2000X0776—EN—07.07.2002—001.001—1
This document is meant purely as a documentation tool and the institutions do not assume any liability for its contents
►B GUIDELINEOFTHEEUROPEANCENTRALBANK
of31August2000
onmonetarypolicyinstrumentsandproceduresoftheEurosystem
(ECB/2000/7)
(►C12000/776/EC ◄)
(OJL310,11.12.2000,p.1)
Amendedby:
OfficialJournal
No page date
►M1GuidelineoftheEuropeanCentralBankof7March2002(ECB/2002/2) L185 1 15.7.2002
Correctedby:
►C1Corrigendum,OJL123,4.5.2001,p.35(776/2000)
▼B
GUIDELINEOFTHEEUROPEANCENTRALBANK
of31August2000
onmonetarypolicyinstrumentsandproceduresoftheEurosystem
(ECB/2000/7)
(►C12000/776/EC ◄)
THEGOVERNINGCOUNCILOFTHEEUROPEANCENTRALBANK,
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
oftheEuropeanSystemofCentralBanksandoftheEuropeanCentral
Bank (ECB) (hereinafter referred to as the ‘Statute’), in conjunctionwiththefirstindentofArticle3.1,Article18.2andthefirstparagraphofArticle20,
Whereas:
(1)Theachievementofasinglemonetarypolicyentailstheneedto
definetheinstrumentstobeusedbythenationalcentralbanksofMember States that have adopted the euro in accordance withtheTreaty(respectively NCBsandparticipating MemberStates)andtheEuropeanCentralBank(Eurosystem)intheimplementa-tionofsuchpolicyinamannerwhichisuniformthroughoutthe
participatingMemberStates.
(2)The ECBisvested with the authority to establish the necessary
Guidelinesfortheimplementation ofthesinglemonetarypolicy
andtheNCBshaveanobligationtoactinaccordancewithsuch
Guidelines.
(3)In accordance with Articles 12.1 and 14.3 of the Statute, ECBGuidelinesformanintegralpartofCommunitylaw,
HASADOPTEDTHISGUIDELINE:
Article 1
Principles, instruments, procedures and criteria for the implemen-
tationofthesinglemonetarypolicyoftheEurosystem
The single monetary policy shall be implemented in accordance with
the principles, instruments, procedures and criteria specified in
AnnexesIandIItothisGuideline.TheNCBsshalltakealltheappro-priate measures to carry out the monetary policy operations inaccordance with the principles, instruments, procedures and criteriaspecifiedinAnnexesIandIItothisGuideline.
Article 2
Verification
TheNCBsshallforwarddetails ofthetextsandmeansbywhichthey
intendtocomplywiththisGuidelinetotheECBby15October2000at
thelatest.
Article 3
Finalprovisions
1. ThisGuidelineisaddressedtotheNCBsofparticipatingMember
States.
2. ThisGuidelineshallenterintoforceon1January2001.3. This Guideline shall be published in the Official Journal of the
European Communities .2000X0776—EN—07.07.2002—001.001—2
▼M1
ANNEX I
THESINGLEMONETARYPOLICYINTHEEUROAREA
General documentation on Eurosystem monetary policy instruments and
procedures
April20022000X0776—EN—07.07.2002—001.001—3
▼M1
CONTENTS
IntroductionCHAPTER1
1.Overview ofthemonetarypolicyframework
1.1.TheEuropeanSystemofCentralBanks1.2.ObjectivesoftheEurosystem1.3.Eurosystemmonetarypolicyinstruments1.3.1.Openmarketoperations1.3.2.Standingfacilities1.3.3.Minimumreserves1.4.Counterparties1.5.Underlyingassets1.6.Modificationstothemonetarypolicyframework
CHAPTER22.Eligiblecounterparties
2.1.Generaleligibilitycriteria2.2.Selectionofcounterpartiesforquicktendersandbilateraloperations2.3.Sanctionsintheeventofnon-compliancewithcounterpartyobligations2.4.Suspensionorexclusionongroundsofprudence
CHAPTER33.Openmarketoperations
3.1.Reversetransactions3.1.1.Generalconsiderations3.1.2.Mainrefinancingoperations3.1.3.Longer-termrefinancingoperations3.1.4.Fine-tuningreverseoperations3.1.5.Structuralreverseoperations3.2.Outrighttransactions3.3.IssuanceofECBdebtcertificates3.4.Foreignexchangeswaps3.5.Collectionoffixed-termdeposits
CHAPTER4
4.Standingfacilities
4.1.Themarginallendingfacility4.2.Thedepositfacility
CHAPTER55.Procedures
5.1.Tenderprocedures5.1.1.Generalconsiderations5.1.2.Tenderoperationscalendar5.1.3.Announcementoftenderoperations5.1.4.Counterparties'preparationandsubmissionoftenderbids2000X0776—EN—07.07.2002—001.001—4
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5.1.5.Tenderallotmentprocedures
5.1.6.Announcementoftenderresults5.2.Proceduresforbilateraloperations
5.3.Settlementprocedures
5.3.1.Generalconsiderations
5.3.2.Settlementofopenmarketoperations
5.3.3.End-of-dayprocedures
CHAPTER6
6.Eligibleassets
6.1.Generalconsiderations
6.2.Tier-oneassets
6.3.Tier-twoassets
6.4.Riskcontrolmeasures
6.4.1.Initialmargins6.4.2.Riskcontrolmeasuresfortier-oneassets
6.4.3.Riskcontrolmeasuresfortier-twoassets
6.5.Valuationprinciplesforunderlyingassets
6.6.Cross-borderuseofeligibleassets
6.6.1.Correspondentcentralbankingmodel6.6.2.Cross-borderlinks
CHAPTER7
7.Minimumreserves
7.1.Generalconsiderations
7.2.Institutionssubjecttominimumreserves
7.3.Determinationofminimumreserves
7.4.Maintenanceofreserveholdings7.5.Reportingandverificationofthereservebase
7.6.Non-compliancewithminimumreserveobligations
Annexes
1.Examplesofmonetarypolicyoperationsandprocedures
2.Glossary
3. Selection of counterparties for foreign exchange intervention operations and
foreignexchangeswapsformonetarypolicypurposes
4. The reporting framework for the money and banking statistics of the
EuropeanCentralBank
5.TheEurosystemwebsites
6. Procedures and sanctions to be applied in the event of non-compliance with
counterpartyobligations
Listofcharts,tablesandboxes
Charts
1.Normaltime-framefortheoperationalstepsforstandardtenders
2.Normaltime-framefortheoperationalstepsforquicktenders
3.Thecorrespondentcentralbankingmodel
4.Linksbetweensecuritiessettlementsystems2000X0776—EN—07.07.2002—001.001—5
▼M1
Tables
1.Eurosystemmonetarypolicyoperations
2.Normaltradedaysforthemainandthelonger-termrefinancingoperations
3.NormalsettlementdatesforEurosystemopenmarketoperations4.EligibleassetsforEurosystemmonetarypolicyoperations
Boxes
1.IssuanceofECBdebtcertificates
2.Foreignexchangeswaps3.Operationalstepsfortenderprocedures
4.Allotmentoffixedratetenders
5.Allotmentofvariableratetendersineuro6.Allotmentofvariablerateforeignexchangeswaptenders
7.Riskcontrolmeasures
8.Levelsofvaluationhaircutsappliedtoeligibletier-oneassets9.Calculationofinitialmarginsandvaluationhaircuts
10.Levelsofvaluationhaircutsappliedtoeligibletier-twoassets
11.Reservebaseandreserveratios12.Calculationoftheremunerationofholdingsofrequiredreserves
Abbreviations
CCBM Correspondentcentralbankingmodel
CET CentralEuropeantime
CIs Creditinstitutions
CSD CentralsecuritiesdepositoryDVP Delivery-versus-payment
EC EuropeanCommunity
ECB EuropeanCentralBankEEA EuropeanEconomicArea
EEC EuropeaneconomicCommunity
EPM ECBpaymentmechanismESCB EuropeanSystemofCentralBanks
EU EuropeanUnion
FOP FreeofpaymentFRN Floating-ratenote
IDC Intradaycredit
ISIN InternationalsecuritiesidentificationnumberMFI Monetaryfinancialinstitution
MMF Moneymarketfund
MMP MoneymarketpaperMU Monetaryunion
MUMS MonetaryunionMemberStates
NCB NationalcentralbankRoW Restoftheworld
RTGS Real-timegrosssettlement2000X0776—EN—07.07.2002—001.001—6
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SSS Securitiessettlementsystem
Strip Separatetradingofinterestandprincipal
TARGET Trans-European automated real-time gross settlement express
transfer(system)
UCITS Undertakingforcollectiveinvestmentintransferablesecurities
Introduction
ThisdocumentpresentstheoperationalframeworkchosenbytheEurosystem(1)
forthesinglemonetarypolicyintheeuroarea.Thedocument,whichformspart
oftheEurosystem'slegalframeworkformonetarypolicyinstrumentsandproce-
dures, is intended to serve as the ‘General documentation’ on the monetary
policy instruments and procedures of the Eurosystem, particularly aiming to
providecounterpartieswiththeinformationtheyneedinrelationtotheEurosys-
tem'smonetarypolicyframework.
The general documentation in itself neither confers rights nor imposes obliga-
tions on counterparties. The legal relationship between the Eurosystemand 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
Chapter2,eligibilitycriteriaforcounterpartiestakingpartinEurosystemmone-
tarypolicyoperationsarespecified.Chapter3describesopenmarketoperations,
while Chapter 4 presents the standing facilities available to counterparties.
Chapter 5 specifies procedures applied in the execution of monetary policy
operations.InChapter6,theeligibilitycriteriaforunderlyingassetsinmonetary
policy operations are defined. Chapter 7 presents the Eurosystem's minimum
reservesystem.
The Annexes contain examples of monetary policy operations, a glossary,
criteriafortheselectionofcounterpartiestoEurosystemforeignexchangeinter-
ventionoperations,apresentationofthereportingframeworkforthemoneyand
banking statistics of the European Central Bank, a list of the Eurosystem
websitesandadescriptionoftheproceduresandsanctionstobeappliedinthe
eventofnon-compliancewithcounterpartyobligations.
CHAPTER1
1.OVERVIEWOFTHEMONETARYPOLICYFRAMEWORK
1.1.TheEuropeanSystemofCentralBanks
TheEuropeanSystemofCentralBanks(ESCB)consistsoftheEuropean
Central Bank (ECB) and the national central banks of the European
Union (EU) Member States(2). The activities of the ESCB are carried
outinaccordance withtheTreatyestablishingtheEuropeanCommunity
(Treaty)andtheStatuteoftheEuropeanSystemofCentralBanksandof
theEuropeanCentralBank(StatuteoftheESCB).TheESCBisgoverned
bythedecision-makingbodiesoftheECB.Inthisrespect,theGoverning
CounciloftheECBisresponsiblefortheformulationofmonetarypolicy,
while the Executive Board is empowered to implement monetary policy
according to the decisions made 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
recoursetothenationalcentralbanks(3)tocarryouttheoperationswhich
form part of the tasks of the Eurosystem. The Eurosystem's monetary2000X0776—EN—07.07.2002—001.001—7
(1) The Governing Council of the European Central Bank has agreed to use the term
‘Eurosystem’asanexpressiondenotingthecompositioninwhichtheEuropeanSystemof Central Banks performs its basic tasks, i.e. the national central banks of those
Member States which have adopted thesingle currency inaccordance withtheTreaty
establishingtheEuropeanCommunityandtheEuropeanCentralBank.
(
2) ItshouldbenotedthatnationalcentralbanksofMemberStateswhichhavenotadopted
the single currency in accordance with the Treaty establishing the European Commu-nity (Treaty) retain their powers in the field of monetary policy according to national
lawandarethusnotinvolvedintheconductofthesinglemonetarypolicy.
(
3) Throughout this document, the term ‘national central banks’ refers to the national
central banks of the Member States which have adopted the single currency in accor-dancewiththeTreaty.
▼M1
policyoperationsareexecutedunderuniformtermsandconditionsinall
MemberStates(1).
1.2.ObjectivesoftheEurosystem
TheprimaryobjectiveoftheEurosystemistomaintainpricestability,as
defined in Article 105 of the Treaty. Without prejudice to the primary
objective of price stability, the Eurosystemhas to support the general
economicpoliciesintheEuropeanCommunity.Inpursuingitsobjectives,
the Eurosystemhas to act in accordance with the principle of an open
market economy with free competition, favouring an efficient allocation
ofresources.
1.3.Eurosystemmonetarypolicyinstruments
Inordertoachieveitsobjectives,theEurosystemhasatitsdisposalaset
of monetary policy instruments; the Eurosystem conducts open market
operations, offersstanding facilities and requires credit institutions to
holdminimumreservesonaccountswiththeEurosystem.
1.3.1.Open market operations
Openmarketoperationsplayanimportantroleinthemonetarypolicyof
the Eurosystemfor the purposes of steering interest rates, m anaging the
liquidity situation in the market and signalling the stance of monetary
policy. The Eurosystemhas available five types of instrum ents 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 Eurosystemm ay also use outright transac-
tions, theissuance of debt certificates, foreign exchange swaps and the
collection of fixed-term deposits .Openmarketoperationsareinitiatedby
theECB,whichalsodecidesontheinstrumenttobeusedandtheterms
andconditionsfortheirexecution.Theycanbeexecutedonthebasisof
standardtenders,quicktendersorbilateral procedures(2).Withregardto
their aims, regularity and procedures, the Eurosystem's open market
operations can be divided into the following four categories (see also
Table1):
— themain refinancing operations are regular liquidity-providing
reversetransactionswithaweeklyfrequencyandnormallyamaturity
of two weeks. These operations are executed by the national central
banks on the basis of standard tenders. The main refinancing opera-
tionsplayapivotalroleinpursuingthepurposesoftheEurosystem's
open market operations and provide the bulk of refinancing to the
financialsector,
— thelonger-term refinancing operations areliquidity-providingreverse
transactionswithamonthlyfrequencyandamaturityofthreemonths.
Theseoperationsaimtoprovidecounterpartieswithadditionallonger-
termrefinancingandareexecutedbythenationalcentralbanksonthebasis of standard tenders. In these operations, the Eurosystemdoes
not, as a rule, intend to send signals to the market and therefore
normallyactsasarate-taker,
—fine-tuning operations are executed on an ad hocbasis with the aim
ofmanagingtheliquiditysituationinthemarketandsteeringinterest
rates, in particular in order to smooth the effects on interest rates
causedbyunexpectedliquidityfluctuationsinthemarket.Fine-tuning
operationsareprimarilyexecutedasreversetransactions,butcanalso
taketheformofoutrighttransactions,foreignexchangeswapsandthe
collection of fixed-termdeposits. The instrum ents and procedures
applied in the conduct of fine-tuning operations are adapted to the
typesoftransactionsandthespecificobjectivespursuedintheopera-
tions. Fine-tuning operations are normally executed by the national
central banks through quick tenders or bilateral procedures. The
GoverningCounciloftheECBwilldecidewhether,underexceptional2000X0776—EN—07.07.2002—001.001—8
(1) Throughout this document, the term ‘Member State’ refers to a Member State which
hasadoptedthesinglecurrencyinaccordancewiththeTreaty.
(2) The different proceduresfor the execution of Eurosystemopen m arket operations,i.e.
standardtenders,quicktendersandbilateralprocedures,arespecifiedinChapter5.Forstandard tenders, a maximum of 24 hours elapses between the tender announcementand 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 select alimited number of counterparties to participate in quick tenders. The term ‘bilateralprocedures’ refers to any case in which the Eurosystemconducts a transaction withone or a few counterparties without using tender procedures. Bilateral procedures
includeoperationsexecutedthroughstockexchangesormarketagents.
▼M1
circumstances,fine-tuningbilateraloperationsmaybeexecutedbythe
ECBitself,
— in addition, the Eurosystemm ay carry out structural operations
through the issuance of debt certificates, reverse transactions and
outright transactions. These operations are executed whenever the
ECBwishestoadjustthestructuralpositionoftheEurosystemvis-à-
visthefinancial sector(onaregularornon-regularbasis).Structural
operationsintheformofreversetransactionsandtheissuanceofdebt
instrumentsarecarriedoutbythenationalcentralbanksthroughstan-
dardtenders.Structuraloperationsintheformofoutrighttransactions
areexecutedthroughbilateralprocedures.
1.3.2.Standing facilities
Standing facilities aimto provide and absorb overnight liquidity, signal
the general stance of monetary policy and bound overnight market
interestrates.Twostandingfacilitiesareavailabletoeligiblecounterpar-
tiesontheirowninitiative,subjecttothefulfilmentofcertainoperational
accessconditions(seealsoTable1):
— counterparties can use the marginal lending facility to obtain over-
nightliquidityfromthenationalcentral banksagainsteligible assets.
Under normal circumstances, there are no credit limits or other
restrictions on counterparties' access to the facility apart fromthe
requirement to present sufficient underlying assets. The interest rate
on the marginal lending facility normally provides a ceiling for the
overnightmarketinterestrate,
— counterparties canusethe deposit facility tomakeovernightdeposits
with the national central banks. Under normal circumstances, there
arenodepositlimits orotherrestrictionsoncounterparties' access to
thefacility.Theinterestrateonthedepositfacilitynormallyprovides
afloorfortheovernightmarketinterestrate.
Thestandingfacilities areadministeredinadecentralisedmannerbythe
nationalcentralbanks.
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
withthereserverequirementisdeterminedonthebasisoftheinstitutions'
average daily reserve holdings over a one-month maintenance period.
Institutions' holdings of required reserves are remunerated at the rate of
theEurosystem'smainrefinancingoperations.
1.4.Counterparties
The Eurosystem'smonetary policy framework isformulated withaview
to ensuring participation of a broad range of counterparties. Institutions
subject to minimum reserve requirements according to Article 19.1 of
theStatuteoftheESCBmayaccessthestandingfacilitiesandparticipate
in open market operations based on standard tenders. The Eurosystem
mayselectalimitednumberofcounterpartiestoparticipateinfine-tuning
operations.Foroutrighttransactions,norestrictionsareplaced a priorion
the range of counterparties. For foreign exchange swaps conducted for
monetarypolicypurposes,active playersintheforeignexchangemarket
areused.Thesetofcounterpartiesfortheseoperationsislimitedtothose
institutionsselectedforEurosystemforeignexchangeinterventionopera-
tionswhicharelocatedintheeuroarea.
1.5.Underlyingassets
PursuanttoArticle18.1oftheStatuteoftheESCB,allEurosystemcredit
operations (i.e. liquidity-providing operations) have to be based on
adequate collateral. The Eurosystemaccepts a wide range of assets to
underlie 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 quality2000X0776—EN—07.07.2002—001.001—9
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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 Eurosystemin outright transactions). Eligible assets m ay 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 (SSSs), to collateralise all types of Eurosystem
credit(1). All assets eligible for Eurosystemm onetary policy operations
canalsobeusedasunderlyingassetsforintradaycredit.
1.6.Modificationstothemonetarypolicyframework
TheGoverningCounciloftheECBmay,atanytime,changetheinstru-
ments, conditions, criteria and procedures for the execution of
Eurosystemmonetarypolicyoperations.
TABLE1
Eurosystemmonetarypolicyoperations
Monetary
policyopera-
tionsTypesoftransactions
Maturity Frequency ProcedureProvisionof
liquidityAbsorptionof
liquidity
Open market operations
Mainrefi-
nancing
operationsReverse
transactions— Twoweeks Weekly Standard
tenders
Longer-term
refinancing
operationsReverse
transactions— Three
monthsMonthly Standard
tenders
Fine-tuning
operations— Reverse
transac-
tions
— Foreign
exchan-
ge
swaps— Foreign
exchan-
ge
swaps
— Collec-
tionof
fixed-
term
deposits
— Reverse
transac-
tionsNon-stan-
dardisedNon-regular — Quick
tenders
— Bilateral
proce-
dures
Outright
purchasesOutright
sales— Non-regular Bilateral
procedures
Structural
operationsReverse
transactionsIssuanceof
debtcertifi-
catesStandar-
dised/non-
standar-
disedRegularand
non-regularStandard
tenders
Outright
purchasesOutright
sales— Non-regular Bilateral
procedures
Standing facilities
Marginal
lending
facilityReverse
transactions— Overnight Accessatthediscretionof
counterparties
Deposit
facility— Deposits Overnight Accessatthediscretionof
counterparties2000X0776—EN—07.07.2002—001.001—10
(1) SeeSections6.6.1and6.6.2.
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CHAPTER2
2.ELIGIBLECOUNTERPARTIES
2.1.General eligibility criteria
Counterparties to Eurosystem monetary policy operations must fulfil
certain eligibility criteria(1). These criteria are defined with a view to
givingabroadrangeofinstitutionsaccesstoEurosystemmonetarypolicy
operations,enhancingequaltreatment ofinstitutionsacrosstheeuroarea
and ensuring that counterparties fulfil certain operational and prudential
requirements:
— onlyinstitutionssubjecttotheEurosystem'sminimumreservesystem
accordingtoArticle19.1oftheStatuteoftheESCBareeligibletobe
counterparties. Institutions which are exempt from their obligations
under the Eurosystem's minimum reserve system (see Section 7.2)
arenoteligible tobecounterparties toEurosystemstandingfacilities
andopenmarketoperations,
— counterpartiesmustbefinanciallysound.Theyshouldbesubjecttoat
leastoneformofEU/EEAharmonisedsupervisionbynationalautho-
rities(2). However, financially sound institutions subject to non-
harmonised national supervision of a comparable standard can also
be accepted as counterparties, for example branches established in
the euro area of institutions that have their head office outside the
EuropeanEconomicArea(EEA),
— counterpartiesmustfulfilanyoperationalcriteriaspecifiedintherele-
vantcontractual orregulatoryarrangements appliedbytherespective
national central bank (or the ECB), so as to ensure the efficient
conductofEurosystemmonetarypolicyoperations.
These general eligibility criteria are uniformthroughout the euro area.
Institutionsfulfillingthegeneraleligibilitycriteriamay:
— accesstheEurosystem'sstandingfacilities,and
— participate in Eurosystemopen m arket operations based on standard
tenders.
An institution may access the Eurosystem's standing facilities and open
market operations based on standard tenders only through the national
centralbankoftheMemberStateinwhichitisestablished.Ifaninstitu-
tion has establishments (head office or branches) in more than one
MemberState,eachestablishmenthasaccesstotheseoperationsthrough
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
besubmittedbyoneestablishment(eithertheheadofficeoradesignated
branch)ineachMemberState.
2.2.Selection ofcounterpartiesforquicktendersandbilateraloperations
Foroutright transactions, norestrictions areplaced apriorionthe range
ofcounterparties.
For foreign exchange swaps executed for monetary policy purposes,
counterparties must be able to conduct large-volume foreign exchange
operations efficiently underall market conditions. The range ofcounter-
parties to foreign exchange swaps corresponds to the counterparties
located in the euro area which are selected for Eurosystemforeign
exchangeinterventionoperations.Thecriteriaandproceduresappliedfor
theselectionofcounterpartiestoforeignexchangeinterventionoperations
arepresentedinAnnex3.
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
moneymarketistheprimeselectioncriterion.Othercriteriawhichmightbetakenintoaccountare,forexample,theefficiencyofthetradingdesk
andthebiddingpotential.2000X0776—EN—07.07.2002—001.001—11
(1) Foroutrighttransactions,norestrictionsareplacedaprioriontherangeofcounterpar-
ties.
(2) Harmonised supervisionof creditinstitutions isbased on Directive 2000/12/EC of the
EuropeanParliamentandoftheCouncilof20March2000relatingtothetakingupand
pursuitofthebusinessofcreditinstitutions(asamended).
▼M1
In quick tenders and bilateral operations, the national central banks deal
exclusivelywiththecounterpartieswhichareincludedintheirrespective
set of fine-tuning counterparties. If, for operational reasons, a national
central bank cannot deal in each operation with all its fine-tuning coun-
terparties, the selection of counterparties in this Member State will be
basedonarotationschemeinordertoensureequitableaccess.
The Governing Council of the ECB will decide whether, under excep-
tional circumstances, fine-tuning bilateral operations may be carried out
bytheECBitself.IftheECBweretocarryoutbilateral 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
areawhichareeligibleforquicktendersandbilateraloperationsinorder
toensureequitableaccess.
2.3.Sanctions in the event of non-compliance with counterparty obliga-
tions
TheECBshallimposesanctions,inaccordancewithCouncilRegulation
(EC) No 2532/98 of 23 November 1998 concerning the power of the
ECBtoimposesanctions,theECBRegulationof23September1999on
thepowersoftheECBtoimposesanctions(ECB/1999/4),CouncilRegu-
lation (EC) No 2531/98 of 23 November 1998 on the application of
minimum reserves by the ECB and the ECB Regulation of 1 December
1998ontheapplicationofminimumreserves(ECB/1998/15),oninstitu-
tions which do not comply with obligations arising from ECB
Regulations and Decisions relating to the application of minimum
reserves.Therelevantsanctionsandtheproceduralrulesfortheirapplica-
tionarespecifiedintheabove-mentionedRegulations.Inaddition,inthe
case of serious infringements of the minimum reserve requirements, the
Eurosystemm ay suspend counterparties fromparticipation in open
marketoperations.
In accordance with provisions in the contractual or regulatory arrange-
ments applied by the respective national central bank (or by the ECB),
the Eurosystemshall im pose financial penalties on counterparties or
suspend counterparties fromparticipation in open m arket operations if
counterparties failtocomplywiththeirobligationsunderthecontractual
or regulatory arrangements applied by the national central banks (or by
theECB)assetoutbelow.
Thisrelates tocasesofinfringement oftenderrules(ifacounterparty is
unable to transfer a sufficient amount of underlying assets to settle the
amountofliquidityithasbeenallottedinaliquidity-providingoperation
or if it is unable to deliver a sufficient amount of cash to settle the
amount it has been allotted in a liquidity-absorbing operation), and of
bilateral transaction rules (if a counterparty is unable to deliver a suffi-
cient amount of eligible underlying assets or if it is unable to deliver a
sufficientamountofcashtosettletheamountagreedinbilateraltransac-
tions).
This also applies to cases of non-compliance by a counterparty withthe
rules for the use of underlying assets (if a counterparty is using assets
which are or have become ineligible, or which may not be used by the
counterparty, for example owing to close links between, or the identity
of, issuer/guarantor and counterparty), and to non-compliance with the
rules for end-of-day procedures and access conditions for the marginal
lending facility (if a counterparty which has a negative balance on the
settlementaccountattheendofthedaydoesnotfulfiltheaccesscondi-
tionsforthemarginallendingfacility).
Inaddition,asuspensionmeasuretobetakenvis-à-visthenon-complying
counterpartymaybeappliedtobranchesofthesameinstitutionlocatedin
otherMemberStates.Where,asanexceptional measure,thisisrequired
given the seriousness of a case of non-compliance, as evidenced by its
frequency or duration, for instance, a counterparty may be suspended
fromallfuturemonetarypolicyoperationsforacertainperiodoftime.
Financialpenaltiesimposedbynationalcentralbanksintheeventofnon-
compliance in relation to a breach of the rules concerning tender opera-
tions, bilateral transactions, underlying assets, end-of-day procedures or
the access conditions to the marginal lending facility shall be calculated
atapre-specifiedpenaltyrate(assetoutinAnnex6).
2.4.Suspensionorexclusionongroundsofprudence
In accordance with provisions in the contractual or regulatory arrange-
ments applied by the respective national central bank (or by the ECB),2000X0776—EN—07.07.2002—001.001—12
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the Eurosystem may suspend or exclude counterparties' access to mone-
tarypolicyinstrumentsonthegroundsofprudence.
In addition, suspension or exclusion of counterparties may be warranted
insomecasesfallingwithinthenotionofthe‘default’ofacounterparty
as defined in the contractual or regulatory arrangements applied by the
nationalcentralbanks.
CHAPTER3
3.OPENMARKETOPERATIONS
OpenmarketoperationsplayanimportantroleintheEurosystem'smone-
tary policy, pursuing the aims of steering interest rates, managing the
liquidity situation in the market and signalling the stance of monetary
policy.With regard totheiraims,regularity andprocedures,Eurosystem
openmarketoperationscanbedividedintofourcategories:mainrefinan-
cing operations, longer-termrefinancing operations, fine-tuning
operationsandstructuraloperations.Asfortheinstrumentsused,reverse
transactionsarethemainopenmarketinstrumentoftheEurosystemand
canbeemployedinallfourcategoriesofoperations,whereasdebtcerti-
ficates may be usedfor structural absorption operations. In addition, the
Eurosystemhasthreeotherinstrumentsavailablefortheconductoffine-
tuning operations: outright transactions, foreign exchange swaps and the
collection of fixed-termdeposits. In the following sections, specific
features of the different types of open market instruments used by the
Eurosystemarepresentedindetail.
3.1.Reversetransactions
3.1.1.General considerations
(a) Typeofinstrument
Reverse transactions refer to operations where the Eurosystembuys
or sells eligible assets under repurchase agreements or conducts
creditoperationsagainsteligibleassetsascollateral.Reversetransac-
tions are used for the main refinancing operations and the longer-
termrefinancing operations. In addition, the Eurosystemcan use
reversetransactionsforstructuralandfine-tuningoperations.
(b) Legalnature
Thenationalcentralbanksmayexecutereversetransactionseitherin
theformofrepurchaseagreements(i.e.theownershipoftheassetis
transferred to the creditor, while the parties agree to reverse the
transactionthroughare-transferoftheassettothedebtoratafuture
point in time) or as collateralised loans (i.e. an enforceable security
interest is provided over the assets but, assuming fulfilment of the
debtobligation,theownershipoftheassetisretainedbythedebtor).
Furtherprovisionsforreversetransactionsbasedonrepurchaseagree-
ments are specified in the contractual arrangements applied by the
respective national central bank (or the ECB). Arrangements for
reversetransactionsbasedoncollateralisedloanstakeaccountofthe
different proceduresandformalities required toenable theestablish-
mentandsubsequentrealisationofarelevantinterestinthecollateral
(e.g.apledge)whichapplyindifferentjurisdictions.
(c) Interestterms
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 opera-
tion, i.e. the repurchase price includes the respective interest to be
paid. The interest rate on a reverse transaction in the formof 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 Eurosystemreverse open m arket operations
isasimpleinterestratewiththeday-countconvention‘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
pursuingtheaimsofsteeringinterestrates,managingtheliquiditysitua-
tioninthemarketandsignallingthestanceofmonetarypolicy.Theyalso
provide the bulk of refinancing to the financial sector. The operational2000X0776—EN—07.07.2002—001.001—13
▼M1
features of the main refinancing operations can be summarised as
follows:
— theyareliquidity-providingoperations,
— theyareexecutedregularlyeachweek(1),
— theynormallyhaveamaturityoftwoweeks(2)(3),
— they are executed in a decentralised manner by the national central
banks,
— they are executed through standard tenders (as specified in Section
5.1),
— allcounterpartiesfulfillingthegeneraleligibilitycriteria(asspecified
in Section 2.1) may submit tender bids for the main refinancing
operations,and
— both tier-one and tier-two assets (as specified in Chapter 6) are
eligibleasunderlyingassetsforthemainrefinancingoperations.
3.1.3.Longer-term refinancing operations
TheEurosystemalsoexecutesregularrefinancingoperationswithathree-
monthmaturity,whichareaimedatprovidingadditionallonger-termrefi-
nancingtothefinancialsector.Theseoperationsrepresentonlyalimited
partoftheglobalrefinancingvolume.Intheseoperations,theEurosystem
does not, as a rule, intend to send signals to the market and therefore
normallyactsasaratetaker.Accordingly,longer-termrefinancingopera-
tionsareusuallyexecuted intheformofvariable ratetendersand,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.
Theoperationalfeaturesofthelonger-termrefinancingoperationscanbe
summarisedasfollows:
— theyareliquidity-providingoperations,
— theyareexecutedregularlyeachmonth(4),
— theynormallyhaveamaturityofthreemonths(5),
— they are executed in a decentralised manner by the national central
banks,
— they are executed through standard tenders (as specified in Section
5.1),
— allcounterpartiesfulfillingthegeneraleligibilitycriteria(asspecified
inSection2.1)maysubmittenderbidsforthelonger-termrefinancing
operations,and
— both tier-one and tier-two assets (as specified in Chapter 6) are
eligible as underlying assets for the longer-termrefinancing opera-
tions.
3.1.4.Fine-tuning reverse operations
TheEurosystemcanexecutefine-tuningoperationsintheformofreverse
open market transactions. Fine-tuning operations aim to manage the
liquidity situation in the market and to steer interest rates, in particular
in order to smooth the effects on interest 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 to
retainahighdegreeofflexibilityinthechoiceofproceduresandopera-
tionalfeaturesintheconductoftheseoperations:
— they can take the formof liquidity-providing or liquidity-absorbing
operations,
— theirfrequencyisnotstandardised,
— theirmaturityisnotstandardised2000X0776—EN—07.07.2002—001.001—14
(1) The main and the longer-term refinancing operations are executed in accordance with
the Eurosystem's pre-announced tender operations calendar (see also Section 5.1.2),
which can be found on the ECB's website (www.ecb.int); see also the Eurosystemwebsites(Annex5).
(
2) Thematurityofthemainandthelonger-termrefinancingoperationsmayoccasionally
varydependingon, inter alia,bankholidaysinMemberStates.
(3) Furthermore, the Eurosystem may occasionally conduct a main refinancing operation
withadifferentmaturity(e.g.oneweek),inparallelwiththeregularmainrefinancingoperations. For instance, this could be done to reduce the difference between thevolumesofthetwooutstandingmainrefinancingoperations,
(
4) Seefootnote8.
(5) Seefootnote9.
▼M1
— liquidity-providing fine-tuning reverse transactions are normally
executed through quick tenders, although the possibility of using
bilateralproceduresisnotexcluded(seeChapter5),
— liquidity-absorbingfine-tuningreversetransactionsareexecuted, asa
rule,throughbilateralprocedures(asspecifiedinSection5.2),
— these operations are normally executed in a decentralised manner by
the national central banks (the Governing Council of the ECB will
decidewhether,underexceptionalcircumstances,bilateralfine-tuning
reverseoperationsmaybeexecutedbytheECB),
— the Eurosystemm ay select, according to the criteria specified in
Section2.2,alimited numberofcounterpartiestoparticipate infine-
tuningreverseoperations,and
— both tier-one and tier-two assets (as specified in Chapter 6) are
eligibleasunderlyingassetsforfine-tuningreverseoperations.
3.1.5.Structural reverse operations
TheEurosystemmayexecutestructuraloperationsintheformofreverse
openmarkettransactionsaimedatadjustingthestructuralpositionofthe
Eurosystemvis-à-vis the financial sector. The operational features of
theseoperationscanbesummarisedasfollows:
— theyareliquidity-providingoperations,
— theirfrequencycanberegularornon-regular,— theirmaturityisnotstandardisedapriori,
— they are executed through standard tenders (as specified in Section
5.1),
— they are executed in a decentralised manner by the national central
banks,
— allcounterpartiesfulfillingthegeneraleligibilitycriteria(asspecified
in Section 2.1) may submit tender bids for structural reverse opera-
tions,and
— both tier-one and tier-two assets (as specified in Chapter 6) are
eligibleasunderlyingassetsforstructuralreverseoperations.
3.2.Outrighttransactions
(a) Typeofinstrument
OutrightopenmarkettransactionsrefertooperationswheretheEuro-
systembuys or sells eligible assets outright on the m arket. Such
operationsareexecutedonlyforstructuralandfine-tuningpurposes.
(b) Legalnature
Anoutrighttransactionimpliesafulltransferofownershipfromthe
seller to the buyer with no connected reverse transfer of ownership.
Thetransactionsareexecutedinaccordancewiththemarketconven-
tionsforthedebtinstrumentusedinthetransaction.
(c) Price terms
In the calculation of prices, the Eurosystemacts in accordance with
themostwidelyacceptedmarketconventionforthedebtinstruments
usedinthetransaction.
(d) Otheroperationalfeatures
The operational features of Eurosystemoutright transactions can be
summarisedasfollows:
— they can take the formof liquidity-providing (outright purchase)
orliquidity-absorbing(outrightsale)operations,
— theirfrequencyisnotstandardised,— 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
outrightoperationsmaybeexecutedbytheECB),
— no restrictions are placed a priori on the range of counterparties
tooutrighttransactions,and
— only tier-one instruments (as specified in Section 6.1) are
normallyusedasunderlyingassetsinoutrighttransactions.2000X0776—EN—07.07.2002—001.001—15
▼M1
3.3.IssuanceofECBdebtcertificates
(a) Typeofinstrument
The ECB may issue debt certificates with the aim of adjusting the
structuralpositionoftheEurosystemvis-à-visthefinancialsectorso
astocreate(orenlarge)aliquidityshortageinthemarket.
(b) Legalnature
Thecertificates constituteadebtobligationoftheECBvis-à-visthe
holder of the certificate. The certificates are issued and held in a
book-entryforminsecuritiesdepositoriesintheeuroarea.TheECB
does not impose any restrictions on the transferability of the certifi-
cates. Further provisions related to ECB debt certificates will be
containedinthetermsandconditionsforsuchcertificates.
(c) Interestterms
Thecertificatesareissuedatadiscount,i.e.theyareissuedatbelow
the nominal amount and are redeemed at maturity at the nominal
amount.Thedifferencebetweentheissueamountandtheredemption
amountequalstheinterestaccruedontheissueamount,attheagreed
interest rate, over the maturity of the certificate. The interest rate
applied is a simple interest rate with the day-count convention
‘actual/360’.ThecalculationoftheissueamountisshowninBox1.
(d) Otheroperationalfeatures
TheoperationalfeaturesoftheissuanceofECBdebtcertificatescan
besummarisedasfollows:
— the certificates are issued in order to absorb liquidity fromthe
market,
— thecertificatescanbeissuedonaregularornon-regularbasis,— thecertificateshaveamaturityoflessthan12months,— the certificates are issued through standard tenders (as specified
inSection5.1),
— thecertificatesaretenderedandsettledinadecentralisedmanner
bythenationalcentralbanks,and
— all counterparties fulfilling the general eligibility criteria (as
specifiedinSection2.1)maysubmittenderbidsforthesubscrip-
tionofECBdebtcertificates.
3.4.Foreignexchangeswaps
(a) Typeofinstrument
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,2000X0776—EN—07.07.2002—001.001—16
▼M1
mainlywiththeaimofmanagingtheliquiditysituationinthemarket
andsteeringinterestrates.
(b) Legalnature
Foreignexchangeswapsexecutedformonetarypolicypurposesrefer
tooperationswheretheEurosystembuys(orsells)eurospotagainst
aforeigncurrencyand,atthesametime,sells(orbuys)itbackina
forwardtransactionataspecifiedrepurchasedate.Furtherprovisions
for foreign exchange swapsare specified in the contractual arrange-
mentappliedbytherespectivenationalcentralbank(ortheECB).
(c) Currencyandexchangerateterms
Asa rule, the Eurosystemoperates only in widely traded currencies
and in accordance with standard market practice. In each foreign
exchange swap operation, the Eurosystemand 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
exchangeswapsarespecifiedinBox2.
(d) Otheroperationalfeatures
The operational features of foreign exchange swaps can be
summarisedasfollows:
— they can take the formof liquidity-providing or liquidity-
absorbingoperations,
— theirfrequencyisnotstandardised,— theirmaturityisnotstandardised,— they are executed through quick tenders or bilateral procedures
(seeChapter5),
— they are normally executed in a decentralised manner by the
national central banks (the Governing Council of the ECB will
decidewhether,underexceptionalcircumstances,bilateralforeign
exchangeswapsmaybeexecutedbytheECB),and
— the Eurosystemm ay select, according to the criteria specified in
Section 2.2 and Annex 3, a limited number of counterparties to
participateinforeignexchangeswaps.2000X0776—EN—07.07.2002—001.001—17
▼M1
3.5.Collectionoffixed-termdeposits
(a) Typeofinstrument
The Eurosystem may invite counterparties to place remunerated
fixed-termdeposits with the national central bank in the Mem ber
State in which the counterparty is established. The collection of
fixed-termdeposits is envisaged only for fine-tuning purposes in
ordertoabsorbliquidityinthemarket.
(b) Legalnature
The deposits accepted fromcounterparties are for a fixed termand
with a fixed rate of interest. No collateral is given by the national
centralbanksinexchangeforthedeposits.
(c) Interestterms
The interest rateapplied tothedepositisasimple interest ratewith
theday-countconvention‘actual/360’.Interestispaidatmaturityof
thedeposit.
(d) Otheroperationalfeatures
The operational features ofthe collection offixed-termdepositscan
besummarisedasfollows:
— thedepositsarecollectedinordertoabsorbliquidity,
— the frequency with which deposits are collected is not standar-
dised,
— thematurityofthedepositsisnotstandardised,
— the collection of deposits is normally executed through quick
tenders, although the possibility of using bilateral procedures is
notexcluded(seeChapter5),
— thecollection ofdepositsisnormallyexecutedinadecentralised
manner by the national central banks (the Governing Council of
the ECB will decide whether, under exceptional circumstances,
the bilateral collection of fixed-termdeposits m ay be executed
bytheECB)(1),and
— the Eurosystemm ay select, according to the criteria specified in
Section2.2,alimitednumberofcounterpartiesforthecollection
offixed-termdeposits.
CHAPTER4
4.STANDINGFACILITIES
4.1.Themarginallendingfacility
(a) Typeofinstrument
Counterparties may usethe marginal lending facility to obtain over-
nightliquidity fromnational central banksatapre-specified interest
rate against eligible assets (as set out 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 condi-
tionsofthefacilityareidenticalthroughouttheeuroarea.
(b) Legalnature
Thenational central banksmayprovideliquidity underthemarginal
lendingfacilityeitherintheformofovernightrepurchaseagreements
(i.e.theownershipoftheassetistransferredtothecreditor,whilethe
parties agree to reverse the transaction through a re-transfer of the
assettothedebtoronthenextbusinessday)orasovernightcollater-
alisedloans(i.e.anenforceablesecurityinterestisprovidedoverthe
assets but, assuming fulfilment of the debt obligation, ownership of
theassetisretainedbythedebtor).Furtherprovisionsforrepurchase
agreements are specified in the contractual arrangements applied by
the respective national central bank.Arrangements forprovidingthe
liquidity in the formof collateralised loans take account of the
different proceduresandformalities required toenable theestablish-2000X0776—EN—07.07.2002—001.001—18
(1) Fixed-termdepositsareheldonaccountswiththenationalcentralbanks;thiswouldbe
the case even if such operations were to be executed in a centralised manner by the
ECB.
▼M1
mentandsubsequentrealisationofarelevantinterestinthecollateral
(apledge)whichapplyindifferentjurisdictions.
(c) Accessconditions
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
nationalcentralbankintheMemberStateinwhichtheinstitutionis
established.Accesstothemarginallendingfacilityisgrantedonlyon
days when the relevant national real-time gross settlement (RTGS)
systemandtherelevantSSS(s)areoperational.
Atend-of-day,counterparties'intradaydebitpositionsontheirsettle-
ment account with the national central banks are automatically
considered to be a request for recourse to the marginal lending
facility.Theproceduresforend-of-dayaccesstothemarginallending
facilityarespecifiedinSection5.3.3.
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 in which the counterparty is established. In order for
thenationalcentralbanktoprocesstherequestonthesameday,the
requestmustbereceivedbythenationalcentralbankatthelatest30
minutesaftertheactualclosingtimeofTARGET(1)(2).Asageneral
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 Euro-
systembusinessdayofareservemaintenance period.Intherequest,
the amount ofcredit is tobe stated and, ifunderlying assetsforthe
transaction have not already been pre-deposited with the national
centralbank,theunderlyingassetstobedeliveredforthetransaction
aretobespecified.
Apart fromthe requirem ent to present sufficient underlying eligible
assets,thereisnolimittotheamountoffundsthatcanbeadvanced
underthemarginallendingfacility.
(d) Maturityandinterestterms
The maturity of credit extended under the facility is overnight. For
counterparties participating directly inTARGET,thecreditisrepaid
onthenextdayonwhichtherelevantnationalRTGSsystemandthe
relevant SSS(s) are operational, at the time at which those systems
open.
The interest rate is announced in advance by the Eurosystemand 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 Eurosystembusiness
day(3). Interest under the facility is payable with the repayment of
thecredit.
(e) Suspensionofthefacility
Access to the facility is granted only in accordance with the objec-
tives 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.Thedepositfacility
(a) Typeofinstrument
Counterpartiescanusethedepositfacilitytomakeovernightdeposits
with national central banks. The deposits are remunerated at a pre-
specified interest rate. Under normal circumstances, the interest rate2000X0776—EN—07.07.2002—001.001—19
(1) InsomeMemberStates,thenationalcentralbank(orsomeofitsbranches)maynotbe
openforthepurposeofconductingmonetary policy operationsoncertain Eurosystembusinessdaysowing tonational orregional bank holidays. Insuch cases, the relevantnational central bankisresponsible forinforming thecounterparties inadvance ofthearrangements to be made for access to the marginal lending facility in relation to the
bankholiday.
(
2) TARGETclosingdaysareannouncedontheECB'swebsite(www.ecb.int);seealsothe
Eurosystemwebsites(Annex5).
(3) 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 of
conductingEurosystemmonetarypolicyoperations.
▼M1
onthefacilityprovidesafloorfortheovernightmarketinterestrate.
The terms and conditions of the deposit facility are identical
throughouttheeuroarea(1).
(b) Legalnature
Theovernightdepositsacceptedfromcounterpartiesareremunerated
atafixedrateofinterest.Nocollateralisgiventothecounterpartyin
exchangeforthedeposits.
(c) Accessconditions(2)
Institutions fulfilling the general counterparty eligibility criteria
specified in Section 2.1 may access the deposit facility. Access to
the deposit facility is granted through the national central bank in
the Member State in which the institution is established. Access to
thedepositfacilityisgrantedonlyondayswhentherelevantnational
RTGSsystemisopen.
To be granted access to the deposit facility, the counterparty must
send a request to the national central bank in the Member State in
whichthecounterpartyisestablished.Inorderforthenationalcentral
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)(3)(4). The deadline for requesting access to
the deposit facility is postponed by an additional 30 minutes on the
lastEurosystembusinessdayofareservemaintenanceperiod.Inthe
request,theamounttobedepositedunderthefacilityistobestated.
Thereisnolimittotheamountacounterpartymaydepositunderthe
facility.
(d) Maturityandinterestterms
Thematurityofdepositsunderthefacilityisovernight.Forcounter-
parties participating directly in TARGET, deposits held under the
facility mature on the next day on which the relevant national
RTGSsystemisoperational,atthetimeatwhichthissystemopens.
The interest rate is announced in advance by the Eurosystemand 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 Eurosystembusiness day.
Interestonthedepositsispayableatmaturityofthedeposit.
(e) Suspensionofthefacility
Access to the facility is granted only in accordance with the objec-
tives and general monetary policy considerations of the ECB. The
ECB may adapt the conditions of the facility or suspend it at any
time.
CHAPTER5
5.PROCEDURES
5.1.Tenderprocedures
5.1.1.General considerations
Eurosystemopenmarketoperationsarenormallyexecutedintheformof
tender procedures. The Eurosystem's tender procedures are performed in
sixoperationalstepsasspecifiedinBox3.2000X0776—EN—07.07.2002—001.001—20
(1) Operational differences resulting fromthe existence of different account structures
betweenthenationalcentralbanksmayexistacrosseuroareacountries.
(2) Owingtotheexistenceofdifferentaccountstructuresacrossthenationalcentralbanks,
theECBmayallownationalcentralbankstoapplyaccessconditionswhichareslightly
different fromthosereferredtohere.Thenational centralbankswillprovideinforma-tiononanysuchdeviationsfromtheaccessconditionsdescribedinthisdocument.
(
3) InsomeMemberStates,thenationalcentralbank(orsomeofitsbranches)maynotbe
openforthepurposeofconductingEurosystemmonetary policy operationsoncertain
Eurosystembusinessdays 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 relationtothebankholiday.
(
4) TARGETclosingdaysareannouncedontheECB'swebsite(www.ecb.int);seealsothe
Eurosystemwebsites(Annex5).
▼M1
The Eurosystemdistinguishes between two different types of tender
procedures:standardtendersandquicktenders.Theproceduresforstan-
dard and quick tenders are identical except for the time-frame and the
rangeofcounterparties.
(a) Standardtenders
For standard tenders, a maximum of 24 hours elapses from the
announcement of the tender to certification of the allotment result
(wherethetimebetweenthesubmissiondeadlineandtheannounce-
ment of the allotment result is approximately two hours). Chart 1
givesanoverviewofthenormaltime-framefortheoperationalsteps
for standard tenders. The ECB may decide to adjust the time-frame
inindividualoperations,ifdeemedappropriate.
The main refinancing operations, the longer-term refinancing opera-
tions and structural operations (with the exception of outright
transactions) are always executed in the formof standard tenders.
Counterparties fulfilling the general eligibility criteria specified in
Section2.1mayparticipateinstandardtenders.
CHART1
Normal time-frame for the operational steps for standard tenders
(TimesarestatedinECBtime(CET))
Note:ThefiguresrefertotheoperationalstepsasdefinedinBox3.2000X0776—EN—07.07.2002—001.001—21
▼M1
(b) Quick tenders
Quick tenders are normally executed within one hour of the
announcement of the tender, with certification taking place immedi-
ately after the announcement of the allotment result. The normal
time-frame fortheoperational stepsforquicktendersisspecified in
Chart2.TheECBmaydecidetoadjustthetime-frameinindividual
operations, if deemed appropriate. Quick tenders are only used for
the execution of fine-tuning operations. The Eurosystemm ay select,
according to the criteria and procedures specified in Section 2.2, a
limitednumberofcounterpartiestoparticipateinquicktenders.
CHART2
Normal time-frame for the operational steps for quick tenders
Note:ThefiguresrefertotheoperationalstepsasdefinedinBox3.
(c) Fixedrateandvariableratetenders
The Eurosystemhas the option of conducting either fixed rate
(volume) or variable rate (interest) tenders. In a fixed rate tender,
theECBspecifiestheinterestrateinadvanceandparticipatingcoun-
terpartiesbidtheamountofmoneytheywanttotransactatthefixed
interest rate(1). In a variable rate tender, counterparties bid the
amountsofmoneyandtheinterestratesatwhichtheywanttoenter
intotransactionswiththenationalcentralbanks(2).
5.1.2.Tender operations calendar
(a) Mainandlonger-termrefinancingoperations
The main and the longer-term refinancing operations are executed
according to an indicative calendar published by the Eurosystem(3).
Thecalendarispublishedatleastthreemonthsbeforethestartofthe
yearforwhichitisvalid.Thenormaltradedaysforthemainandthe
longer-termrefinancingoperationsarespecifiedinTable2.TheECB
aims to ensure that counterparties in all Member States can partici-
pate in the main and the longer-term refinancing operations.
Therefore, when compiling the calendar for these operations, the
ECBmakesappropriate adjustments tothenormalschedule soasto
takeintoaccountbankholidaysintheindividualMemberStates.2000X0776—EN—07.07.2002—001.001—22
(1) 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 fixed that they
wishtosell(andbuyback)orbuy(andsellback)atthatrate.
(2) Invariablerateforeignexchangeswaptenders,thecounterpartiesbidtheamountofthe
currency kept fixed andtheswappoint quotationatwhich they wishtoenter intotheoperation.
(
3) ThecalendarfortheEurosystem'stenderoperationscanbefoundontheECB'swebsite
(www.ecb.int);seealsotheEurosystemwebsites(Annex5).
▼M1
TABLE2
Normaltradedaysforthemainandthelonger-term refinancingoperations
Typeofoperation Normaltradeday(T)
Mainrefinancingoperations EachTuesday
Longer-termrefinancingoperations The first Wednesday of each minimum
reservemaintenanceperiod(1)
(1) Owing to the Christmas period, the December operation is brought forward by one week and
conducted at the end of the reserve maintenance period ending on 23 December instead of at thestartofthefollowingone.
(b) Structuraloperations
Structural operations through standard tenders are not executed
accordingtoanypre-specifiedcalendar.However,theyarenormally
conductedandsettledonlyondayswhichareNCBbusinessdays(1)
inallMemberStates.
(c) Fine-tuningoperations
Fine-tuning operations are not executed according to any pre-speci-
fied calendar. The ECB may decide to conduct fine-tuning
operations on any Eurosystembusiness day. Only national central
banksofMemberStateswherethetradeday,thesettlementdayand
the reimbursement day are NCB business days participate in such
operations.
5.1.3.Announcement of tender operations
Eurosystemstandard tenders are publicly announced by m eans of wire
services. In addition, national central banks may announce the tender
operation directly to counterparties without access to wire services. The
public tender announcement message normally contains the following
information:
— thereferencenumberofthetenderoperation,
— thedateofthetenderoperation,
— thetypeofoperation(provisionorabsorptionofliquidityandthetype
ofmonetarypolicyinstrumenttobeused),
— thematurityoftheoperation,
— thetypeofauction(fixedrateorvariableratetender),— themethodofallotment(‘Dutch’or‘American’auction,asdefinedin
Section5.1.5(d),
— the intended operation volume (normally only in the case of the
longer-termrefinancingoperations),
— thefixedtenderinterestrate/price/swappoint(inthecaseoffixedrate
tenders),
— the minimum/maximum accepted interest rate/price/swap point (if
applicable),
— thestartdateandmaturitydateoftheoperation(ifapplicable)orthe
valuedateandmaturitydateoftheinstrument(inthecaseoftheissu-
anceofdebtcertificates),
— thecurrenciesinvolvedandthecurrency,theamountofwhichiskept
fixed(inthecaseofforeignexchangeswaps),
— thereferencespotexchangeratetobeusedforthecalculationofbids
(inthecaseofforeignexchangeswaps),
— themaximumbidlimit(ifany),
— theminimumindividualallotmentamount(ifany),
— theminimumallotmentratio(ifany),
— thetimescheduleforthesubmissionofbids,2000X0776—EN—07.07.2002—001.001—23
(1) Throughoutthisdocument,theterm‘NCBbusinessday’referstoanydayonwhichthe
nationalcentralbankofaspecificMemberStateisopenforthepurposeofconducting
Eurosystem monetary policy operations. In some Member States, branches of thenational centralbankmaybeclosedonNCBbusinessdaysowingtolocalorregionalbank holidays. In such cases, the relevant national central bank is responsible forinforming the counterparties in advance of the arrangements to be made for transac-
tionsinvolvingthosebranches.
▼M1
— the denomination of the certificates (in the case of the issuance of
debtcertificates),and
— theISINcodeoftheissue(inthecaseoftheissuanceofdebtcertifi-
cates).
With a view to enhancing transparency in its fine-tuning operations, the
Eurosystemnorm ally announces quick tenders publicly in advance.
However, under exceptional circumstances, the ECB may decide not to
announcequicktenderspubliclyinadvance.Theannouncementofquick
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'tenderbidsmustbeinaformthatfollowstheproforma
exampleprovidedbythenationalcentralbanksfortherelevantoperation.
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
oneestablishment(eithertheheadofficeoradesignatedbranch)ineach
MemberState.
Infixed-ratetenders,counterpartiesshallstateintheirbidstheamountof
moneythattheyarewillingtotransactwiththenationalcentralbanks(1).
In variable rate tenders, counterparties may submit bids for up to 10
differentinterestrate/price/swappointlevels.Ineachbid,theyshallstate
the amount of money that they are willing to transact with the national
centralbanksandtherespectiveinterestrate(2)(3).Theinterestratesbid
mustbeexpressedasmultiplesof0,01percentagepoint.Inthecaseofa
variable rate foreign exchange swap tender, the swap points are to be
quoted according to standard market conventions and bids must be
expressedasmultiplesof0,01swappoint.
For the main refinancing operations, the minimum bid amount is EUR
1000000. Bids exceeding this amount must be expressed as multiples
of EUR 100000. The same minimum bid and multiple amounts are
applied in fine-tuning and structural operations. The minimum bid
amountisappliedtoeachindividualinterestrate/price/swappointlevel.
For the longer-termrefinancing operations, each national central bank
defines a minimum bid amount in the range from EUR 10000 to EUR
1000000. Bids exceeding the defined minimum bid amount must be
expressed as multiples of EUR 10000. The minimum bid amount is
appliedtoeachindividualinterestratelevel.
The ECB may impose a maximum bid limit in order to prevent dispro-
portionatelylargebids.Anysuchmaximumbidlimitisalwaysspecified
inthepublictenderannouncementmessage.
Counterparties are expected always to be in a position to cover the
amounts allotted to them by a sufficient amount of eligible underlying
assets(4). The contractual or regulatory arrangements applied by the
respective national central bank allow the imposition of penalties if a
counterpartyisunabletotransferasufficientamountofunderlyingassets
orcashtosettletheamountithasbeenallottedinatenderoperation.
Bidsare revocable upto thetender submissiondeadline. Bidssubmitted
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
theECB.Thenationalcentralbanksalsodiscardanybidwhichisbelow
theminimumbidamountorwhichisbelowanyminimumoraboveany
maximum accepted interest rate/price/swap point. Furthermore, the
national central banks may discard bids which are incomplete or which
donotfollowtheproformaexample.Ifabidisdiscarded,therespective2000X0776—EN—07.07.2002—001.001—24
(1) In fixed rate foreign exchange swaps, the amount of the currency kept fixed that the
counterpartyiswillingtotransactwiththeEurosystemistobestated.
(2) WithregardtotheissuanceofECBdebtcertificates,theECBmaydecidethatbidsare
tobeexpressedintheformofapriceratherthananinterestrate.Insuchcases,prices
shallbequotedasapercentageofthenominalamount.
(3) Invariablerateforeignexchangeswaps,theamountofthecurrencykeptfixedthatthe
counterparty is willing to transact with the Eurosystemand the respective swap pointlevelaretobestated.
(
4) Ortosettleincashinthecaseofliquidity-absorbingoperations.
▼M1
nationalcentralbankinformsthecounterpartyaboutitsdecisionpriorto
thetenderallotment.
5.1.5.Tender allotment procedures
(a) Fixedratetenderoperations
Intheallotment ofafixedratetender,thebidsreceived fromcoun-
terpartiesareaddedtogether.Iftheaggregateamountbidexceedsthe
total amount of liquidity to be allotted, the submitted bids will be
satisfiedprorata,accordingtotheratiooftheamounttobeallotted
totheaggregateamountbid(seeBox4).Theamountallottedtoeach
counterparty isroundedtothenearesteuro.However,theECBmay
decide to allot a minimum amount/ratio to each bidder in fixed rate
tenders.
(b) Variableratetendersineuro
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 with priority and
bidswithsuccessivelylowerinterestratesareaccepteduntilthetotal
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
oftheremainingamounttobeallottedtothetotalamountbidatthe
marginalinterestrate(seeBox5).Theamountallottedtoeachcoun-
terpartyisroundedtothenearesteuro.2000X0776—EN—07.07.2002—001.001—25
▼M1
2000X0776—EN—07.07.2002—001.001—26
▼M1
In the allotment of liquidity-absorbing variable rate tenders (which
may be used for the issuance of debt certificates and the collection
offixed-termdeposits),bidsarelistedinincreasingorderofoffered
interest rates (or diminishing order of offered prices). Bids with the
lowest interest rate (highest price) levels are satisfied with 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 bid amount exceeds the
remaining amount to be allotted, the remaining amount is allocated
pro rata among the bids according to the ratio of the remaining
amounttobeallottedtothetotalbidamountatthemarginalinterest
rate/price (see Box 5). For the issuance of debt certificates, the
amount allotted to each counterparty is rounded to the nearest
multiple of the denomination of the debt certificates. For other
liquidity-absorbing operations, the amount allotted to each counter-
partyisroundedtothenearesteuro.
TheECBmaydecidetoallotaminimumamounttoeachsuccessful
bidderinvariableratetenders.
(c) Variable-rateforeignexchangeswaptenders
Intheallotmentofliquidity-providingvariablerateforeignexchange
swaptenders,bidsarelistedinincreasingorderofswappointquota-
tions(1).Thebidswiththelowestswappointquotationsaresatisfied
with 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
eachcounterpartyisroundedtothenearesteuro.2000X0776—EN—07.07.2002—001.001—27
(1) Swappointquotationsarelistedinincreasingordertakingintoaccountthesignofthe
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 ishigherthan thecorrespondinginterest rate fortheeuro,theswappointquotation is positive (i.e. the euro is quoted at a premium to the foreign currency).Conversely,iftheforeigncurrencyinterestrateislowerthanthecorrespondinginterestrate for the euro, the swap point quotation is negative (i.e. the euro is quoted at a
discounttotheforeigncurrency).
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2000X0776—EN—07.07.2002—001.001—28
▼M1
Intheallotmentofliquidity-absorbingvariablerateforeignexchange
swap tenders, bids are listed in diminishing order of offered swap
point quotations. The bids with the highest swap point quotations
are satisfied with priority and successively lower swap point quota-
tionsareaccepted until thetotal amount ofthefixedcurrency tobe
absorbedisexhausted.If,atthelowestswappointquotationaccepted
(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
eachcounterpartyisroundedtothenearesteuro.
(d) Typeofauction
Forvariableratetenders,theEurosystemmayapplyeithersinglerate
or multiple rate auction procedures. In a single 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. that at which the total allotment is exhausted). In a multiple
rate auction (American auction), the allotment interest rate/price/
swap point is equal to the interest rate/price/swap point offered for
eachindividualbid.
5.1.6.Announcement of tender results
The results of standard and quick tenders are announced publicly by
meansofwireservices.Inaddition,nationalcentralbanksmayannounce
the allotment result directly to counterparties without access to wire
services. The public tender result message normally contains the
followinginformation:
— thereferencenumberofthetenderoperation,
— thedateofthetenderoperation,
— thetypeofoperation,
— thematurityoftheoperation,
— thetotalamountbidbyEurosystemcounterparties,
— thenumberofbidders,
— thecurrenciesinvolved(inthecaseofforeignexchangeswaps),
— thetotalamountallotted,
— thepercentageofallotment(inthecaseoffixedratetenders),
— thespotexchangerate(inthecaseofforeignexchangeswaps),
— the marginal interest rate/price/swap point accepted and the percen-
tage of allotment at the marginal interest rate/price/swap point (in
thecaseofvariableratetenders),
— theminimumbidrate,maximumbidrateandweightedaverageallot-
mentrate(inthecaseofmultiplerateauctions),
— thestartdateandmaturitydateoftheoperation(ifapplicable)orthe
valuedateandmaturitydateoftheinstrument(inthecaseoftheissu-
anceofdebtcertificates),
— theminimumindividualallotmentamount(ifany),
— theminimumallotmentratio(ifany),
— the denomination of the certificates (in the case of the issuance of
debtcertificates),and
— theISINcodeoftheissue(inthecaseoftheissuanceofdebtcertifi-
cates).
The national central banks will directly certify the individual allotment
resulttosuccessfulcounterparties.
5.2.Proceduresforbilateral operations
(a) Generalconsiderations
The national central banks may execute operations on the basis of
bilateralprocedures(1).Theseproceduresmaybeusedforfine-tuning
open market operations and structural outright operations. They 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 procedures2000X0776—EN—07.07.2002—001.001—29
(1) The Governing Council of the ECB will decide whether, under exceptional circum-
stances,fine-tuningbilateraloperationsmayalsobeexecutedbytheECBitself.
▼M1
can be distinguished: operations where counterparties are contacted
directly by the Eurosystem, and operations executed through stock
exchangesandmarketagents.
(b) Directcontactwithcounterparties
Inthisprocedure,thenationalcentralbanksdirectlycontactoneora
few domestic counterparties, which are selected according to the
criteriaspecifiedinSection2.2.Accordingtothepreciseinstructions
givenbytheECB,thenationalcentralbanksdecidewhethertoenter
into a deal with the counterparties. The transactions are settled
throughthenationalcentralbanks.
If the Governing Council of the ECB were to decide that, under
exceptional circumstances, bilateral operations could also be
executedbytheECBitself(orbyoneorafewnationalcentralbanks
acting as the operating armof the ECB), the procedures for such
operations would be adapted accordingly. In this case, the ECB (or
thenationalcentral bank(s)actingastheoperatingarmoftheECB)
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 armof the
ECB)woulddecidewhethertoenterintoadealwiththecounterpar-
ties.Thetransactionswouldneverthelessbesettledinadecentralised
mannerthroughthenationalcentralbanks.
Bilateraloperationsthroughdirectcontactwithcounterpartiescanbe
applied for reverse transactions, outright transactions, foreign
exchangeswapsandthecollectionoffixed-termdeposits.
(c) Operationsexecutedthroughstockexchangesandmarket
agents
The national central bankscan execute outright transactions through
stockexchangesandmarketagents.Fortheseoperations,therangeof
counterpartiesisnotrestrictedaprioriandtheproceduresareadapted
to the market conventions for the debt instruments transacted. The
Governing Council of the ECB will decide whether, under excep-
tional circumstances, the ECB itself (or one or a few national
central banks acting as the operating armof the ECB) m ay execute
fine-tuning outright operations through stock exchanges and market
agents.
(d) Announcementofbilateraloperations
Bilateraloperationsarenormallynotannouncedpubliclyinadvance.
Inaddition,theECBmaydecidenottoannouncetheresultsofbilat-eraloperationspublicly.
(e) Operatingdays
The ECB may decide to conduct fine-tuning bilateral operations on
anyEurosystembusinessday.OnlynationalcentralbanksofMember
Stateswherethetradeday,thesettlementdayandthereimbursement
dayareNCBbusinessdaysparticipateinsuchoperations.
Outrightbilateraloperationsforstructuralpurposesarenormallyonly
conducted and settled on days which are NCB business days in all
MemberStates.
5.3.Settlementprocedures
5.3.1.General considerations
Money transactions relating to the use of Eurosystemstanding facilities
or to participation in open market operations are settled on the counter-
parties' 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 need either
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 national central banks. The transfer of underlying
assets is executed via the counterparties' securities settlement accounts
with SSSs fulfilling the ECB's minimum standards(
1). Counterparties
withoutasafecustodyaccountwithanationalcentralbankorasecurities2000X0776—EN—07.07.2002—001.001—30
(1) 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's
website(www.ecb.int).
▼M1
settlement account with an SSSfulfilling the ECB's minimum standards
may settle the transactions of underlying assets through the securities
settlement account orthe safecustodyaccount ofacorrespondent credit
institution.
Furtherprovisionsrelatedtothesettlementproceduresaredefinedinthe
contractual arrangements applied by the national central banks (or the
ECB)forthespecificmonetarypolicyinstruments.Thesettlementproce-
dures may differ slightly between national central banks owing to
differencesinnationallawandoperationalpractices.
5.3.2.Settlement of open market operations
Openmarket operationsbasedonstandardtenders(i.e.mainrefinancing
operations, longer-termrefinancing operations and structural operations)
are normally settled on the first day following the trade day on which
allrelevantnationalRTGSsystemsandallrelevantSSSsareopen.Asa
matterofprinciple,theEurosystemaimstosettlethetransactionsrelated
toitsopenmarketoperationsatthesametimeinallMemberStateswith
all counterparties that have provided sufficient underlying assets.
However, owing to operational constraints and the technical features of
SSSs,thetiming withinthedayofthesettlement ofopenmarket opera-
tionsmaydifferacrosstheeuroarea.Thetimeofsettlementofthemain
and the longer-termrefinancing operations norm ally coincides with the
timeofreimbursementofapreviousoperationofcorrespondingmaturity.
The Eurosystem aims to settle open market operations based on quick
tenders and bilateral procedures on the trade day. However, the Euro-
system may, for operational reasons,occasionally apply other settlement
datesfortheseoperations,inparticularforoutrighttransactions(forfine-
tuning as well as structural purposes) and foreign exchange swaps (see
Table3).
TABLE3
NormalsettlementdatesforEurosystemopenmarketoperations (1)
MonetarypolicyinstrumentSettlementdateforoperations
basedonstandardtendersSettlementdateforoperations
basedonquicktendersorbilat-
eralprocedures
Reversetransactions T+1(2)T
Outrighttransactions — Accordingtomarket
conventionforunderlying
assets
Issuanceofdebtcertificates T+1 —
Foreignexchangeswaps — T,T+1orT+2
Collection of fixed-term
deposits—T
(1) Treferstothetradeday.ThesettlementdatereferstoEurosystembusinessdays.
(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, with the option of same-day
settlement. The settlement dates for the main and the longer-term refinancing operations are specifiedinadvanceintheEurosystem'stenderoperationscalendar(seeSection5.1.2).
5.3.3.End-of-day procedures
The end-of-day procedures are specified in documentation related to the
nationalRTGSsystemsandtheTARGETsystem.Asageneralrule,the
closing time for the TARGET system is 6 p.m. ECB time (CET). No
furtherpaymentordersareacceptedforprocessinginthenationalRTGS
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
latest30minutesaftertheactualclosingtimeofTARGET(1).2000X0776—EN—07.07.2002—001.001—31
(1) Thedeadlineforrequesting accesstotheEurosystem'sstandingfacilitiesispostponed
byanadditional30minutesonthelastEurosystembusinessdayofaminimumreserve
maintenanceperiod.
▼M1
Anynegativebalancesonthesettlement accounts(inthenationalRTGS
systems)ofeligible counterparties remaining after the finalisation of the
end-of-day control procedures are automatically considered to be a
requestforrecoursetothemarginallendingfacility(seeSection4.1).
CHAPTER6
6.ELIGIBLEASSETS
6.1.General considerations
Article18.1oftheStatuteoftheESCBallowstheECBandthenational
central banks to transact in financial markets by buying and selling
underlying assets outright or under repurchase agreements and requires
all Eurosystemcredit operations to be based on adequate collateral.
Consequently, all Eurosystemliquidity-providing operations are based
onunderlyingassetsprovidedbythecounterpartieseitherintheformof
thetransferofownershipofassets(inthecaseofoutrighttransactionsor
repurchase agreements) orinthe form ofapledge granted over relevant
assets(inthecaseofcollateralisedloans)(1).
With the aims of protecting the Eurosystem from incurring losses in its
monetary policy operations, ensuring the equal treatment of counterpar-
ties and enhancing operational efficiency, underlying assets have to
fulfil certain criteria in order to be eligible for Eurosystemm onetary
policyoperations.
It is recognised that the harmonisation of eligibility criteria throughout
the euro area would contribute to ensuring equal treatment and opera-
tional 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, between two 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
euroarea-wideeligibilitycriteriaspecifiedbytheECB,and
— tier-twoconsistsofadditionalassets,marketableandnon-marketable,
which are of particular importance to national financial markets and
banking systems and for which eligibility criteria are established by
thenational central banks,subject tothe minimum eligibility criteria
established by the ECB. The specific eligibility criteria for tier two
applied by the respective national central banks are subject to
approvalbytheECB.
Nodistinctionismadebetweenthetwotierswithregardtothequalityof
theassetsandtheireligibilityforthevarioustypesofEurosystemmone-
tary policy operations (except for the fact that tier-two assets are notnormally used by the Eurosystem in outright transactions). The assets
eligible for Eurosystemm onetary policy operations can also be used as
underlyingassetsforintradaycredit(
2).
Tier-one and tier-two assets are subject to the risk control measures
specifiedinSection6.4.
Eurosystemcounterpartiesmayuseeligibleassetsonacross-borderbasis,
i.e.theymayobtainfundsfromthenationalcentralbankoftheMember
State in which they are established by making use of assets located in
anotherMemberState(seeSection6.6).2000X0776—EN—07.07.2002—001.001—32
(1) Liquidity-absorbing outright and reverse open market operations are also based on
underlyingassets.Forunderlyingassetsusedinliquidity-absorbingreverseopenmarket
operations, the eligibility criteria are identical to those applied for underlying assets
used in liquidity-providing reverse open market operations. However, neither initialmarginsnorvaluationhaircutsareappliedinliquidity-absorbingoperations.
(
2) 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 for
Eurosystemmonetarypolicyoperations(seefootnote17inthischapter).
▼M1
6.2.Tier-one assets
The ECB establishes and maintains a list of tier one-assets. This list is
availabletothepublic(1).
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 in their respective Member State are also included in the tier-
onelist.
The following eligibility criteria are applied to other tier one assets(see
alsoTable4):
— they must be debt instruments having: (a) a predefined principal
amount; and(b)acouponthatcannot resultinanegative cashflow.
In addition, the coupon should be one of the following: (i) a zero
coupon;(ii)afixedratecoupon;or(iii)afloatingratecouponlinked
toaninterestratereference.Thecouponmaybelinkedtoachangein
theratingoftheissueritself.Furthermore,inflation-indexedbondsare
eligible. These features must be maintained until the redemption of
theobligation(2),
— theymustmeet highcredit standards.Intheassessmentofthecredit
standard of debt instruments, the ECB takes into account, inter alia,
availableratingsbymarketagencies,guarantees(3)providedbyfinan-
cially sound guarantors,(4) as well as certain institutional criteria
which would ensure particularly high protection of the instrument
holders(5),
— theymustbetransferableinbook-entryform,— they must be deposited/registered (issued) in the EEA with a central
bank or with a central securities depository (CSD) which fulfils the
minimum standards established by the ECB. They must be held
(settled) inthe euro area throughan account withthe Eurosystemor
with an SSS which fulfils the standards established by the ECB (so
that perfection and realisation are subject to the law of a euro area
country). If the CSDwhere the asset is issued and the SSSwhere it
is held are not identical, then the two institutions have to be
connectedbyalinkapprovedbytheECB(
6).
— theymustbedenominatedineuro(7),
— they must be issued (or, alternatively, guaranteed) by entities estab-
lishedintheEEA(8),2000X0776—EN—07.07.2002—001.001—33
(1) ThislistispublishedandupdateddailyontheECB'swebsite(www.ecb.int).
(2) Debt instruments affording rights to the principal and/or the interest that are subordi-
nated to the rights of holders of other debt instruments of the same issuer (or, withinastructuredissue,subordinatedtoothertranchesofthesameissue)areexcludedfromtier-one.
(
3) Eligible guarantees must be unconditional and callable upon first demand. They must
beeffectiveunderthelawgoverningtheguaranteeandenforceableunderthelawofa
euroareacountry.
(4) GuarantorsmustbeestablishedintheEEA.
(5) 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
amendingDirective85/611/EEC)areacceptedintier-oneonlyifeachissueassuchis
awardedarating(byaratingagency) whichindicates,intheviewoftheEurosystem,thatthedebtinstrumentmeetshighcreditstandards.Theeligibilityofdebtinstrumentsissuedunderanissuanceprogrammeisassessedonthebasisofanindividualratingforeachparticularissuewithinthatprogramme.
(
6) 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).
(
7) Expressedassuchorinthenationaldenominationsoftheeuro.
(8) The requirement that the issuing entity be established in the EEA does not apply to
internationalandsupranationalinstitutions.
▼M1
— theymustbelistedorquotedonaregulatedmarketasdefinedinthe
Investment Services Directive(1), or listed, quoted or traded on
certain non-regulated markets as specified by the ECB(2). Further-
more, market liquidity may be taken into account by the ECB when
determiningtheeligibilityofindividualdebtinstruments.
In spite of their inclusion in the tier one list, a counterparty shall not
submitasunderlyingassetsdebtinstrumentsissuedorguaranteedbythe
counterparty,orbyanyotherentitywithwhichthecounterpartyhasclose
links(3),asdefinedinDirective2000/12/ECrelatingtothetakingupand
pursuitofthebusinessofcreditinstitutions(4)(5).
Inspiteoftheirinclusioninthetier-one list,national central banksmay
decidenottoacceptthefollowinginstrumentsasunderlyingassets:
— debtinstrumentsfallingdueforrepaymentbeforethematuritydateof
themonetarypolicyoperationforwhichtheyarebeingusedasunder-
lyingassets(6),and
— debtinstrumentswithanincomeflow(e.g.acouponpayment)occur-
ring in the period until the maturity date of the monetary policy
operationforwhichtheyarebeingusedasunderlyingassets.
Alltier-oneassetsmaybeusedinacross-bordercontext,implyingthata
counterparty can receive credit fromthe national central bank of the
MemberStateinwhichthecounterpartyisestablishedbymakinguseof
tier-oneinstrumentslocatedinanotherMemberState(seeSection6.6).
Tier-one assets are eligible for all monetary policy operations whichare
basedonunderlyingassets,i.e.reverseandoutrightopenmarkettransac-
tionsandthemarginallendingfacility.2000X0776—EN—07.07.2002—001.001—34
(1) CouncilDirective 93/22/EECof10May1993oninvestment servicesinthesecurities
field,(OJL141,11.6.1993,p.27).
(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/EECamending Directive 85/611/EEC) are accepted in tier one only if they are listed orquotedonaregulatedmarketasdefinedintheInvestmentServicesDirective(Directive93/22/EEC) and comply with the requirements of the Prospectus Directive (Directive
89/298/EEC).
(
3) Intheeventthatacounterpartyisusingassetsthat,owingtoanidentitywiththeissuer/
guarantor or the existence of close links, it may not or no longer use to secure anoutstanding credit, it is obliged to immediately notify the relevant national centralbank thereof. The assets are valued at zero at the next valuation date and a margin
callmaybetriggered(seeAnnex6).
(
4) Article 1(26)of Directive 2000/12/EC ofthe European Parliament and ofthe Council
of20March2000relatingtothetakingupandpursuitofthebusinessofcreditinstitu-tions(OJL126.26.5.2000,p.1),readsasfollows:
‘Close links shall mean a situation in which two or more natural or legal persons are
linkedby:
(a) participation,whichshallmeantheownership,directorbywayofcontrol,of20%
ormoreofthevotingrightsorcapitalofanundertaking,or
(b) control, which shall mean the relationship between a parent undertaking and a
subsidiary,inallthecasesreferredtoinArticle 1(1)and(2)ofDirective 83/349/
EEC, or a similar relationship between any natural or legal person and an under-taking; any subsidiary undertaking of a subsidiary undertaking shall also beconsidered a subsidiary of the parent undertaking which is at the head of thoseundertakings.Asituationinwhichtwoormorenaturalorlegalpersonsareperma-
nently linked to one and the same person by a control relationship shall also be
regardedasconstitutingacloselinkbetweensuchpersons’.
(
5) This provision does not apply to: (i) close links between the counterparty and the
publicauthoritiesofEEAcountries;(ii)tradebills,forwhichatleastoneentity(otherthanacredit institution)isliable inaddition tothecounterparty;(iii)debtinstruments
whichcomplystrictlywiththecriteriasetoutinArticle22(4)oftheUCITSDirective
(Directive 88/220/EEC amending Directive 85/611/EEC); or (iv) cases in which debtinstrumentsareprotectedbyspecificlegalsafeguardscomparablewith(iii).
(
6) If the national central banks were to allow the use of instruments with a maturity
shorterthanthemonetarypolicy operations forwhich theyserveasunderlying assets,
counterpartieswouldberequiredtoreplacesuchassetsat,orpriorto,maturity.
▼M1
6.3.Tier-twoassets (1)
In addition to debt instruments fulfilling the eligibility criteria for tier-
one, national central banks may consider as eligible other assets, tier-
twoassets, which are of particular importance to their national financial
markets and banking systems. Eligibility criteria for tier-two assets are
establishedbythenationalcentralbanksinaccordancewiththeminimumeligibility 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.Theselistsareavailabletothepublic(
2).
Tier-two assets have to fulfil the following minimum eligibility criteria
(seealsoTable4):
— theycanbedebtinstruments(marketable ornon-marketable) having:
(a)apredefinedprincipalamount;and(b)acouponthatcannotresult
inanegativecashflow.Inaddition,thecouponshouldbeoneofthe
following: (i) a zero coupon; (ii) a fixed rate coupon; or (iii) a
floating rate coupon linked to an interest rate reference. The coupon
may be linked to a change in the rating of the issuer itself. Further-
more, inflation-indexed bonds are eligible. These features must be
maintained until the redemption of the obligation. They can also be
equities (traded on a regulated market as defined in the Investment
Services Directive(3). Equities issued by credit institutions and debt
instrumentsissuedbycreditinstitutionswhichdonotcomplystrictly
with the criteria set out in Article 22(4) of the UCITS Directive are
normally noteligible forinclusioninthetier-two lists.However,the
ECB may authorise national central banks to include such assets in
theirtier-twolistssubjecttocertainconditionsandrestrictions,
TABLE4
Eligible assetsforEurosystemmonetarypolicyoperations
Criteria Tier-one Tier-two
Type of asset — ECBdebtcertificates
— Other marketable debt
instruments(1)(2)— Marketable debt instru-
ments(1)
— Non-marketable debt
instruments
— Equities traded on a
regulatedmarket
Settlement procedures Instruments must be
centrally deposited in
book-entry formwith
national central banks or
an SSS fulfilling the
ECB'sminimumstandardsAssetsmustbeeasilyacces-
sible to the national central
bank which has included
theminitstier-twolist2000X0776—EN—07.07.2002—001.001—35
(1) In addition to the tier-two assets eligible for Eurosystemm onetary 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: (i) located in EEA countries outside the euro area; (ii)
issuedbyentitiesestablishedinEEAcountriesoutsidetheeuroarea;and(iii)denomi-
nated in EEA currencies (or other widely traded currencies). The ECB's authorisationwillbesubjecttothepreservationofoperational efficiency andtheexerciseofappro-priatecontroloverthespecificlegalrisksrelatingtosuchdebtinstruments.Withintheeuroarea,thesedebtinstrumentsmaynotbeusedonacross-borderbasis(i.e.counter-
parties may use these debt instruments only for receiving funds directly from the
national central bank which has been authorised by the ECB to grant intraday creditagainsttheseassets).
(
2) These lists are published and updated daily on the ECB's website (www.ecb.int). For
non-marketabletier-twoassetsanddebtinstrumentswithrestrictedliquidityandspecial
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,but shall offer alternative information to ensure that counterparties throughout theeuroareacaneasilyascertaintheeligibilityofaspecificasset.
(
3) CouncilDirective 93/22/EECof10May1993oninvestment servicesinthesecurities
field(OJL141,11.6.1993,p.27).
▼M1
Criteria Tier-one Tier-two
Type of issuer — Centralbanks
— Publicsector— Privatesector(
3)
— International and
supranational institu-
tions— Publicsector
— Privatesector(4)
Credit standard Theassetmustbedeemed
of high credit quality by
the ECB (which could
include a guarantee of an
EEA guarantor which is
deemed financially sound
bytheECB)The asset must be deemed
ofhighcredit quality bythe
national central bank which
has included it in its tier-
two list (which could
include a guarantee of a
euroareaguarantorwhichis
deemedfinanciallysoundby
the national central bank
whichhasincludedtheasset
initstier-twolist)
Place of establishment of
the issuer (or alternatively
the guarantor)EEA(5) Euroarea
Location of asset — Placeofissue:EEA
— Place of settlement:
euroarea(6)Euroarea(6)
Currency Euro(7) Euro(7)
Memorandum item: Cross-
border useYes Yes
(1) They must have both: (a) a predefined principal amount; and (b) a coupon that cannot result in a
negative cash flow. In addition, the coupon should be one of the following: (i)a zero coupon; (ii)a fixed rate coupon; or(iii)afloatingrate couponlinked toaninterest ratereference. The couponmaybelinkedtoachangeintheratingoftheissueritself.Furthermore,inflation-indexedbondsareeligible.Thesefeaturesmustbemaintaineduntiltheredemptionoftheobligation.
(
2) Debt instruments affording rights to the principal and/or the interest that are subordinated to the
rightsofholdersofotherdebtinstrumentsofthesameissuer(or,withinastructuredissue,subordi-natedtoothertranchesofthesameissue)areexcludedfromtier-one.
(
3) Debtinstrumentsissuedbycreditinstitutionswhichdonotcomplystrictlywiththecriteriasetoutin
Article 22(4) of the UCITS Directive (Directive 88/220/EEC amending Directive 85/611/EEC) are
acceptedintier-oneonlyunderthefollowingthreeconditions.First,eachissueneedstobeawarded
arating(byaratingagency)whichindicates,intheviewoftheEurosystem,thatthedebtinstrumentmeetshighcreditstandards.Theeligibilityofdebtinstrumentsissuedunderanissuanceprogrammeis assessed on the basis of an individual rating for each particular issue within that programme.Second, the debt instruments need to be listed or quoted on a regulated market as defined in the
Investment Services Directive (Directive 93/22/EEC). Third, the debt instruments need to comply
withtherequirementsoftheProspectusDirective(Directive89/298/EEC).
(
4) Equitiesissuedbycreditinstitutionsanddebtinstrumentsissuedbycreditinstitutionswhichdonot
comply strictly with the criteria set out in Article 22(4) of the UCITS Directive are normally noteligible for inclusion in tier-two lists. However, the ECB may authorise national central banks to
includesuchassetsintheirtier-twolistssubjecttocertainconditionsandrestrictions.
(
5) TherequirementthattheissuingentitybeestablishedintheEEAdoesnotapplytointernationaland
supranationalinstitutions.
(6) SothatperfectionandrealisationaresubjecttothelawofaMemberStateoftheeuroarea.
(7) Expressedassuchorinthenationaldenominationsoftheeuro.
— theymustbedebtobligationsagainstorequitiesof(orbeguaranteed
by)(1) entities which are deemed to be financially sound by the
nationalcentralbankwhichhasincludedtheassetsinitstier-twolist,
— theymustbeeasilyaccessibletothenationalcentralbankwhichhas
includedtheassetsinitstier-twolist,
— theymustbelocated intheeuroarea(sothatperfection andrealisa-
tionaresubjecttothelawofaeuro-areacountry),
— theymustbedenominatedineuro(2).2000X0776—EN—07.07.2002—001.001—36
(1) Eligible guarantees must be unconditional and callable upon first demand. They must
beeffectiveunderthelawgoverningtheguaranteeandenforceableunderthelawofaeuro-areacountry.
(
2) Expressedassuchorinthenationaldenominationsoftheeuro.
▼M1
— they must be issued (or, alternatively, guaranteed) by entities estab-
lishedintheeuroarea.
In spite of their inclusion in the tier-two lists, a counterparty shall not
submit as underlying assets debt obligations against or equities of the
counterparty, or any other entity with which the counterparty has close
links which the counterparty has close links(1), as defined in Article
1(26) of Directive 2000/12/EC relating to the taking up and pursuit of
thebusinessofcreditinstitutions(2)(3).
Inspiteoftheirinclusioninthetier-twolists,nationalcentralbanksmay
decidenottoacceptthefollowingassetsasunderlyingassets:
— debtinstrumentsfallingdueforrepaymentbeforethematuritydateof
the monetary policy operation for whichthey are usedasunderlying
assets(4),
— debtinstrumentswithanincomeflow(e.g.acouponpayment)occur-
ring in the period until the maturity date of the monetary policy
operationforwhichtheyarebeingusedasunderlyingassets,or
— equitieswithapayment ofanykindorwithanyotherrightattached
tothemwhichmayaffecttheirsuitabilityasunderlyingassetsforthe
period until the maturity date of the monetary policy operation for
whichtheyarebeingusedasunderlyingassets.
Tier-two assets eligible for Eurosystem monetary policy operations may
be used in a cross-border context, implying that a counterparty can
receive funds fromthe national central bank of the Mem ber State in
whichthe counterparty isestablished bymaking useofassetslocated in
anotherMemberState(seeSection6.6).
Tier-two assets are eligible for reverse open market transactions and the
marginal lending facility. They are not normally used in Eurosystem
outrighttransactions.
6.4.Riskcontrolmeasures
Risk control measures are applied to the assets underlying Eurosystem
monetary policy operations in order to protect the Eurosystem againstthe risk of financial loss if underlying assets have to be realised owing
tothedefaultofacounterparty.Theriskcontrolmeasuresatthedisposal
oftheEurosystemaredescribedinBox7.2000X0776—EN—07.07.2002—001.001—37
(1) In the event that a counterparty is using assets that, owing to the existence of close
links,itmaynotusetosecureanoutstandingcredit,itisobligedtoimmediatelynotify
the relevant national central bank thereof. The assets are valued at zero at the next
valuationdateandamargincallmaybetriggered(seeAnnex6).
(2) Article 1(26)of Directive 2000/12/EC ofthe European Parliament and ofthe Council
of20March2000relatingtothetakingupandpursuitofthebusinessofcreditinstitu-tions(OJL126,26.5.2000,p.1),readsasfollows:
‘Close links shall mean a situation in which two or more natural or legal persons are
linkedby:
(a) participation,whichshallmeantheownership,directorbywayofcontrol,of20%
ormoreofthevotingrightsorcapitalofanundertaking,or
(b) control, which shall mean the relationship between a parent undertaking and a
subsidiary,inallthecasesreferredtoinArticle 1(1)and(2)ofDirective 83/349/
EEC, or a similar relationship between any natural or legal person and an under-taking; any subsidiary undertaking of a subsidiary undertaking shall also beconsidered a subsidiary of the parent undertaking which is at the head of thoseundertakings.Asituationinwhichtwoormorenaturalorlegalpersonsareperma-
nently linked to one and the same person by a control relationship shall also be
regardedasconstitutingacloselinkbetweensuchpersons’.
(
3) This provision does not apply to: (i) close links between the counterparty and the
publicauthoritiesofEEAcountries;(ii)tradebills,forwhichatleastoneentity(otherthanacredit institution)isliable inaddition tothecounterparty;(iii)debtinstruments
whichcomplystrictlywiththecriteriasetoutinArticle22(4)oftheUCITSDirective
(Directive 88/220/EEC amending Directive 85/611/EEC); or (iv) cases in which debtinstrumentsareprotectedbyspecificlegalsafeguardscomparablewith(iii).
(
4) If the national central banks were to allow the use of instruments with a maturity
shorterthanthemonetarypolicy operations forwhich theyserveasunderlying assets,
counterpartieswouldberequiredtoreplacesuchassetsat,orpriorto,maturity.
▼M1
6.4.1.Initial margins
The Eurosystemapplies initial m argins, 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
initialmarginsareapplied,takingintoaccounttheexposuretimeforthe
Eurosystem:
— amarginof1%forintradayandovernighttransactions,and
— a margin of 2 % for transactions with an original maturity of more
thanonebusinessday.
Noinitialmarginsareappliedinliquidity-absorbingoperations.
6.4.2.Risk control measures for tier-one assets
In addition to the initial margins applied to the amount of liquidity
provided,theEurosystemappliesspecificriskcontrolmeasuresaccording
tothetypesofunderlyingassetsofferedbythecounterparty.Theappro-
priate risk control measures for tier-one assets are determined by the2000X0776—EN—07.07.2002—001.001—38
▼M1
ECB, taking into consideration differences in the legal systems of the
Member States. Risk control measures for tier-one assets are broadly
harmonised acrosstheeuroarea(1).Theriskcontrol frameworkfortier-
oneassetsincludesthefollowingmainelements:
— individualdebtinstrumentsaresubjecttospecific‘valuationhaircuts’.
The haircuts are applied by deducting a certain percentage fromthe
market value of the underlying asset. The haircuts differ according
totheresidual maturity andcouponstructure ofthedebtinstruments
asdescribedinBox8,
— novaluationhaircutsareappliedinliquidity-absorbingoperations,
— depending on both the jurisdiction and national operational systems,
nationalcentralbanksallowforthepoolingofunderlyingassetsand/
orrequiretheearmarkingoftheassetsusedineachindividualtrans-
action.Inpoolingsystems,thecounterpartymakesapoolofsufficient
underlying assets available to the central bank to cover the related
credits received fromthe central bank, thus im plying that individual
assets are not linked to specific credit operations. By contrast, in an
earmarkingsystem,eachcreditoperationislinkedtospecificidentifi-
ableassets,2000X0776—EN—07.07.2002—001.001—39
(1) OwingtooperationaldifferencesacrossMemberStatesinrespectoftheproceduresfor
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 repurchase agree-ments based on individual assets specified for each transaction), minor differencesmayoccurwithregardtothetimingofthevaluationandotheroperationalfeaturesof
themarginframework.
▼M1
— the assets are subject to daily valuation. On a daily basis, national
centralbankscalculate therequiredvalueofunderlyingassetstaking
into account changes in outstanding credit volumes, the valuation
principles outlined in Section 6.5 and the required initial margins
andvaluationhaircuts,
— if, after valuation, the underlying assets do not match the require-
ments as calculated on that day, symmetric margin calls are
performed.Inordertoreducethefrequencyofmargincalls,national
central banksmay apply atrigger point.If applied, thistrigger point
is1%oftheamountofliquidityprovided.Dependingonthejurisdic-
tion, 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
theunderlyingassets,followingtheirrevaluation, weretoexceedthe
uppertriggerpoint,thenationalcentralbankwouldreturntheexcess
assets(orcash)tothecounterparty(seeBox9),
2000X0776—EN—07.07.2002—001.001—40
▼M1
— inpoolingsystems,bydefinition,counterpartiesmaysubstituteunder-
lyingassetsonadailybasis,
— in earmarking systems, the substitution of underlying assets may be
permittedbynationalcentralbanks,
— the ECB may at any time decide to remove individual debt instru-
mentsfromthelistofeligibletier-oneinstruments(1).
6.4.3.Risk control measures for tier-two assets
Theappropriateriskcontrolmeasuresfortier-twoassetsarecompiledby
thenationalcentralbankwhichhasincludedtheassetinitstier-twolist.
The application of risk control measures by national central banks is
subjecttoECBapproval.TheEurosystemaimstoensurenon-discrimina-
toryconditionsfortier-twoassetsacrosstheeuroareawhenestablishing
the appropriate riskcontrol measures. Within this framework, the valua-
tionhaircutsappliedtotier-twoassetsreflectthespecificrisksassociated
with these assets and are at least as stringent as the valuation haircuts
applied to tier-one assets. Tier-two assets are classified in four different
haircut groups,reflecting differences intheir 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
horizonandtherelevantmaturityoftheasset.2000X0776—EN—07.07.2002—001.001—41
(1) If,atthetime ofexclusion fromthetier-one list,adebtinstrumentisbeingusedina
Eurosystemcreditoperation,itwillhavetoberemovedwithin20businessdayscalcu-
latedfromthetimeofexclusionfromthelist.
▼M1
2000X0776—EN—07.07.2002—001.001—42
▼M1
Theinclusionoftier-twoassetsinoneofthefollowingliquiditygroupsis
proposedbynationalcentralbanksandissubjecttotheECB'sapproval.
1. Equities2. Marketabledebtinstrumentswithlimitedliquidity
Themajorityofthetier-twoassetsfallintothiscategory.Althoughthere
maybesomedifferencesinthedegreeofliquidity,theassetsaresimilar
ingeneralinthattheyhaveasmallsecondarymarket,pricesmaynotbe
quoteddailyandnormalsizetradescangeneratepriceeffects.
3. Debt instruments with restricted liquidity and special
features
Theseareassetswhich,whileenjoyingsomeaspectsofmarketability,do
require extra time to be liquidated in the market. This is the case for
assets which are generally non-marketable but which have special
features that introduce some marketability, including market auction
procedures (if there is a need to liquidate the assets) and a daily price
valuation.
4. Non-marketabledebtinstruments
Theseinstrumentsareinpracticenon-marketableandthereforehavelittle
ornoliquidity.
Fortier-twoassetswithinterestrateresettingfeatures,inwhichthereset-
ting is done in an unequivocal and clear manner following market
standardsandsubjecttotheECB'sapproval,therelevantmaturityisthat
givenbytheresettingmaturityregardlessoftheliquiditygroupinwhich
itisincluded.
Thenationalcentralbanksapplythesametriggerpoint(ifapplicable)for
theexecutionofmargincallsfortier-twoassetsasthatfortier-oneassets.
Inaddition,nationalcentralbanksmayapplylimitstotheiracceptanceof
tier-two assets, they may require additional guarantees and they may at
anytimedecidetoremoveindividualassetsfromtheirtier-twolists.
6.5.Valuationprinciplesforunderlyingassets
Whendeterminingthevalueofunderlyingassetsusedinreversetransac-
tions,theEurosystemappliesthefollowingprinciples:
— for each marketable asset eligible in tier-one or tier-two, the Euro-
systemspecifies a single reference price source. This also im plies
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,
— foreachreferencemarket,theEurosystemdefinesthemostrepresen-
tative price to be used for the calculation of market values. If more
thanonepriceisquoted,thelowestoftheseprices(normallythebid
price)isused,
— the value of marketable assets is calculated on the basis of the most
representativepriceonthebusinessdayprecedingthevaluationdate,
— 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
assetinthereferencemarket,
— themarketvalueofadebtinstrumentiscalculatedincludingaccrued
interest,
— depending on differences in national legal systems and operational
practices, the treatment of income flows (e.g. coupon payments)
related to an asset which are received during 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 aimto ensure that the econom ic
effectofthetreatmentofincomeflowsisequivalenttoasituationin
which the income is transferred to the counterparty on the payment
day(
1),2000X0776—EN—07.07.2002—001.001—43
(1) Nationalcentralbanksmaydecidenottoacceptasunderlyingassetsinreversetransac-
tionsdebtinstrumentswithanincomeflow(e.g.acouponpayment)orequitieswithapayment ofanykind(orwithanyotherrightattachedtothem whichmayaffect theirsuitability as underlying assets) occurring in the period until the maturity date of the
monetarypolicyoperation(seeSections6.2and6.3).
▼M1
— For non-marketable tier-two assets, the national central bank which
hasincludedtheassetsinitstier-twolistspecifiesseparatevaluation
principles.
6.6.Cross-borderuseofeligible assets
Eurosystemcounterpartiesmayuseeligibleassetsonacross-borderbasis,
i.e.theymayobtainfundsfromthenationalcentralbankoftheMember
State in which they are established by making use of assets located in
anotherMemberState.Underlyingassetsmaybeusedonacross-border
basisinthesettlementofalltypesofoperationsinwhichtheEurosystem
provides liquidity against eligible assets. A mechanism has been devel-
oped by the national central banks (and by the ECB) to ensure that all
eligibleassetsmaybeusedonacross-borderbasis.Thisisthecorrespon-
dentcentralbankingmodel(CCBM),underwhichnationalcentralbanks
act as custodians (‘correspondents’) for each other (and for the ECB) in
respect of assets accepted in their local depository or settlement system.
Themodelmaybeusedforalleligibleassets.Specificsolutionsmaybe
usedfornon-marketable assetsortier-twoassetswithrestricted liquidity
andspecialfeatureswhichcannotbetransferredthroughanSSS(1).The
CCBMmaybeusedtocollateraliseallkindsofEurosystemcreditopera-
tions(2). In addition to the CCBM, eligible links between SSSs can be
usedforthecross-bordertransferofsecurities(3).
6.6.1.Correspondent central banking model
ThecorrespondentcentralbankingmodelisillustratedinChart3.
CHART3
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 are2000X0776—EN—07.07.2002—001.001—44
(1) Detailsareprovidedinthe‘CCBMbrochure’,whichisavailableontheECB'swebsite
(www.ecb.int).
(2) The ECB may authorise national central banks to grant intraday credit against certain
types of ‘foreign’ debt instruments (see footnote 17 in this chapter). However, withintheeuroarea,suchdebtinstrumentsmaynotbeusedonacross-borderbasis.
(
3) EligibleassetsmaybeusedthroughanaccountofacentralbankinanSSSlocatedina
countryotherthanthatofthecentralbankinquestioniftheEurosystemhasapproved
the use of such an account. Since August2000, 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 Euroclearthrougheligiblelinks.
▼M1
earmarked for each individual transaction or whether they are held in a
poolofunderlyingassets(1):
— inanearmarking system,assoonasits bidfor credit isaccepted by
the national central bank of the Member State in which the counter-
party is established (i.e. the ‘home central bank’), the counterparty
instructs(via its owncustodian, ifnecessary) the SSSin the country
inwhichitssecuritiesareheldtotransferthemtothecentralbankof
thatcountryfortheaccountofthehomecentralbank.Oncethehome
centralbankhasbeeninformedbythecorrespondentcentralbankthat
thecollateral hasbeenreceived, ittransfersthefundstothecounter-
party. Central banks do not advance funds until they are certain that
thecounterparties'securitieshavebeenreceivedbythecorrespondent
central bank.Wherenecessarytomeet settlement deadlines,counter-
parties may be able to pre-deposit assets with correspondent central
banks for the account of their home central bank using the CCBMprocedures,
— 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 been
received,itwilladdthesesecuritiestothepoolaccountofthecoun-
terparty.
TheCCBMisavailabletocounterpartiesfrom9a.m.to4p.m.ECBtime
(CET)oneachEurosystembusinessday.Acounterpartywishingtomake
use of the CCBM must advise the national central bank from which it
wishes to receive credit, i.e. its home central bank, before 4 p.m. ECB
time(CET).Furthermore,thecounterpartymustensurethatthecollateral
forsecuringmonetarypolicyoperationsisdeliveredtotheaccountofthe
correspondent central bank by 4.45 p.m. ECB time (CET) at the latest.
Instructionsordeliveriesnotrespectingthisdeadlinewillonlybeconsid-
ered for credit given on the following business day. When the
counterparties foresee a need to use the CCBM late in the day, they
should,wherepossible,delivertheassetsinadvance(i.e.pre-depositthe
assets). In exceptional circumstances or when required for monetary
policy purposes, the ECB may decide to extend the closing time of the
CCBMuntiltheclosingtimeofTARGET.
6.6.2.Cross-border links
InadditiontotheCCBM,eligiblelinksbetweenEUSSSscanbeusedfor
thecross-bordertransferofsecurities.
CHART4
Links between securities settlement systems
2000X0776—EN—07.07.2002—001.001—45
(1) Seethe‘CCBMbrochure’forfurtherexplanations.
▼M1
AlinkbetweentwoSSSsallowsaparticipantinoneSSStoholdsecuri-
tiesissuedinanother SSSwithoutbeingaparticipant ofthatotherSSS.
BeforetheselinkscanbeusedtotransfercollateralforEurosystemcredit
operations, they have to be assessed and approved against the standards
fortheuseofEUSSSs(1)(2).
Froma Eurosystemperspective, the CCBM and the cross-border links
between EU SSSs fulfil the same role of allowing counterparties to use
collateral on a cross-border basis, i.e. both enable counterparties to use
collateral to obtain credit fromtheir hom e central bank, even if this
collateral was issued in an SSSof another country. The CCBM and the
cross-borderlinksperformthisfunctionindifferentways.IntheCCBM,
thecross-borderrelationship isbetween thenational central banks.They
actascustodiansforoneanother.
Usingthe links, the cross-borderrelationship is between the SSSs.They
openomnibusaccountswithoneanother. Assetsdepositedwithacorre-
spondentcentralbankcanonlybeusedtocollateraliseEurosystemcredit
operations.AssetsheldthroughalinkcanbeusedforEurosystemcredit
operationsaswellasforanyotherpurposeselectedbythecounterparty.
Usingcross-borderlinks,the counterparties holdthe assetsontheir own
accountwiththeirhomeSSSandhavenoneedforacustodian.
CHAPTER7
7.MINIMUMRESERVES (3)
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 this
systemislaiddowninArticle19oftheStatuteoftheESCB,theCouncil
Regulation (EC) concerning the application of minimum reserves by the
European Central Bank and the ECB Regulation on minimum reserves.
The application of the ECB Regulation on minimum reserves ensures
that the terms and conditions of the Eurosystem's minimum reserve
systemareuniformthroughouttheeuroarea.
Theamountofminimumreservestobeheldbyeachinstitutionisdeter-
minedinrelationtoitsreservebase.TheEurosystem'sminimumreserve
systemenables counterparties to m ake use of averaging provisions,
implyingthatcompliancewithreserverequirementsisdeterminedonthe
basisofthe average ofthe end-of-calendar-day balances on thecounter-
parties' reserve accounts over a one-month maintenance period.
Institutions' holdings of required reserves are remunerated at the rate on
theEurosystem'smainrefinancingoperations.
The Eurosystem's minimum reserve system primarily pursues the
followingmonetaryfunctions:
—Stabilisation of money market interest rates
TheaveragingprovisionoftheEurosystem'sminimumreservesystem
aims to contribute to the stabilisation of money market interest rates
bygivinginstitutionsanincentivetosmooththeeffectsoftemporary
liquidityfluctuations.
—Creation or enlargement of a structural liquidity shortage
TheEurosystem'sminimum reservesystemcontributestocreating or
enlargingastructuralliquidityshortage.Thismaybehelpfulinorder
to improve the ability of the Eurosystem to operate efficiently as a
supplierofliquidity.
Intheapplicationofminimumreserves,theECBisboundtoactpursuant
the objectives of the Eurosystemas 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.2000X0776—EN—07.07.2002—001.001—46
(1) TheupdatedlistofeligiblelinkscanbefoundontheECB'swebsite(www.ecb.int).
(2) See the ‘Standards for the use of EU securities settlement systems in ESCB credit
operations’,January1998.
(3) The relevant legal framework for the ECB to apply minimum reserves is formed by
Council Regulation (EC) No 2531/98 of 23 November 1998 and the ECB Regulationof December 1998 on the application of minimum reserves (ECB/1998/15) (as
amended).Thecontentofthischapterisprovidedforinformationpurposesonly.
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7.2.Institutionssubjecttominimumreserves
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 in the euro area are also subject to the Eurosystem's
minimum reserve system. However, branches located outside the euro
area of credit institutions established in the euro area are not subject to
thissystem.
Institutions will be automatically exempted from reserve requirements
fromthestartofthemaintenanceperiodwithinwhichtheirauthorisation
is withdrawn or surrendered, or within which a decision to submit the
institution to winding-up proceedings is taken by a judicial authority or
any other competent authority of a participating Member State.
According to the Council Regulation (EC) concerning the application of
minimum reserves by the European Central Bank and the ECB Regula-
tion on minimum reserves, the ECB may also exempt classes of other
institutions from their obligations under the Eurosystem's minimum
reserve systemon a non-discrim inatory basis if the purposes of this
system would not be met by imposing them on those particular institu-
tions.Initsdecisiononanysuchexemption,theECBtakesintoaccount
oneormoreofthefollowingcriteria:
— theinstitutionispursuingspecialpurposefunctions,
— the institution is not exercising active banking functions in competi-
tionwithothercreditinstitutions,and/or
— the institution has all its deposits earmarked for purposes related to
regionaland/orinternationaldevelopmentassistance.
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 this systemfor reasons other than their being subject to reorganisation measures(
1).
Counterpartiesmayrelyontheselistsindecidingwhethertheirliabilities
are owed to another institution that is itself subject to reserve require-
ments. The lists available to the public on the last Eurosystem business
day of each calendar month are valid for the calculation of the reserve
baseforthesubsequentmaintenanceperiod.
7.3.Determinationofminimumreserves
(a) Reservebaseandreserveratios
Thereservebaseofaninstitutionisdefinedinrelationtoelementsof
itsbalancesheet.Thebalancesheetdataarereportedtothenational
centralbankswithinthegeneralframeworkoftheECB'smoneyand
bankingstatistics(seeSection7.5)(2).Forinstitutionssubjecttofull
reportingrequirements,thebalancesheetdatareferringtotheendof
agivencalendarmonthareusedtodeterminethereservebaseforthe
maintenanceperiodstartingduringthefollowingcalendarmonth.
ThereportingframeworkfortheECB'smoneyandbankingstatistics
includes the possibility to relieve small institutions of some of the
reporting burden. Institutions to which this provision applies only
needtoreportalimitedsetofbalancesheetdataonaquarterlybasis
(asend-of-quarterdata)andwithareportingdeadlinewhichislonger
thanthatsetforlargerinstitutions.Fortheseinstitutions,thebalance
sheetdatareportedforaspecificquarterareusedtodetermine,with
a lag of one month, the reserve base for the consecutive three one-
monthreservemaintenanceperiods.2000X0776—EN—07.07.2002—001.001—47
(1) ThelistsareavailabletothepublicontheECB'swebsite(www.ecb.int).
(2) The reporting framework for the ECB's money and banking statistics is presented in
Annex4.
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AccordingtotheCouncilRegulation(EC)concerningtheapplication
of minimum reserves by the European Central Bank, the ECB is
entitled to include liabilities resulting fromthe acceptance of funds
together withliabilities resulting fromoff-balance-sheet item s inthe
reserve base of institutions. In the Eurosystem's minimum reserve
system, only the liability categories ‘deposits’, ‘debt securities
issued’and‘moneymarketpaper’areactuallyincludedinthereserve
base(seeBox11)(1).
Liabilities vis-à-vis other institutions included in the list of institu-
tions 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 cate-
gories ‘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
reservesysteminordertobeentitledtodeductthemfromthereserve
base. If such proof cannot be presented, issuers may apply standar-
dised deductions of a fixed percentage(2) to each of these balance
sheetitems.
The reserve ratios are determined by the ECB subject to the
maximumlimitspecifiedintheCouncilRegulation(EC)concerning
theapplication ofminimum reservesbytheEuropeanCentralBank.
The ECB applies a uniformnon-zero reserve ratio to m ost of the
items included in the reserve base. This reserve ratio is specified in
the ECB Regulation on minimum reserves. The ECB sets a zero
reserve ratio on the following liability categories: ‘deposits with
agreedmaturityovertwoyears’,‘depositsredeemableatnoticeover
twoyears’,‘repos’and‘debtsecuritieswithagreedmaturityovertwo
years’ (see Box 11). The ECB may at any time change the reserve
ratios. Changes in reserve ratios are announced by the ECB in
advance of the first maintenance period for which the change is
effective.2000X0776—EN—07.07.2002—001.001—48
(1) Itshouldbenotedthattheliabilitycategory‘moneymarketpaper’willbemergedwith
the liability category ‘debt securities issued’ within the reporting framework for the
ECB'smoneyandbankingstatisticsinaccordancewiththeRegulationoftheEuropean
Central Bank of 22 November 2001 concerning the consolidated balance sheet of themonetary financial institutions sector (ECB/2001/13). The first reporting exerciseconducted in accordance with the new Regulation will begin with the monthly datafor January 2003 (see Annex 4). For this purpose, reporting institutions will have to
breakdowntheliabilitycategory‘moneymarketpaper’accordingtothesameoriginal
maturity cut-off points required for debt securities and allocate it to the liability cate-gory ‘debt securities issued’. Therefore, references made in this publication to thereserve base as comprising the liability categories ‘deposits’, ‘debt securities issued’and ‘money market paper’ shall be understood as comprising only the liability cate-
gories ‘deposits’ and ‘debt securities issued’ as fromthe m onthly data for January
2003.
(
2) See ECB Regulation of 1 December 1998 on the application of minimum reserves
(ECB/1998/15).Furtherinformationrelatingtothestandardiseddeductionratiocanbefound on the ECB's website (www.ecb.int); see also the Eurosystemwebsites (Annex
5).
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(b) Calculationofreserverequirements
The reserve requirement of each individual institution is calculated
by applying, to the amount of eligible liabilities, the reserve ratios
forthecorrespondingcategoriesofliabilities.
Each institution deducts a uniformlum p-sumallowance fromits
reserve requirement in each MemberState in whichit hasan estab-
lishment. The size of the lump-sum allowance is specified in the
ECB Regulation on minimum reserves. The granting of such an
allowanceshallbewithoutprejudicetothelegalobligationsofinsti-
tutionssubjecttotheEurosystem'sminimumreservesystem(1).
The reserve requirement for each maintenance period is rounded to
thenearesteuro.2000X0776—EN—07.07.2002—001.001—49
(1) 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
bankingstatistics(seeAnnex4),onlyonesuchallowancewillbegrantedtothegroupasawhole,unlesstheinstitutionsprovidedataonthereservebaseandreserveholdingsinasufficientlydetailedmannertoenabletheEurosystemtoverifytheiraccuracyandquality and to determine the respective reserve requirement of each individual institu-
tionincludedinthegroup.
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7.4.Maintenanceofreserve holdings
(a) Maintenanceperiod
The maintenance period is one month, starting on the 24th calendar
day of each month and ending on the 23rd calendar day of the
followingmonth.
(b) Reserveholdings
Each institution must hold its minimum reserves on one or more
reserveaccountswiththenational central bankintheMemberState
inwhichitisestablished.Forinstitutionswithmorethanoneestab-
lishment in a Member State, the head office is responsible for
fulfilling the aggregate minimum reserves of all the domestic estab-
lishments of the institution(1). An institution with establishments in
more than one Member State is required to hold minimum reserves
withthenationalcentralbankofeachMemberStateinwhichithas
anestablishment, inrelation toitsreservebaseinthecorresponding
MemberState.
Institutions' settlement accounts with the national central banks may
beusedasreserveaccounts.Reserveholdingsonsettlementaccounts
may be used for intraday settlement purposes. The daily reserve
holding of an institution is calculated as the end-of-day balance on
itsreserveaccount.
AninstitutionmayapplytothenationalcentralbankintheMember
Stateinwhichtheinstitutionisresidentforpermissiontoholdallits
minimumreservesindirectlythroughanintermediary.Thepossibility
of holding minimum reserves through an intermediary 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 provi-
sionsspecifiedintheECBRegulationonminimumreserves.
(c) Remunerationofreserveholdings
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-
tionispaidonthesecondNCBbusinessdayfollowingtheendofthe
maintenanceperiodoverwhichtheremunerationwasearned.2000X0776—EN—07.07.2002—001.001—50
(1) IfaninstitutionhasnoheadofficeinaMemberStateinwhichitisestablished,ithas
to designate a principal branch which would then be responsible for fulfilling theaggregate minimumreserverequirements ofalltheestablishments oftheinstitution in
therelevantMemberState.
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7.5.Reportingandverification ofthereservebase
The reserve base items for the application of minimum reserves are
calculated by the institutions subject to minimum reserves themselves
and are reported to the national central banks within the general frame-
work of the ECB's money and banking statistics (see Annex 4). Article
5ofECBRegulation ECB/1998/15defines proceduresfortheconfirma-
tion and, in exceptional cases, the revision of the reserve base and the
reserverequirementoftheinstitution.
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
reservesthroughanintermediarydoesnotchangethestatisticalreporting
obligationsofinstitutionsholdingreservesviaanintermediary.
TheECBandthenationalcentralbankshavetheright,withinthescope
of the Council Regulation (EC) concerning the application of minimum
reservesbytheEuropeanCentralBank,toverifytheaccuracyandquality
ofcollecteddata.
7.6.Non-compliancewithminimumreserveobligations
Non-compliance withtheminimum reserveobligationsarisesifaninsti-
tution's average end-of-calendar-day balance on its reserve account(s)
over the maintenance period is less than its reserve requirement for the
correspondingmaintenanceperiod.
Where an institution fails 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
CentralBank,imposeanyoneofthefollowingsanctions:
— a payment of up to 5 percentage points above the marginal lending
rate,appliedtotheamountofthereserverequirementwhichtherele-
vantinstitutionfailedtoprovide,or
— apaymentofuptotwotimesthemarginallendingrate,appliedtothe
amount of the reserve requirement which the relevant institution
failedtoprovide,or2000X0776—EN—07.07.2002—001.001—51
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— the requirement for the relevant institution to establish non-interest-
bearing deposits with the ECB or the national central banks up to
threetimestheamountofthereserverequirementwhichtherelevant
institution failed to provide. The maturity of the deposit may not
exceed the period during which the institution failed to comply with
thereserverequirement.
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 orare not accu-
rate), the ECB is empowered to impose sanctions in accordance with
Council Regulation (EC) No 2532/98 of 23 November 1998 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
specifyandpublishthecriteriaaccordingtowhichitwillapplythesanc-
tionsprovidedforinArticle7(1)ofCouncilRegulation(EC)No2531/98
of23November1998concerningtheapplicationofminimumreservesby
theEuropeanCentralBank(1).
Inaddition,inthecaseofseriousinfringementsoftheminimumreserve
requirements,theEurosystemmaysuspendcounterpartiesfromparticipa-
tioninopenmarketoperations.2000X0776—EN—07.07.2002—001.001—52
(1) Such criteria were published in a notice in the Official Journal of the European
Communitieson 11 February 2000 entitled ‘Notice of the European Central Bank on
theimpositionofsanctionsforbreachesoftheobligationtoholdminimumreserves’.
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ANNEXES
ANNEX 1
Examplesofmonetarypolicyoperationsandprocedures
List of examples
Example1 Liquidity-providingreversetransactionbyfixedratetender
Example2 Liquidity-providingreversetransactionbyvariableratetender
Example3 IssuanceofECBdebtcertificatesbyvariableratetender
Example4 Liquidity-absorbingforeignexchangeswapbyvariableratetenderExample5 Liquidity-providingforeignexchangeswapbyvariableratetender
Example6 Riskcontrolmeasures
2000X0776—EN—07.07.2002—001.001—53
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ANNEX 2
Glossary
Actual/360:theday-countconventionappliedforthecalculationofinterestona
credit,implyingthattheinterestiscalculatedovertheactualnumberofcalendar
daysoverwhichthecreditisextended,onthebasisofa360-dayyear.Thisday-
countconventionisappliedinEurosystemmonetarypolicyoperations.
American auction :seemultiplerateauction.
Averaging provision :a provision allowing counterparties to fulfil their reserve
requirementsonthebasisoftheiraveragereserveholdingsoverthemaintenance
period.Theaveragingprovisioncontributestothestabilisationofmoneymarket
interest rates by giving institutions an incentive to smooth the effects of
temporary liquidity fluctuations. The Eurosystem's minimum reserve system
allowsforaveraging.
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
marketagents.
Book-entry system :anaccounting systemthatpermitsthetransferofsecurities
andotherfinancialassetswithoutthephysicalmovementofpaperdocumentsor
certificates(e.g.theelectronictransferofsecurities).Seealsodematerialisation.
Central securities depository (CSD) :an entity which holds and administers
securities or other financial assets, holds the issuance accounts and enables
transactions to be processed by book entry. Assets may exist either physically
(butimmobilisedwithintheCSD)orinadematerialisedform(i.e.onlyaselec-
tronicrecords).
Close links:Article 1(26)ofDirective 2000/12/ECoftheEuropeanParliament
andoftheCouncilof20March2000relatingtothetakingupandpursuitofthe
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,
whichshallmeantheownership,directorbywayofcontrol,of20%ormore
of the voting rights or capital of an undertaking, or (b) control, which shall
meantherelationship betweenaparentundertakingandasubsidiary,inallthe
cases referred to in Article 1(1) and (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 be considered asubsidiaryoftheparentundertakingwhichisattheheadofthoseundertakings.
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
regardedasconstitutingacloselinkbetweensuchpersons’.
Collateral pooling system :a central bank systemfor m anaging collateral, in
which counterparties open a pool account to deposit assets collateralising their
transactions with the central bank. In a pooling system, by contrast with an
earmarkingsystem,theunderlyingassetsarenotearmarkedforindividualtrans-
actions.
Collection of fixed-term deposits :a monetary policy instrument that may be
used by the Eurosystemfor fine-tuning purposes where the Eurosystemoffers
remuneration on counterparties' fixed-term deposits on accounts with the
nationalcentralbanksinordertoabsorbliquidityfromthemarket.
Correspondent banking :an arrangement under which one credit institution
provides payment and other services to another credit institution. Payments
through correspondents are often executed through reciprocal accounts ( nostro
andloroaccounts), towhichstandingcredit lines may beattached. Correspon-
dentbankingservicesareprimarilyprovidedacrossinternationalboundaries,but
are also known as agency relationships in some domestic contexts. A loro
account is the termused by a correspondent to describe an account held on
behalfofaforeigncreditinstitution;theforeigncreditinstitutionwouldinturn
regardthisaccountasits nostroaccount.
Correspondent central banking model (CCBM) :a mechanism established by
the EuropeanSystemofCentral Bankswiththeaimofenabling counterparties
touseunderlyingassetsinacross-bordercontext.IntheCCBM,nationalcentral
banks act as custodians for one another. This means that each national central
bankhasasecuritiesaccountinitssecuritiesadministrationforeachoftheother
nationalcentralbanks(andfortheECB).
Counterparty :theoppositepartyinafinancial transaction(e.g.anytransaction
withthecentralbank).
Credit institution :refersinthisdocumenttoaninstitutioncoveredbythedefi-
nition contained in Article 1(1) of Directive 2000/12/EC of the European
Parliament and of the Council of 20 March 2000relating to the taking up and
pursuitofthe businessofcredit institutions, asamended byDirective 2000/28/2000X0776—EN—07.07.2002—001.001—64
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ECoftheEuropeanParliamentandoftheCouncilof18September2000.Thus,
acreditinstitutionis:(i)anundertakingwhosebusinessistoreceivedepositsor
otherrepayablefundsfromthepublicandtograntcreditforitsownaccount;or
(ii) anundertaking or anyother legal person,other thanthoseunder(i),which
issues means of payment in the form of electronic money. ‘Electronic money’
shall mean monetary value as represented by a claim on the issuer which is:
(a) storedonanelectronic device; (b) issuedon receipt offundsofanamount
notlowerinvaluethanthemonetaryvalueissued;and(c)acceptedasameans
ofpaymentbyundertakingsotherthantheissuer.
Cross-border settlement :asettlementwhichtakesplaceinacountryotherthan
the country or countries in which one or both of the parties to the trade are
located.
Custodian:an entity which undertakes the safekeeping and administration of
securitiesandotherfinancialassetsonbehalfofothers.
Day-count convention :the convention regulating the number of days included
in the calculation of interest on credits. The Eurosystemapplies the day-count
conventionactual/360initsmonetarypolicyoperations.
Delivery versus payment (DVP) or delivery against payment system :a
mechanism in an exchange-for-value settlement system which ensures that the
final transfer of assets (securities or other financial instruments) occurs if, and
onlyif,thefinaltransferofanotherasset(orotherassets)occurs.
Dematerialisation :theelimination ofphysicalcertificates ordocumentsoftitle
which represent ownership of financial assets so that the financial assets exist
onlyasaccountingrecords.
Deposit facility :astandingfacilityoftheEurosystemwhichcounterpartiesmay
use to make overnight deposits at a national central bank, which are remuner-
atedatapre-specifiedinterestrate.
Depository:anagentwiththeprimaryroleofrecordingsecuritieseitherphysi-
callyorelectronicallyandkeepingrecordsoftheownershipofthesesecurities.
Deposits redeemable at notice :the instrument category consisting of deposits
for which the holder has to respect a fixed period of notice before being able
to withdrawthe funds.In somecases,there isthe possibility ofwithdrawing a
certainfixedamountinaspecificperiodorofearlierwithdrawalsubjecttothe
paymentofapenalty.
Deposits with agreed maturity :the instrument category consisting mainly of
time deposits with a given maturity which, depending on national practices,
may be either unconvertible prior to maturity or convertible only subject to a
penalty.Thiscategoryalsoencompassessomenon-marketabledebtinstruments,
suchasnon-marketable(retail)certificatesofdeposit.
Dutch auction :seesinglerateauction.
Earmarking system :a system for central banks' collateral management where
liquidityisprovidedagainstassetsearmarkedforeachindividualtransaction.
ECB payment mechanism (EPM) :thepayment arrangements organised within
theECBandconnected toTARGETforthepurposeofeffecting: (i)payments
betweenaccountsheldattheECB;and(ii)paymentsthroughTARGETbetween
accountsheldattheECBandatthenationalcentralbanks.
ECB time:thetimeoftheplaceinwhichtheECBislocated.
EEA (European Economic Area) countries :the EU Member States and
Iceland,LiechtensteinandNorway.
End-of-day:thetimeofthebusinessday(aftertheTARGETsystemhasclosed)
at which the payments processed in the TARGET system are finalised for the
day.
Equity price risk :theriskoflossarisingfrommovementsinequityprices.The
Eurosystemisexposedtoequity priceriskinitsmonetary policyoperations to
theextentthatequitiesareconsideredtobeeligibleastier-twoassets.
Euro area:the termby which the EU Mem ber States which have adopted the
euro as their single currency in accordance with the Treaty are collectively
defined.
European System of Central Banks (ESCB) :refers to the European Central
Bank(ECB)andthenationalcentralbanksoftheEUMemberStates.Itshould
benoted that national central banksofMemberStates whichhavenotadopted
thesinglecurrencyinaccordancewiththeTreatyretaintheirpowersinthefield
of monetary policy according to national law and are thus not involved in the
conductofthemonetarypolicyoftheEurosystem.
Eurosystem:comprises the European Central Bank (ECB) and the national
central banks of the Member States of the euro area. The decision-making
bodies of the Eurosystemare the Governing Council and the Executive Board
oftheECB.2000X0776—EN—07.07.2002—001.001—65
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Eurosystem business day :anydayonwhichtheECBandatleastonenational
central bank are open for the purpose of conducting Eurosystemm onetary
policyoperations.
Final transfer :an irrevocable and unconditional transfer which effects a
dischargeoftheobligationtomakethetransfer.
Fine-tuning operation :a non-regular open market operation executed by the
Eurosystemm ainly in order to deal with unexpected liquidity fluctuations in
themarket.
Fixed rate instrument :a financial instrument for which the coupon is fixed
throughoutthelifeoftheinstrument.
Fixed rate tender :a tender procedure where the interest rate is specified in
advance bythe central bank andparticipating counterparties bidthe amount of
moneytheywanttotransactatthefixedinterestrate.
Floating rate instrument :a financial instrument for which the coupon is peri-
odically reset relative to a reference index to reflect changes in short or
medium-term market interest rates. Floating rate instruments have either pre-
fixedcouponsorpost-fixedcoupons.
Foreign exchange swap :thesimultaneousspotpurchase/saleandforwardsale/
purchaseofonecurrencyagainstanother.TheEurosystemexecutesopenmarket
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
currencyandatthesametimesell(orbuy)itbackinaforwardtransaction.
Gross settlement system :a transfer systeminwhichthe settlement offundsor
thetransferofsecuritiesoccursonaninstruction-by-instructionbasis.
Haircut:seevaluationhaircut.
Initial margin :ariskcontrolmeasureappliedinreversetransactions,implying
thatthecollateralrequiredforatransactionisequaltothecreditextendedtothe
counterpartyplusthevalueoftheinitialmargin.TheEurosystemappliesinitial
marginsdifferentiatedaccordingtotheEurosystem'sexposuretimetoacounter-
partyforagiventransaction.
Interlinking mechanism :within the TARGET system, the Interlinking
mechanism provides common procedures and an infrastructure which allow
paymentorderstomovefromonedomesticRTGSsystemtoanother.
International Securities Identification Number (ISIN) :an international identi-
ficationcodeassignedtosecuritiesissuedinfinancialmarkets.
Intraday credit :credit extended for a period of less than one business day. It
may be extended by central banks to even out mismatches in payment settle-
ments and can take the form of (i) a collateralised overdraft; or (ii) a lending
operationagainstapledgeorinarepurchaseagreement.
Inverse floating rate instrument :a structured note where the rate of interest
paid to the noteholder varies inversely with changes in a certain reference
interestrate.
Issuer:theentitywhichisobligatedonasecurityorotherfinancialinstrument.
Link between securities settlement systems :alinkconsistsofalltheprocedures
andarrangementswhichexistbetweentwosecuritiessettlementsystems(SSSs)
for the transfer of securities between the two SSSsconcerned through a book-
entryprocess.
Longer-term refinancing operation :a regular open market operation executed
bytheEurosystemintheformofareversetransaction.Longer-termrefinancing
operations are executed through monthly standard tenders and have a maturity
ofthreemonths.
Lump-sum allowance :afixedamountwhichaninstitutiondeductsinthecalcu-
lationofitsreserverequirement withintheminimum reserveframeworkofthe
Eurosystem.
Main refinancing operation :a regular open market operation executed by the
Eurosystemin the formof a reverse transaction. Main refinancing operations
are conducted through weekly standard tenders and normally have a maturity
oftwoweeks.
Maintenance period :the period over which compliance with reserve require-
mentsiscalculated. Themaintenance periodforEurosystemminimumreserves
isonemonth,startingonthe24thcalendardayofeachmonthandendingonthe
23rdcalendardayofthefollowingmonth.
Margin call:a procedure related to the application of variation margins,
implying thatifthe value, asregularly measured, oftheunderlying assetsfalls
below a certain level, central banks may require counterparties to supply addi-
tionalassets(orcash).Similarly,ifthevalueoftheunderlyingassets,following
theirrevaluation,weretoexceedtheamountowedbythecounterpartiesplusthe
variationmargin,thecentralbankwouldreturntheexcessassets(orcash)tothe
counterparty.2000X0776—EN—07.07.2002—001.001—66
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Marginal interest rate :the interest rate at which the total tender allotment is
exhausted.
Marginal lending facility :astandingfacilityoftheEurosystemwhichcounter-
partiesmayusetoreceiveovernightcreditfromanationalcentralbankatapre-
specifiedinterestrate.
Marginal swap point quotation :the swap point quotation at which the total
tenderallotmentisexhausted.
Marking to market :seevariationmargin.
Maturity date :the date on which a monetary policy operation expires. In the
case of a repurchase agreement or swap, the maturity date corresponds to the
repurchasedate.
Maximum bid limit :the limit on the largest acceptable bid from an individual
counterparty in atender operation. The Eurosystem may impose maximum bid
limitsinordertoavoiddisproportionatelylargebidsfromindividualcounterpar-
ties.
Maximum bid rate :the upper limit to the interest rate at which counterparties
maysubmitbidsinvariableratetenders.Bidsatarateabovethemaximumbid
rateannouncedbytheECBarediscarded.
Member State :refers in this document to an EU Member State which has
adoptedthesinglecurrencyinaccordancewiththeTreaty.
Minimum allotment amount :the lower limit of the amount to be allotted to
individual counterparties in a tender operation. The Eurosystemm ay decide to
allotaminimumamounttoeachcounterpartyinitstenderoperations.
Minimum allotment ratio :thelowerlimit,expressedinpercentageterms,ofthe
ratioofbidsatthemarginalinterestratetobeallottedinatenderoperation.The
Eurosystemmaydecidetoapplyaminimumallotmentratioinitstenderopera-
tions.
Minimum bid rate :thelowerlimit totheinterest ratesatwhichcounterparties
maysubmitbidsinvariableratetenders.
Monetary financial institution (MFI) :financialinstitutionswhichtogetherform
themoney-creatingsectoroftheeuroarea.Theseincludecentralbanks,resident
credit institutions asdefined inCommunitylawandall other resident financial
institutions whose business is to receive deposits and/or close substitutes for
deposits fromentities other than MFIs and, for their own account (at least in
economicterms),tograntcreditand/orinvestinsecurities.
Multiple rate auction (American auction) :an auction at which the allotment
interestrate(orprice/swappoint)equalstheinterestrateofferedineachindivi-
dualbid.
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
theTreaty.
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
bankmaybeclosedonNCBbusinessdaysowingtolocalorregionalbankholi-
days. In such cases, the relevant national central bank is responsible for
informing the counterparties in advance of the arrangements to be made for
transactionsinvolvingthosebranches.
Open market operation :an operation executed on the initiative of the central
bank in the financial market. With regard to their aims, regularity and proce-
dures, Eurosystemopen m arket operations can be divided into four categories:
main refinancing operations, longer-term refinancing operations, fine-tuning
operationsandstructural operations.Asfortheinstrumentsused,reversetrans-
actions are the main open market instrument of the Eurosystem and can be
employed in all fourcategories of operations. In addition, the issuance of debt
certificatesandoutrighttransactionsareavailableforstructuraloperations,while
outright transactions, foreign exchange swaps and the collection of fixed-term
depositsareavailablefortheconductoffine-tuningoperations.
Outright transaction :atransactionwherebyassetsareboughtorsolduptotheir
maturity(spotorforward).
Pooling system :seecollateralpoolingsystem.
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 (or
dates)duringthecouponaccrualperiod.
Pre-fixed coupon :acoupononfloatingrateinstrumentswhichisdeterminedon
thebasisofthevaluestakenbythereferenceindexatacertain date(ordates)
beforethestartofthecouponaccrualperiod.
Purchase date :the date on which the sale of purchased assets by the seller to
thebuyerbecomeseffective.2000X0776—EN—07.07.2002—001.001—67
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Purchase price :thepriceatwhichpurchasedassetsaresoldoraretobesoldto
thebuyerbytheseller.
Quick tender :the tender procedure used by the Eurosystemfor fine-tuning
operations when it is deemed desirable to have a rapid impact on the liquidity
situation inthemarket. Quicktenders areexecuted withinatimeframe ofone
hourandarerestrictedtoalimitedsetofcounterparties.
Repo operation :aliquidity-providingreversetransactionbasedonarepurchase
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 on a future date or on demand. Such an agreement is similar to
collateralised borrowing, with the difference that ownership of the securities is
not retained by the seller. The Eurosystemuses repurchase agreem ents with a
fixedmaturityinitsreversetransactions.
Repurchase date :thedateonwhichthebuyerisobliged tosellbackassetsto
thesellerinrelationtoatransactionunderarepurchaseagreement.
Repurchase price :thepriceatwhichthebuyerisobligedtosellbackassetsto
the seller in relation to a transaction under a repurchase agreement. The
repurchasepriceequalsthesumofthepurchasepriceandthepricedifferential
correspondingtotheinterest ontheextended liquidity over thematurity ofthe
operation.
Reserve account :anaccountwiththenationalcentralbankonwhichacounter-
party'sreserveholdingsaremaintained. Thecounterparties' settlement accounts
withthenationalcentralbanksmaybeusedasreserveaccounts.
Reserve base :the sumof the eligible balance sheet item s which constitute the
basisforcalculatingthereserverequirementofacreditinstitution.
Reserve holdings :counterparties'holdingsontheirreserveaccountswhichserve
tofulfilreserverequirements.
Reserve ratio :theratiodefinedbythecentralbankforeachcategoryofeligible
balancesheetitemsincludedinthereservebase.Theratiosareusedtocalculate
reserverequirements.
Reserve requirement :therequirementforinstitutionstoholdminimumreserves
with the central bank. Within the minimum reserve framework of the Euro-
system, the reserve requirement of a credit institution is calculated by
multiplying the reserve ratio for each category of items in the reserve base
with the amount of those items on the institution's balance sheet. In addition,
institutionsdeductalump-sumallowancefromtheirreserverequirement.
Reverse transaction :an operation whereby the national central bank buys or
sells assets under a repurchase agreement or conducts credit operations against
collateral.
RTGS (real-time gross settlement) system :asettlementsysteminwhichproces-
sing and settlement take place on an order-by-order basis (without netting) in
realtime(continuously).SeealsoTARGETsystem.
Safe custody account :a securities account managed by the central bank on
which credit institutions can place securities deemed suitable to back central
bankoperations.
Securities settlement system (SSS) :a systemwhich perm its the holding and
transfer of securities or other financial assets, either free of payment (FOP) or
againstpayment(deliveryversuspayment).
Settlement account :anaccountheldbyadirectparticipantinanationalRTGS
systemwiththecentralbankforthepurposeofprocessingpayments.
Settlement agent :aninstitutionwhichmanagesthesettlement process(e.g.the
determination of settlement positions, the monitoring of payment exchanges,
etc.)fortransfersystemsorotherarrangementsrequiringsettlement.
Settlement date :thedateonwhichatransactionissettled.Thesettlementmight
takeplaceonthesamedayasthetrade(same-daysettlement)oroneorseveral
daysafterthetrade(thesettlement dateisspecified asthetradedate(T)+the
settlementlag).
Single rate auction (Dutch auction) :anauctioninwhichtheallotmentinterest
rate (orprice/swap point) applied forall satisfied bidsis equal to the marginal
interestrate.
Solvency risk :theriskoflossowingtothefailure(bankruptcy)ofanissuerofa
financialassetortotheinsolvencyofthecounterparty.
Standard tender :atenderprocedureusedbytheEurosysteminitsregularopen
market operations. Standard tenders are carried out within a time frame of 24
hours. All counterparties fulfilling the general eligibility criteria are entitled to
submitbidsinstandardtenders.2000X0776—EN—07.07.2002—001.001—68
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Standardised deduction :thefixedpercentageoftheoutstandingamountofdebt
securities withanagreed maturity uptotwoyears andofmoneymarket paper
which can be deducted fromthe reserve base by the issuers which cannot
present evidence that such outstanding amount is held by other institutions
subjecttotheminimumreservesystemoftheEurosystem,bytheECBorbya
nationalcentralbank.
Standing facility :acentralbankfacilityavailabletocounterpartiesattheirown
initiative.TheEurosystemofferstwoovernightstandingfacilities:themarginal
lendingfacilityandthedepositfacility.
Start date:the date on which the first leg of a monetary policy operation is
settled.Thestartdatecorrespondstothepurchasedateforoperationsbasedon
repurchaseagreementsandforeignexchangeswaps.
Strip (separate trading of interest and principal) :a zero coupon bond created
inordertotradeseparatelytheclaimsonparticularcashflowsofasecurityand
theprincipalofthesameinstrument.
Structural operation :an open market operation executed by the Eurosystem
mainly inordertoadjustthestructuralliquidity positionofthefinancial sector
vis-à-vistheEurosystem.
Swap point:thedifferencebetweentheexchangerateoftheforwardtransaction
andtheexchangerateofthespottransactioninaforeignexchangeswap.
TARGET (Trans-European automated real-time gross settlement express
transfer) system :the real-time gross settlement system for the euro. It is a
decentralisedsystemconsistingof15nationalRTGSsystems,theECBpayment
mechanismandtheinterlinkingmechanism.
Tender procedure :a procedure in which the central bank provides liquidity to
orwithdrawsliquidityfromthemarketonthebasisofbidssubmittedbycoun-
terparties in competition with each other. The most competitive bids are
satisfiedwithpriorityuntilthetotalamountofliquiditytobeprovidedorwith-
drawnbythecentralbankisexhausted.
Tier-one asset :amarketableassetfulfillingcertainuniformeuroarea-wideelig-
ibilitycriteriaspecifiedbytheECB.
Tier-two asset :a marketable or non-marketable asset for which specific elig-
ibility criteria are established by the national central banks, subject to ECB
approval.
Trade date (T) :the date on which a trade (i.e. an agreement on a financial
transactionbetweentwocounterparties)isstruck.Thetradedatemightcoincide
withthesettlementdateforthetransaction(same-daysettlement)orprecedethe
settlement date by a specified number of business days (the settlement date is
specifiedasT+thesettlementlag).
Treaty:the Treaty establishing the European Community (or EC Treaty). It
comprisestheoriginalEECTreaty(TreatiesofRome)asamended.
Trigger point :a pre-specified level of the value of the liquidity provided at
whichamargincallisexecuted.
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
underlyingassetsasthemarketvalueoftheassetsreducedbyacertainpercen-
tage (haircut). The Eurosystemapplies valuation haircuts reflecting features of
thespecificassets,suchastheresidualmaturity.
Variable rate tender :a tender procedure whereby the counterparties bid both
theamountofmoneytheywanttotransactwiththecentralbankandtheinterest
rateatwhichtheywanttoenterintothetransaction.
Variation margin (or marking to market) :theEurosystemrequiresthataspeci-
fied margin be maintained over time on the underlying assets used in its
liquidity-providing reverse transactions. This implies that if the regularly
measuredmarketvalueoftheunderlyingassetsfallsbelowacertainlevel,coun-
terparties 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
wouldreturntheexcessassets(orcash)tothecounterparty.
Volume tender :seefixedratetender.
Zero coupon bond :asecuritypayingonlyonecashflowduringitslife.Forthe
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
specialtypeofzerocouponbond.2000X0776—EN—07.07.2002—001.001—69
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ANNEX 3
Selectionofcounterpartiesforforeignexchangeinterventionoperationsand
foreignexchangeswapsformonetarypolicypurposes
Theselectionofcounterpartiesforforeignexchangeinterventionoperationsand
foreign exchange swaps for monetary policy purposes follows a uniform
approach irrespective of the chosen organisational set up for the Eurosystem's
external operations. Theselection policy doesnotentail asubstantial departure
fromexistingmarketstandards,asithasbeenderivedfromtheharmonisationofthenationalcentralbanks'currentbestpractices.Theselectionofcounterparties
to Eurosystemforeign exchange intervention operations is based, prim arily, on
twosetsofcriteria.
Thefirstsetofcriteria isinspiredbytheprincipleofprudence.Afirstpruden-
tial criterion is creditworthiness, which is assessed using a combination of
different methods(e.g.usingcreditratingsavailable fromcommercial agencies
andthein-houseanalysisofcapitalandotherbusinessratios);asecondcriterion
is that the Eurosystemrequires all its potential foreign exchange intervention
counterparties to be subject to supervision by a recognised supervisor; and, as
athirdcriterion,alltheEurosystem'sforeignexchangeintervention counterpar-
tiesneedtofollowhighethicalstandardsandhaveagoodreputation.
Once the minimum prudence requirement is fulfilled, the secondset of criteria
inspired by efficiency considerations is applied. A first efficiency criterion
relatestocompetitive pricingbehaviourandthecounterparty'sabilitytohandle
largevolumes,eveninturbulentmarketconditions.Thequalityandcoverageof
informationprovidedbycounterpartiesfeatureamongotherefficiencycriteria.
Thepoolofpotentialforeignexchangeinterventioncounterpartiesissufficiently
large and diverse to guarantee the necessary flexibility when implementing
intervention operations. It enables the Eurosystemto choose fromam ong
different intervention channels. In order to be able to intervene efficiently in
different geographical locations and time zones, the Eurosystem can use coun-
terparties in any international financial centre. However, in practice, a
substantial share of the counterparties tend to be located in the euro area. For
foreign exchange swaps executed for monetary policy purposes, the range of
counterparties corresponds to the counterparties located in the euro area which
areselectedforEurosystemforeignexchangeinterventionoperations.
The national central banks may apply limit-based systems in order to control
credit exposures vis-à-vis individual counterparties in foreign exchange swaps
conductedformonetarypolicypurposes.2000X0776—EN—07.07.2002—001.001—70
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ANNEX 4
The reporting framework for the money and banking statistics of the
EuropeanCentralBank (1)
1.Introduction
Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the
collectionofstatisticalinformationbytheECBdefinesthenaturalandlegal
personswhicharesubjecttoreportingrequirements(the‘referencereporting
population’), the confidentiality regime and the appropriate provisions for
enforcement in accordance with Article 5.4 of the Statute of the European
Systemof Central Banks and of the European Central Bank (Statute of the
ESCB).Furthermore,itentitlestheECBtouseitsregulatorypower:
— tospecifytheactualreportingpopulation,
— todefinetheECB'sstatisticalreportingrequirementsandimposethemon
theactualreportingpopulationofparticipatingMemberStates,and
— to specify the conditions under which the ECB and the national central
banks(NCBs)mayexercisetherighttoverifyortocarryoutthecompul-
sorycollectionofstatisticalinformation.
2.General considerations
The purpose of Regulation (EC) No 2819/98 of the European Central Bank
of1December1998concerningtheconsolidatedbalancesheetofthemone-
taryfinancialinstitutionssector(ECB/1998/16)istoenabletheECBand,in
accordance with Article 5.2 of the Statute, the 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 (Treaty). The statistical
information collected in accordance with ECB Regulation No ECB/1998/16
isusedtoestablishtheconsolidated balance sheetofthemonetary financial
institutions (MFI) sector, the principal aimof which is to provide the ECB
with a comprehensive statistical picture of monetary developments covering
the aggregated financial assetsand liabilities ofMFIslocated in the partici-
patingMemberStates,whichareviewedasoneeconomicterritory.
It should be noted that this Regulation was replaced in January 2002 by
Regulation (EC) No 2423/2001 of the European Central Bank of 22
November 2001 concerning the consolidated balance sheet of the monetary
financial institutions sector (ECB/2001/13). However, ECB Regulation No
ECB/1998/16 remains the reference for data in 2002. The first exercise
conducted in accordance with the new Regulation will begin with the
monthly data for January 2003 (quarterly data for March 2003). Therefore,
referencesmadeinthispublicationtotherepealedRegulationshallbeunder-
stood as references to the new Regulation. The changes implied by the
adoption of this new Regulation affect only the presentation and not the
compositionofthereservebase.Thesechangesareexplainedbelow.
ForstatisticalpurposestheECB'sreportingrequirementsinthecontextofthe
consolidatedbalancesheetoftheMFIsectorarebasedonthreemainconsid-
erations.
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 in a decentralised
waybyNCBsinaccordancewithArticles5.1and5.2oftheStatuteand,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
needtoestablishareliable statistical basisforthedefinition andconduct of
thesinglemonetarypolicy.
Second, the reporting obligations set out in ECB Regulation No ECB/1998/
16 must observe the principles of transparency and legal certainty. The2000X0776—EN—07.07.2002—001.001—71
(1) ThecontentofthisAnnexisprovidedforinformationpurposesonly.Therelevantlegal
actsforthereportingofmoneyandbankingstatisticsareCouncilRegulation(EC)No
2533/98 of 23 November 1998 concerning the collection of statistical information by
the ECB and Regulation (EC) No 2819/98 of the European Central Bank of 1December 1998 concerning the consolidated balance sheet of the monetary financialinstitutions sector (ECB/1998/16) (replaced by Regulation (EC) No 2423/2001 of theEuropean Central Bank of 22 November 2001 concerning the consolidated balance
sheetofthemonetaryfinancialinstitutionssector(ECB/2001/13)).
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reason for this is that ECB Regulation No ECB/1998/16 is binding in its
entirety and directly applicable throughout the euro area. It imposes obliga-
tions directly on natural and legal persons on which the ECB may impose
sanctions whenever the ECB's reporting requirements are not fulfilled (see
Article7ofCouncilRegulation(EC)No2533/98).Thereportingobligations
aretherefore clearly defined andanydiscretion exercised bytheECBwhen
verifying or compulsorily collecting statistical information follows identifi-
ableprinciples.
Third, the ECB must minimise the reporting burden involved (see Article
3(a)ofCouncilRegulation(EC)No2533/98).Therefore,thestatisticalmate-
rial collected by NCBs under Regulation No ECB/1998/16 is also used to
calculate the reserve base in accordance with Regulation (EC) No 2818/98
of the European Central Bank of 1 December 1998 on the application of
minimumreserves(ECB/1998/15).
The articles of ECB Regulation No ECB/1998/16 restrict themselves to
defining,ingeneralterms,theactualreportingpopulation,itsreportingobli-
gations and the principles according to which the ECB and the NCBs
normally exercise their competence to verify or compulsorily collect statis-
tical information. The details of the statistical information to be reported in
order tofulfilthe ECB'sstatistical reportingrequirements andthe minimum
standardstobefollowedarespecifiedinAnnexesItoIVtoECBRegulation
NoECB/1998/16.
3.Actual reporting population; list of MFIs for statistical purposes
MFIscompriseresidentcreditinstitutionsasdefinedinCommunitylaw,and
all other resident financial institutions whose business is to receive deposits
and/or close substitutes for deposits fromentities other than MFIs and, for
their ownaccount (atleast ineconomic terms), tograntcredit and/or invest
in securities. The ECB establishes and maintains a list of institutions in
accordance with this definition and following the classification principles
specified in AnnexIto ECB Regulation NoECB/1998/16. The competence
toestablishandmaintainthisListofMFIsforstatisticalpurposespertainsto
theExecutiveBoardoftheECB.ThepopulationofMFIsresidentintheeuro
areaconstitutestheactualreportingpopulation.
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.
ThesederogationsenableNCBstoapplythemethodof‘cuttingoffthetail’.
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
ECBRegulationNoECB/1998/16.
The relevant statistical data are collected by the NCBs, which must define
the reporting procedures to be followed. ECB Regulation No ECB/1998/16
doesnotpreventNCBsfromcollecting,fromtheactualreportingpopulation,
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 Commu-
nityornationallaworestablishedpracticeandwhichservesotherstatistical
purposes.However,thisshouldbewithoutprejudicetothefulfilment ofthe
statistical requirements set out in ECB Regulation No ECB/1998/16. In
specific cases, the ECB may rely on statistical information collected for
suchpurposestofulfilitsrequirements.
TheconsequenceofaderogationbeinggrantedbyanNCBasdefinedabove
isthatthesmallMFIsconcernedaresubjecttoreducedreportingobligations
(implying, inter alia, only quarterly reporting) which are compulsory in the
contextofminimum reservesandarespecifiedinAnnexIItoECBRegula-
tionNoECB/1998/16.RequirementsforthosesmallMFIsthatarenotcredit
institutions are set out in Annex III to ECB Regulation No ECB/1998/16.
However, MFIs which have been granted a derogation have the option of
fulfillingthefullreportingrequirements.
5.Use of statistical information under the ECB Regulation on minimum
reserves
Tominimisethereportingburdenandtoavoidanyduplicationinthecollec-
tion of statistical information, the statistical information related to the
balance sheet reported by MFIs under ECB Regulation No ECB/1998/16 is2000X0776—EN—07.07.2002—001.001—72
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alsousedtocalculatethereservebaseunderECBRegulationNoECB/1998/
15.
Indeed, for statistical purposes, the reporting agents have to report data to
their respective NCBsin accordance with the framework of Table 1, which
isincludedinAnnexItoECBRegulationNoECB/1998/16.WithinTable1,
theboxesmarkedwithan‘*’areusedbythereportinginstitutionstocalcu-
latetheirreservebase(seeBox11inChapter7ofthispublication).
Inordertomakeacorrectcalculationofthereservebasetowhichapositive
reserveratioisapplied,adetailedbreakdownisrequiredfordepositswithan
agreedmaturityofovertwoyears,fordepositsredeemableatnoticeofover
two years and for repo liabilities of credit institutions vis-à-vis the
(‘domestic’ and ‘other MUMS’) ‘MFIs’, ‘CIs subject to minimum reserves,
ECB and NCBs’and ‘Central government’ sectors, and vis-à-vis the rest of
theworld(RoW).2000X0776—EN—07.07.2002—001.001—73
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2000X0776—EN—07.07.2002—001.001—74
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2000X0776—EN—07.07.2002—001.001—75
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Furthermore,dependingonthenationalcollectionsystemsandwithoutpreju-
dice to full compliance with the definitions and classification principles of
the MFI balance sheet set out in ECB Regulation No ECB/1998/16, credit
institutions subject toreserve requirements may alternatively report the data
necessary to calculate the reserve base, except those on negotiable instru-
ments, in accordance with the table, provided that no boldprinted positions
oftheprevioustableareaffected.
Itshouldbenotedthat,withthefirstreportingexercise conducted inaccor-
dancewiththeabovementioned newRegulationbeginningwiththemonthly
data for January 2003, the liability category ‘money market paper’ will be
merged with the liability category ‘debt securities issued’ within the
reportingframeworkfortheECB'smoneyandbankingstatistics.Thismeans
that, starting with the monthly data at end-January 2003 (quarterly data at
end-March2003),reportinginstitutionswillhavetobreakdownthisliability
category according to the same original maturity cut-off points required for
debtsecuritiesandallocateittotheliabilitycategory‘debtsecuritiesissued’.
Annex II to ECB Regulation No ECB/1998/16 contains specific and transi-
tional provisions and provisions on mergers involving credit institutions in
respectoftheapplicationoftheminimumreservesystem.
Annex II to ECB Regulation No ECB/1998/16 includes, in particular, a
reportingschemeforcreditinstitutionsinthe‘tail’.Creditinstitutionsinthe
tail have to report, as a minimum, quarterly data necessary to calculate the
reserve base in accordance with Table 1a. 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 are based on end-of-
quarter data collected by the NCBs with a deadline of 28 working days
followingtheendofthequartertowhichtheyrelate.
TheAnnexalsoincludesprovisionsonreportingonaconsolidatedbasis.On
receiving authorisation fromthe European Central Bank, credit institutions
subjecttominimumreservesmaycarryoutconsolidatedstatistical reporting
foragroupofcreditinstitutionssubjecttominimumreserveswithinasingle
nationalterritory,providedthatalltheinstitutionsconcernedhaverenounced
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
listofMFIs.2000X0776—EN—07.07.2002—001.001—76
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Furthermore, it includes provisions to be applied in the case of mergers
involving credit institutions. In this Annex, the terms ‘merger’, ‘merging
institutions’and‘acquiringinstitution’havethemeaningdeterminedinECB
Regulation No ECB/1998/15. For the maintenance period within which a
merger takeseffect, thereserve requirements oftheacquiring institution are
calculatedandhavetobefulfilledassetoutinArticle13ofECBRegulation
No 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 No
ECB/1998/16), if applicable. Otherwise, the normal rules for the reporting
of statistical information and the calculation of reserve requirements, as set
out in Article 3 of ECB Regulation No ECB/1998/15, apply. Moreover, the
relevantNCBmayauthorisetheacquiringinstitutiontofulfilitsobligationto
report statistical information through 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 taken effect. This derogation is without prejudice to the obligation for
theacquiringinstitutiontofulfilitsreportingobligationsinaccordancewith
ECBRegulationNoECB/1998/16and,ifapplicable,itsobligationtoassumethereportingobligationsofmerginginstitutions.Theacquiringinstitutionhas
the obligation to informthe relevant NCB, once the intention to m erge has
becomepublicandingoodtimebeforethemergertakeseffect,oftheproce-
duresthatitintendstoimplementtofulfilitsstatisticalreportingobligations
relatingtothedeterminationofreserverequirements.2000X0776—EN—07.07.2002—001.001—77
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6.Verification and compulsory collection
The ECB itself and the NCBs normally exercise the competence to verify
andcompulsorilycollectstatisticalinformationwheneverminimumstandards
for transmission, accuracy, conceptual compliance and revisions are not
fulfilled.TheseminimumstandardsaresetoutinAnnexIVtoECBRegula-
tionNoECB/1998/16.
7.Non-participating Member States
AsaregulationunderArticle34.1oftheStatutedoesnotconferanyrightsor
imposeanyobligationsonMemberStateswithaderogation(Article43.1of
theStatute)andonDenmark(Article2oftheProtocoloncertainprovisions
relatingtoDenmark)andisnotapplicabletotheUnitedKingdom(Article8
oftheProtocoloncertainprovisionsrelatingtotheUnitedKingdomofGreat
Britain and Northern Ireland), ECB Regulation No ECB/1998/16 is applic-
ableonlyintheparticipatingMemberStates.
However,Article5oftheStatuteconcerningthecompetenceoftheECBand
theNCBsinthefieldofstatisticsandCouncilRegulation(EC)No2533/98
areapplicable inallMemberStates.Thisalsoimplies,togetherwithArticle
10 (ex Article 5) of the Treaty, an obligation on the non-participating
MemberStatestodesignandimplementatthenationallevelallthemeasures
thattheyconsiderappropriateinordertocarryoutthecollectionofstatistical
information needed to fulfil the ECB'sstatistical reporting requirements and
thetimelypreparationsinthefieldofstatisticsinorderforthemtobecome
participating Member States. This obligation has been made explicit in
Article4andrecital17ofCouncilRegulation(EC)No2533/98.Forreasons
of transparency, this special obligation is recalled in the recitals of ECB
RegulationNoECB/1998/16.2000X0776—EN—07.07.2002—001.001—78
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ANNEX 5
TheEurosystemwebsites
Centralbank Website
EuropeanCentralBank www.ecb.int
Nationale BankvanBelgië/Banque Nationale de
Belgiquewww.nbb.beorwww.bnb.be
DeutscheBundesbank www.bundesbank.de
BankofGreece www.bankofgreece.gr
BancodeEspaña www.bde.es
BanquedeFrance www.banque-france.fr
CentralBankofIreland www.centralbank.ie
Bancad'Italia www.bancaditalia.it
BanquecentraleduLuxembourg www.bcl.lu
DeNederlandscheBank www.dnb.nl
OesterreichischeNationalbank www.oenb.at
BancodePortugal www.bportugal.ptSuomenPankki—FinlandsBank www.bof.fi2000X0776—EN—07.07.2002—001.001—79
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ANNEX 6
Proceduresandsanctionstobeappliedintheeventofnon-compliancewith
counterpartyobligations
1.Financial penalties
Intheeventofaninfringementbyacounterpartyoftenderrules(1),ofbilat-
eraltransaction rules(2),oftherulesfortheuseofunderlyingassets(3),or
of end-of-day procedures and access conditions for the marginal lending
facility(4),theEurosystemshallapplyfinancialpenaltiesasfollows:
(i) forinfringementsofrulesrelatedtotenderoperations,bilateraltransac-
tions 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
percentagepoints,
— 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
notsettle,multipliedbythecoefficient7/360,
— forinfringementsofrulesrelatedtotheuseofunderlyingassets,the
financialpenaltiesshallbecalculatedonthebasisoftheamountof
ineligibleassets(orassetsthatmaynotbeusedbythecounterparty),
which are either: (1) provided by the counterparty to a national
central bank or the ECB; or (2) not removed by the counterparty
after 20 working days following an event after which the eligible
assets become ineligible or may no longer be used by the counter-
party,multipliedbythecoefficient1/360;
(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
repeatedinfringements,thepenaltyinterestrateshallbeincreasedbya
further 2,5 percentage points each time this occurs within a 12-month
period,calculatedonthebasisoftheamountoftheunauthorisedaccess
tothemarginallendingfacility(5).
2.Non-financial penalties
The Eurosystemshall suspend a counterparty for infringem ents of rules
relatedtotenderoperationsandbilateraltransactions,andofrulesforunder-
lyingassetsassetoutbelow:
(a) Suspensionafterinfringementsofrulesrelatedtotenderopera-
tionsandbilateraltransactions
If a third infringement of the same type occurs within a 12-month period,
the Eurosystemshall suspend counterparties fromthe subsequent open
market operation(s) of the same type and executed under the same proce-
dures, to be initiated during a certain period in addition to a financial
penalty calculated in accordance with the rules outlined in Section 1. The
suspensionshallbeappliedinaccordancewiththefollowingscale:
(i) ifthe amount ofnon-delivered collateral orcashisup to40%ofthe
total collateral or cash to be delivered on the occasion of the third
infringement,asuspensionofonemonthshallbeapplied;
(ii) iftheamountofnon-deliveredcollateral orcashisbetween40%and
80%ofthetotalcollateral orcashtobedeliveredontheoccasion of2000X0776—EN—07.07.2002—001.001—80
(1) This applies if a counterparty is unable 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 isunable to deliver a sufficient amount of cash to settle the amountithasbeenallottedinaliquidity-absorbingoperation.
(
2) Thisappliesifacounterpartyisunabletodeliverasufficientamountofeligibleunder-
lyingassetsorifitisunabletodeliverasufficientamountofcashtosettletheamount
agreedinbilateraltransactions.
(3) Thisappliesifacounterpartyisusingassetsthatareorhavebecomeineligible(orthat
itmaynotuse)tosecureanoutstandingcredit.
(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
whichareconsideredeligibleonlyforintradaycreditpurposesareonlyforeseenwithinthe TARGET legal framework.Such cases of non-compliance are not covered bythis
Guideline.
▼M1
the third infringement, a suspension of two months shall be applied;
and
(iii) iftheamountofnon-deliveredcollateral orcashisbetween80%and
100%ofthetotalcollateralorcashtobedeliveredontheoccasionof
thethirdinfringement,asuspensionofthreemonthsshallbeapplied.
Thesefinancialpenaltiesandsuspensionmeasuresshallalsoapply,without
prejudicetosubsection(c),toanyothersuccessiveinfringementduringeach
12-monthperiod.
(b) Suspensionafterinfringementsofrulesforunderlyingassets
If a third infringement occurs within a 12-month period, the Eurosystem
shall suspend the counterparty fromthe subsequent open m arket operation
inadditiontoafinancialpenaltycalculatedinaccordancewithSection1.
Thesefinancialpenaltiesandsuspensionmeasuresshallalsoapply,without
prejudicetosubsection(c),toanyothersuccessiveinfringementduringeach
12-monthperiod.
(c) Suspension fromaccess to all future m onetary policy opera-
tionsforacertainperiodinexceptionalcases
In exceptional cases where required on account of the seriousness of the
case(s)ofnon-compliance,andtakingintoaccountinparticulartheamounts
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, to the suspension of a counterparty from
accesstoallfuturemonetarypolicyoperationsforaperiodofthreemonths.
(d) InstitutionslocatedinotherMemberStates
TheEurosystemmayalsodecidewhetherthesuspensionmeasureproposed
to be taken vis-à-vis the non-compliant counterparty should also apply to
branchesofthesameinstitutionlocatedinotherMemberStates.2000X0776—EN—07.07.2002—001.001—81
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ANNEX II
ADDITIONALMINIMUMCOMMONFEATURES
I.Additional minimum common features applicable to all arrangements
formonetarypolicyoperations
1. The relevant contractual or regulatory arrangements applied by the
NCBshouldensurethatitsstandardtermsorconditionswillbeapplic-
abletomonetarypolicyoperations.
2. The relevant contractual or regulatory arrangements applied by the
NCB should ensure that the NCBs are able to implement any amend-
ment to the monetary policy framework without undue delay.
Provisionshouldbemadeforthenoticeofsuchchangestobecommu-
nicated,withcertaintyastothemomentatwhichtheytakelegaleffect,
tocounterparties.
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
swapagreements)shouldbeineuro.
4. Ifitisnecessarytoconstitutealltransactionsundertheagreementasa
single contractual arrangement and/or to constitute the agreement as a
master agreement inorder toallow effective close-outand termination
netting,suchprovisionshouldbeincluded.
5. The relevant contractual or regulatory arrangements applied by the
NCB should ensure that, in the relationship between the NCB and
Counterparties, appropriate and unambiguous rules relating to the use
of forms (including the confirmation of terms of transactions), data
carriersandmeansandspecificsofcommunicationwillbeinplace.
6. The relevant contractual or regulatory arrangements applied by the
NCBatleastshouldprovideeventsofdefaultwhicharenotmaterially
differentfromthefollowing:
(a) a decision is made by a competent judicial or other authority to
implement in relation to the Counterparty a procedure for the
winding-upoftheCounterpartyortheappointment ofaliquidator
oranalogousofficerovertheCounterpartyoranyotheranalogous
procedure;or
(b) a decision is made by a competent judicial or other authority to
implementinrelationtotheCounterpartyareorganisationmeasure
or other analogous procedure intended to safeguard or restore the
financial situationoftheCounterpartyandtoavoidthemakingof
adecisionofthekindreferredtoin(a);or
(c) adeclaration bytheCounterpartyinwritingofitsinabilitytopay
alloranypartofitsdebtsortomeetitsobligationsarisinginrela-
tion to monetary policy transactions, or a voluntary general
agreement or arrangement entered into by it with its creditors, or
ifthe Counterparty is,orisdeemed tobe,insolvent orisdeemed
tobeunabletopayitsdebts;or
(d) proceduralstepspreliminarytoadecisionbeingtakenunder(a)or
(b);or
(e) any representation or other pre-contractual statement made by the
CounterpartyorwhichisimpliedtohavebeenmadebytheCoun-
terparty 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
businessof 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) theCounterpartyissuspendedorexpelledfrommembershipofany
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
membershipofanysecuritiessettlementsystemusedforthesettle-
mentofEurosystemmonetarypolicytransactions;or
(h) measures such as are referred to in Article 22 of Directive 2000/
12/ECrelatingtothetakingupandpursuitofthebusinessofcredit2000X0776—EN—07.07.2002—001.001—82
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institutions(assubsequentlyamended)aretakenagainsttheCoun-
terparty;or
(i) (in relation to reverse transactions) the Counterparty fails to
complywithprovisionsconcerningriskcontrolmeasures;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 (in relation to 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)theCounterpartyfailstopaytheeuroamountor(inrela-
tion to foreign exchange swap transactions) fails to pay foreign
currencyamountsontheapplicabledatesforsuchpayments;or
(l) theoccurrenceofaneventofdefault(notmateriallydifferentfrom
those defined in this clause) in relation to the Counterparty under
anagreementconcludedforthepurposesofthemanagementofthe
foreign reserves or own funds of any member of the Eurosystem;
or
(m) theCounterpartyfailstoproviderelevantinformationthuscausing
severeconsequencesfortheNCBconcerned;or
(n) theCounterpartyfailstoperformanyotherofitsobligationsunder
arrangements for reverse transactions and foreign exchange swap
transactions and (if capable of remedy) does not remedy such
failure within amaximum of30 daysin the case ofcollateralised
transactionsandamaximumof10daysforforeignexchangeswap
transactionsafternoticeisgivenbytheNCBrequiringittodoso;
or
(o) an event of default occurs in relation to the Counterparty in any
agreement withany other member ofthe Eurosystem entered into
for the purpose of effecting monetary policy operations in respect
of which that other member of the Eurosystem has exercised its
righttocloseoutanytransaction undersuchagreement byreason
oftheeventofdefault.
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
defaultmayprovidea‘graceperiod’ofuptoamaximumofthreebusi-
nessdaystorectifytheeventinquestion.Foreventsofdefaultthatare
discretionary,theprovisionsastotheexerciseofsuchdiscretionshould
providecertaintyastotheeffectofsuchexercise.
7. The relevant contractual or regulatory arrangements applied by the
NCB should ensure that if an event of default occurs, the NCB is
entitled toexercise thefollowingremedies: suspensionoftheCounter-
party 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 NCBmay be entitled to exercise the following remedies:
using deposits of the Counterparty placed with the NCB to set off
claimsagainstthatCounterparty;suspendingtheperformanceofobliga-
tions against the Counterparty until the claimon the Counterparty has
been satisfied; claiming default interest; or claiming an indemnity for
anylossessustainedasaconsequenceofadefaultbytheCounterparty.
Inaddition,therelevantcontractualorregulatoryarrangementsapplied
bytheNCBshouldensurethatifaneventofdefaultoccurs,suchNCB
shall be in a legal position to realise all assets provided as collateral
withoutunduedelayandinsuchawayastoentitletheNCBtorealise
value for the credit provided, if the Counterparty does not settle its
negativebalancepromptly.
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
operations.
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
arrangements 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.2000X0776—EN—07.07.2002—001.001—83
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10. The relevant contractual or regulatory arrangements applied by the
NCBshouldprovidethattherightsandobligationsoftheCounterparty
arenottobeassigned,chargedorotherwisedealtwithbytheCounter-
partywithoutthepriorwrittenconsentoftheNCB.
11. The relevant contractual or regulatory arrangements applied by the
NCBshouldprovidethatonlytheNCBandtheidentifiedCounterparty
have rights and obligations arising under the transaction (but allowing
for the relationships between NCBs (and/or the ECB) arising out of
the cross-borderuseofeligible assetsand also asnecessary for opera-
tions effected with counterparties acting through a networkinginstitution).
12. The relevant contractual arrangements applied by the NCB should
stipulate that the governing law for the relevant contractual or regula-
tory arrangements applied by the NCB and for all transactions under
sucharrangementsshould(exceptwherethecross-borderuseofeligible
assetsrequiresotherwise)bethatoftheMemberStatewheretheNCB
issituated,andtheplaceofdisputeresolutionshould,withoutprejudice
to the competence of the Court of Justice of the European Commu-
nities,betheofficialcourtsofthatMemberState.
13. Depositarrangementsshouldspecifythatsettlement(boththetaking-in
and the paying-out) of fixed-termdeposits takes place on the days
specifiedintheECB'sannouncementofthedepositoperation.
II.Additionalminimumcommonfeaturesforreverse transactions
Features common to all reverse transactions
14. The date of the reverse leg of the transaction should be fixed at the
timeofenteringintoeachtransaction.
15. The relevant contractual or regulatory arrangements applied by the
NCBshoulddefine‘businessday’tobe,inrelationtoanobligationto
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
throughwhichdeliveryistobemadeareopenforbusinessintheplace
wheredeliveryoftherelevantsecuritiesistobeeffected.
16. The mechanisms for changing non-euro amounts into euro should
specifythattheratetobeusedistheECBdailyeuroforeignexchange
referencerateor,ifnotavailable,thespotrateofexchangeindicatedby
theECBonthebusinessdaybeforethedayonwhichtheconversionis
to be made for the sale by it of euro against a purchase by it of the
othercurrency.
Features exclusive to repurchase transactions
17. Thereshouldbeasaleofeligibleassetsagainsteurocash,togetherwith
a simultaneous agreement to sell back against euro cash equivalent
assetsataspecifiedtime.
18. Theobligationtosellbackequivalentassetsshoulddefinesuchequiva-
lence 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,amountanddescriptionasthoseassetstowhichsuchcomparison
ismade.Iftheassetsinrespectofwhichthecomparisonismadehave
beenconverted or redenominated oracall hasbeen made thereon, the
definition of equivalence must be modified to mean in the case of
conversionthoseintowhichtheassetshaveconverted,inthecaseofa
call being made on assets equivalent assets to the paid-up assets,
providedthatthesellerhaspaidtothebuyerasumequaltothevalue
ofthecall,andinthecaseofredenominatedassetsequivalentassetsto
those into which the original assets have been redenominated with, as
necessary, a sumof m oney equal to any difference in value between
theassetsbeforeandaftertheirredenomination.
19. The events of default entitling the NCB to terminate and close out all
outstanding transactions should not be materially different from the
provisionssetoutinpoint6.
20. The relevant contractual or regulatory arrangements applied by the
NCB should contain provisions in relation to netting which are aimed
atachievingeconomiceffectsequivalenttothosesetoutbelow.
(a) Upontheoccurrenceofaneventofdefault,therepurchasedatefor
eachtransactionshallbedeemedimmediatelytooccurand,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 and2000X0776—EN—07.07.2002—001.001—84
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thepaymentoftherepurchasepriceforanyrepurchasedassetsshall
beeffectedonlyinaccordancewiththeprovisionof(b)below)or,
alternatively,therepurchasetransactionwillbeterminated.
(b) (i) The default market values of the repurchased assets and any
equivalent margin assets to be transferred and the repurchase
price to be paid by each party shall be established by the
NCBforalltransactionsasattherepurchasedate;and
(ii) on the basis of the sums so established, a calculation shall be
made by the NCB (as at the repurchase date) of what is due
fromeach partytotheotherandthesumsduefromoneparty
shallbesetoffagainstthesumsduetotheotherandonlythe
net balance shall be payable by the party having the claim
therebyvaluedattheloweramountandsuchnetbalance shall
bedueandpayableonthenextdayonwhichallrelevantparts
ofTargetareoperationaltoeffectapayment.Forthepurposes
ofthiscalculation, anysumsnotdenominated ineuroshall be
convertedintoeuroontherelevantdateattheratecalculatedin
accordancewithpoint16.
c) ‘Default market value’ means, with regard to any assets on any
date:
(i) the market value of such assets at the default valuation time
calculated onthebasisofthemostrepresentative priceonthe
businessdayprecedingthevaluationdate;or
(ii) intheabsenceofarepresentativepriceforaparticularasseton
the businessdaypreceding the valuation date, the lasttrading
price is used. If no trading price is available, the NCB will
defineaprice,taking intoaccount thelastpriceidentified for
theassetinthereferencemarket;or
(iii) in the case of assets for which no market value exists, any
otherreasonablemethodofvaluation;or
(iv) if the NCB has sold before the default valuation time the
assetsorequivalentassetsatthemarketprice,thenetproceeds
ofsale,afterdeductingallreasonablecosts,feesandexpenses
incurred in connection with such sale, such calculation being
madeandamountsdeterminedbytheNCB.
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
controlmeasuresismaintained.
22. If the relevant contractual or regulatory arrangements applied by the
NCB include any provision for margins to be paid (or returned) in
cash, provision should be made that any further obligation to return
(or provide) margins should first be satisfied by the use of cash up to
thesameamount(togetherwithanyinterestattributedtoit).
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 inter-
vene and successfully claimthe assets pledged (in the absence of
fraud),oranyrightsattachedtothem.
24. TheNCBshouldbeinalegalpositiontorealisetheeconomicvalueof
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
toovernightoperations.
III.Additional minimum common features for foreign exchange swap
arrangements
26. Each transaction should be constituted as a simultaneous spot and
forwardsaleandpurchaseofeuroagainstoneforeigncurrency.
27. The relevant contractual or regulatory arrangements applied by the
NCBshouldincludeaprovisionastothetimingandmechanicsofthe
transfer of payments. The date of the forward sale/purchase should be
fixedatthetimeofenteringintoeachtransaction.2000X0776—EN—07.07.2002—001.001—85
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28. The relevant contractual or regulatory arrangements applied by the
NCB should define the foreign currency, spot rate, forward rate,
transferdateandretransferdateinaccordancewiththefollowing:
(a) ‘foreigncurrency’shallbeanylawfulcurrencyotherthantheeuro;
(b) ‘spot rate’ means, in relation to a specific transaction, the rate (as
calculatedinaccordancewithpoint16)appliedtoconverttheeuro
amount into such amount in the foreign currency relevant for that
transaction asone party shallbeobliged totransfer tothe otherat
thetransferdateagainstpaymentoftheeuroamountandwhichrate
shallbesetoutintheconfirmation;
(c) ‘forward rate’ means the rate calculated in accordance with point
16andappliedtoconverttheeuroamountintosuchamountinthe
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) ‘retransferforeigncurrencyamount’meanssuchamountofforeign
currency as is required to purchase the euro amount as at the
retransferdate;
(e) ‘transferdate’meanswithregardtoanytransaction,thedate(and,
where appropriate, the time on that date) when the transfer of the
euroamountbyonepartytotheotheristobecomeeffectivewhich
for the avoidance of doubt shall be the date (and, where appro-
priate, the time on that date) when the parties have agreed that
settlementofatransferoftheeuroamountshalloccur;
(f) ‘retransfer date’ means, with regard to any transaction, the date
(and, where appropriate, the time on that date) when one party is
toretransfertheeuroamounttotheother.
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
provideforthewayinwhichsuchaclosing-out(includingtermination
netting)wouldtakeplace.
30. The events of default entitling the NCB to terminate and close out all
outstanding transactions should not be materially different from the
provisionssetoutinpoint6.
31. The relevant contractual or regulatory arrangements applied by the
NCB should contain provisions in relation to netting which are aimed
atachievingeconomiceffectsequivalenttothoseassetoutbelow.
(a) If an event of default has occurred, each transaction shall be
deemed tohaveterminated andthereplacement valuesoftheeuro
andtheretransferforeigncurrencyamountsshallbeestablishedby
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
beenrequired;and
(b) Onthebasisofthesumssoestablished,acalculationshallbemade
by the NCB (as at the retransfer date) of what is due fromeach
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 claimthereby
valued at theloweramount and suchnetbalance shall bedueand
payable on the next day on which all relevant parts of Target are
operationaltoeffectsuchapayment.2000X0776—EN—07.07.2002—001.001—86