.m. ECB time (CET)
on each Eurosystem business day. A counterparty wishing to make use
of the CCBM must advise the National Central Bank from which it
wishes to receive credit — its home central bank — before 4 p.m. ECB
time (CET). Furthermore, the counterparty must ensure that the
collateral in question is delivered to the account of the correspondent
central bank at 4.45 p.m. ECB time (CET) at the latest. Instructions ordeliveries not respecting these deadlines will only be considered for
credit given on the following business day. When the counterparties
foresee a need to use the CCBM late in the day, they should, where
possible, deliver the assets inadvan ce (i.e. pre-deposit the assets). In
exceptional circumstances or when required for monetary policy
purposes, the ECB may decide to extend the closing time of the
CCBM until the closing time of TARGET.
6.6.2.Cross-border links
Inadditionto the CCBM, eligible lin ks betweenEU SSSs canbe used
for the cross-border transfer of securities.
CHART 4
Links between securities settlement systems
A link between two SSSs allows a participant in one SSS to hold
securities issued in another SSS without being a participant of that otherSSS. Before these links can be used to transfer collateral for Eurosystem
credit operations, they have to be assessed and approved against the
standards for the use of EU SSSs(
61)(62).
From a Eurosystem perspective, the CCBM and the cross-border links
between EU SSSs fulfil the same role of allowing counterparties to use
collateral ona cross-border basis. That is to say, both en able
counterparties to use collateral to obtain credit from their home central
bank, even if this collateral was issued in an SSS of another country.
The CCBM and the cross-border links perform this function in different
ways. Inthe CCBM, the cross-border relation ship is betweenthe
National Central Banks. They act as custodians for one another. Using
the links, the cross-border relationship is between the SSSs. They open
omnibus accounts with one another. Assets deposited with a
correspondent central bank can only be used to collateralise Eurosystem
credit operations. Assets held through a link can be used for Eurosystem
credit operations as well as for any other purpose selected by the2000X0776 — EN — 01.01.2001 — 000.001 — 45
(61) The updated list of eligible links can be found on the ECB's website (www.ecb.int).
(62) See the ‘Standards for the use of EU securities settlement systems in ESCB credit
operations’, January 1998.
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counterparty. Using cross-border links, the counterparties hold the assets
on their own account with their home SSS and have no need for a
custodian.
CHAPTER 7
7.MINIMUM RESERVES (63)
7.1.General considerations
The ECB requires credit institutions to hold minimum reserves on
accounts with the National Central Banks within the framework of the
Eurosystem's minimum reserve system. The legal framework for the
Eurosystem's minimum reserve system is laid down in Article 19 of the
Statute of the ESCB, the Council Regulation (EC) concerning the
application of minimum reserves by the European Central Bank and the
ECB Regulationonmin imum reserves. The applicationof the ECB
Regulation on minimum reserves ensures that the terms and conditions
of the Eurosystem's minimum reserve system are uniform throughout
the euro area.
The amount of minimum reserves to be held by each institution is
determined in relation to its reserve base. The Eurosystem's minimum
reserve system enables counterparties to make use of averaging
provisions, implying that compliance with reserve requirements is
determined on the basis of the average of the end-of-calendar-day
balances on the counterparties' reserve accounts over a one-month
maintenance period. Institutions' holdings of required reserves are
remunerated at the rate of the Eurosystem's main refinancing operations.
The Eurosystem's minimum reserve system primarily pursues the
following monetary functions:
—Stabilisation of money market interest rates
The averaging provision of the Eurosystem's minimum reserve
system aims to contribute to the stabilisation of money market
interest rates by giving institutions an incentive to smooth the effects
of temporary liquidity fluctuations.
—Creation or enlargement of a structural liquidity shortage
The Eurosystem'sminimum reserve system contributes to creating or
enlarging a structural liquidity shortage. This may be helpful in
order to improve the ability of the Eurosystem to operate efficiently
as a supplier of liquidity.
In the application of minimum reserves, the ECB is bound to act in
pursuance of the objectives of the Eurosystem as defined in Article
105(1) of the Treaty and Article 2 of the Statute of the ESCB, which
implies,inter alia , the principle of not inducing significant undesirable
delocation or disintermediation.
7.2.Institutions subject to minimum reserves
Pursuant to Article 19.1 of the Statute of the ESCB, the ECB requires
credit institutions established in Member States to hold minimum
reserves. This implies that branches in the euro area of entities with no
registered office inthe euro area are also subject to the Eurosystem's
minimum reserve system. However, branches located outside the euroarea of credit institutions established in the euro area are not subject to
the Eurosystem's minimum reserve system.
The ECB may exempt institutions under winding-up or reorganisation
from their obligations under the Eurosystem's minimum reserve system.
According to the Council Regulation (EC) concerning the application of
minimum reserves by the European Central Bank and the ECB
Regulationonmin imum reserves, the ECB may also exempt classes
of other institutions from their obligations under the Eurosystem's
minimum reserve system on a nondiscriminatory basis if the purposes of
the Eurosystem's minimum reserve system would not be met by
imposing them on those particular institutions. In its decision on any
such exemption, the ECB takes into account one or more of the
following criteria:
— the institution is pursuing special purpose functions,2000X0776 — EN — 01.01.2001 — 000.001 — 46
(63) The relevant legal framework for the ECB to apply minimum reserves is to be found in
Regulations (EC) No 2531/98 and (EC) No 2818/98 on the application of minimumreserves (ECB/1998/15). The content of this chapter is provided only for information
purposes.
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— the institution is not exercising active banking functions in
competition with other credit institutions,
— the institution has all its deposits earmarked for purposes related to
regional and/or international development assistance.
The ECB establishes and maintains a list of institutions subject to the
Eurosystem's minimum reserve system. The ECB also makes public a
list of any institutions exempt from their obligations under the
Eurosystem's minimum reserve system for reasons other than their
being subject to reorganisation measures(64). Counterparties may rely on
these lists in deciding whether their liabilities are owed to another
institution that is itself subject to reserve requirements. The lists
available to the public onthe last Eurosystem busin ess day of each
calendar month are valid for the calculation of the reserve base for the
subsequent maintenance period.
7.3.Determination of minimum reserves
a )R e s e r v eb a s ea ndr e s e r v er a t i o s
The reserve base of an institution is defined in relation to elements of
its balance sheet. The balance sheet data are reported to the National
Central Banks within the general framework of the ECB's money and
banking statistics (see Section 7.5)(65). For institutions subject to full
reporting requirements, the balance sheet data referring to the end of
a given calendar month are used to determine the reserve base for the
maintenance period starting during the following calendar month.
The reporting framework for the ECB's money and banking statistics
includes the possibility to relieve small institutions of some of the
reporting burden. Institutions to which this provision applies only
need to report a limited set of balance sheet data on a quarterly basis
(asend-of-quarter data) and with a reporting deadline which is longer
than that set for larger institutions. For these institutions, the balance
sheet data reported for a specific quarter are used to determine, with
a lag of one month, the reserve base for the consecutive three one-
month reserve maintenance periods.
According to the Council Regulation concerning the application of
minimum reserves by the European Central Bank, the ECB is
entitled to include liabilities resulting from the acceptance of funds
together with liabilities resulting from off-balance-sheet items in the
reserve base of institutions. In the Eurosystem's minimum reserve
system, only the liability categories ‘deposits’, ‘debt securities
issued’ and ‘money market paper’ are actually included in the
reserve base (see Box 11).
Liabilities vis-à-vis other institutions included in the list of
institutions subject to the Eurosystem's minimum reserve system
and liabilities vis-à-vis the ECB and the National Central Banks are
not included in the reserve base. In this respect, for the liability
categories ‘debt securities issued’ and ‘money market paper’, the
issuer needs to be able to prove the actual amount of these
instruments held by other institutions subject to the Eurosystem's
minimum reserve system in order to be entitled to deduct them from
the reserve base. If such proof cannot be presented, issuers may
apply standardised deductions of a fixed percentage(66) to each of
these balance sheet items.
The reserve ratios are determined by the ECB subject to the
maximum limit specified in the Council Regulation (EC) concerning
the application of minimum reserves by the European Central Bank.
The ECB applies a uniform non-zero reserve ratio to most of the
items included in the reserve base. This reserve ratio is specified in
the ECB Regulationonmin imum reserves. The ECB sets a zero
reserve ratio onthe followin g liability categories: ‘deposits with
agreed maturity over 2 years’, ‘deposits redeemable at notice over 2
years’, ‘repos’ and ‘debt securities with an agreed maturity over 2
years’ (see Box 11). The ECB may at any time change the reserve
ratios. Changes in reserve ratios are announced by the ECB in2000X0776 — EN — 01.01.2001 — 000.001 — 47
(64) The lists are available to the public onthe ECB's website (www.ecb.in t).
(65) The reporting framework for the ECB's money and banking statistics is presented in
Annex 4.
(66) See ECB Regulation(EC) No 2819/98 (ECB/1998/15) onthe applicationof min imum
reserves. Further information relating to the standardised deduction ratio can be foundon the ECB's website (www.ecb.int). Information can also be found on the websites of
the National Central Banks (see Annex 5).
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advance of the first maintenance period for which the change is
effective.
b) Calculationof reserve requiremen ts
The reserve requirement of each individual institution is calculated
byapplying, to the amount of eligible liabilities, the reserve ratios for
the corresponding categories of liabilities.
Each institution deducts a uniform lump-sum allowance from its
reserve requiremen t ineach Member State inwhich it has an
establishment. The size of the lump-sum allowance is specified in the
ECB Regulation on minimum reserves. The granting of such an
allowance shall be without prejudice to the legal obligations of
institutions subject to the Eurosystem's minimum reserve system(67).2000X0776 — EN — 01.01.2001 — 000.001 — 48
(67) For institutions allowed to report statistical data as a group on a consolidated basis
according to the provisions of the reporting framework for the ECB's money and
banking statistics (see Annex 4), only one such allowance will be granted to the group asa whole, unless the institutions provide data on the reserve base and reserve holdings ina sufficiently detailed manner to enable the Eurosystem to verify their accuracy andquality and to determine the respective reserve requirement of each individual
institution included in the group.
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The reserve requirement for each maintenance period is rounded to
the nearest euro.
7.4.Maintenance of reserve holdings
a) Maintenance period
The maintenance period is one month, starting on the 24th calendar
day of each month and ending on the 23rd calendar day of the
following month.
b) Reserve holdings
Each institution must hold its minimum reserves on one or more
reserve accounts with the national central bank in the Member State
in which it is established. For institutions with more than one
establishment in a Member State, the head office is responsible for
fulfilling the aggregate minimum reserves of all the domestic
establishments of the institution(68). Anin stitutionwith establish-
ments in more than one Member State is required to hold minimum
reserves with the National Central Bank of each Member State in
which it has anestablishmen t, inrelationto its reserve base inthe
corresponding Member State.
Institutions' settlement accounts with the National Central Banks
may be used as reserve accounts. Reserve holdings held on
settlement accounts may be used for intraday settlement purposes.
The daily reserve holding of an institution is calculated as the end-of-
day balance on its reserve account.
An institution may apply to the National Central Bank in the
Member State in which the institution is resident for permission to
hold all its minimum reserves indirectly through an intermediary.
The possibility of holding minimum reserves through an inter-
mediary is as a rule restricted to institutions which are constituted so
that part of the administration (e.g. treasury management) is
normally effected by the intermediary (e.g. networks of savings
banks and cooperative banks may centralise their reserve holdings).
The holding of minimum reserves through an intermediary is subject
to the provisions specified in the ECB Regulation on minimum
reserves.
c) Remuneration of reserve holdings
Holdings of required reserves are remunerated at the average, over
the maintenance period, of the ECB's rate (weighted according to the
number of calendar days) on the main refinancing operations,
calculated using the formula specified in Box 12. Reserve holdings
exceeding the required reserves are not remunerated. The remunera-
tion is paid on the second NCB business day following the end of the
maintenance period over which the remuneration was earned.2000X0776 — EN — 01.01.2001 — 000.001 — 49
(68) If an institution has no head office in a Member State in which it is established, it has to
designate a principal branch which would then be responsible for fulfilling the aggregateminimum reserves of all the establishments of the institution in the relevant Member
State.
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7.5.Reporting and verification of the reserve base
The reserve base items for the applicationof min imum reserves are
calculated by the institutions subject to minimum reserves themselves
and are reported to the National Central Banks within the general
framework of the ECB's money and banking statistics see Annex 4).
Article 5 of ECB Regulation(EC) No 2818/98 (ECB/1998/15) defin es
procedures forthe confirmation and, in exceptional cases, the revision of
the reserve base and the reserve requirement of the institution.
For institutions that are allowed to act as intermediaries for indirect
reserve holdings of other institutions, special reporting requirements are
specified in the ECB Regulation on minimum reserves. The holding of
reserves through an intermediary does not change the statistical
reporting obligations of institutions holding reserves via an inter-
mediary.
The ECB and the National Central Banks have the right, within the
scope of the Council Regulation (EC) concerning the application of
minimum reserves by the European Central Bank, to verify the accuracy
and quality of collected data.
7.6.Non-compliance with minimum reserve obligations
Non-compliance with the minimum reserve obligations arises if an
institution's average end-of-calendar-day balance on its reserve
account(s) over the maintenance period is less than its reserve
requirement for the corresponding maintenance period.
Where anin stitutionfails to comply with all or part of the reserve
requirement, the ECB may, in accordance with the Council Regulation
(EC) concerning the application of minimum reserves by the European
Central Bank, impose any one of the following sanctions:
— a payment of up to 5 percentage points above the marginal lending
rate, applied to the amount of the reserve requirement which the
relevant institution failed to provide, or
— a payment of up to two times the marginal lending rate, applied to
the amount of the reserve requirement which the relevant institution
failed to provide, or
— the requirement for the relevant institution to establish non-interest-
bearing deposits with the ECB or the National Central Banks up to
three times the amount of the reserve requirement which the relevant
institution failed to provide. The maturity of the deposit may not
exceed the period during which the institution failed to comply with
the reserve requirement.
Where an institution fails to comply with other obligations under ECB
Regulations and Decisions related to the Eurosystem's minimum reserve
system (e.g. if relevant data are not transmitted in time or are not
accurate), the ECB is empowered to impose sanctions in accordance2000X0776 — EN — 01.01.2001 — 000.001 — 50
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with Regulation (EC) No 2532/98 concerning the powers of the
European Central Bank to impose sanctions and the ECB Regulation of
23 September 1999 on the powers of the ECB to impose sanctions
(ECB/1999/4). The Executive Board of the ECB may specify and
publish the criteria according to which it will apply the sanctions
provided for inArticle 7(1) of Coun cil Regulation(EC) No 2531/98 on
the applicationof min imum reserves by the ECB(69).
In addition, in the case of serious infringements of the minimum reserve
requirements, the Eurosystem may suspend counterparties from
participationinopenmarket operation s.2000X0776 — EN — 01.01.2001 — 000.001 — 51
(69) Such criteria were published ina n otice inthe Official Journal of the European
Communities on 11 February 2000 entitled ‘Notice of the European Central Bank on the
imposition of sanctions for breaches of the obligation to hold minimum reserves’.
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ANNEXES
Annex I
Examples of monetary policy operations and procedures
List of examples
1. Liquidity-providing reverse transaction by fixed rate tender
2. Liquidity-providing reverse transaction by variable rate tender
3. Issuance of ECB debt certificates by variable rate tender
4. Liquidity-absorbing foreign exchange swap by variable rate tender5. Liquidity-providing foreign exchange swap by variable rate tender6. Risk control measures
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Annex 2
Glossary
Actual/360: the day-count convention applied for the calculation of interest on a
credit, implying that the interest is calculated over the actual number of calendar
days over which the credit is extended, on the basis of a 360-day year. This day-
count convention is applied in Eurosystem monetary policy operations.
American auction: see multiple rate auction.
Averaging provision: a provision allowing counterparties to fulfil their reserve
requirements on the basis of their average reserve holdings over the maintenance
period. The averaging provision contributes to the stabilisation of money market
interest rates by giving institutions an incentive to smooth the effects of
temporary liquidity fluctuations. The Eurosystem's minimum reserve system
allows for averaging.
Bilateral procedure: a procedure whereby the central bank deals directly with
only one or a few counterparties, without making use of tender procedures.
Bilateral procedures include operations executed through stock exchanges or
market agents.
Book-entry system: an accounting system that permits the transfer of claims (e.g.
securities and other financial assets) without the physical movement of paper
documents or certificates. See also dematerialisation.
Central securities depository (CSD): a facility for holding securities which
enables securities transactions to be processed by book entry. Physical securities
may be immobilised by the depository or securities may be dematerialised (i.e. so
that they exist only as electronic records). In addition to safe keeping, a CSD may
incorporate comparison, clearing and settlement functions.
Close links: Article 1(No 26), of Directive 2000/12/EC of the European
Parliament and of the Council of 20 March 2000 relating to the taking up and
pursuit of the business of credit institutions states that ‘Close links shall mean a
situation in which two or more natural or legal persons are linked by: (a)
participation, which shall mean the ownership, direct or by way of control, of
20 % or more of the voting rights or capital of an undertaking, or (b) control,
which shall mean the relationship between a parent undertaking and a subsidiary,
inall the cases referred to inArticle 1(1) an d (2) of Coun cil Directive 83/349/
EEC (OJ L 193, 18.7.1983, p. 1), or a similar relationship between any natural or
legal person and an undertaking; any subsidiary undertaking of a subsidiary
undertaking shall also be considered a subsidiary undertaking of the parent
undertaking which is at the head of those undertakings. A situation in which two
or more natural or legal persons are permanently linked to one and the same
person by a control relationship shall also be regarded as constituting a close link
betweensuch person s’.
Collection of fixed-term deposits: a monetary policy instrument that may be used
by the Eurosystem for fine-tuning purposes where the Eurosystem offers
remuneration on counterparties' fixed-term deposits on accounts with the National
Central Banks in order to absorb liquidity from the market.
Correspondent banking: an arrangement under which one bank provides payment
and other services to another bank. Payments through correspondents are often
executed through reciprocal accounts (socalled nostro and loro accounts), to
which standing credit lines may be attached. Correspondent banking services are
primarily provided across international boundaries.
Correspondent central banking model (CCBM): a model established by the ESCB
with the aim of enabling counterparties to use underlying assets in a cross-border
context. In the CCBM, National Central Banks act as custodians for each other.
This implies that each National Central Bank has a securities account in its
securities administration for each of the other National Central Banks (and for the
ECB). The Eurosystem may apply specific solutions for the cross-border use of
nonmarketable assets.
Counterparty: the opposite party in a financial transaction (e.g. in a transaction
with the central bank).
Credit institution: refers in this document to an institution covered by the
definition contained in Article 1(1) of Directive 2000/12/EC of the European
Parliament and of the Council of 20 March 2000 relating to the taking up and
pursuit of the businessof credit institutions, i.e. ‘an undertaking whose businessis
to receive deposits or other repayable funds from the public and to grant credit for
its ownaccoun t’.
Custodian: an institution that undertakes the safe keeping and administration of
securities and other financial assets on behalf of others.2000X0776 — EN — 01.01.2001 — 000.001 — 63
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Day-count convention: the convention regulating the number of days included in
the calculation of interest on credits. The Eurosystem applies the day-count
convention actual/360 in its monetary policy operations.
Delivery versus payment (DVP) system: a mechanism in an exchange-for-value
settlement system that ensures that the final transfer of an asset occurs if and only
if the final transfer of another (other) asset(s) occurs.
Dematerialisation: the elimination of physical certificates or documents of title
which represent ownership of financial assets so that the financial assets exist
only as accounting records.
Deposit facility: a standing facility of the Eurosystem which counterparties may
use to make overnight deposits remunerated at a pre-specified interest rate.
Depository: an agent with the primary role of recording securities either
physically or electronically and keeping records of the ownership of the
securities.
Dutch auction: see single rate auction.Earmarking system: a system for central banks' collateral management where
liquidity is provided against assets earmarked for each individual transaction.
ECB time: the time at the place inwhich the ECB is located.EEA (European Economic Area) countries: the EU Member States and Iceland,
Liechtenstein and Norway.
End-of-day: the time of the business day (after the TARGET system has closed)
at which the payments processed in the TARGET system are finalised for the day.
Equity price risk: the risk of loss due to movements in equity prices. The
Eurosystem is exposed to equity price risk in its monetary policy operations to the
extent that equities are considered to be eligible as tier two assets.
Euro area: the area covering those EU Member States which have adopted the
euro as their single currency in accordance with the Treaty.
European System of Central Banks (ESCB): refers to the European Central Bank
(ECB) and the National Central Banks of the EU Member States. (It should be
noted that national central banks of Member States which have not adopted the
single currency in accordance with the Treaty retain their powers in the field of
monetary policy according to national law and are thus not involved in the
conduct of the monetary policy of the Eurosystem.)
Eurosystem: the National Central Banks of the Member States which have
adopted the single currency in accordance with the Treaty and the ECB.
Eurosystem business day: any day on which the ECB and at least one National
Central Bank are open for the purpose of conducting Eurosystem monetary policy
operations.
Final transfer: an irrevocable and unconditional transfer which effects a discharge
of the obligationto make the tran sfer.
Fine-tuning operation: a non-regular open market operation executed by the
Eurosystem mainly in order to deal with unexpected liquidity fluctuations in the
market.
Fixed rate instrument: a financial instrument for which the coupon is fixed
throughout the life of the instrument.
Fixed rate tender: a tender procedure where the interest rate is specified in
advance by the central bank and participating counterparties bid the amount of
money they want to transact at the fixed interest rate.
Floating rate instrument: a financial instrument for which the coupon is
periodically reset relative to a reference index to reflect changes in short or
medium-term market interest rates. Floating rate instruments have either pre-fixed
coupons or post-fixed coupons.
Foreign exchange swap: simultaneous spot and forward transactions of one
currency against another. The Eurosystem executes open market monetary policy
operations in the form of foreign exchange swaps where the National Central
Banks (or the ECB) buy (or sell) euro spot against a foreign currency and at the
same time sell (or buy) it back forward.
Haircut: see valuationhaircut.Initial margin: a riskcontrol measure applied in reverse transactions implying that
the collateral required for a transaction is equal to the credit extended to the
counterparty plus the value of the initial margin. The Eurosystem applies initial
margins differentiated according to the Eurosystem's exposure time to the
counterparty for a given transaction.
International Securities Identification Number (ISIN): an international identifica-
tion code assigned to securities issued in financial markets.2000X0776 — EN — 01.01.2001 — 000.001 — 64
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Intraday credit: the credit extended and reimbursed within a period of less than
one business day. The ESCB extends intraday credit (based on underlying assets)
to eligible counterparties for payment systems purposes.
Inverse floating rate instrument: a structured note security where the rate of
interest paid to the noteholder varies inversely with changes in a certain reference
interest rate.
Issuer: the entity which is obligated on a security or other financial instrument.Link: a link consists of all the procedures and arrangements between two
securities settlement systems (SSSs) for the transfer of securities between the two
involved SSSs through a book-entry process.
Longer-term refinancing operation: a regular open market operation executed by
the Eurosystem in the form of a reverse transaction. Longer-term refinancing
operations are executed through monthly standard tenders and have a maturity of
three months.
Lump-sum allowance: a fixed amount which an institution deducts in the
calculation of its reserve requirement in the Eurosystem's minimum reserve
system.
Main refinancing operation: a regular open market operation executed by the
Eurosystem in the form of a reverse transaction. Main refinancing operations are
conducted through weekly standard tenders and have a maturity of two weeks.
Maintenance period: the period over which compliance with reserve requirements
is calculated. The maintenance period for Eurosystem minimum reserves would
be one month, starting on a fixed day of each month (e.g. the maintenance period
may start on the 24th calendar day of each month and end on the 23rd calendar
day of the following month).
Margin call: a procedure related to the application of variation margins, implying
that if the value, as regularly measured, of the underlying assets falls below a
certain level, central banks may require counterparties to supply additional assets
(or cash). Similarly, if the value of the underlying assets, following their
revaluation, were to exceed the amount owed by the counterparties plus the
variation margin, the central bank returns excess assets (or cash) to the
counterparty.
Marginal interest rate: the interest rate at which the total tender allotment is
exhausted.
Marginal lending facility: a standing facility of the Eurosystem which counter-
parties may use to receive overnight credit against a pre-specified interest rate.
Marginal swap point quotation: the swap point quotation at which the total tender
allotment is exhausted.
Marking to market: see variation margin.Maturity date: the date onwhich a mon etary policy operationexpires. Inthe case
of a repurchase agreement or swap, the maturity date corresponds to the
repurchase date.
Maximum bid limit: the limit onthe largest acceptable bid from anin dividual
counterparty in a tender operation. The Eurosystem may impose maximum bid
limits in order to avoid disproportionately large bids from individual counter-
parties.
Maximum bid rate: the upper limit to the interest rate at which counterparties may
submit bids invariable rate ten ders. Bids at a rate above a maximum bid rate
announced by the ECB are discarded.
Member State: refers inthis documen t to anEU Member State which has adopted
the single currency in accordance with the Treaty.
Minimum allotment amount: the lower limit, expressed in percentage terms, of
the ratio of bids at the marginal interest rate to be allotted in a tender operation.
The Eurosystem may decide to apply a minimum ratio in its tender operations.
Minimum allotment ratio: the lower limit, expressed in percentage terms, of the
ratio of bids at the marginal interest rate to be allotted in a tender operation. The
Eurosystem may decide to apply a minimum ratio in its tender operations.
Minimum bid rate: the lower limit to the interest rates at which counterparties
may submit bids in variable rate tenders. Bids at a rate below a minimum bid rate
announced by the ECB are discarded.
Monetary Financial Institution (MFI): a credit institution or other financial
institution, the business of which is to receive deposits and/or close substitutes for
deposits from the public and which, for its own account (at least in economic
terms), grants credit and/or makes investments in securities.
Multiple rate auction(Americanauction ): anauctionat which the allotmen t
interest rate (or price/swap point) equals the interest rate offered in each
individual bid.2000X0776 — EN — 01.01.2001 — 000.001 — 65
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National Central Bank (NCB): refers in this document to a central bank of an EU
Member State which has adopted the single currency in accordance with the
Treaty.
NCB business day: any day on which the National Central Bank of a specific
Member State is open for the purpose of conducting Eurosystem monetary policy
operations. In some Member States branches of the National Central Bank may be
closed on NCB business days owing to local or regional bank holidays. In such
cases, the relevant National Central Bank is responsible for informing the
counterparties in advance of the arrangements to be made for transactions
involving those branches.
Open market operation: an operation executed on the initiative of the central bank
in the financial markets involving one of the following transactions: 1) buying or
selling assets outright (spot or forward); 2) buying or selling assets under a
repurchase agreement; 3) lending or borrowing against underlying assets as
collateral; 4) the issuance of central bank debt certificates; or 5) the collection of
deposits.
Outright transaction: a transaction where the central bank buys or sells assets
outright inthe market (spot or forward).
Pooling system: a system for central banks' collateral management where the
counterparties provide a pool of assets to serve as collateral in their transactions
with the central bank. By contrast with an earmarking system, the underlying
assets are not earmarked for individual transactions in a pooling system.
Post-fixed coupon: a coupon on floating rate instruments which is determined on
the basis of the values taken by the reference index at a certain date (certain
dates) during the coupon accrual period.
Pre-fixed coupon: a coupon on floating rate instruments which is determined on
the basis of the values taken by the reference index at a certain date (certain
dates) before the start of the couponaccrual period.
Purchase date: the date onwhich the sale of purchased assets by the seller to the
buyer becomes effective.
Purchase price: the price at which purchased assets are sold or are to be sold to
the buyer by the seller.
Quick tender: the tender procedure used by the Eurosystem for fine-tuning
operations when it is deemed desirable to have a rapid impact on the liquidity
situation in the market. Quick tenders are executed within a time frame of one
hour and are restricted to a limited set of counterparties.
Repo operation: a liquidity-providing reverse transaction based on a repurchase
agreement.
Repurchase agreement: an arrangement whereby an asset is sold while the seller
simultaneously obtains the right and obligation to repurchase it at a specific price
ona future date or ondeman d. Such anagreemen t is similar to collateralised
borrowing, with the exception that ownership of the securities is not retained by
the seller. The Eurosystem usesrepurchase agreements with a fixed maturity in its
reverse transactions.
Repurchase date: the date onwhich the buyer is obliged to sell back assets to the
seller in relation to a transaction under a repurchase agreement.
Repurchase price: the price at which the buyer is obliged to sell back assets to the
seller in relation to a transaction under a repurchase agreement. The repurchase
price equals the sumof the purchase price and the price differential corresponding
to the interest on the extended liquidity over the maturity of the operation.
Reserve account: an account with the National Central Bank on which a
counterparty's reserve holdings are maintained. The counterparties' settlement
accounts with the National Central Banks may be used as reserve accounts.
Reserve base: the sum of the eligible balance sheet items (in particular liabilities)
which constitute the basis forcalculating the reserve requirement of an institution.
Reserve holdings: counterparties' holdings on their reserve accounts which serve
to fulfil reserve requirements.
Reserve ratio: the ratio defined by the central bank for each category of eligible
balance sheet items included in the reserve base. The ratios are used to calculate
reserve requirements.
Reserve requirement: the requirement for institutions to hold minimum reserves
with the central bank. In the Eurosystem's minimum reserve system, the reserve
requirement of an institution is calculated by multiplying the reserve ratio for
each category of items inthe reserve base with the amoun t of those items inthe
institution's balance sheet. In addition, institutions are allowed to deduct a lump-
sum allowance from their reserve requirement.
Reverse transaction: an operation whereby the National Central Bank buys or
sells assets under a repurchase agreement or conducts credit operations against
collateral.2000X0776 — EN — 01.01.2001 — 000.001 — 66
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RTGS (real-time gross settlement) system: a settlement system in which
processing and settlement take place on an order-by-order basis (without netting)
in real time (continuously). See also TARGET system.
Safe custody account: a securities account managed by the central bank on which
credit institutions can place securities deemed suitable to back central bank
operations.
Settlement account: an account held by a direct participant in the national RTGS
system with the central bank for the purpose of processing payments.
Settlement date: the date on which a transaction is settled. The settlement might
take place on the same day as the trade (same-day settlement) or can occur one or
several days after the trade (the settlement date is specified as the trade date (T) +
the settlement lag).
Single rate auction (Dutch auction): an auction at which the allotment interest rate
(or price/swap point) applied for all satisfied bids is equal to the marginal interest
rate.
Solvency risk: the risk of loss due to the failure (bankruptcy) of an issuer of a
financial asset or due to the insolvency of the counterparty.
Standard tender: a tender procedure used by the Eurosystem in its regular open
market operations. Standard tenders are carried out within a time frame of 24
hours. All counterparties fulfilling the general eligibility criteria are entitled to
submit bids in standard tenders.
Standardised deduction: the fixed percentage of the outstanding amount of debt
securities with an agreed maturity up to two years and of money market paper
which can be deducted from the reserve base by the issuers which cannot present
evidence that such outstanding amount is held by other institutions subject to the
minimum reserve system of the Eurosystem, by the ECB or by a National Central
Bank.
Standing facility: a central bank facility available to counterparties at their own
initiative. The Eurosystem offers two overnight standing facilities: the marginal
lending facility and the deposit facility.
Start date: the date onwhich the first leg of a mon etary policy operationis settled.
The start date corresponds to the purchase date for operations based on
repurchase agreements and foreign exchange swaps.
Strip (separate trading of interest and principal): a zero coupon bond created in
order to trade separately the claims onparticular cash flows of a security an d the
principal of the same instrument.
Structural operation: an open market operation executed by the Eurosystem
mainly in order to adjust the structural liquidity position of the financial sector
vis-à-vis the Eurosystem.
Swap point: the difference between the exchange rate of the forward transaction
and the exchange rate of the spot transaction in a foreign exchange swap.
TARGET (Trans-European Automated Real-time Gross settlement Express
Transfer) system: a payment system consisting of one RTGS (real-time gross
settlement) system in each of the Member States participating in the euro area at
the start of Stage Three of Economic and Monetary Union. The national RTGS
systems will be interconnected via the Interlinking mechanism so as to enable
same-day cross-border transfers throughout the euro area. RTGS systems of non-
euro area EU Member States may also be connected to TARGET, provided that
they are able to process euro.
Tender procedure: a procedure in which the central bank provides liquidity to or
withdraws liquidity from the market onthe basis of bids submitted by
counterparties in competition with each other. The most competitive bids are
satisfied with priority until the total amount of liquidity to be provided or
withdrawn by the central bank is exhausted.
Tier one asset: a marketable asset fulfilling certain uniform euro area-wide
eligibility criteria specified by the ECB. Among these criteria are the
requirements that it must be denominated in euro, be issued (or guaranteed) by
entities located in EEA countries, and be located in a National Central Bank or
CSD of the euro area.
Tier two asset: a marketable or non-marketable asset for which specific eligibility
criteria are established by the Ntional Cntral Banks, subject to ECB approval.
Trade date (T): the date on which a trade (i.e. an agreement on a financial
transaction between two counterparties) is struck. The trade date might coincide
with the settlement date for the transaction (same-day settlement) or precede the
settlement date by a specified number of business days (the settlement date is
specified as T + the settlement lag).
Treaty: the Treaty establishing the European Community (or EC Treaty). It
comprises the original EEC Treaty (Treaties of Rome) as amended.2000X0776 — EN — 01.01.2001 — 000.001 — 67
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Trigger point: a pre-specified level of the value of the liquidity provided at which
a margincall is executed.
Valuation date: the date on which the assets underlying credit operations are
valued.
Valuation haircut: a risk control measure applied to underlying assets used in
reverse transactions, implying that the central bank calculates the value of
underlying assets as the market value of the asset reduced by a certain percentage
(haircut). The Eurosystem applies valuationhaircuts reflectin g features of the
specific assets, such as the residual maturity.
Variable rate tender: a tender procedure whereby the counterparties bid both the
amount of money they want to transact with the central bank and the interest rate
at which they want to enter into the transaction.
Variationmargin(or markin g to market): the Eurosystem requires that a specified
margin be maintained over time on the underlying assets used in its liquidity-
providing reverse transactions. This implies that if the regularly measured market
value of the underlying assets falls below a certain level, counterparties have to
supply additional assets (or cash). Similarly, if the market value of the underlying
assets, following their revaluation, were to exceed the amount owed by a
counterparty plus the variation margin, the central bank would return excess
assets (or cash) to the counterparty.
Volume tender: see fixed rate tender.
Zero coupon bond: a security paying only one cash flow during its life. For the
purpose of this document, zero coupon bonds include securities issued at a
discount and securities which deliver a single coupon at maturity. A strip is a
special type of zero couponbon d.2000X0776 — EN — 01.01.2001 — 000.001 — 68
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Annex 3
Selection of counterparties for foreign exchange intervention operations and
foreign exchange swaps for monetary policy purposes
The selection of counterparties for foreign exchange intervention operations and
foreign exchange swaps for monetary policy purposes will follow a uniform
approach irrespective of the chosen organisational set-up for the Eurosystem's
external operations. Such a policy will not entail a substantial departure from
existing market standards, as it will be derived by harmonising the NationalCentral Banks' current best practices. The selection of counterparties to
Eurosystem foreign exchange intervention operations will be based, primarily,
ontwo sets of criteria.
The first set of criteria is inspired by the principle of prudence. A first prudential
criterion is creditworthiness, which will be assessed using a combination of
different methods (e.g. using credit ratings available from commercial agencies
and the in-house analysis of capital and other business ratios); a second criterion
is that the Eurosystem will require all its potential foreign exchange intervention
counterparties to be subject to supervision by a recognised supervisor; and, as a
third criterion, all the Eurosystem's foreign exchange intervention counterparties
will need to follow high ethical standards and have a good reputation.
Once the minimum prudence requirement is fulfilled, the second set of criteria
inspired by efficiency considerations will be applied. A first efficiency criterion
relates to competitive pricing behaviour and the counterparty's ability to handle
large volumes, even in turbulent market conditions. The quality and coverage of
information provided by counterparties feature among other efficiency criteria.
The pool of potential foreign exchange intervention counterparties will be
sufficiently large and diverse to guarantee the necessary flexibility when
implementing intervention operations. It will enable the Eurosystem to choose
from among different intervention channels. In order to be able to intervene
efficiently in different geographical locations and time zones, the Eurosystem will
be able to use counterparties in any international financial centre. However, in
practice, it is likely that a substantial share of the counterparties will be located in
the euro area. For foreign exchange swaps executed for monetary policy
purposes, only counterparties located in the euro area will be used.
The National Central Banks may apply limit-based systems in order to control
credit exposures vis-à-vis individual counterparties in foreign exchange swaps
conducted for monetary policy purposes.2000X0776 — EN — 01.01.2001 — 000.001 — 69
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Annex 4
The reporting framework for the money and banking statistics of the
European Central Bank (1)
1.Introduction
Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the
collectionof statistical in formationby the ECB (OJ L 318, 27.11.1998, p. 8)
defines the natural and legal persons which are subject to reporting
requirements (the socalled reference reporting population), the confidentiality
regime and the appropriate provisions for enforcement in accordance with
Article 5(4) of the Statute of the European System of Central Banks and of the
European Central Bank (the ‘Statute’). Furthermore, it entitles the ECB to use
its regulatory power.
— to specify the actual reporting population;
— to define the ECB's statistical reporting requirements and impose them on
the actual reporting population of participating Member States;
— to specify the conditions under which the ECB and the national central
banks (NCBs) may exercise the right to verify or to carry out the
compulsory collection of statistical information.
2.General considerations
The purpose of Regulation (EC) No 2819/98 of the European Central Bank of
1 December 1998 concerning the consolidated balance sheet of the monetary
financial institutions sector (ECB/1998/16) is to enable the ECB and, in
accordance with Article 5(2) of the Statute, NCBs — which carry out the work
to the extent possible — to collect the statistical material required for the
fulfilment of the tasks of the European System of Central Banks (ESCB) and,
in particular, its task to define and implement the monetary policy of the
Community in accordance with Article 105(2), first indent, of the Treaty
establishing the European Community (the ‘Treaty’). The statistical informa-
tioncollected inaccordan ce with ECB RegulationNo ECB/1998/16 is used to
establish the consolidated balance sheet of the MFI sector, the principal aim of
which is to provide the ECB with a comprehensive statistical picture of
monetary developments covering the aggregated financial assets and liabilities
of MFIs located in the participating Member States, which are viewed as one
economic territory.
For statistical purposes the ECB's reporting requirements in the context of the
consolidated balance sheet of the MFI sector are based on three main
considerations.
First, the ECB must receive comparable, reliable and up-to-date statistical
information which is collected under comparable terms and conditions
throughout the euro area. Although the data are collected ina decen tralised
way by NCBs in accordance with Article 5(1) and 5(2) of the Statute and, as
far as necessary, in combination with further statistical requirements for
Community or national purposes, a sufficient degree of harmonisation and
compliance with minimum reporting standards is required in view of the need
to establish a reliable statistical basis for the definition and conduct of the
single monetary policy.
Second, the reporting obligations set out in ECB Regulation (EC) No 2819/98
(ECB/1998/16) must observe the principles of transparency and legal
certainty. The reason for this is that ECB Regulation (EC) No 2819/98
(ECB/1998/16) is binding in its entirety and directly applicable throughout the
euro area. It imposes obligations directly on natural and legal persons on
which the ECB may impose sanctions whenever the ECB's reporting
requirements are not fulfilled (see Article 7 of Regulation (EC) No 2533/
98). The reporting obligations are therefore clearly defined and any discretion
exercised by the ECB when verifying or compulsorily collecting statistical
information follows identifiable principles.
Third, the ECB must minimise the reporting burden involved (see Article 3(a)
of Council Regulation (EC) No 2533/98). Therefore, the statistical material
collected by NCBs under Regulation (EC) No 2819/98 (ECB/1998/16) is also
used to calculate the reserve base inaccordan ce with the Regulation(EC) No2000X0776 — EN — 01.01.2001 — 000.001 — 70
(1) The content of this annex is provided for information purposes only. The relevant legal
acts for the reporting of money and banking statistics are Council Regulation (EC) No2533/98 of 23 November 1998 concerning the collection of statistical information by theECB and Regulation (EC) No 2819/98 of the European Central Bank of 1 December1998 concerning the consolidated balance sheet of the monetary financial institutions
sector (ECB/1998/16).
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2818/98 of the European Central Bank of 1 December 1998 on the application
of minimum reserves (ECB/1998/15).
The Articles of ECB Regulation(EC) No 2819/98 (ECB/1998/16) restrict
themselves to defining, in general terms, the actual reporting population, its
reporting obligations and the principles according to which the ECB and the
NCBs normally exercise their competence to verify or compulsorily collect
statistical information. The details of the statistical information to be reported
in order to fulfil the ECB's statistical reporting requirements and the minimum
standards to be followed are specified in Annexes I to IV to ECB Regulation
(EC) No 2819/98 (ECB/1998/16).
3.Actual reporting population; List of MFIs for statistical purposes
Monetary Financial Institutions comprise resident credit institutions as defined
in Community law, and all other resident financial institutions whose business
is to receive deposits and/or close substitutes for deposits from entities other
than MFIs, and, for their own account (at least in economic terms), to grant
credits and/or to make investments in securities. The ECB establishes and
maintains a list of institutions in accordance with this definition and following
the classification principles specified in Annex I to ECB Regulation (EC) No
2819/98 (ECB/1998/16). The competence to establish and maintain this List of
Monetary Financial Institutions for statistical purposes pertains to the
Executive Board of the ECB. The populationof MFIs residen t inthe euro
area constitutes the actual reporting population.
NCBs are entitled to grant derogations to small MFIs if the MFIs which
contribute to the monthly consolidated balance sheet account for at least 95 %
of the total MFI balance sheet in each participating Member State. These
derogations enable NCBs to apply the method of ‘cutting off the tail’.
4.Statistical reporting obligations
To establish the consolidated balance sheet, the actual resident reporting
population must report statistical information related to their balance sheet on
a monthly basis. Further information is required on a quarterly basis. The
statistical information to be reported is further specified in Annex I to ECB
Regulation(EC) No 2819/98 (ECB/1998/16).
The relevant statistical data are collected by the NCBs, which must define the
reporting procedures to be followed. ECB Regulation (EC) No 2819/98 (ECB/
1998/16) does not prevent NCBs from collecting, from the actual reporting
population, the statistical information necessary to fulfil the statistical
requirements of the ECB as part of a broader statistical reporting framework
which the NCBs establish under their own responsibility in accordance with
Community or national law or established practice and which serves other
statistical purposes. However, this is without prejudice to the fulfilment of the
statistical requirements set out in ECB Regulation (EC) No 2819/98 (ECB/
1998/16). Inspecific cases, the ECB may rely onstatistical in formation
collected for such purposes to fulfil its requirements.
The consequence of a derogation being granted by an NCB as defined above is
that the small MFIs concerned are subject to reduced reporting obligations
(implying, inter alia , only quarterly reporting) which are compulsory in the
context of minimum reserves and are specified in Annex II to ECB Regulation
(EC) No 2819/98 (ECB/1998/16). Requirements for those small MFIs that are
not credit institutions are set out in Annex III to ECB Regulation (EC) No
2819/98 (ECB/1998/16). However, MFIs which have beengran ted a
derogation have the option of fulfilling the full reporting requirements.
5.Use of statistical information under the ECB Regulation on minimum reserves
To minimise the reporting burden and to avoid any duplication in the
collection of statistical information, the statistical information related to the
balance sheet reported by MFIs under ECB Regulation (EC) No 2819/98
(ECB/1998/16) is also used to calculate the reserve base under ECB
Regulation(EC) No 2818/98 (ECB/1998/15).
Indeed, for statistical purposes, the reporting agents have to report data to their
respective NCBsinaccordan ce with the framework of Table 1 below, which is
included in Annex I to ECB Regulation (EC) No 2819/98 (ECB/1998/16).
WithinTable 1, the boxes marked with an‘*’ are used by the reportin g
institutions to calculate their reserve base (see Box 11 in Chapter 7 of thepresent ‘General documentation’).
Inorder to make a correct calculationof the reserve base to which a positive
reserve ratio is applied, a detailed breakdownis required for deposits with an
agreed maturity of over two years, for deposits redeemable at notice of over
two years and for repo liabilities of credit institutions vis-à-vis the (‘domestic’2000X0776 — EN — 01.01.2001 — 000.001 — 71
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and ‘other MUMS’) ‘MFIs’, ‘CIs subject to minimum reserves, ECB and
NCBs’ and ‘Central government’ sectors, and vis-à-visthe Rest of the World
(RoW).2000X0776 — EN — 01.01.2001 — 000.001 — 72
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Furthermore, depending on the national collection systems and without
prejudice to full compliance with the definitions and classification principles
of the MFI balance sheet set out in ECB Regulation (EC) No 2819/98 (ECB/
1998/16), credit institutions subject to reserve requirements may alternatively
report the data necessary to calculate the reserve base, except those on
negotiable instruments, in accordance with the table below, provided that no
bold printed positions of the previous table are affected.
Annex II to ECB Regulation (EC) No 2819/98 (ECB/1998/16) contains
specific and transitional provisions and provisions on mergers involving credit
institutions in respect of the application of the minimum reserve system.
Annex II to ECB Regulation (EC) No 2819/98 (ECB/1998/16) includes, in
particular, a reporting scheme for credit institutions in the ‘tail’. Credit
institutions in the ‘tail’ have to report, as a minimum, quarterly data necessary
to calculate the reserve base inaccordan ce with Table 1A below. These
institutions ensure that the reporting according to Table 1A is fully consistent
with the definitions and classifications applicable in Table 1. The ‘tail’
institutions' reserve base data for three (one-month) reserve maintenance
periods is based on end-of-quarter data collected by the NCBs with a deadline
of 28 working days following the end of the quarter to which they relate.
Annex II to ECB Regulation (EC) No 2819/98 (ECB/1998/16) also includes
provisions on reporting on a consolidated basis. On receiving authorisation
from the European Central Bank (ECB), credit institutions subject to minimum
reserves may carry out consolidated statistical reporting for a group of credit
institutions subject to minimum reserves within a single national territory,
provided that all the institutions concerned have renounced the benefit of any
lump-sum allowance from the reserve requirement. The benefit of the lump-
sum allowance remains, however, for the group as a whole. All the institutions
concerned are included separately in the ECB's List of Monetary Financial
Institutions (MFIs).2000X0776 — EN — 01.01.2001 — 000.001 — 75
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Annex II to ECB Regulation (EC) No 2819/98 (ECB/1998/16) also includes
provisions to be applied in the case of mergers involving credit institutions. In
this annex, the terms ‘merger’, ‘merging institutions’ and ‘acquiring
institution’ have the meaning determined in ECB Regulation (EC) No 2818/
98 (ECB/1998/15). For the maintenance period within which a merger takes
effect, the reserve requirements of the acquiring institution are calculated and
have to be fulfilled as set out inArticle 13 of ECB Regulation(EC) No 2818/
98 (ECB/1998/15). For the consecutive reserve maintenance periods, the
reserve requirements of the acquiring institution are calculated on the basis of
a reserve base and of statistical information in accordance with specific rules
(see the table in the Appendix to Annex II to ECB Regulation (EC) No 2819/
98 (ECB/1998/16)), if applicable. Otherwise, the normal rules for the reporting
of statistical information and the calculation of reserve requirements, as set out
inArticle 3 of ECB Regulation(EC) No 2818/98 (ECB/1998/15), apply.
Moreover, the relevant NCB may authorise the acquiring institution to fulfil its
obligationto report statistical in formationthrough temporary procedures. This
derogation from normal reporting procedures must be limited to the minimum
time possible and, in any case, should not exceed six months after the merger
has takeneffect. This derogationis without prejudice to the obligationfor the
acquiring institution to fulfil its reporting obligations in accordance with ECB
Regulation(EC) No 2819/98 (ECB/1998/16) an d, if applicable, its obligation
to assume the reporting obligations of merging institutions. The acquiring
institution has the obligation to inform the relevant NCB, once the intention to
merge has become public and in good time before the merger takes effect, of
the procedures that it intends to implement to fulfil its statistical reporting
obligations relating to the determination of reserve requirements.
6.Verification and compulsory collection
The ECB itself and the NCBs normally exercise the competence to verify and
compulsorily collect statistical information whenever minimum standards for
transmission, accuracy, conceptual compliance and revisions are not fulfilled.2000X0776 — EN — 01.01.2001 — 000.001 — 76
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These minimum standards are set out in Annex 4 to ECB Regulation (EC) No
2819/98 (ECB/1998/16).
7.Non-participating Member States
As a regulation under Article 34(1) of the Statute does not confer any rights or
impose any obligations on Member States with a derogation (Article 43(1) of
the Statute) and on Denmark (Article 2 of the Protocol on certain provisions
relating to Denmark) and is not applicable to the United Kingdom (Article 8 of
the Protocol on certain provisions relating to the United Kingdom of Great
Britain and Northern Ireland), ECB Regulation (EC) No 2819/98 (ECB/1998/
16) is applicable only in the participating Member States.
However, Article 5 of the Statute concerning the competence of the ECB and
the NCBs in the field of statistics and Council Regulation (EC) No 2533/98
are applicable inall Member States. This also implies, together with Article 10
(ex Article 5) of the Treaty, an obligation on the non-participating Member
States to design and implement at the national level all the measures that they
consider appropriate in order to carry out the collection of statistical
information needed to fulfil the ECB's statistical reporting requirements and
the timely preparation s inthe field of statistics inorder for them to become
participating Member States. This obligation has been made explicit in Article
4 and Recital No 17 of Council Regulation (EC) No 2533/98. For reasons of
transparency this special obligation is recalled in the recitals of ECB
Regulation(EC) No 2819/98 (ECB/1998/16).2000X0776 — EN — 01.01.2001 — 000.001 — 77
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Annex 5
The Eurosystem websites
Central bank Website
European Central Bank www.ecb.int
Nationale Bank van België/Banque Nationale de
Belgiquewww.bnb.be
Deutsche Bundesbank www.bundesbank.de
Bank of Greece (1) www.bankofgreece.gr
Banco de España www.bde.esBanque de France www.banque-france.frCentral Bank of Ireland www.centralbank.ie
Banca d'Italia www.bancaditalia.it
Banque centrale du Luxembourg www.bcl.luDe Nederlandsche Bank www.dnb.nlOesterreichische Nationalbank www.oenb.co.atBanco de Portugal www.bportugal.pt
SuomenPan kki www.bof.fi
(1) As from 1 January 2001.2000X0776 — EN — 01.01.2001 — 000.001 — 78
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Annex 6
Procedures and sanctions to be applied in the event of non-compliance with
counterparty obligations
1.Financial penalties
In the event of an infringement by a counterparty of tender rules(1), of
bilateral transaction rules(2), of the rules for the use of underlying assets(3), or
of end-of-day procedures and access conditions for the marginal lending
facility(4), the Eurosystem shall apply financial penalties as follows:
(i) For infringements of rules related to tender operations, bilateral
transactions and the use of underlying assets, for the first and the second
infringements that occur within a 12-month period a financial penalty shall
be applied to each infringement. The financial penalties that can be applied
shall be computed at the marginal lending rate plus 2,5 percentage points.
— For infringements of rules related to tender operations and bilateral
transactions, the financial penalties shall be calculated on the basis of
the amount of collateral or cash which the counterparty could not settle
and multiplied by the coefficient 7/360.
— For infringements of rules related to the use of underlying assets, the
financial penalties shall be calculated on the basis of the amount of
ineligible assets (1) provided by the counterparty to a National Central
Bank or the ECB or (2) not removed by the counterparty after a grace
period of 20 working days following an event after which the eligible
assets become ineligible and multiplied by the coefficient 1/360.
ii) The first time the rules for end-of-day procedures or for access to the
marginal lending facility are infringed, the financial penalties that can be
applied shall be computed at 5 percentage points. In the event of repeated
infringements the penalty interest rate shall be increased by a further 2,5
percentage points each time this occurs within a 12-month period,
calculated on the basis of the amount of the unauthorised access to themarginal lending facility(
5).
2.Non-financial penalties
The Eurosystem shall suspend a counterparty for infringements of rules related
to tender operations and bilateral transactions, and of rules for underlying
assets as set out below:
a) Suspension after infringements of rules related to tender
operations and bilateral transactions
If a third infringement of the same type occurs within a 12-month period,
the Eurosystem shall suspend counterparties from the subsequent open
market operation(s) of the same type and executed under the same
procedures to be initiated during a certain period in addition to a financial
penalty calculated in accordance with the rules outlined in Section 1. The
suspension shall be applied in accordance with the following scale:
(i) if the amount of non-delivered collateral or cash is up to 40 % of the
total collateral or cash to be delivered onthe occasionof the third
infringement, a suspension of one month shall be applied;
(ii) if the amount of non-delivered collateral or cash is between 40 % and
80 % of the total collateral or cash to be delivered onthe occasionofthe third infringement, a suspension of two months shall be applied;
(iii) if the amount of non-delivered collateral or cash is between 80 % and
100 % of the total collateral or cash to be delivered onthe occasionof
the third infringement, a suspension of three months shall be applied.2000X0776 — EN — 01.01.2001 — 000.001 — 79
(1) This applies if a counterparty is not able to transfer a sufficient amount of underlying
assets to settle the amount of liquidity it has been allotted in a liquidity-providingoperation or if it is not able to deliver a sufficient amount of cash to settle the amount ithas been allotted in a liquidity-absorbing operation.
(
2) This applies if a counterparty is not able to deliver a sufficient amount of eligible
underlying assets or if it is not able to deliver a sufficient amount of cash to settle theamount agreed in bilateral transactions.
(
3) This applies if a counterparty is using assets that are or have become ineligible to secure
anoutstan din g credit..
(4) This applies if a counterparty has a negative balance on the settlement account at the end
of the day and does not fulfil the access conditions for the marginal lending facility.
(5) Financial penalties for cases of non-compliance with the rules for the use of assets which
are considered eligible only for intraday credit purposes are only foreseen within theTARGET legal framework. Such cases of non-compliance are not covered by this
Guideline.
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These financial penalties and suspension measures shall also apply, without
prejudice to sub-section c) below, to any other successive infringement
during each 12-month period.
b) Suspension after infringements of rules for underlying assets
If a third infringement occurs within a 12-month period, the Eurosystem
shall suspend the counterparty from the subsequent open market operation
in addition to a financial penalty calculated in accordance with Section 1
above.
These financial penalties and suspension measures shall also apply, without
prejudice to sub-section c) below, to any other successive infringement
during each 12-month period.
c) Suspension from access to all future monetary policy opera-
tion s for a certainperiod inexception al cases
In exceptional cases where required on account of the seriousness of the
case(s) of non-compliance, and taking into account in particular the
amounts involved, the frequency or the duration of the cases of non-
compliance, consideration could be given, in addition to a financial penalty
calculated in accordance with Section 1 above, to the suspension of a
counterparty from access to all future monetary policy operations for a
period of three months.
d) Institutions located in other Member States
The Eurosystem may also decide whether the suspension measure proposed
to be taken vis-à-vis the non-compliant counterparty should also apply to
branches of the same institution located in other Member States.2000X0776 — EN — 01.01.2001 — 000.001 — 80
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ANNEX II
ADDITIONAL MINIMUM COMMON FEATURES
I.Additional minimum common features applicable to all arrangements
for monetary policy operations
1. The relevant contractual or regulatory arrangements applied by the NCB
should ensure that its standard terms or conditions will be applicable to
monetary policy operations.
2. The relevant contractual or regulatory arrangements applied by the NCB
should ensure that the NCBs are able to implement any amendment to
the monetary policy framework without undue delay. Provision should
be made for the notice of such changes to be communicated, with
certainty as to the moment at which they take legal effect, to
counterparties.
3. The relevant contractual or regulatory arrangements applied by the NCB
should stipulate that all payments relating to monetary policy operations
(other than foreign currency payments in foreign exchange swap
agreements) should be in euro.
4. If it is necessary to constitute all transactions under the agreement as a
single contractual arrangement and/or to constitute the agreement as a
master agreement in order to allow effective close-out and termination
netting, such provision should be included.
5. The relevant contractual or regulatory arrangements applied by the NCB
should ensure that, in the relationship between the NCB and Counter-
parties, appropriate and unambiguous rules relating to the use of forms
(including the confirmation of terms of transactions), data carriers and
means and specifics of communication will be in place.
6. The relevant contractual or regulatory arrangements applied by the NCB
at least should provide events of default which are not materially
different from the following:
(a) a decisionis made by a competen t judicial or other authority to
implement in relation to the Counterparty a procedure for the
winding-up of the Counterparty or the appointment of a liquidator
or analogous officer over the Counterparty or any other analogous
procedure; or
(b) a decisionis made by a competen t judicial or other authority to
implement in relation to the Counterparty a reorganisation measure
or other analogous procedure intended to safeguard or restore the
financial situation of the Counterparty and to avoid the making of a
decisionof the kin d referred to in(a); or
(c) a declaration by the Counterparty in writing of its inability to pay all
or any part of its debts or to meet its obligations arising in relation
to monetary policy transactions, or a voluntary general agreement or
arrangement entered into by it with its creditors, or if the
Counterparty is, or is deemed to be, insolvent or is deemed to be
unable to pay its debts; or
(d) procedural steps preliminary to a decision being taken under (a) or
(b); or
(e) any representation or other pre-contractual statement made by the
Counterparty or which is implied to have been made by the
Counterparty under applicable provisions of law is incorrect or
untrue; or
(f) the Counterparty's authorisation to conduct activities under either
Directive 2000/12/EC relating to the taking up and pursuit of the
business of credit institutions (as subsequently amended) or under
Directive 93/22/EEC on investment services in the securities field
(as subsequently amended), as implemented in the relevant Member
State of the Eurosystem respectively, is suspended or revoked; or
(g) the Counterparty is suspended or expelled from membership of any
payment system or arrangement through which payments under
monetary policy transactions are made or (except for foreign
exchange swap transactions) is suspended or expelled from
membership of any securities settlement system used for the
settlement of Eurosystem monetary policy transactions; or
(h) measures such as are referred to inArticle 22 of Directive 2000/12/
EC relating to the taking up and pursuit of the business of credit
institutions (as subsequently amended) are taken against the
Counterparty; or2000X0776 — EN — 01.01.2001 — 000.001 — 81
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(i) (in relation to reverse transactions) the Counterparty fails to comply
with provisions concerning risk control measures; or
(j) (in relation to repurchase transactions) the Counterparty fails to pay
the purchase price or the repurchase price or fails to deliver
purchased or repurchased assets; or (inrelationto collateralised
loans) the Counterparty fails to deliver assets or reimburse the credit
on the respectively applicable dates for such payments and
deliveries; or
(k) (in relation to foreign exchange swap transactions and fixed-term
deposits) the Counterparty fails to pay the euro amount or (in
relation to foreign exchange swap transactions) fails to pay foreign
currency amounts on the applicable dates for such payments; or
(l) the occurrence of an event of default (not materially different from
those defined in this clause) in relation to the Counterparty under an
agreement concluded for the purposes of the management of theforeign reserves or own funds of any member of the Eurosystem; or
(m) the Counterparty fails to provide relevant information thus causing
severe consequences for the NCB concerned; or
(n) the Counterparty fails to perform any other of its obligations under
arrangements for reverse transactions and foreign exchange swap
transactions and (if capable of remedy) does not remedy such failure
withina maximum of 30 days inthe case of collateralised
transactions and a maximum of 10 days for foreign exchange
swap transactions after notice is given by the NCB requiring it to do
so; or
(o) an event of default occurs in relation to the Counterparty in any
agreement with any other member of the Eurosystem entered into
for the purpose of effecting monetary policy operations in respect of
which that other member of the Eurosystem has exercised its right
to close out any transaction under such agreement by reason of the
event of default.
Event (a) must be automatic; events (b) and (c) may be automatic; events
(d) to (o) cannot be automatic and must be discretionary (that is,
perfected only upon service of a notice of default). Such notice of default
may provide a ‘grace period’ of up to a maximum of three business days
to rectify the event in question. For events of default that are
discretionary, the provisions as to the exercise of such discretion should
provide certainty as to the effect of such exercise.
7. The relevant contractual or regulatory arrangements applied by the NCB
should ensure that if an event of default occurs, the NCB is entitled to
exercise the following remedies: suspension of the Counterparty from
access to open market operations; terminating all outstanding agreements
and transactions; or demanding accelerated performance of claims that
have not yet matured or are contingent. In addition, the NCB may be
entitled to exercise the following remedies: using deposits of the
Counterparty placed with the NCB to set off claims against that
Counterparty; suspending the performance of obligations against the
Counterparty until the claim on the Counterparty has been satisfied;
claiming default interest; or claiming an indemnity for any losses
sustained as a consequence of a default by the Counterparty. In addition,
the relevant contractual or regulatory arrangements applied by the NCB
should ensure that if an event of default occurs, such NCB shall be in a
legal positionto realise all assets provided as collateral without un due
delay and in such a way as to entitle the NCB to realise value for the
credit provided, if the Counterparty does not settle its negative balance
promptly.
8. The relevant contractual or regulatory arrangements applied by the NCB
should ensure that NCBs could obtain any relevant information from
Counterparties in relation to the Eurosystem's monetary policy opera-
tions.
9. The relevant contractual or regulatory arrangements applied by the NCB
should provide for all notices or other communications to be in written
and/or electronic form. The relevant contractual or regulatory arrange-
ments applied by the NCB should provide certainty as to how notices or
other communications should be given, and when they take effect. Any
period after which they take effect should not be so long as to alter the
economic effect of the arrangements taken as a whole. In particular,
confirmation should be delivered promptly and checked promptly.
10. The relevant contractual or regulatory arrangements applied by the NCB
should provide that the rights and obligations of the Counterparty are not
to be assigned, charged or otherwise dealt with by the Counterparty
without the prior written consent of the NCB.2000X0776 — EN — 01.01.2001 — 000.001 — 82
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11. The relevant contractual or regulatory arrangements applied by the NCB
should provide that only the NCB and the identified Counterparty have
rights and obligations arising under the transaction (but allowing for the
relationships between NCBs (and/or the ECB) arising out of the cross-
border use of eligible assets and also as necessary for operations effected
with counterparties acting through a networking institution).
12. The relevant contractual arrangements applied by the NCB should
stipulate that the governing law for the relevant contractual or regulatory
arrangements applied by the NCB and for all transactions under such
arrangements should (except where the cross-border use of eligible assetsrequires otherwise) be that of the Member State where the NCB is
situated, and the place of dispute resolution should, without prejudice to
the competence of the Court of Justice of the European Communities, be
the official courts of that Member State.
13. Deposit arrangements should specify that settlement (both the taking-in
and the paying-out) of fixed-term deposits takes place on the days
specified in the ECB's announcement of the deposit operation.
II.Additional minimum common features for reverse transactions
Features common to all reverse transactions
14. The date of the reverse leg of the transaction should be fixed at the time
of entering into each transaction.
15. The relevant contractual or regulatory arrangements applied by the NCB
should define ‘business day’ to be, in relation to an obligation to make a
payment, any day on which all relevant parts of Target are operational to
effect such a payment and, in relation to an obligation to deliver assets,
any day on which the securities settlement systems through which
delivery is to be made are openfor busin ess inthe place where delivery
of the relevant securities is to be effected.
16. The mechanisms for changing non-euro amounts into euro should
specify that the rate to be used is the ECB daily euro foreignexchan ge
reference rate or, if not available, the spot rate of exchange indicated by
the ECB onthe businessday before the day onwhich the conversionis to
be made for the sale by it of euro against a purchase by it of the other
currency.
Features exclusive to repurchase transactions
17. There should be a sale of eligible assets against euro cash, together with
a simultaneous agreement to sell back against euro cash equivalent assets
at a specified time.
18. The obligation to sell back equivalent assets should define such
equivalence to be assets of the same issuer, forming part of the same
issue (irrespective of the date of issue) and being of identical type,
nominal value, amount and description as those assets to which such
comparisonis made. If the assets inrespect of which the comparisonis
made have been converted or redenominated or a call has been made
thereon, the definition of equivalence must be modified to mean in the
case of conversion those into which the assets have converted, in the case
of a call being made on assets equivalent assets to the paid-up assets,
provided that the seller has paid to the buyer a sum equal to the value of
the call, and in the case of redenominated assets equivalent assets to
those into which the original assets have been redenominated with, as
necessary, a sum of money equal to any difference in value between the
assets before and after their redenomination.
19. The events of default entitling the NCB to terminate and close out all
outstanding transactions should not be materially different from the
provisions set out in point 6.
20. The relevant contractual or regulatory arrangements applied by the NCB
should contain provisions in relation to netting which are aimed at
achieving economic effects equivalent to those set out below.
(a) Upon the occurrence of an event of default, the repurchase date for
each transaction shall be deemed immediately to occur and, subject
to the following provisions, any equivalent margin assets shall be
immediately deliverable (and so that performance of respective
obligations of the parties with regard to the delivery of assets and the
payment of the repurchase price for any repurchased assets shall be
effected only in accordance with the provision of (b) below) or,
alternatively, the repurchase transaction will be terminated.
(b) (i) The default market values of the repurchased assets and any
equivalent margin assets to be transferred and the repurchase2000X0776 — EN — 01.01.2001 — 000.001 — 83
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price to be paid by each party shall be established by the NCB
for all transactions as at the repurchase date; and
(ii) onthe basis of the sums so established, a calculationshall be
made by the NCB (as at the repurchase date) of what is due from
each party to the other and the sums due from one party shall be
set off against the sums due to the other and only the net balance
shall be payable by the party having the claim thereby valued at
the lower amount and such net balance shall be due and payable
on the next day on which all relevant parts of Target are
operational to effect a payment. For the purposes of this
calculation, any sums not denominated in euro shall beconverted into euro on the relevant date at the rate calculated
in accordance with point 16.
c) ‘Default market value’ means, with regard to any assets on any date:
(i) the market value of such assets at the default valuationtime
calculated onthe basis of the most represen tative price onthe
business day preceding the valuation date; or
(ii) in the absence of a representative price for a particular asset on
the business day preceding the valuation date, the last trading
price is used. If no trading price is available, the NCB will
define a price, taking into account the last price identified for
the asset inthe referen ce market; or
(iii) in the case of assets for which no market value exists, any other
reasonable method of valuation; or
(iv) if the NCB has sold before the default valuationtime the assets
or equivalent assets at the market price, the net proceeds of sale,
after deducting all reasonable costs, fees and expenses incurred
in connection with such sale, such calculation being made and
amounts determined by the NCB.
21. If the relevant contractual or regulatory arrangements applied by the
NCB include any provision for the substitution of collateral, the
arrangements should ensure that compliance with the requisite risk
control measures is maintained.
22. If the relevant contractual or regulatory arrangements applied by the
NCB include any provision for margins to be paid (or returned) in cash,
provisionshould be made that an y further obligationto return(or
provide) margins should first be satisfied by the use of cash up to the
same amount (together with any interest attributed to it).
Features exclusive to collateralised loan arrangements
23. The assets provided under a collateralised loan arrangement (e.g. a
pledge) must be legally realisable without there being prior claims over
the assets concerned. It should not be possible for third parties (including
the liquidating authority in the case of insolvency) to intervene and
successfully claim the assets pledged (in the absence of fraud), or any
rights attached to them.
24. The NCB should be ina legal positionto realise the econ omic value of
assets pledged in the context of a liquidity-providing operation in pre-
specified circumstances not materially different from those set out in
point 6 and these should also reflect the circumstances in which the NCB
can treat the Counterparty as being in default under repurchase
arrangements.
25. Collateralised loan arrangements should allow for the possibility of
operations which are entered into on an intraday basis to be extended to
overnight operations.
III.Additional minimum common features for foreign exchange swap
arrangements
26. Each transaction should be constituted as a simultaneous spot and
forward sale and purchase of euro against one foreign currency.
27. The relevant contractual or regulatory arrangements applied by the NCB
should include a provision as to the timing and mechanics of the transfer
of payments. The date of the forward sale/purchase should be fixed at the
time of entering into each transaction.
28. The relevant contractual or regulatory arrangements applied by the NCB
should define the foreign currency, spot rate, forward rate, transfer date
and retransfer date in accordance with the following:
(a) ‘foreign currency’ shall be any lawful currency other than the euro;
(b) ‘spot rate’ means, in relation to a specific transaction, the rate (as
calculated in accordance with point 16) applied to convert the euro2000X0776 — EN — 01.01.2001 — 000.001 — 84
▼B
amount into such amount in the foreign currency relevant for that
transaction as one party shall be obliged to transfer to the other at the
transfer date against payment of the euro amount and which rate
shall be set out in the confirmation;
(c) ‘forward rate’ means the rate calculated in accordance with point 16
and applied to convert the euro amount into such amount in the
foreign currency as one party shall be obliged to transfer to the other
at the retransfer date against payment of the euro amount, which rate
shall be as set out in the confirmation and defined in the relevant
contractual or regulatory arrangements applied by the NCB;
(d) ‘retransfer foreign currency amount’ means such amount of foreign
currency as is required to purchase the euro amount as at the
retransfer date;
(e) ‘transfer date’ means with regard to any transaction, the date (and,
where appropriate, the time onthat date) whenthe tran sfer of the
euro amount by one party to the other is to become effective which
for the avoidance of doubt shall be the date (and, where appropriate,
the time onthat date) whenthe parties have agreed that settlemen t of
a transfer of the euro amount shall occur;
(f) ‘retransfer date’ means, with regard to any transaction, the date (and,
where appropriate, the time onthat date) whenon e party is to
retransfer the euro amount to the other.
29. The relevant contractual or regulatory arrangements applied by the NCB
should provide that certain events (as to which, see point 30) should lead
to a closing-out of all outstanding transactions and must provide for the
way in which such a closing-out (including termination netting) would
take place.
30. The events of default entitling the NCB to terminate and close out all
outstanding transactions should not be materially different from the
provisions set out in point 6.
31. The relevant contractual or regulatory arrangements applied by the NCB
should contain provisions in relation to netting which are aimed at
achieving economic effects equivalent to those as set out below.
(a) If an event of default has occurred, each transaction shall be deemed
to have terminated and the replacement values of the euro and the
retransfer foreign currency amounts shall be established by the NCB
on the basis that such replacement values shall be the amounts that
would be necessary to preserve for the NCB the economic equivalent
of any payments that would otherwise have been required; and
(b) Onthe basis of the sums so established, a calculationshall be made
by the NCB (as at the retransfer date) of what is due from each party
to the other and the sums due from one party shall be converted in
accordance with point 16, where necessary, into euro and set off
against the sums due to the other and only the net balance shall be
payable by the party having the claim thereby valued at the lower
amount and such net balance shall be due and payable on the next
day on which all relevant parts of Target are operational to effect
such a payment.2000X0776 — EN — 01.01.2001 — 000.001 — 85