Guideline of the European Central Bank of 1 December 2003 amending Guideline ECB/2000/7 on monetary policy instruments and procedures of the Eurosystem (ECB/2003/16)
Date: 2003-12-01
Institutions: European Central Bank
Subjects: EU Member State, European Central Bank, central bank, financial legislation, single monetary policy

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II

(Acts whose publication is not obligatory)

EUROPEAN CENTRAL BANK

GUIDELINE OF THE EUROPEAN CENTRAL BANK

of 1 December 2003

amending Guideline ECB/2000/7 on monetary policy instruments and procedures of

the

Eurosystem

(ECB/2003/16)

(2004/202/EC)

THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,

(4)

In accordance with Articles 12(1) and 14(3) of
Statute, ECB guidelines
Community law,

the
form an integral part of

Having regard to the Treaty establishing the European
Community,
indent of
Article 105(2),

and in particular

to the

first

the European System of
the European Central Bank and in
in conjunction with the
indent of Article 3(1), Article 18(2) and the first

Having regard to the Statute of
Central Banks and of
particular Articles 12(1) and 14(3),
first
paragraph of Article 20,

Whereas:

HAS ADOPTED THIS GUIDELINE:

Article 1

Principles, instruments, procedures and criteria for the
implementation of the Eurosystem's single monetary
policy

(1)

(2)

(3)

and procedures

Achieving a single monetary policy entails defining the
to be used by
instruments
the
the national central banks
Eurosystem, consisting of
(NCBs) of Member States that have adopted the euro
(hereinafter the ‘participating Member States') and the
in order to implement
European Central Bank (ECB),
such policy in a uniform manner
the
participating Member States.

throughout

The ECB has the authority to establish the necessary
single
guidelines
monetary policy and the NCBs have an obligation to act
in accordance with such guidelines.

to implement

Eurosystem's

the

Recent changes to the definition and implementation of
the Eurosystem's single monetary policy need to be
reflected appropriately by replacing Annex I to the ECB
and
Guideline
procedures of the Eurosystem that is currently in force.

on monetary

instruments

policy

and

policy

procedures

instruments

Annex I to Guideline ECB/2000/7 of 31 August 2000 on
monetary
the
Eurosystem (1), as amended by Guideline ECB/2002/2 (2),
entitled ‘The single monetary policy in the euro area —
General documentation on Eurosystem monetary policy
instruments and procedures' is replaced by the Annex to this
Guideline entitled ‘The implementation of monetary policy in
the euro area — General documentation on Eurosystem
monetary policy instruments and procedures'.

of

Article 2

Verification

The NCBs shall forward details of the texts and means by
which they intend to comply with this Guideline to the ECB by
16 January 2004 at the latest.

(1) OJ L 310, 11.12.2000, p. 1.
(2) OJ L 185, 15.7.2002, p. 1.

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Article 3

Final provisions

This Guideline is addressed to the NCBs of participating

1.
Member States.

This Guideline shall enter into force two days after its

2.
adoption. Article 1 shall apply from 8 March 2004.

This Guideline will be published in the Official Journal of

3.
the European Union.

Done at Frankfurt am Main, 1 December 2003.

On behalf of the Governing Council of the ECB

The President

Jean-Claude TRICHET

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ANNEX

THE IMPLEMENTATION OF MONETARY POLICY IN THE EURO AREA

General documentation on eurosystem monetary policy instruments and procedures

February 2004

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CONTENTS

Introduction

CHAPTER 1

1.

1.1.

1.2.

1.3.

Overview of the monetary policy framework

The European System of Central Banks

Objectives of the Eurosystem

Eurosystem monetary policy instruments

1.3.1. Open market operations

1.3.2. Standing facilities

1.3.3. Minimum reserves

1.4.

1.5.

Counterparties

Underlying assets

1.6. Modifications to the monetary policy framework

CHAPTER 2

2.

2.1.

2.2.

2.3.

2.4.

Eligible counterparties

General eligibility criteria

Selection of counterparties for quick tenders and bilateral operations

Sanctions in the event of non-compliance with counterparty obligations

Suspension or exclusion on grounds of prudence

CHAPTER 3

3.

Open market operations

3.1.

Reverse transactions

3.1.1. General considerations

3.1.2. Main refinancing operations

3.1.3. Longer-term refinancing operations

3.1.4. Fine-tuning reverse operations

3.1.5. Structural reverse operations

3.2.

3.3.

3.4.

3.5.

Outright transactions

Issuance of ECB debt certificates

Foreign exchange swaps

Collection of fixed-term deposits

CHAPTER 4

4.

4.1.

4.2.

Standing facilities

The marginal lending facility

The deposit facility

CHAPTER 5

5.

Procedures

5.1.

Tender procedures

5.1.1. General considerations

5.1.2. Tender operations calendar

5.1.3. Announcement of tender operations

5.1.4. Counterparties' preparation and submission of tender bids

5.1.5. Tender allotment procedures

Page

7

8

8

8

8

8

9

9

9

10

10

11

11

11

12

12

13

13

13

13

14

14

15

15

16

17

18

18

18

19

20

20

20

22

23

24

25

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5.1.6. Announcement of tender results

5.2.

5.3.

Procedures for bilateral operations

Settlement procedures

5.3.1. General considerations

5.3.2. Settlement of open market operations

5.3.3. End-of-day procedures

CHAPTER 6

6.

6.1.

6.2.

6.3.

6.4.

Eligible assets

General considerations

Tier one assets

Tier two assets

Risk control measures

6.4.1. Risk control measures for tier one assets

6.4.2. Risk control measures for tier two assets

6.5.

6.6.

Valuation principles for underlying assets

Cross-border use of eligible assets

6.6.1. Correspondent central banking model

6.6.2. Links between securities settlement systems

CHAPTER 7

7.

7.1.

7.2.

7.3.

7.4.

7.5.

7.6.

Minimum reserves

General considerations

Institutions subject to minimum reserves

Determination of minimum reserves

Maintenance of reserve holdings

Reporting, acknowledgement and verification of the reserve base

Non-compliance with minimum reserve obligations

Annexes

Annex 1

Examples of monetary policy operations and procedures

Annex 2

Glossary

Annex 3

Annex 4

Selection of counterparties for foreign exchange intervention operations and foreign
exchange swaps for monetary policy purposes

The reporting framework for the money and banking statistics of the European Central
Bank

Annex 5

The Eurosystem websites

Annex 6

Procedures and sanctions to be applied in the event of non-compliance with counterparty
obligations

List of charts, tables and boxes

Charts

1.

2.

3.

4.

Normal time frame for the operational steps for standard tenders

Normal time frame for the operational steps for quick tenders

The correspondent central banking model

Links between securities settlement systems

Page

28

29

30

30

30

31

31

31

32

34

38

39

42

44

45

45

46

47

47

47

48

50

51

51

53

64

72

73

83

84

21

22

45

46

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Tables
1.
2.
3.
4.

Boxes
1.
2.
3.
4.
5.
6.
7.
8.
9.

10.
11.
12.
13.
14.

Eurosystem monetary policy operations
Normal trade days for the main and the longer-term refinancing operations
Normal settlement dates for Eurosystem open market operations
Eligible assets for Eurosystem monetary policy operations

Issuance of ECB debt certificates
Foreign exchange swaps
Operational steps for tender procedures
Allotment of fixed rate tenders
Allotment of variable rate tenders in euro
Allotment of variable rate foreign exchange swap tenders
Risk control measures
Liquidity categories for tier one assets
Levels of valuation haircuts ( %) applied to eligible tier one assets in relation to fixed coupon and
zero coupon instruments
Levels of valuation haircuts ( %) applied to eligible tier one inverse floating rate instruments
Calculation of margin calls
Levels of valuation haircuts applied to eligible tier two assets
Reserve base and reserve ratios
Calculation of the remuneration of holdings of required reserves

Abbreviations

Page

10
23
31
35

16
17
21
25
26
27
38
39
40

40
41
43
49
51

Correspondent central banking model
Central European Time
Credit institutions
Central securities depository
Delivery-versus-payment
European Community
European Central Bank
European Economic Area
European Economic Community
ECB payment mechanism
European System of Central Banks
European Union
Free of payment
Floating-rate note
Intraday credit
International Securities Identification Number
Monetary Financial Institution
Money market fund
Money market paper
Monetary Union
Monetary Union Member States
National central bank
Rest of the World
Real-time gross settlement
Securities settlement system
Separate trading of interest and principal

CCBM
C.E.T.
CIs
CSD
DVP
EC
ECB
EEA
EEC
EPM
ESCB
EU
FOP
FRN
IDC
ISIN
MFI
MMF
MMP
MU
MUMS
NCB
RoW
RTGS
SSS
Strip
TARGET Trans-European Automated Real-time Gross settlement Express Transfer system
UCITS

Undertaking for collective investment in transferable securities

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Introduction

This document presents the operational framework chosen by the Eurosystem (1) for the single monetary policy in the
euro area. The document, which forms part of the Eurosystem's legal framework for monetary policy instruments and
procedures, is intended to serve as the ‘General Documentation' on the monetary policy instruments and procedures of
the Eurosystem, particularly aiming to provide counterparties with the information they need in relation to the
Eurosystem's monetary policy framework.

The General Documentation in itself neither confers rights nor imposes obligations on counterparties. The legal
relationship between the Eurosystem and its counterparties is established in appropriate contractual or regulatory
arrangements.

This document is divided into seven chapters. Chapter 1 gives an overview of the operational framework for the
monetary policy of the Eurosystem. In Chapter 2, eligibility criteria for counterparties taking part in Eurosystem
monetary policy operations are specified. Chapter 3 describes open market operations, while Chapter 4 presents the
standing facilities available to counterparties. Chapter 5 specifies procedures applied in the execution of monetary
policy operations. In Chapter 6, the eligibility criteria for underlying assets in monetary policy operations are defined.
Chapter 7 presents the Eurosystem's minimum reserve system.

The annexes contain examples of monetary policy operations, a glossary, criteria for the selection of counterparties to
Eurosystem foreign exchange intervention operations, a presentation of the reporting framework for the money and
banking statistics of the European Central Bank, a list of the Eurosystem websites and a description of the procedures
and sanctions to be applied in the event of non-compliance with counterparty obligations.

(1) The Governing Council of the European Central Bank has agreed to use the term ‘Eurosystem' as an expression denoting the
composition in which the European System of Central Banks performs its basic tasks, i.e. the national central banks of those Member
States which have adopted the single currency in accordance with the Treaty establishing the European Community, and the
European Central Bank.

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CHAPTER 1

1.

OVERVIEW OF THE MONETARY POLICY FRAMEWORK

1.1.

The European System of Central Banks

The European System of Central Banks (ESCB) consists of the European Central Bank (ECB) and the national
central banks of the European Union (EU) Member States (2). The activities of the ESCB are carried out in
accordance with the Treaty establishing the European Community (Treaty) and the Statute of the European
System of Central Banks and of the European Central Bank (Statute of the ESCB). The ESCB is governed by
the decision-making bodies of the ECB. In this respect, the Governing Council of the ECB is responsible for
the formulation of monetary policy, while the Executive Board is empowered to implement monetary policy
according to the decisions 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 recourse to
the national central banks (3) to carry out the operations which form part of the tasks of the Eurosystem. The
Eurosystem's monetary policy operations are executed under uniform terms and conditions in all Member
States (4).

1.2.

Objectives of the Eurosystem

The primary objective of the Eurosystem is to maintain price stability, as defined in Article 105 of the Treaty.
Without prejudice to the primary objective of price stability, the Eurosystem has to support the general
economic policies in the European Community. In pursuing its objectives, the Eurosystem has to act in
accordance with the principle of an open market economy with free competition, favouring an efficient
allocation of resources.

1.3.

Eurosystem monetary policy instruments

In order to achieve its objectives, the Eurosystem has at its disposal a set of monetary policy instruments; the
Eurosystem conducts open market operations, offers standing facilities and requires credit institutions to hold
minimum reserves on accounts with the Eurosystem.

1.3.1.

Open market operations

Open market operations play an important role in the monetary policy of the Eurosystem for the purposes of
steering interest rates, managing the liquidity situation in the market and signalling the stance of monetary
policy. Five types of instruments are available to the Eurosystem for the conduct of open market operations.
The most important instrument is the reverse transaction (applicable on the basis of repurchase agreements or
collateralised loans). The Eurosystem may also use outright transactions, the issuance of debt certificates, foreign
exchange swaps and the collection of fixed-term deposits. Open market operations are initiated by the ECB,
which also decides on the instrument to be used and the terms and conditions for their execution. They can
be executed on the basis of standard tenders, quick tenders or bilateral procedures (5). With regard to their
aims, regularity and procedures, the Eurosystem's open market operations can be divided into the following
four categories (see also Table 1):

— the main refinancing operations are regular liquidity-providing reverse transactions with a weekly frequency
and a maturity of normally one week. These operations are executed by the national central banks on the
basis of standard tenders. The main refinancing operations play a pivotal role in pursuing the purposes
of the Eurosystem's open market operations and provide the bulk of refinancing to the financial sector,

(2) It should be noted that the national central banks of those Member States which have not adopted the single currency in accordance
with the Treaty establishing the European Community (Treaty) retain their powers in the field of monetary policy according to
national law and are thus not involved in the conduct of the single monetary policy.

(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 accordance with the Treaty.

(4) Throughout this document, the term ‘Member State' refers to a Member State which has adopted the single currency in accordance

with the Treaty.

(5) The different procedures for the execution of Eurosystem open market operations, i.e. standard tenders, quick tenders and bilateral
procedures, are specified in Chapter 5. For standard tenders, a maximum of 24 hours elapses between the tender announcement and
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 a limited
number of counterparties to participate in quick tenders. The term ‘bilateral procedures' refers to any case in which the Eurosystem
conducts a transaction with one or a few counterparties without using tender procedures. Bilateral procedures include operations
executed through stock exchanges or market agents.

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— the longer-term refinancing operations are liquidity-providing reverse transactions with a monthly frequency
and a maturity of normally three months. These operations aim to provide counterparties with additional
longer-term refinancing and are executed by the national central banks on the basis of standard tenders.
In these operations, the Eurosystem does not, as a rule,
intend to send signals to the market and
therefore normally acts as a rate taker,

— fine-tuning operations are executed on an ad hoc basis with the aim of managing the liquidity situation in
the market and steering interest rates, in particular in order to smooth the effects on interest rates caused
by unexpected liquidity fluctuations in the market. Fine-tuning operations are primarily executed as
reverse transactions, but can also take the form of outright transactions, foreign exchange swaps and the
collection of fixed-term deposits. The instruments and procedures applied in the conduct of fine-tuning
operations are adapted to the types of transactions and the specific objectives pursued in the operations.
Fine-tuning operations are normally executed by the national central banks through quick tenders or
bilateral procedures. The Governing Council of
the ECB will decide whether, under exceptional
circumstances, fine-tuning bilateral operations may be executed by the ECB itself,

— in addition, the Eurosystem may carry out structural operations through the issuance of debt certificates,
reverse transactions and outright transactions. These operations are executed whenever the ECB wishes to
adjust the structural position of the Eurosystem vis-à-vis the financial sector (on a regular or non-regular
basis). Structural operations in the form of reverse transactions and the issuance of debt instruments are
carried out by the national central banks through standard tenders. Structural operations in the form of
outright transactions are executed through bilateral procedures.

1.3.2.

Standing facilities

Standing facilities aim to provide and absorb overnight liquidity, signal the general stance of monetary policy
and bound overnight market interest rates. Two standing facilities are available to eligible counterparties on
their own initiative, subject to their fulfilment of certain operational access conditions (see also Table 1):

— counterparties can use the marginal lending facility to obtain overnight liquidity from the national central
banks against eligible assets. Under normal circumstances, there are no credit limits or other restrictions
on counterparties' access to the facility apart from the requirement to present sufficient underlying assets.
The interest rate on the marginal lending facility normally provides a ceiling for the overnight market
interest rate,

— counterparties can use the deposit facility to make overnight deposits with the national central banks.
Under normal circumstances, there are no deposit limits or other restrictions on counterparties' access to
the facility. The interest rate on the deposit facility normally provides a floor for the overnight market
interest rate.

The standing facilities are administered in a decentralised manner by the national central banks.

1.3.3.

Minimum reserves

The Eurosystem's minimum reserve system applies to credit institutions in the euro area and primarily
pursues the aims of stabilising money market interest rates and creating (or enlarging) a structural liquidity
shortage. 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
is
enables institutions to make use of averaging provisions. Compliance with the reserve requirement
determined on the basis of the institutions' average daily reserve holdings over the maintenance period.
Institutions' holdings of required reserves are remunerated at the rate of the Eurosystem's main refinancing
operations.

1.4.

Counterparties

The Eurosystem's monetary policy framework is formulated with a view to ensuring participation of a broad
range of counterparties. Institutions subject to minimum reserve requirements according to Article 19.1 of
the Statute of the ESCB may access the standing facilities and participate in open market operations based on
standard tenders. The Eurosystem may select a limited number of counterparties to participate in fine-tuning
operations. For outright transactions, no restrictions are placed a priori on the range of counterparties. For
foreign exchange swaps conducted for monetary policy purposes, active players in the foreign exchange
market are used. The set of counterparties for these operations is limited to those institutions selected for
Eurosystem foreign exchange intervention operations which are located in the euro area.

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1.5.

Underlying assets

Pursuant to Article 18.1 of the Statute of the ESCB, all Eurosystem credit operations (i.e. liquidity-providing
operations) have to be based on adequate collateral. The Eurosystem accepts 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 quality of the assets
and their eligibility for the various types of Eurosystem monetary policy operations (except that tier two
assets are normally not used by the Eurosystem in outright transactions). Eligible assets may be used on a
cross-border basis, by means of the correspondent central banking model (CCBM) or through eligible links
between EU securities settlement systems (SSSs), to collateralise all types of Eurosystem credit (6). All assets
eligible for Eurosystem monetary policy operations can also be used as underlying assets for intraday credit.

1.6.

Modifications to the monetary policy framework

The Governing Council of the ECB may, at any time, change the instruments, conditions, criteria and
procedures for the execution of Eurosystem monetary policy operations.

TABLE 1

Eurosystem monetary policy operations

Monetary policy
operations

Types of transactions

Provision of
liquidity

Absorption of
liquidity

Open market operations

Maturity

Frequency

Procedure

Main
refinancing
operations

Longer-term
refinancing
operations

Fine-tuning
operations

Reverse
transactions

Reverse
transactions

—

—

One week

Weekly

Standard tenders

Three months

Monthly

Standard tenders

— Reverse

— Reverse

transactions

transactions

Non-
standardised

Non-regular

— Foreign

— Collection

exchange
swaps

of
fixed-term
desposits

— Foreign

exchange
swaps

— Quick
tenders
— Bilateral

procedures

Structural
operations

Outright
purchases

Reverse
transactions

Outright
purchases

Outright sales —

Non-regular

Issuance of debt
certificates

Standardised/
non-standardised

Regular and
non-regular

Outright sales —

Non-regular

Bilateral
procedures

Standard tenders

Bilateral
procedures

Standing facilities

Marginal
lending facility

Reverse
transactions

—

Overnight

Deposit facility —

Deposits

Overnight

Access at the discretion of
counterparties

Access at the discretion of
counterparties

(6) See Sections 6.6.1 and 6.6.2.

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CHAPTER 2

2.

ELIGIBLE COUNTERPARTIES

2.1.

General eligibility criteria

Counterparties to Eurosystem monetary policy operations must fulfil certain eligibility criteria (7). These
criteria are defined with a view to giving a broad range of institutions access to Eurosystem monetary policy
operations, enhancing equal treatment of institutions across the euro area and ensuring that counterparties
fulfil certain operational and prudential requirements:

— only institutions subject to the Eurosystem's minimum reserve system according to Article 19.1 of the
Statute of the ESCB are eligible to be counterparties. Institutions which are exempt from their obligations
under the Eurosystem's minimum reserve system (see Section 7.2) are not eligible to be counterparties to
Eurosystem standing facilities and open market operations,

— counterparties must be financially sound. They should be subject to at least one form of EU/EEA
harmonised supervision by national authorities (8). However, financially sound institutions subject to
non-harmonised national supervision of a comparable standard can also be accepted as counterparties,
e.g. branches established in the euro area of institutions that have their head office outside the European
Economic Area (EEA),

— counterparties must fulfil any operational criteria specified in the relevant contractual or regulatory
arrangements applied by the respective national central bank (or the ECB), so as to ensure the efficient
conduct of Eurosystem monetary policy operations.

These general eligibility criteria are uniform throughout the euro area.
eligibility criteria may:

Institutions fulfilling the general

— access the Eurosystem's standing facilities, and

— participate in Eurosystem open market 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 central bank of the Member State in which it is established. If an institution
has establishments (head office or branches) in more than one Member State, each establishment has access
to these operations through the national central bank of
is located,
notwithstanding the fact that the tender bids of an institution may only be submitted by one establishment
(either the head office or a designated branch) in each Member State.

the Member State in which it

2.2.

Selection of counterparties for quick tenders and bilateral operations

For outright transactions, no restrictions are placed a priori on the range of counterparties.

For foreign exchange swaps executed for monetary policy purposes, counterparties must be able to conduct
large-volume foreign exchange operations efficiently under all market conditions. The range of counterparties
to foreign exchange swaps corresponds to the counterparties located in the euro area which are selected for
Eurosystem foreign exchange intervention operations. The criteria and procedures applied for the selection of
counterparties to foreign exchange intervention operations are presented in Annex 3.

For other operations based on quick tenders and bilateral procedures (fine-tuning reverse transactions and the
collection of fixed-term deposits), each national central bank selects a set of counterparties from among the
institutions established in its Member State which fulfil the general counterparty eligibility criteria. In this
respect, activity in the money market is the prime selection criterion. Other criteria which might be taken
into account are, for example, the efficiency of the trading desk and the bidding potential.

In quick tenders and bilateral operations, the national central banks deal exclusively with the counterparties
which are included in their respective set of fine-tuning counterparties. If, for operational reasons, a national

(7) For outright transactions, no restrictions are placed a priori on the range of counterparties.
(8) Harmonised supervision of credit institutions is based on Directive 2000/12/EC of the European Parliament and of the Council of
20 March 2000 relating to the taking up and pursuit of the business of credit institutions, OJ L 126, 26.5.2000, p. 1, as amended.

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central bank cannot deal
counterparties in this Member State will be based on a rotation scheme in order to ensure equitable access.

in each operation with all of

its fine-tuning counterparties,

the selection of

The Governing Council of the ECB will decide whether, under exceptional circumstances, fine-tuning bilateral
operations may be carried out by the ECB itself. If the ECB were to carry out bilateral operations, the
selection of counterparties would in such cases be made by the ECB according to a rotation scheme among
those counterparties in the euro area which are eligible for quick tenders and bilateral operations in order to
ensure equitable access.

2.3.

Sanctions in the event of non-compliance with counterparty obligations

The ECB shall impose sanctions, in accordance with Council Regulation (EC) No 2532/98 of 23 November
1998 concerning the powers of the European Central Bank to impose sanctions (9), European Central Bank
Regulation (EC) No 2157/1999 of 23 September 1999 on the powers of the European Central Bank to
impose sanctions (ECB/1999/4) (10), Council Regulation (EC) No 2531/98 of 23 November 1998 concerning
the application of minimum reserves by the European Central Bank (11), as amended, and Regulation (EC)
No 1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves
(ECB/2003/9) (12), on institutions which do not comply with obligations arising from ECB Regulations and
Decisions relating to the application of minimum reserves. The relevant sanctions and the procedural rules
for their application are specified in the above-mentioned Regulations. In addition, in the case of serious
infringements of
the Eurosystem may suspend counterparties'
participation in open market operations.

the minimum reserve requirements,

In accordance with the provisions in the contractual or regulatory arrangements applied by the respective
national central bank (or by the ECB), the Eurosystem shall impose financial penalties on counterparties or
suspend counterparties' participation in open market operations if counterparties fail to comply with their
obligations under the contractual or regulatory arrangements applied by the national central banks (or by the
ECB) as set out below.

This relates to cases of infringement of tender rules (if a counterparty is unable to transfer a sufficient
amount of underlying assets to settle the amount of liquidity it has been allotted in a liquidity-providing
operation or if it is 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
sufficient amount of eligible underlying assets or if it is unable to deliver a sufficient amount of cash to settle
the amount agreed in bilateral transactions).

This also applies to cases of non-compliance by a counterparty with the rules for the use of underlying assets
(if a counterparty is using assets which are or have become ineligible, or which may not be used by the
counterparty, e.g. 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 settlement account at the end of the day does
not fulfil the access conditions for the marginal lending facility).

In addition, a suspension measure to be taken vis-à-vis a non-complying counterparty may be applied to
branches of the same institution located in other Member States. Where, as an exceptional measure, this is
required given the seriousness of a case of non-compliance, as evidenced by its frequency or duration, for
instance, a counterparty may be suspended from all future monetary policy operations for a certain period of
time.

Financial penalties imposed by national central banks in the event of non-compliance in relation to a breach
of the rules concerning tender operations, bilateral transactions, underlying assets, end-of-day procedures or
the access conditions to the marginal lending facility shall be calculated at a pre-specified penalty rate (as set
out in Annex 6).

2.4.

Suspension or exclusion on grounds of prudence

In accordance with the provisions in the contractual or regulatory arrangements applied by the respective
national central bank (or by the ECB), the Eurosystem may suspend or exclude counterparties' access to
monetary policy instruments on the grounds of prudence.

(9) OJ L 318, 27.11.1998, p. 4.
(10) OJ L 264, 12.10.1999, p. 21.
(11) OJ L 318, 27.11.1998, p. 1.
(12) OJ L 250, 2.10.2003, p. 10.

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In addition, suspension or exclusion of counterparties may be warranted in some of the cases which fall
within the notion of the ‘default' of a counterparty as defined in the contractual or regulatory arrangements
applied by the national central banks.

3.

OPEN MARKET OPERATIONS

CHAPTER 3

Open market operations play an important role in the Eurosystem's monetary policy, pursuing the aims of
steering interest rates, managing the liquidity situation in the market and signalling the stance of monetary
policy. With regard to their aims, regularity and procedures, Eurosystem open market operations can be
divided into four categories: main refinancing operations,
longer-term refinancing operations, fine-tuning
operations and structural operations. As for the instruments used, reverse transactions are the main open
market instrument of the Eurosystem and can be employed in all four categories of operations, whereas debt
certificates may be used for structural absorption operations. In addition, the Eurosystem has three other
instruments available for the conduct of fine-tuning operations: outright transactions, foreign exchange swaps
and the collection of fixed-term deposits. In the following sections, specific features of the different types of
open market instruments used by the Eurosystem are presented in detail.

3.1.

Reverse transactions

3.1.1.

General considerations

(a) Ty p e o f i n s t r u m e n t

Reverse transactions refer to operations where the Eurosystem buys or sells eligible assets under
credit operations against eligible assets as collateral. Reverse
repurchase agreements or conducts
transactions are used for main refinancing operations and longer-term refinancing operations.
In
addition, the Eurosystem can use reverse transactions for structural and fine-tuning operations.

(b) L e g a l n a t u r e

The national central banks may execute reverse transactions either in the form of repurchase agreements
(i.e. the ownership of the asset is transferred to the creditor, while the parties agree to reverse the
transaction through a re-transfer of the asset to the debtor at a future point in time) or as collateralised
loans (i.e. an enforceable security interest is provided over the assets but, assuming fulfilment of the debt
obligation,
is retained by the debtor). Further provisions for reverse
transactions based on repurchase agreements are specified in the contractual arrangements applied by the
respective national central bank (or
reverse transactions based on
collateralised loans take account of the different procedures and formalities required to enable the
establishment and subsequent realisation of a relevant interest in the collateral (e.g. a pledge) which apply
in different jurisdictions.

the ECB). Arrangements

the ownership of

the asset

for

(c)

I n t e r e s t t e r m s

The difference between the purchase price and the repurchase price in a repurchase agreement
corresponds to the interest due on the amount of money borrowed or lent over the maturity of the
operation, i.e. the repurchase price includes the respective interest to be paid. The interest rate on a
reverse transaction in the form of a collateralised loan is determined by applying the specified interest
rate on the credit amount over the maturity of the operation. The interest rate applied to Eurosystem
reverse open market operations is a simple interest rate with the day-count convention ‘actual/360'.

3.1.2.

Main refinancing operations

The main refinancing operations are the most
important open market operations conducted by the
Eurosystem, playing a pivotal role in pursuing the aims of steering interest rates, managing the liquidity
situation in the market and signalling the stance of monetary policy. They also provide the bulk of
refinancing to the financial sector.

The operational features of the main refinancing operations can be summarised as follows:

— they are liquidity-providing operations;

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— they are executed regularly each week (13);

— they normally have a maturity of one week (14);

— they are executed in a decentralised manner by the national central banks;

— they are executed through standard tenders (as specified in Section 5.1);

— all counterparties fulfilling the general eligibility criteria (as specified in Section 2.1) may submit tender

bids for the main refinancing operations; and

— both tier one and tier two assets (as specified in Chapter 6) are eligible as underlying assets for the main

refinancing operations.

3.1.3.

Longer-term refinancing operations

The Eurosystem also executes regular refinancing operations, normally with a three-month maturity, which
are aimed at providing additional longer-term refinancing to the financial sector. These operations represent
only a limited part of the global refinancing volume. In these operations, the Eurosystem does not, as a rule,
intend to send signals to the market and therefore normally acts as a rate taker. Accordingly, longer-term
refinancing operations are usually executed in the form of variable rate tenders and, from time to time, the
ECB indicates the operation volume to be allotted in forthcoming tenders. Under exceptional circumstances,
the Eurosystem may also execute longer-term refinancing operations through fixed rate tenders.

The operational features of the longer-term refinancing operations can be summarised as follows:

— they are liquidity-providing operations;

— they are executed regularly each month (15);

— they normally have a maturity of three months (16);

— they are executed in a decentralised manner by the national central banks;

— they are executed through standard tenders (as specified in Section 5.1);

— all counterparties fulfilling the general eligibility criteria (as specified in Section 2.1) may submit tender

bids for the longer-term refinancing operations; and

— both tier one and tier two assets (as specified in Chapter 6) are eligible as underlying assets for the

longer-term refinancing operations.

3.1.4.

Fine-tuning reverse operations

The Eurosystem can execute fine-tuning operations in the form of reverse open market
transactions.
Fine-tuning operations aim to manage the liquidity situation in the market and to steer interest rates, in
particular 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 retain a high degree of flexibility in the choice of procedures and operational features in the conduct of
these operations.

The operational features of the fine-tuning reverse operations can be summarised as follows:

— they can take the form of liquidity-providing or liquidity-absorbing operations;

— their frequency is not standardised;

— their maturity is not standardised;

— liquidity-providing fine-tuning reverse transactions are normally executed through quick tenders,

although the possibility of using bilateral procedures is not excluded (see Chapter 5);

(13) 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 Eurosystem
websites (Annex 5).

(14) The maturity of the main and the longer-term refinancing operations may occasionally vary depending on, inter alia, bank holidays

in Member States.
(15) See footnote 13 above.
(16) See footnote 14 above.

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— liquidity-absorbing fine-tuning reverse transactions are executed, as a rule, through bilateral procedures

(as specified in Section 5.2);

— these operations are normally executed in a decentralised manner by the national central banks (the
Governing Council of the ECB will decide whether, under exceptional circumstances, bilateral fine-tuning
reverse operations may be executed by the ECB);

— the Eurosystem may select, according to the criteria specified in Section 2.2, a limited number of

counterparties to participate in fine-tuning reverse operations; and

— both tier one and tier two assets (as specified in Chapter 6) are eligible as underlying assets for

fine-tuning reverse operations.

3.1.5.

Structural reverse operations

The Eurosystem may execute structural operations in the form of reverse open market transactions aimed at
adjusting the structural position of the Eurosystem vis-à-vis the financial sector.

The operational features of these operations can be summarised as follows:

— they are liquidity-providing operations;

— their frequency can be regular or non-regular;

— their maturity is not standardised a priori;

— they are executed through standard tenders (as specified in Section 5.1);

— they are executed in a decentralised manner by the national central banks;

— all counterparties fulfilling the general eligibility criteria (as specified in Section 2.1) may submit tender

bids for structural reverse operations; and

— both tier one and tier two assets (as specified in Chapter 6) are eligible as underlying assets for structural

reverse operations.

3.2.

Outright transactions

(a) Ty p e o f i n s t r u m e n t

Outright open market transactions refer to operations where the Eurosystem buys or sells eligible assets
outright on the market. Such operations are executed only for structural and fine-tuning purposes.

(b) L e g a l n a t u r e

An outright transaction implies a full transfer of ownership from the seller to the buyer with no
connected reverse transfer of ownership. The transactions are executed in accordance with the market
conventions for the debt instrument used in the transaction.

(c) P r i c e t e r m s

In the calculation of prices, the Eurosystem acts in accordance with the most widely accepted market
convention for the debt instruments used in the transaction.

(d) O t h e r o p e r a t i o n a l f e a t u r e s

The operational features of Eurosystem outright transactions can be summarised as follows:

— they can take the form of liquidity-providing (outright purchase) or liquidity-absorbing (outright sale)

operations;

— their frequency is not standardised;

— they are executed through bilateral procedures (as specified in Section 5.2);

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— they are normally executed in a decentralised manner by the national central banks (the Governing
fine-tuning outright

the ECB will decide whether, under exceptional circumstances,

Council of
operations may be executed by the ECB);

— no restrictions are placed a priori on the range of counterparties to outright transactions; and

— only tier one instruments (as specified in Section 6.1) are normally used as underlying assets in

outright transactions.

3.3.

Issuance of ECB debt certificates

(a) Ty p e o f i n s t r u m e n t

The ECB may issue debt certificates with the aim of adjusting the structural position of the Eurosystem
vis-à-vis the financial sector so as to create (or enlarge) a liquidity shortage in the market.

(b) L e g a l n a t u r e

The certificates constitute a debt obligation of the ECB vis-à-vis the holder of the certificate. The
certificates are issued and held in book-entry form in securities depositories in the euro area. The ECB
does not impose any restrictions on the transferability of the certificates. Further provisions related to
ECB debt certificates will be contained in the terms and conditions for such certificates.

(c)

I n t e r e s t t e r m s

The certificates are issued at a discount,
i.e. they are issued at below the nominal amount and are
the nominal amount. The difference between the issue amount and the
redeemed at maturity at
redemption amount equals the interest accrued on the issue amount, at the agreed interest rate, over the
maturity of
the certificate. The interest rate applied is a simple interest rate with the day-count
convention ‘actual/360'. The calculation of the issue amount is shown in Box 1.

BOX 1

Issuance of ECB debt certificates

Where:

N = nominal amount of the debt certificate

rI = interest rate (as a %)

D = maturity of the debt certificate (in days)

PT = issue amount of the debt certificate

The issue amount is:

PT = N (cid:1)

1
1þ r1(cid:1) D
36 000

(d) O t h e r o p e r a t i o n a l f e a t u r e s

The operational features of the issuance of ECB debt certificates can be summarised as follows:

— the certificates are issued in order to absorb liquidity from the market;

— the certificates can be issued on a regular or non-regular basis;

— the certificates have a maturity of less than twelve months;

— the certificates are issued through standard tenders (as specified in Section 5.1);

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— the certificates are tendered and settled in a decentralised manner by the national central banks; and

— all counterparties fulfilling the general eligibility criteria (as specified in Section 2.1) may submit

tender bids for the subscription of ECB debt certificates.

3.4.

Foreign exchange swaps

(a) Ty p e o f i n s t r u m e n t

Foreign exchange swaps executed for monetary policy purposes consist of simultaneous spot and forward
transactions of the euro against a foreign currency. They are used for fine-tuning purposes, mainly with
the aim of managing the liquidity situation in the market and steering interest rates.

(b) L e g a l n a t u r e

Foreign exchange swaps executed for monetary policy purposes refer
to operations where the
Eurosystem buys (or sells) euro spot against a foreign currency and, at the same time, sells (or buys) it
back in a forward transaction at a specified repurchase date. Further provisions for foreign exchange
swaps are specified in the contractual arrangement applied by the respective national central bank (or the
ECB).

(c) C u r r e n c y a n d e x c h a n g e r a t e t e r m s

As a rule, the Eurosystem operates only in widely traded currencies and in accordance with standard
market practice. In each foreign exchange swap operation, the Eurosystem and the counterparties agree
on the swap points for the transaction. The swap points are the difference between the exchange rate of
the forward transaction and the exchange rate of the spot transaction. The swap points of the euro
vis-à-vis the foreign currency are quoted according to general market conventions. The exchange rate
terms of foreign exchange swaps are specified in Box 2.

BOX 2

Foreign exchange swaps

S

= spot (at the transaction date of the foreign exchange swap) of the exchange rate between the

euro (EUR) and a foreign currency ABC

S =

x (cid:1) ABC
1 (cid:1) EUR

FM = forward exchange rate between the euro and a foreign currency ABC at the repurchase date

of the swap (M)

FM =

y (cid:1) ABC
1 (cid:1) EUR

∆M = forward points between the euro and ABC at the repurchase date of the swap (M)

∆M = FM – S

N(.) = spot amount of currency; N(.)M is the forward amount of currency:

NðABCÞ = NðEURÞ (cid:1) S or NðEURÞ = NðABCÞ

S

NðABCÞM = NðEURÞM (cid:1) FM or NðEURÞM =

NðABCÞM
FM

(d) O t h e r o p e r a t i o n a l f e a t u r e s

The operational features of foreign exchange swaps can be summarised as follows:

— they can take the form of liquidity-providing or liquidity-absorbing operations;

— their frequency is not standardised;

— their maturity is not standardised;

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— they are executed through quick tenders or bilateral procedures (see Chapter 5);

— they are normally executed in a decentralised manner by the national central banks (the Governing
Council of the ECB will decide whether, under exceptional circumstances, bilateral foreign exchange
swaps may be executed by the ECB); and

— the Eurosystem may select, according to the criteria specified in Section 2.2 and Annex 3, a limited

number of counterparties to participate in foreign exchange swaps.

3.5.

Collection of fixed-term deposits

(a) Ty p e o f i n s t r u m e n t

The Eurosystem may invite counterparties to place remunerated fixed-term deposits with the national
central bank in the Member State in which the counterparty is established. The collection of fixed-term
deposits is envisaged only for fine-tuning purposes in order to absorb liquidity in the market.

(b) L e g a l n a t u r e

The deposits accepted from counterparties are for a fixed term and with a fixed rate of interest. No
collateral is given by the national central banks in exchange for the deposits.

(c)

I n t e r e s t t e r m s

The interest rate applied to the deposit
‘actual/360'. Interest is paid at maturity of the deposit.

is a simple interest rate with the day-count convention

(d) O t h e r o p e r a t i o n a l f e a t u r e s

The operational features of the collection of fixed-term deposits can be summarised as follows:

— the deposits are collected in order to absorb liquidity;

— the frequency with which deposits are collected is not standardised;

— the maturity of the deposits is not standardised;

— the collection of deposits is normally executed through quick tenders, although the possibility of

using bilateral procedures is not excluded (see Chapter 5);

— the collection of deposits is normally executed in a decentralised manner by the national central
banks (the Governing Council of the ECB will decide whether, under exceptional circumstances, the
bilateral collection of fixed-term deposits (17) may be executed by the ECB); and

— the Eurosystem may select, according to the criteria specified in Section 2.2, a limited number of

counterparties for the collection of fixed-term deposits.

CHAPTER 4

4.

STANDING FACILITIES

4.1.

The marginal lending facility

(a) Ty p e o f i n s t r u m e n t

Counterparties may use the marginal lending facility to obtain overnight liquidity from national central
banks at a pre-specified interest rate against eligible assets (as 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 conditions of
the facility are identical throughout the euro area.

(b) L e g a l n a t u r e

The national central banks may provide liquidity under the marginal lending facility either in the form of
overnight repurchase agreements (i.e. the ownership of the asset is transferred to the creditor, while the
parties agree to reverse the transaction through a re-transfer of the asset to the debtor on the next
business day) or as overnight collateralised loans (i.e. an enforceable security interest is provided over the

(17) Fixed-term deposits are held on accounts with the national central banks; this would be the case even if such operations were to be

executed in a centralised manner by the ECB.

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assets but, assuming fulfilment of the debt obligation, ownership of the asset is retained by the debtor).
Further provisions for repurchase agreements are specified in the contractual arrangements applied by
the respective national central bank. Arrangements
for providing the liquidity in the form of
collateralised loans take account of the different procedures and formalities required to enable the
establishment and subsequent realisation of a relevant interest in the collateral (a pledge) which apply in
different jurisdictions.

(c) A c c e s s c o n d i t i o n s

Institutions fulfilling the general counterparty eligibility criteria specified in Section 2.1 may access the
marginal lending facility. Access to the marginal lending facility is granted through the national central
bank in the Member State in which the institution is established. Access to the marginal lending facility is
granted only on days when the relevant national real-time gross settlement (RTGS) system and the
relevant SSS(s) are operational.

At end-of-day, counterparties'
intraday debit positions on their settlement account with the national
central banks are automatically considered to be a request for recourse to the marginal lending facility.
The procedures for end-of-day access to the marginal lending facility are specified in Section 5.3.3.

A counterparty may also be granted access to the marginal lending facility by sending a request to the
national central bank in the Member State in which the counterparty is established. For the national
central bank to process the request on the same day, the request must be received by the national central
bank at the latest 30 minutes after the actual closing time of TARGET (18), (19). As a general rule, the
closing time for the TARGET system is 6 p.m. ECB time (C.E.T.). The deadline for requesting access to the
marginal lending facility is postponed by an additional 30 minutes on the last Eurosystem business day
of a reserve maintenance period. In the request, the amount of credit is to be stated and, if underlying
assets for the transaction have not already been pre-deposited with the national central bank, the
underlying assets to be delivered for the transaction are to be specified.

Apart from the requirement to present sufficient underlying eligible assets, there is no limit to the
amount of funds that can be advanced under the marginal lending facility.

(d) M a t u r i t y a n d i n t e r e s t t e r m s

The maturity of credit extended under the facility is overnight. For counterparties participating directly in
TARGET, the credit is repaid on the next day on which the relevant national RTGS system and the
relevant SSS(s) are operational, at the time at which those systems open.

The interest rate is announced in advance by the Eurosystem and is calculated as a simple interest rate
with the day-count convention ‘actual/360'. The ECB may change the interest rate at any time, with effect
not earlier than the following Eurosystem business day (20). Interest under the facility is payable with the
repayment of the credit.

(e) S u s p e n s i o n o f t h e f a c i l i t y

Access to the facility is granted only in accordance with the objectives and general monetary policy
considerations of the ECB. The ECB may adapt the conditions of the facility or suspend it at any time.

4.2.

The deposit facility

(a) Ty p e o f i n s t r u m e n t

Counterparties can use the deposit facility to make overnight deposits with national central banks. The
deposits are remunerated at a pre-specified interest rate. Under normal circumstances, the interest rate on
the facility provides a floor for the overnight market interest rate. The terms and conditions of the
deposit facility are identical throughout the euro area (21).

(18) In some Member States, the national central bank (or some of its branches) may not be open for the purpose of conducting
monetary policy operations on certain Eurosystem business days owing to national or regional bank holidays. In such cases, the
relevant national central bank is responsible for informing the counterparties in advance of the arrangements to be made for access
to the marginal lending facility in relation to the bank holiday.

(19) TARGET closing days are announced on the ECB's website (www.ecb.int); see also the Eurosystem websites (Annex 5).
(20) 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 conducting Eurosystem monetary policy operations.

(21) Operational differences resulting from the existence of different account structures between the national central banks may exist

across euro area countries.

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(b) L e g a l n a t u r e

The overnight deposits accepted from counterparties are remunerated at a fixed rate of interest. No
collateral is given to the counterparty in exchange for the deposits.

(c) A c c e s s c o n d i t i o n s (22)

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 the deposit facility is granted only on days when
the relevant national RTGS system is open.

To be granted access to the deposit facility, the counterparty must send a request to the national central
bank in the Member State in which the counterparty is established. For the national central bank to
process the request on the same day, the request must be received by the national central bank at the
latest 30 minutes after the actual closing time of TARGET, which is, as a general rule, 6 p.m. ECB time
(C.E.T.) (23), (24). The deadline for requesting access to the deposit facility is postponed by an additional
30 minutes on the last Eurosystem business day of a reserve maintenance period. In the request, the
amount to be deposited under the facility is to be stated.

There is no limit to the amount a counterparty may deposit under the facility.

(d) M a t u r i t y a n d i n t e r e s t t e r m s

The maturity of deposits under the facility is overnight. For counterparties participating directly in
TARGET, deposits held under the facility mature on the next day on which the relevant national RTGS
system is operational, at the time at which this system opens.

The interest rate is announced in advance by the Eurosystem and is calculated as a simple interest rate
with the day-count convention ‘actual/360'. The ECB may change the interest rate at any time, with effect
not earlier than the following Eurosystem business day. Interest on the deposits is payable on maturity of
the deposit.

(e) S u s p e n s i o n o f t h e f a c i l i t y

Access to the facility is granted only in accordance with the objectives and general monetary policy
considerations of the ECB. The ECB may adapt the conditions of the facility or suspend it at any time.

CHAPTER 5

5.

PROCEDURES

5.1.

Tender procedures

5.1.1.

General considerations

Eurosystem open market operations are normally executed in the form of
Eurosystem's tender procedures are performed in six operational steps, as specified in Box 3.

tender procedures. The

The Eurosystem distinguishes between two different types of tender procedures: standard tenders and quick
tenders. The procedures for standard and quick tenders are identical except for the time frame and the range
of counterparties.

(22) Owing to the existence of different account structures across the national central banks, the ECB may allow national central banks
to apply access conditions which are slightly different from those referred to here. The national central banks will provide
information on any such deviations from the access conditions described in this document.

(23) In some Member States, the national central bank (or some of its branches) may not be open for the purpose of conducting
Eurosystem monetary policy operations on certain Eurosystem business days owing to national or regional bank holidays. In such
cases, the relevant national central bank is responsible for informing the counterparties in advance of the arrangements to be made
for access to the deposit facility in relation to the bank holiday.

(24) TARGET closing days are announced on the ECB's website (www.ecb.int); see also the Eurosystem websites (Annex 5).

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BOX 3

Operational steps for tender procedures

Step 1

Tender announcement

a. Announcement by the ECB through public wire services

b. Announcement by the national central banks through national wire services and

directly to individual counterparties (if deemed necessary)

Step 2

Counterparties' preparation and submission of bids

Step 3

Compilation of bids by the Eurosystem

Step 4

Tender allotment and announcement of tender results

a.

ECB allotment decision

b. Announcement of the allotment result

Step 5

Certification of individual allotment results

Step 6

Settlement of the transactions (see Section 5.3)

(a) S t a n d a r d t e n d e r s

For standard tenders, a maximum of 24 hours elapses from the announcement of the tender to the
certification of
(where the time between the submission deadline and the
announcement of the allotment result is approximately two hours). Chart 1 gives an overview of the
normal time frame for the operational steps for standard tenders. The ECB may decide to adjust the time
frame in individual operations, if deemed appropriate.

the allotment

result

The main refinancing operations, the longer-term refinancing operations and structural operations (with
the exception of outright
standard tenders.
Counterparties fulfilling the general eligibility criteria specified in Section 2.1 may participate in standard
tenders.

transactions) are always executed in the form of

CHART 1

Normal time frame for the operational steps for standard tenders

(times are stated in ECB time (C.E.T.))

Note: The figures refer to the oprational steps as defined in Box 3.

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(b) Q u i c k t e n d e r s

Quick tenders are normally executed within one hour of
the tender, with
certification taking place immediately after the announcement of the allotment result. The normal time
frame for the operational steps for quick tenders is specified in Chart 2. The ECB may decide to adjust
the time frame in individual operations, if deemed appropriate. Quick tenders are only used for the
execution of fine-tuning operations. The Eurosystem may select, according to the criteria and procedures
specified in Section 2.2, a limited number of counterparties to participate in quick tenders.

the announcement of

CHART 2

Normal time frame for the operational steps for quick tenders

Note: The figures refer to the operational steps as defined in Box 3.

(c) F i x e d r a t e a n d v a r i a b l e r a t e t e n d e r s

The Eurosystem has the option of conducting either fixed rate (volume) or variable rate (interest) tenders.
In a fixed rate tender, the ECB specifies the interest rate in advance and participating counterparties bid
the amount of money they want to transact at the fixed interest rate (25). In a variable rate tender,
counterparties bid the amounts of money and the interest rates at which they want to enter into
transactions with the national central banks (26).

5.1.2.

Tender operations calendar

(a) M a i n a n d l o n g e r - t e r m r e f i n a n c i n g o p e r a t i o n s

The main and the longer-term refinancing operations are executed according to an indicative calendar
published by the Eurosystem (27). The calendar is published at least three months before the start of the
year for which it is valid. The normal trade days for the main and the longer-term refinancing operations
are specified in Table 2. The ECB aims to ensure that counterparties in all Member States can participate
in the main and the longer-term refinancing operations. Therefore, when compiling the calendar for
these operations, the ECB makes appropriate adjustments to the normal schedule to take into account
bank holidays in the individual Member States.

(25) 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 wish to sell (and buy back) or buy (and sell back) at that rate.

(26) In variable rate foreign exchange swap tenders, the counterparties bid the amount of the currency kept fixed and the swap point

quotation at which they wish to enter into the operation.

(27) The calendar for the Eurosystem's tender operations can be found on the ECB's website (www.ecb.int); see also the Eurosystem

websites (Annex 5).

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Normal trade days for the main and the longer-term refinancing operations

TABLE 2

Type of operation

Normal trade day (T)

Main refinancing operations

Each Tuesday

Longer-term refinancing operations

The last Wednesday of each calendar month (1)

(1) Owing to the Christmas period, the December operation is brought forward normally by one week,

i.e. to the

preceding Wednesday of the month.

(b) S t r u c t u r a l o p e r a t i o n s

Structural operations through standard tenders are not executed according to any pre-specified calendar.
However, they are normally conducted and settled only on days which are NCB business days (28) in all
Member States.

(c) F i n e - t u n i n g o p e r a t i o n s

Fine-tuning operations are not executed according to any pre-specified calendar. The ECB may decide to
conduct fine-tuning operations on any Eurosystem business day. Only national central banks of Member
States where the trade day, the settlement day and the reimbursement day are NCB business days
participate in such operations.

5.1.3.

Announcement of tender operations

Eurosystem standard tenders are publicly announced by means of wire services. In addition, national central
banks may announce the tender operation directly to counterparties without access to wire services. The
public tender announcement message normally contains the following information:

— the reference number of the tender operation;

— the date of the tender operation;

— the type of operation (provision or absorption of liquidity and the type of monetary policy instrument to

be used);

— the maturity of the operation;

— the type of auction (fixed rate or variable rate tender);

— the method of allotment (‘Dutch' or ‘American' auction, as defined in Section 5.1.5 d);

— the intended operation volume (normally only in the case of the longer-term refinancing operations);

— the fixed tender interest rate/price/swap point (in the case of fixed rate tenders);

— the minimum/maximum accepted interest rate/price/swap point (if applicable);

— the start date and maturity date of the operation (if applicable) or the value date and maturity date of the

instrument (in the case of the issuance of debt certificates);

— the currencies involved and the currency, the amount of which is kept fixed (in the case of foreign

exchange swaps);

(28) Throughout this document, the term ‘NCB business day' refers to any day on which the national central bank of a specific Member
State is open for the purpose of conducting Eurosystem monetary policy operations. In some Member States, branches of the
national central bank may be closed on NCB business days owing to local or regional bank holidays. In such cases, the relevant
national central bank is responsible for informing the counterparties in advance of the arrangements to be made for transactions
involving those branches.

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— the reference spot exchange rate to be used for the calculation of bids (in the case of foreign exchange

swaps);

— the maximum bid limit (if any);

— the minimum individual allotment amount (if any);

— the minimum allotment ratio (if any);

— the time schedule for the submission of bids;

— the denomination of the certificates (in the case of the issuance of debt certificates); and

— the ISIN code of the issue (in the case of the issuance of debt certificates).

With a view to enhancing transparency in its fine-tuning operations, the Eurosystem normally announces
quick tenders publicly in advance. However, under exceptional circumstances, the ECB may decide not to
announce quick tenders publicly in advance. The announcement of quick tenders follows the same procedures
as those for standard tenders. In a quick tender, regardless of whether it is announced publicly or not, the
selected counterparties are contacted directly by the national central banks.

5.1.4.

Counterparties' preparation and submission of tender bids

Counterparties' tender bids must be in a form that follows the pro forma example provided by the national
central banks for the relevant operation. The tender bids must be submitted to the national central bank of a
Member State in which the institution has an establishment (head office or branch). The tender bids of an
institution may only be submitted by one establishment (either the head office or a designated branch) in
each Member State.

In fixed rate tenders, counterparties shall state in their bids the amount of money that they are willing to
transact with the national central banks (29).

In variable rate tenders, counterparties may submit bids for up to ten different interest rate/price/swap point
levels. In each bid, they shall state the amount of money that they are willing to transact with the national
central banks and the respective interest rate (30), (31). The interest rates bid must be expressed as multiples of
0,01 percentage point. In the case of a variable rate foreign exchange swap tender, the swap points are to be
quoted according to standard market conventions and bids must be expressed as multiples of 0,01 swap
point.

For the main refinancing operations, the minimum bid amount is EUR 1 000 000. Bids exceeding this
amount must be expressed as multiples of EUR 100 000. The same minimum bid and multiple amounts are
applied in fine-tuning and structural operations. The minimum bid amount is applied to each individual
interest rate/price/swap point level.

For the longer-term refinancing operations, each national central bank defines a minimum bid amount in the
range from EUR 10 000 to EUR 1 000 000. Bids exceeding the defined minimum bid amount must be
expressed as multiples of EUR 10 000. The minimum bid amount is applied to each individual interest rate
level.

The ECB may impose a maximum bid limit in order to prevent disproportionately large bids. Any such
maximum bid limit is always specified in the public tender announcement message.

Counterparties are expected always to be in a position to cover the amounts allotted to them by a sufficient
amount of eligible underlying assets (32). The contractual or
regulatory arrangements applied by the
respective national central bank allow the imposition of penalties if a counterparty is unable to transfer a
sufficient amount of underlying assets or cash to settle the amount it has been allotted in a tender operation.

(29) In fixed rate foreign exchange swaps, the amount of the currency kept fixed that the counterparty is willing to transact with the

Eurosystem is to be stated.

(30) With regard to the issuance of ECB debt certificates, the ECB may decide that bids are to be expressed in the form of a price rather

than an interest rate. In such cases, prices shall be quoted as a percentage of the nominal amount.

(31) In variable rate foreign exchange swaps, the amount of the currency kept fixed that the counterparty is willing to transact with the

Eurosystem and the respective swap point level are to be stated.
(32) Or to settle in cash in the case of liquidity-absorbing operations.

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Bids are revocable up to the tender submission deadline. Bids submitted after the deadline specified in the
tender announcement message are invalid. Respect of the deadline is judged by the national central banks.
The national central banks discard all the bids of a counterparty if the aggregate amount bid exceeds any
maximum bid limit established by the ECB. The national central banks also discard any bid which is below
the minimum bid amount or which is below any minimum or above any maximum accepted interest
rate/price/swap point. Furthermore, the national central banks may discard bids which are incomplete or
which do not follow the pro forma example. If a bid is discarded, the respective national central bank informs
the counterparty about its decision prior to the tender allotment.

5.1.5.

Tender allotment procedures

(a) F i x e d r a t e t e n d e r o p e r a t i o n s

In the allotment of a fixed rate tender, the bids received from counterparties are added together. If the
aggregate amount bid exceeds the total amount of liquidity to be allotted, the submitted bids will be
satisfied pro rata, according to the ratio of the amount to be allotted to the aggregate amount bid (see
Box 4). The amount allotted to each counterparty is rounded to the nearest euro. However, the ECB may
decide to allot a minimum amount/ratio to each bidder in fixed rate tenders.

BOX 4

Allotment of fixed rate tenders

Where:

A = total amount allotted

n

ai

= total number of counterparties

= bid amount of the ith counterparty

all% = percentage of allotment

alli = total amount allotted to the ith counterparty

The percentage of allotment is:

all% =

A
Xn
ai

i¼1

The amount allotted to the ith counterparty is:

alli = all% (cid:1) ðaiÞ

(b) V a r i a b l e r a t e t e n d e r s i n e u r o

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 first and subsequently bids
with successively lower interest rates are accepted until the total liquidity to be allotted is exhausted. If, at
the lowest interest rate level accepted (i.e. the marginal interest rate), the aggregate amount bid exceeds
the remaining amount to be allotted, the remaining amount is allocated pro rata among the bids
according to the ratio of the remaining amount to be allotted to the total amount bid at the marginal
interest rate (see Box 5). The amount allotted to each counterparty is rounded to the nearest euro.

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BOX 5

Allotment of variable rate tenders in euro

(the example refers to bids quoted in the form of interest rates)

Where:

A

rs

n

= total amount alloted

= sth interest rate bid by the counterparties

= total number of counterparties

a(rs)i

= amount bid at the sth interest rate (rs) by the ith counterparty

a(rs)

= total amount bid at the sth interest rate (rs)

aðrsÞ =

Xn

aðrsÞi

i¼1

rm

= marginal interest rate:

r1 ≥ rs ≥ rm for a liquidity-providing tender

rm ≥ rs ≥ r1 for a liquidity-absorbing tender

rm–1

= interest rate before the marginal

interest rate (last

interest rate at which bids are

completely satisfied):

rm – 1 > rm for a liquidity-providing tender

rm > rm – 1 for a liquidity-absorbing tender

all%(rm) = percentage of allotment at the marginal interest rate

all(rs)i = allotment to the ith counterparty at the sth interest rate

alli

= total amount allotted to the ith counterparty

The percentage of allotment at the marginal interest rate is:

Xm – 1

aðrsÞ

A –

s¼1
aðrmÞ

all%ðrmÞ =

The allotment to the ith counterparty at the marginal interest rate is:

allðrmÞi = all%ðrmÞ (cid:1) aðrmÞi

The total amount allotted to the ith counterparty is:

alli =

Xm – 1

s¼1

aðrsÞi þ allðrmÞi

In the allotment of liquidity-absorbing variable rate tenders (which may be used for the issuance of debt
certificates and the collection of fixed-term deposits), bids are listed in increasing order of offered interest
rates (or diminishing order of offered prices). Bids with the lowest interest rate (highest price) levels are
satisfied first and subsequently 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 amount to be allotted to the total bid amount at the marginal interest rate/price (see Box 5).

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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 counterparty is rounded to the nearest euro.

The ECB may decide to allot a minimum amount to each successful bidder in variable rate tenders.

(c) V a r i a b l e r a t e f o r e i g n e x c h a n g e s w a p t e n d e r s

In the allotment of liquidity-providing variable rate foreign exchange swap tenders, bids are listed in
increasing order of swap point quotations (33). The bids with the lowest swap point quotations are
satisfied first and subsequently successively higher swap point quotations are accepted until the total
amount of the fixed currency to be allotted is exhausted. If, at the highest swap point quotation accepted
(i.e. the marginal swap point quotation), the aggregate amount bid exceeds the remaining amount to be
allotted, the remaining amount is allocated pro rata among the bids according to the ratio of the
remaining amount to be allotted to the total amount bid at the marginal swap point quotation (see Box
6). The amount allotted to each counterparty is rounded to the nearest euro.

BOX 6

Allotment of variable rate foreign exchange swap tenders

Where:

A

∆s

n

= total amount allotted

= sth swap point quotation bid by the counterparties

= total number of counterparties

a(∆s)i

= amount bid at the sth swap point quotation (∆s) by the ith counterparty

a(∆s)

= total amount bid at the sth swap point quotation (∆s)

að∆sÞ =

Xn

i¼1

að∆sÞi

∆m

= marginal swap point quotation:

∆m ≥ ∆s ≥ ∆1 for a liquidity-providing foreign exchange swap

∆1 ≥ ∆s ≥ ∆m for a liquidity-absorbing foreign exchange swap

∆m–1

= swap point quotation before the marginal swap point quotation (last swap point

quotation at which bids are completely satisfied):

∆m > ∆m – 1 for a liquidity-providing foreign exchange swap

∆m – 1 > ∆m for a liquidity-absorbing foreign exchange swap

all%(∆m) = percentage of allotment at the marginal swap point quotation

all(∆s)i = allotment to the ith counterparty at the sth swap point quotation

alli

= total amount allotted to the ith counterparty

(33) Swap point quotations are listed in increasing order taking into account the sign of the quotation, which depends on the sign of the
interest rate differential between the foreign currency and the euro. If, for the maturity of the swap, the foreign currency interest
rate is higher than the corresponding interest rate for the euro, the swap point quotation is positive (i.e. the euro is quoted at a
premium to the foreign currency). Conversely, if the foreign currency interest rate is lower than the corresponding interest rate for
the euro, the swap point quotation is negative (i.e. the euro is quoted at a discount to the foreign currency).

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The percentage of allotment at the marginal swap point quotation is:

Xm – 1

A –

að∆sÞ

s¼1
að∆mÞ

all%ð∆mÞ =

The allotment to the ith counterparty at the marginal swap point quotation is:

allð∆mÞi = all%ð∆mÞ (cid:1) að∆mÞi

The total amount allotted to the ith counterparty is:

alli =

Xm – 1

s¼1

að∆sÞi þ allð∆mÞi

In the allotment of liquidity-absorbing variable rate foreign exchange swap tenders, bids are listed in
diminishing order of offered swap point quotations. The bids with the highest swap point quotations are
satisfied first and subsequently successively lower swap point quotations are accepted until the total
amount of the fixed currency to be absorbed is exhausted.
If, at the lowest swap point quotation
accepted (i.e. the marginal swap point quotation), the aggregate amount bid exceeds the remaining
amount to be allotted, the remaining amount is allocated pro rata among the bids according to the ratio
of the remaining amount to be allotted to the total amount bid at the marginal swap point quotation (see
Box 6). The amount allotted to each counterparty is rounded to the nearest euro.

(d) Ty p e o f a u c t i o n

For variable rate tenders,
the Eurosystem may apply either single rate 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
interest
the allotment
In a multiple rate auction (American auction),
rate/price/swap point is equal to the interest rate/price/swap point offered for each individual bid.

is exhausted).

5.1.6.

Announcement of tender results

The results of standard and quick tenders are announced publicly by means of wire services. In addition,
national central banks may announce the allotment result directly to counterparties without access to wire
services. The public tender result message normally contains the following information:

— the reference number of the tender operation;

— the date of the tender operation;

— the type of operation;

— the maturity of the operation;

— the total amount bid by Eurosystem counterparties;

— the number of bidders;

— the currencies involved (in the case of foreign exchange swaps);

— the total amount allotted;

— the percentage of allotment (in the case of fixed rate tenders);

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— the spot exchange rate (in the case of foreign exchange swaps);

— the marginal

interest rate/price/swap point accepted and the percentage of allotment at the marginal

interest rate/price/swap point (in the case of variable rate tenders);

— the minimum bid rate, maximum bid rate and weighted average allotment rate (in the case of multiple

rate auctions);

— the start date and maturity date of the operation (if applicable) or the value date and maturity date of the

instrument (in the case of the issuance of debt certificates);

— the minimum individual allotment amount (if any);

— the minimum allotment ratio (if any);

— the denomination of the certificates (in the case of the issuance of debt certificates); and

— the ISIN code of the issue (in the case of the issuance of debt certificates).

The national central banks will directly certify the individual allotment result to successful counterparties.

5.2.

Procedures for bilateral operations

(a) G e n e r a l c o n s i d e r a t i o n s

The national central banks may execute operations on the basis of bilateral procedures (34). These
procedures may be used for fine-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 procedures can be
distinguished: operations where counterparties are contacted directly by the Eurosystem, and operations
executed through stock exchanges and market agents.

(b) D i r e c t c o n t a c t w i t h c o u n t e r p a r t i e s

In this procedure, the national central banks directly contact one or a few domestic counterparties, which
are selected according to the criteria specified in Section 2.2. According to the precise instructions given
by the ECB, the national central banks decide whether to enter into a deal with the counterparties. The
transactions are settled through the national central banks.

If the Governing Council of the ECB were to decide that, under exceptional circumstances, bilateral
operations could also be executed by the ECB itself (or by one or a few national central banks acting as
the operating arm of the ECB), the procedures for such operations would be adapted accordingly. In this
case, the ECB (or the national central bank(s) acting as the operating arm of the ECB) would directly
contact one or a few counterparties in the euro area, selected according to the criteria specified in
Section 2.2. The ECB (or the national central bank(s) acting as the operating arm of the ECB) would
decide whether to enter into a deal with the counterparties. The transactions would nevertheless be
settled in a decentralised manner through the national central banks.

Bilateral operations through direct contact with counterparties can be applied for reverse transactions,
outright transactions, foreign exchange swaps and the collection of fixed-term deposits.

(c) O p e r a t i o n s e x e c u t e d t h r o u g h s t o c k e x c h a n g e s a n d m a r k e t a g e n t s

The national central banks can execute outright transactions through stock exchanges and market agents.
For these operations, the range of counterparties is not restricted a priori and the procedures are adapted
to the market conventions for the debt instruments transacted. The Governing Council of the ECB will

(34) The Governing Council of the ECB will decide whether, under exceptional circumstances, fine-tuning bilateral operations may also

be executed by the ECB itself.

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decide whether, under exceptional circumstances, the ECB itself (or one or a few national central banks
acting as the operating arm of the ECB) may execute fine-tuning outright operations through stock
exchanges and market agents.

(d) A n n o u n c e m e n t o f b i l a t e r a l o p e r a t i o n s

Bilateral operations are normally not announced publicly in advance. In addition, the ECB may decide
not to announce the results of bilateral operations publicly.

(e) O p e r a t i n g d a y s

The ECB may decide to conduct fine-tuning bilateral operations on any Eurosystem business day. Only
national central banks of Member States where the trade day, the settlement day and the reimbursement
day are NCB business days participate in such operations.

Outright bilateral operations for structural purposes are normally only conducted and settled on days
which are NCB business days in all Member States.

5.3.

Settlement procedures

5.3.1.

General considerations

Money transactions relating to the use of Eurosystem standing facilities or to participation in open market
operations are settled on the counterparties' accounts with the national central banks (or on the accounts of
settlement banks participating in the TARGET system). 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 (35). Counterparties without a safe custody account with a national central bank or a
securities settlement account with an SSS fulfilling the ECB's minimum standards may settle the transactions
of underlying assets through the securities settlement account or the safe custody account of a correspondent
credit institution.

Further provisions related to the settlement procedures are defined in the contractual arrangements applied
by the national central banks (or the ECB) for the specific monetary policy instruments. The settlement
law and
procedures may differ slightly between national central banks owing to differences in national
operational practices.

5.3.2.

Settlement of open market operations

Open market operations based on standard tenders (i.e. main refinancing operations, longer-term refinancing
operations and structural operations) are normally settled on the first day following the trade day on which
all relevant national RTGS systems and all relevant SSSs are open. As a matter of principle, the Eurosystem
aims to settle the transactions related to its open market operations at the same time in all Member States
with all counterparties that have provided sufficient underlying assets. However, owing to operational
constraints and the technical features of SSSs, the timing within the day of the settlement of open market
operations may differ across the euro area. The time of settlement of
the main and the longer-term
refinancing operations normally coincides with the time of reimbursement of a previous operation of
corresponding maturity.

The Eurosystem aims to settle open market operations based on quick tenders and bilateral procedures on the
trade day. However, the Eurosystem may, for operational reasons, occasionally apply other settlement dates
for these operations, in particular for outright transactions (for fine-tuning as well as structural purposes) and
foreign exchange swaps (see Table 3).

(35) 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).

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TABLE 3

Normal settlement dates for Eurosystem open market operations (1)

Monetary policy instrument

Settlement date for operations
based on standard tenders

Reverse transactions

Outright transactions

Issuance of debt certificates

Foreign exchange swaps

Collection of fixed-term deposits

T+1 (2)

—

T+1

—

—

Settlement date for operations
based on quick tenders or
bilateral procedures

T

According to market convention
for underlying assets

—

T, T+1 or T+2

T

(1) T refers to the trade day. The settlement date refers to Eurosystem business days.
(2) If the normal settlement date for the main or the longer-term refinancing operation 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 specified in advance in the Eurosystem's tender operations calendar (see
Section 5.1.2).

5.3.3.

End-of-day procedures

The end-of-day procedures are specified in documentation related to the national RTGS systems and the
TARGET system. As a general rule, the closing time for the TARGET system is 6 p.m. ECB time (C.E.T.). No
further payment orders are accepted for processing in the national RTGS systems after the closing time,
although remaining payment orders accepted before the closing time are still processed. Counterparties'
requests for access to the marginal
lending facility or to the deposit facility must be submitted to the
respective national central bank at the latest 30 minutes after the actual closing time of the TARGET
system (36).

Any negative balances on the settlement accounts (in the national RTGS systems) of eligible counterparties
remaining after the finalisation of the end-of-day control procedures are automatically considered to be a
request for recourse to the marginal lending facility (see Section 4.1).

CHAPTER 6

6.

ELIGIBLE ASSETS

6.1.

General considerations

Article 18.1 of the Statute of the ESCB allows the ECB and the national central banks to transact in financial
markets by buying and selling underlying assets outright or under repurchase agreements and requires all
Eurosystem credit operations
all Eurosystem
liquidity-providing operations are based on underlying assets provided by the counterparties either in the
form of the transfer of ownership of assets (in the case of outright transactions or repurchase agreements) or
in the form of a pledge granted over relevant assets (in the case of collateralised loans) (37).

to be based on adequate

collateral. Consequently,

(36) The deadline for requesting access to the Eurosystem's standing facilities is postponed by an additional 30 minutes on the last

Eurosystem business day of a minimum reserve maintenance period.

(37) Liquidity-absorbing outright and reverse open market operations are also based on underlying assets. For underlying assets used in
liquidity-absorbing reverse open market operations, the eligibility criteria are identical to those applied for underlying assets used in
liquidity-providing reverse open market operations. However, no valuation haircuts are applied in liquidity-absorbing operations.

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With the aims of protecting the Eurosystem from incurring losses in its monetary policy operations, ensuring
the equal treatment of counterparties and enhancing operational efficiency, underlying assets have to fulfil
certain criteria in order to be eligible for Eurosystem monetary policy operations.

It is recognised that the harmonisation of eligibility criteria throughout the euro area would contribute to
ensuring equal treatment and operational efficiency. At the same time, due attention has to be paid to
existing differences in financial structure across Member States. A distinction is therefore made, essentially for
purposes internal to the Eurosystem, 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 euro area-wide eligibility criteria

specified by the ECB; and

— tier two consists of additional assets, marketable and non-marketable, which are of particular importance
to national financial markets and banking systems and for which eligibility criteria are established by the
national central banks, subject to the minimum eligibility criteria established by the ECB. The specific
eligibility criteria for tier two applied by the respective national central banks are subject to approval by
the ECB.

No distinction is made between the two tiers with regard to the quality of the assets and their eligibility for
the various types of Eurosystem monetary policy operations (except for the fact that tier two assets are not
normally used by the Eurosystem in outright transactions). The assets eligible for Eurosystem monetary policy
operations can also be used as underlying assets for intraday credit.

Tier one and tier two assets are subject to the risk control measures specified in Section 6.4.

Eurosystem counterparties may use eligible assets on a cross-border basis, i.e. they may obtain funds from the
national central bank of the Member State in which they are established by making use of assets located in
another Member State (see Section 6.6).

6.2.

Tier one assets

The ECB establishes and maintains a list of tier one assets. This list is available to the public (38).

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 one list.

The following eligibility criteria are applied to other tier one assets (see also Table 4):

— they must be debt instruments having: (a) a fixed, unconditional 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) 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. Furthermore, inflation-indexed bonds
are also eligible. These features must be maintained until the redemption of the obligation (39),

(38) This list is published and updated daily on the ECB's website (www.ecb.int).
(39) Debt instruments affording rights to the principal and/or the interest that are subordinated to the rights of holders of other debt
instruments of the same issuer (or, within a structured issue, subordinated to other tranches of the same issue) are excluded from
tier one.

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— they must meet high credit standards. In the assessment of the credit standard of debt instruments, the
ECB takes into account, inter alia, available ratings by market agencies, guarantees provided by financially
sound guarantors (40), as well as certain institutional criteria which would ensure particularly high
protection of the instrument holders (41). A guarantee will be deemed acceptable if the guarantor has
unconditionally and irrevocably guaranteed the obligations of the issuer in relation to the payment of
principal, interest and any other amounts due under the debt instruments to the holders thereof until
they are discharged in full. The guarantee has to be payable on first demand (independently from the
underlying debt obligation). Guarantees given by public entities entitled to levy taxes should either be
payable on first demand or otherwise provide for prompt and punctual payment following default. The
obligations of the guarantor under the guarantee need to rank at least equally and rateably (pari passu)
with all other unsecured obligations of the guarantor. The guarantee must be governed by the law of an
EU Member State and be legally valid, binding and enforceable (42) against the guarantor. A legal
confirmation concerning the legal validity, binding effect and enforceability of the guarantee (43) will
have to be submitted in form and substance acceptable to the Eurosystem (44) before the asset supported
by the guarantee can be considered eligible. The need for a legal confirmation does not apply to
guarantees given in respect of debt instruments with an individual asset rating or to guarantees given by
public entities entitled to levy taxes,

— they must be transferable in book-entry form,

— 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) in the euro area through an account with the Eurosystem or 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 CSD where the asset is issued and the SSS where it is held are not identical, then the two
institutions have to be connected by a link approved by the ECB (45),

— they must be denominated in euro (46),

— they must be issued (or, alternatively, guaranteed) by entities established in the EEA (47),

— they must be listed or quoted on a regulated market as defined in Council Directive 93/22/EEC of 10 May
1993 on investment services in the securities field (48), or
traded on certain
non-regulated markets as specified by the ECB (49). Furthermore, market liquidity may be taken into
account by the ECB when determining the eligibility of individual debt instruments.

listed, quoted or

In spite of their inclusion in the tier one list, a counterparty shall not submit as underlying assets debt
instruments issued or guaranteed by the counterparty, or by any other entity with which the counterparty

(40) Guarantors must be established in the EEA.
(41) Debt instruments issued by credit institutions which do not comply strictly with the criteria set out in Article 22(4) of Council
Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to
undertakings for collective investment in transferable securities (UCITS), OJ L 375, 31.12.1985, p. 3, as amended by Council
Directive 88/220/EEC of 22 March 1988, OJ L 100, 19.4.1988, p. 31, Directive 2001/107/EC of 21 January 2002, OJ L 41,
13.2.2002, p. 20, and Directive 2001/108/EC of 21 January 2002, OJ L 41, 13.2.2002, p. 35, are accepted in tier one only if each
issue as such is awarded a rating (by a rating agency) which indicates, in the view of the Eurosystem, that the debt instrument meets
high credit standards. The eligibility of debt instruments issued under an issuance programme is assessed on the basis of the rating
of the programme.

(42) The requirement of enforceability is subject to any insolvency or bankruptcy laws, general principles of equity and other similar

laws and principles applicable to the guarantor and affecting creditors' rights against the guarantor generally.

(43) If the guarantor is established in another jurisdiction than the one of the law governing the guarantee, the legal confirmation shall

also confirm that the guarantee is valid and enforceable under the law governing the establishment of the guarantor.

(44) The legal confirmation should be submitted for review to the NCB that is reporting a certain asset supported by a guarantee for
inclusion in the list of eligible assets. The NCB reporting a certain asset is normally the NCB of the country in which the asset will
be listed, traded or quoted. In the event of multiple listings, any queries should be addressed to the ECB Eligible Assets Hotline at
Eligible-Assets.hotline@ecb.int.

(45) 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).
(46) Expressed as such or in the national denominations of the euro.
(47) The requirement that the issuing entity be established in the EEA does not apply to international and supranational institutions.
(48) OJ L 141, 11.6.1993, p. 27.
(49) Debt instruments issued by credit institutions which do not comply strictly with the criteria set out in Article 22(4) of Council
Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to
undertakings for collective investment in transferable securities (UCITS), as amended, are accepted in tier one only if they are listed
or quoted on a regulated market as defined in Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities
field.

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has close links (50), as defined in Article 1(26) of Directive 2000/12/EC of the European Parliament and of
the business of credit
the Council of 20 March 2000 relating to the taking up and pursuit of
institutions (51), (52).

In spite of their inclusion in the tier one list, national central banks may decide not to accept the following
instruments as underlying assets:

— debt instruments falling due for repayment before the maturity date of the monetary policy operation for

which they are being used as underlying assets (53), and

— debt instruments with an income flow (e.g. a coupon payment) occurring in the period up to the
maturity date of the monetary policy operation for which they are being used as underlying assets.

All tier one assets must be usable in a cross-border context in the whole euro area. This implies that all
Eurosystem counterparties must be able to use such assets either through links with their domestic SSSs or
through other eligible arrangements to receive credit from the national central bank of the Member State in
which the counterparty is established (see Section 6.6).

Tier one assets are eligible for all monetary policy operations which are based on underlying assets, i.e. reverse
and outright open market transactions and the marginal lending facility.

6.3.

Tier two assets

In addition to debt instruments fulfilling the eligibility criteria for tier one, national central banks may
consider, as eligible other assets, tier two assets which are of particular importance to their national financial
markets and banking systems. Eligibility criteria for tier two assets are established by the national central
banks in accordance with the minimum eligibility criteria stated below. The specific national eligibility criteria
for tier two assets are subject to approval by the ECB. The national central banks establish and maintain
national lists of eligible tier two assets. These lists are available to the public (54).

Tier two assets have to fulfil the following minimum eligibility criteria (see also Table 4):

— they can be debt instruments (marketable or non-marketable) having: (a) a fixed, unconditional principal
amount; and (b) a coupon that cannot result in a negative cash flow. In addition, the coupon should be

(50) In the event that a counterparty is using assets that, owing to an identity with the issuer/guarantor or the existence of close links, it
may not or no longer use to secure an outstanding credit, it is obliged to immediately notify the relevant national central bank
thereof. The assets are valued at zero at the next valuation date and a margin call may be triggered (see also Annex 6). In addition,
the counterparty has to remove the asset at the earliest possible date.

(51) Article 1(26) of Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 relating to the taking up

and pursuit of the business of credit institutions reads as follows:
‘Close links shall mean a situation in which two or more natural or legal persons are linked by:
(a) participation, which shall mean the ownership, direct or by way of control, of 20 % or more of the voting rights or capital of an

undertaking, or

(b) control, which shall mean the relationship between a parent undertaking and a subsidiary, in all the 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 a subsidiary of the parent undertaking which is at the
head of those undertakings.
A situation in which two or more natural or legal persons are permanently linked to one and the same person by a control
relationship shall also be regarded as constituting a close link between such persons.'

(52) This provision does not apply to: (i) close links between the counterparty and the public authorities of EEA countries (including the
case where the public authority is a guarantor of the issuer); (ii) trade bills, for which at least one entity (other than a credit
institution) is liable in addition to the counterparty; (iii) debt instruments which comply strictly with the criteria set out in Article
22(4) of Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions
relating to undertakings for collective investment in transferable securities (UCITS), as amended; or (iv) cases in which debt
instruments are protected by specific legal safeguards comparable with (iii).

(53) If the national central banks were to allow the use of instruments with a maturity shorter than the monetary policy operations for

which they serve as underlying assets, counterparties would be required to replace such assets at, or prior to, maturity.

(54) These lists are published and updated daily on the ECB's website (www.ecb.int). For non-marketable tier two assets and debt
features, national central banks may decide not to disclose information on
tier two lists, but shall offer alternative

instruments with restricted liquidity and special
individual
information to ensure that counterparties throughout the euro area can easily ascertain the eligibility of a specific asset.

issuers/debtors or guarantors in the publication of

their national

issues,

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one of the 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.
Furthermore,
inflation-indexed bonds are also 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
Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field (55). Equities
issued by credit institutions and debt instruments issued by credit institutions which do not comply
strictly with the criteria set out in Article 22(4) of Council Directive 85/611/EEC of 20 December 1985
on the co-ordination of
laws, regulations and administrative provisions relating to undertakings for
collective investment in transferable securities (UCITS) (56), as amended by Council Directive 88/220/EEC
of 22 March 1988 (57), Directive 2001/107/EC of 21 January 2002 (58), and Directive 2001/108/EC of
21 January 2002 (59), are normally not eligible for inclusion in the tier two lists. However, the ECB may
authorise national central banks to include such assets in their tier two lists subject to certain conditions
and restrictions,

TABLE 4

Eligible assets for Eurosystem monetary policy operations

Criteria

Tier one

Tier two

Type of asset

— ECB debt certificates

— Marketable debt instruments (1)

— Other marketable debt
instruments (1) (2)

— Non-marketable debt
instruments (1)

Settlement procedures

be

Instruments must
centrally
deposited in book-entry form with
national central banks or an SSS
fulfilling
ECB's minimum
standards

the

Type of issuer

— Central banks

Credit standard

— Public sector

— Private sector (3)

— International and

supranational institutions

The asset must be deemed of high
credit quality by the ECB (which
could include an eligible guarantee
of an EEA guarantor which is
deemed financially sound by the
ECB)

— Equities traded on a regulated

market

Assets must be easily accessible to
the national central bank which has
included them in its tier two list

— Public sector

— Private sector (4)

The asset must be deemed of high
credit quality by the national central
bank which has included it in its
tier two list (which could include an
eligible guarantee of a euro area
guarantor
deemed
financially sound by the national
central bank which has included the
asset in its tier two list)

which

is

Place of establishment of
the issuer (or alternatively
the guarantor)

EEA (5)

Euro area

(55) OJ L 141, 11.6.1993, p. 27.
(56) OJ L 375, 31.12.1985, p. 3.
(57) OJ L 100, 19.4.1988, p. 31.
(58) OJ L 41, 13.2.2002, p. 20.
(59) OJ L 41, 13.2.2002, p. 35.

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Criteria

Tier one

Tier two

Location of asset

— Place of issue: EEA

Euro area (6)

— Place of settlement:
euro area (6)

Currency

Euro (7)

Cross-border use

Yes

Euro (7)

Yes

(1) They must have both: (a) a fixed, unconditional 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)
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. Furthermore,
inflation-indexed bonds are eligible. These features must be maintained until the
redemption of the obligation.

(2) Debt instruments affording rights to the principal and/or the interest that are subordinated to the rights of holders
of other debt instruments of the same issuer (or, within a structured issue, subordinated to other tranches of the
same issue) are excluded from tier one.

(3) Debt instruments issued by credit institutions which do not comply strictly with the criteria set out in Article 22(4)
of Council Directive 85/611/EEC of 20 December 1985 on the co-ordination of laws, regulations and administrative
provisions relating to undertakings for collective investment in transferable securities (UCITS), amended, are as
accepted in tier one only under the following two conditions. First, each issue needs to be awarded a rating (by a
rating agency) which indicates, in the view of the Eurosystem, that the debt instrument meets high credit standards.
The eligibility of debt instruments issued under an issuance programme is assessed on the basis of the rating of the
programme. Second, the debt instruments need to be listed or quoted on a regulated market as defined in Council
Directive 93/22/EEC of 10 May 1993 on investment services in the securities field.

(4) Equities issued by credit institutions and debt instruments issued by credit institutions which do not comply strictly
with the criteria set out
in Article 22(4) of Council Directive 85/611/EEC of 20 December 1985 on the
co-ordination of laws, regulations and administrative provisions relating to undertakings for collective investment in
transferable securities (UCITS), as amended, are normally not eligible for inclusion in tier two lists. However, the
ECB may authorise national central banks to include such assets in their tier two lists subject to certain conditions
and restrictions.

(5) The requirement that the issuing entity be established in the EEA does not apply to international and supranational

institutions.

(6) So that perfection and realisation are subject to the law of a Member State of the euro area.
(7) Expressed as such or in the national denominations of the euro.

— they must be debt obligations against or equities of (or be guaranteed by) entities which are deemed to
be financially sound by the national central bank which has included the assets in its tier two list. A
guarantee will be deemed acceptable if the guarantor has unconditionally and irrevocably guaranteed the
obligations in relation to the payment of principal, interest and any other amounts due to the holders of
an asset until they are discharged in full. The guarantee has to be payable on first demand (independently
from the underlying debt obligation). Guarantees given by public entities entitled to levy taxes should
either be payable on first demand or otherwise provide for prompt and punctual payment following
default. The obligations of the guarantor under the guarantee need to rank at least equally and rateably
(pari passu) with all other unsecured obligations of the guarantor. The guarantee must be governed by the
law of an EU Member State and be legally valid, binding and enforceable (60) against the guarantor. A
legal confirmation concerning the legal validity, binding effect and enforceability of the guarantee (61) will
have to be submitted in form and substance acceptable to the Eurosystem (62) before the asset supported
by the guarantee can be considered eligible. The need for a legal confirmation does not apply to
guarantees given in respect of debt instruments with an individual asset rating or to guarantees given by
public entities entitled to levy taxes,

(60) The requirement of enforceability is subject to any insolvency or bankruptcy laws, general principles of equity and other similar

laws and principles applicable to the guarantor and affecting creditors' rights against the guarantor generally.

(61) If the guarantor is established in a jurisdiction other than the one of the law governing the guarantee, the legal confirmation shall

also confirm that the guarantee is valid and enforceable under the law governing the establishment of the guarantor.

(62) The legal confirmation should be submitted for review to the NCB that is reporting a certain asset supported by a guarantee for
inclusion in the list of eligible assets. The NCB reporting a certain asset is normally the NCB of the country in which the asset will
be listed, traded or quoted. In the event of multiple listings, any queries should be addressed to the ECB Eligible Assets Hotline at
Eligible-Assets.hotline@ecb.int.

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— they must be easily accessible to the national central bank which has included the assets in its tier two

list,

— they must be located in the euro area (so that perfection and realisation are subject to the law of a euro

area country),

— they must be denominated in euro (63),

— they must be issued (or, alternatively, guaranteed) by entities established in the euro area.

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 (64), as defined in Article 1(26) of Directive 2000/12/EC of the European Parliament and of the Council
of 20 March 2000 relating to the taking up and pursuit of the business of credit institutions (65) (66).

In spite of their inclusion in the tier two lists, national central banks may decide not to accept the following
assets as underlying assets:

— debt instruments falling due for repayment before the maturity date of the monetary policy operation for

which they are used as underlying assets (67);

— debt instruments with an income flow (e.g. a coupon payment) occurring in the period up to the
maturity date of the monetary policy operation for which they are being used as underlying assets; or

— equities with a payment of any kind or with any other right attached to them which may affect their
suitability as underlying assets for the period until the maturity date of the monetary policy operation for
which they are being used as underlying assets.

All tier two assets must be usable in a cross-border context in the whole euro area. This implies that all
Eurosystem counterparties must be able to use such assets either through links with their domestic SSS or
through other eligible arrangements to receive funds from the national central bank of the Member State in
which the counterparty is established (see Section 6.6).

Tier two assets are eligible for reverse open market transactions and the marginal lending facility. They are
not normally used in Eurosystem outright transactions.

(63) Expressed as such or in the national denominations of the euro.
(64) As with tier one assets, in the event that a counterparty is using assets that, owing to an identity with the issuer/guarantor or the
existence of close links, it may not or no longer use to secure an outstanding credit, it is obliged to immediately notify the relevant
national central bank thereof. The assets are valued at zero at the next valuation date and a margin call may be triggered (see also
Annex 6). In addition, the counterparty has to remove the asset at the earliest possible date.

(65) Article 1(26) of Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 relating to the taking up

and pursuit of the business of credit institutions reads as follows:
‘Close links shall mean a situation in which two or more natural or legal persons are linked by:
(a) participation, which shall mean the ownership, direct or by way of control, of 20 % or more of the voting rights or capital of an

undertaking, or

(b) control, which shall mean the relationship between a parent undertaking and a subsidiary, in all the 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 a subsidiary of the parent undertaking which is at the
head of those undertakings.
A situation in which two or more natural or legal persons are permanently linked to one and the same person by a control
relationship shall also be regarded as constituting a close link between such persons.'

(66) As with tier one assets, this provision does not apply to: (i) close links between the counterparty and the public authorities of EEA
countries (including the case where the public authority is a guarantor of the issuer); (ii) trade bills, for which at least one entity
(other than a credit institution) is liable in addition to the counterparty; (iii) debt instruments which comply strictly with the criteria
set out in Article 22(4) of Council Directive 85/611/EEC of 20 December 1985 on the co-ordination of laws, regulations and
administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), as amended; or (iv)
cases in which debt instruments are protected by specific legal safeguards comparable with (iii).

(67) As with tier one assets,

if the national central banks were to allow the use of instruments with a maturity shorter than the
monetary policy operations for which they serve as underlying assets, counterparties would be required to replace such assets at, or
prior to, maturity.

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6.4.

Risk control measures

Risk control measures are applied to the assets underlying Eurosystem monetary policy operations in order to
protect the Eurosystem against the risk of financial loss if underlying assets have to be realised owing to the
default of a counterparty. The risk control measures at the disposal of the Eurosystem are described in Box 7.

BOX 7

Risk conrol measures

The Eurosystem currently applies the following risk control measures:

— Valuation haircuts

The Eurosystem applies ‘valuation haircuts' in the valuation of underlying assets. This implies that
the value of the underlying asset is calculated as the market value of the asset less a certain
percentage (haircut).

— Variation margins (marking to market)

The Eurosystem requires the haircut-adjusted market value of the underlying assets used in its
liquidity-providing reverse transactions to be maintained over time. This implies that if the value,
measured on a regular basis, of the underlying assets falls below a certain level, the national central
bank will require the counterparty to supply additional assets or cash (i.e. a margin call). Similarly,
if
the
counterparty may retrieve the excess assets or cash. (The calculations relevant for the execution of
margin calls are presented in Box 11.)

following their revaluation, exceeds a certain level,

the underlying assets,

the value of

The following risk control measures are currently not applied by the Eurosystem:

— Initial margins

The Eurosystem may apply initial margins in its liquidity-providing reverse transactions. This would
imply that counterparties would need to provide underlying assets with a value at least equal to the
liquidity provided by the Eurosystem plus the value of the initial margin.

— Limits in relation to issuers/debtors or guarantors

The Eurosystem may apply limits to the exposure vis-à-vis issuers/debtors or guarantors.

— Additional guarantees

The Eurosystem may require additional guarantees from financially sound entities in order to accept
certain assets.

— Exclusion

The Eurosystem may exclude certain assets from use in its monetary policy operations.

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6.4.1.

Risk control measures for tier one assets

The Eurosystem applies specific risk control measures according to the types of underlying assets offered by
the counterparty. The appropriate risk control measures for tier one assets are determined by the ECB. Risk
control measures for tier one assets are broadly harmonised across the euro area (68). The risk control
framework for tier one assets includes the following main elements:

— eligible tier one assets are allocated to one of four categories of decreasing liquidity, based on issuer
classification and asset type. The allocation of eligible assets to the four liquidity categories is described in
Box 8,

BOX 8

Liquidity categories for tier one assets (1)

Category I

Category II

Category III

Central government debt
instruments

Local and regional
government debt
instruments

Traditional Pfandbrief-
style debt instruments

Category IV

Asset-backed
securities (2)

Debt instruments issued
by central banks (3)

Jumbo Pfandbrief-style
debt instruments (4)

Credit institution debt
instruments

Agency debt
instruments (5)

Debt instruments issued
by corporate and other
issuers (5)

Supranational debt
instruments

(1)

In general, the issuer classification determines the liquidity category. However, all asset-backed securities are
included in category IV, regardless of
the issuer, and Jumbo Pfandbrief-style debt
instruments are included in category II, in contrast to other debt instruments issued by credit institutions
which are included in category III.

the classification of

(2) Asset-backed securities fall into liquidity category IV regardless of the issuer classification.
(3) Debt certificates issued by the ECB and debt instruments issued by the national central banks prior to the

adoption of the euro in their respective Member State are included in liquidity category I.

(4) Only instruments with an issuing volume of at least EUR 500 million, for which at least two market makers

provide regular bid and ask quotes, fall into the asset class of Jumbo Pfandbrief-style instruments.

(5) Only securities issued by issuers that have been classified as agencies by the ECB are included in liquidity

category II. Securities issued by other agencies are included in liquidity category III.

— individual debt instruments are subject to specific ‘valuation haircuts'. The haircuts are applied by
deducting a certain percentage from the market value of the underlying asset. The haircuts differ
according to the residual maturity and coupon structure of the debt instruments as described in Boxes 9
and 10,

(68) Owing to operational differences across Member States in respect of the procedures for counterparties' delivery of underlying assets
to the national central banks (in the form of a pool of collateral pledged with the national central bank or as repurchase agreements
based on individual assets specified for each transaction), minor differences may occur with regard to the timing of the valuation
and other operational features of the risk control framework.

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BOX 9

Levels of valuation haircuts (%) applied to eligible tier one assets in relation to fixed coupon
and zero coupon instruments

Liquidity categories

Residual
maturity
(years)
0–1
1–3
3–5
5–7
7–10
> 10

Category I

Category II

Category III

Category IV

fixed
coupon

zero
coupon

fixed
coupon

zero
coupon

fixed
coupon

zero
coupon

fixed
coupon

zero
coupon

0,5
1,5
2,5
3
4
5,5

0,5
1,5
3
3,5
4,5
8,5

1
2,5
3,5
4,5
5,5
7,5

1
2,5
4
5
6,5
12

1,5
3
4,5
5,5
6,5
9

1,5
3
5
6
8
15

2
3,5
5,5
6,5
8
12

2
3,5
6
7
10
18

— the valuation haircuts applied to all tier one fixed coupon and zero coupon instruments are described in

Box 9 (69),

— the valuation haircuts applied to all tier one inverse floating rate instruments are the same for all

liquidity classes and are described in Box 10,

BOX 10

Levels of valuation haircuts (%) applied to eligible tier one inverse floating rate instruments

Residual maturity (years)

Inverse floaters coupon

0–1
1–3
3–5
5–7
7–10
> 10

2
7
10
12
17
25

— the haircut applied to debt

is that applied to the
zero-to-one-year maturity bucket of fixed coupon instruments in the liquidity category to which the
instrument is assigned,

instruments with variable rate coupons (70)

— the risk control measures applied to a debt instrument with more than one type of coupon payment
depend only on the coupon payments during the remaining life of the instrument. The valuation haircut
applied to such an instrument is set equal to the highest of the haircuts applicable to debt instruments
with the same residual maturity, and coupon payments of any one of the types occurring in the
remaining life of the instrument are considered,

— no valuation haircuts are applied in liquidity-absorbing operations,

— depending on both the jurisdiction and national operational systems, national central banks allow for the
the assets used in each individual

pooling of underlying assets and/or require the earmarking of

(69) The valuation haircut levels applied to fixed coupon securities are also applicable to debt instruments, the coupon of which is linked

to a change in the rating of the issuer itself or to inflation-indexed bonds.

(70) A coupon payment is considered a variable rate payment if the coupon is linked to a reference interest rate and if the resetting
period corresponding to this coupon is no longer than one year. Coupon payments for which the resetting period is longer than
one year are treated as fixed rate payments, with the relevant maturity for the haircut being the residual maturity of the debt
instrument.

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transaction. In pooling systems, the counterparty makes a pool of sufficient underlying assets available to
the central bank to cover the related credits received from the central bank, thus implying that individual
assets are not linked to specific credit operations. By contrast, in an earmarking system, each credit
operation is linked to specific identifiable assets,

— the assets are subject to daily valuation. On a daily basis, national central banks calculate the required
value of underlying assets taking into account changes in outstanding credit volumes, the valuation
principles outlined in Section 6.5 and the required valuation haircuts,

— if, after valuation, the underlying assets do not match the requirements as calculated on that day,
symmetric margin calls are performed. In order to reduce the frequency of margin calls, national central
banks may apply a trigger point. If applied, this trigger point is 0,5 % of the amount of
liquidity
provided. Depending on the jurisdiction, national central banks may require margin calls to be effected
either 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
following their
the market value of
additional assets (or cash). Similarly,
revaluation, were to exceed the upper trigger point, the national central bank would return the excess
assets (or cash) to the counterparty (see Box 11),

the underlying assets,

if

BOX 11

Calculation of margin calls

The total amount of eligible assets J (for j = 1 to J; value Cj,t at time t) a counterparty must provide
for a set of liquidity-providing oprations I (for i = 1 to I; amount Li,t at time t) is determined by the
following formula:

XI

i¼1

J

Li;t≤ X

ð1 – hjÞCj;t

j¼1

ð1Þ

Where:

hj is the valuation haircut applied to eligible asset j.

Let τ be the time period between revaluations. The margin call base at time t + τ equals:

Mtþτ =

XI

i¼1

Li;tþτ –

J
X

ð1 – hjÞCj;tþτ

j¼1

ð2Þ

Depending on the operational features of the national central banks' collateral management systems,
national central banks may also take into account
interest accrued on liquidity provided in
outstanding operations in the calculation of the margin call base.

Margin calls are effected only if the margin call base exceeds a certain trigger point level.

Let k = 0,5 % denote the trigger. In an earmarking system (I = 1), a margin call is effected when:

(the counterparty pays the margin call to the national central bank); or

Mtþτ > k . Li;tþτ

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(the national central bank pays the margin call to the counterparty).

Mtþτ < – k . Li;tþτ

In a pooling system, the counterparty has to bring more assets into the pool if:

Mtþτ > k . XI

Li;tþτ

i¼1

Conversely, the amount of intraday credit (IDC) available to the counterparty in a pooling system
can be expressed as follows:

IDC = – Mtþτ þ k . XI

Li;tþτ

i¼1

ðif positiveÞ

In both earmarking and pooling systems, margin calls shall ensure that the relation expressed in (1)
above is reestablished.

— in pooling systems counterparties may substitute underlying assets on a daily basis,

— in earmarking systems the substitution of underlying assets may be permitted by national central banks,

— the ECB may at any time decide to remove individual debt instruments from the list of eligible tier one

instruments (71).

6.4.2.

Risk control measures for tier two assets

The appropriate risk control measures for tier two assets are compiled by the national central bank which has
included the asset in its tier two list. The application of risk control measures by national central banks is
subject to ECB approval. The Eurosystem aims to ensure non-discriminatory conditions for tier two assets
across the euro area when establishing the appropriate risk control measures. Within this framework, the
valuation haircuts applied to tier two assets reflect the specific risks associated 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 in their intrinsic financial characteristics and in their liquidity.
The liquidity groups and valuation haircuts for tier two assets are described in Box 12.

(71) If, at the time of exclusion from the tier one list, a debt instrument is being used in a Eurosystem credit operation, it will have to be

removed as soon as possible.

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BOX 12

Levels of valuation haircuts applied to eligible tier two assets

1. Valuation haircuts applied to equities:

A valuation haircut of 22 % is applied to all eligible equities.

2. Valuation haircuts (%) applied to marketable debt instuments with limited liquidity (1):

Residual maturity (years)

Fixed coupon

Zero coupon

0–1
1–3
3–5
5–7
7–10
>10

2
3,5
5,5
6,5
8
12

2
3,5
6
7
10
18

Valuation haircuts applied to tier two inverse floating rate instruments:

The valuation haircuts applied to all tier two inverse floating rate instruments are identical to those
applied to tier one inverse floating rate instruments.

3. Valuation haircuts (%) applied to debt instruments with restricted liquidity and special

features:

Residual maturity (years)

Fixed coupon

Zero coupon

0–1
1–3
3–5
5–7
7–10
>10

4
8
15
17
22
24

4
8
16
18
23
25

4. Valuation haircuts applied to non-marketable debt instruments:

Trade bills:

4 % for instruments with a residual maturity of up to six months.

Bank loans:

12 % for loans with a residual maturity of up to six months; and
22 % for loans with a residual maturity between six months and two years.

Mortgage-backed promissory notes: 22 %.

(1) It should be recalled that, although debt instruments issued by credit institutions which do not comply strictly with
the criteria set out in Article 22(4) of Council Directive 85/611/EEC of 20 December 1985 on the co–ordination of
laws, regulations and administrative provisions relating to undertakings for collective insvestment in transferable
securities (UCITS) as amended, are normally not eligible for inclusion in tier two lists, the ECB may authorise
national central banks to include such assets in their tier two lists subject to certain conditions and restrictions. For
such instruments, a 10 % add-on to the tier two haircut is applied.

The inclusion of tier two assets in one of the following liquidity groups is proposed by national central banks
and is subject to the ECB's approval:

1.

E q u i t i e s

2. M a r k e t a b l e d e b t i n s t r u m e n t s w i t h l i m i t e d l i q u i d i t y

The majority of the tier two assets fall into this category. Although there may be some differences in the
degree of liquidity, the assets are, in general, similar in that they have a small secondary market, prices
may not be quoted daily and normal size trades can generate price effects.

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3. D e b t i n s t r u m e n t s w i t h r e s t r i c t e d l i q u i d i t y a n d s p e c i a l f e a t u r e s

These are assets which, while enjoying some aspects of marketability, 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. N o n - m a r k e t a b l e d e b t i n s t r u m e n t s

These instruments are in practice non-marketable and therefore have little or no liquidity.

For tier two assets with variable rate coupons and debt instruments with more than one type of coupon
payment, the same rules apply as for tier one assets, unless otherwise determined by the ECB (72).

The national central banks apply the same trigger point (if applicable) for the execution of margin calls for
tier two assets as for tier one assets. In addition, national central banks may apply limits to their acceptance
of tier two assets, may require additional guarantees and may at any time decide to remove individual assets
from their tier two lists.

6.5.

Valuation principles for underlying assets

When determining the value of underlying assets used in reverse transactions, the Eurosystem applies the
following principles:

— for each marketable asset eligible in tier one or tier two, the Eurosystem specifies a single reference price
source. This also implies that for assets listed, quoted or traded on more than one market, only one of
these markets is used as a price source for the relevant asset,

— for each reference market, the Eurosystem defines the most representative price to be used for the
calculation of market values. If more than one price is quoted, the lowest of these prices (normally the
bid price) is used,

— the value of marketable assets is calculated on the basis of the most representative price on the business

day preceding the valuation date,

— in the absence of a representative price for a particular asset on the business day preceding the valuation
date, the last trading price is used. If no trading price is available, the national central bank will define a
price, taking into account the last price identified for the asset in the reference market,

— the market value of a debt instrument is calculated including accrued interest,

— depending on differences in national legal systems and operational practices, the treatment of income
flows (e.g. coupon payments) related to an asset which are received during the life of a reverse
transaction may differ between national central banks.
the income flow is transferred to the
counterparty, national central banks ensure that the relevant operations will still be fully covered by a
sufficient amount of underlying assets before the transfer of the income takes place. The national central
banks aim to ensure that the economic effect of the treatment of income flows is equivalent to a
situation in which the income is transferred to the counterparty on the payment day (73),

If

— for non-marketable tier two assets, the national central bank which has included the assets in its tier two

list specifies separate valuation principles.

(72) For some tier two assets with interest rate resetting features, in which the resetting is done in an unequivocal and clear manner

following market standards and subject to the ECB's approval, the relevant maturity is that given by the resetting maturity.

(73) National central banks may decide not to accept as underlying assets in reverse transactions debt instruments with an income flow
(e.g. a coupon payment) or equities with a payment of any kind (or with any other right attached to them which may affect their
suitability as underlying assets) occurring in the period up to the maturity date of the monetary policy operation (see Sections 6.2
and 6.3).

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6.6.

Cross-border use of eligible assets

Eurosystem counterparties may use eligible assets on a cross-border basis, i.e. they may obtain funds from the
national central bank of the Member State in which they are established by making use of assets located in
another Member State. Underlying assets must be usable on a cross-border basis in the whole euro area for
the settlement of all types of operations in which the Eurosystem provides liquidity against eligible assets.

A mechanism has been developed by the national central banks (and by the ECB) to ensure that all eligible
assets issued/deposited in the euro area may be used on a cross-border basis. This is the correspondent
central banking model (CCBM), under which national central banks act as custodians (‘correspondents') for
each other (and for the ECB) in respect of assets accepted in their local depository or settlement system.
Specific solutions may be used for non-marketable assets or tier two assets with restricted liquidity and
special features which cannot be transferred through an SSS (74). The CCBM may be used to collateralise all
kinds of Eurosystem credit operations. In addition to the CCBM, eligible links between SSSs can be used for
the cross-border transfer of securities (75).

6.6.1.

Correspondent central banking model

The correspondent central banking model is illustrated in Chart 3 below.

CHART 3

The correspondent central banking model

All national central banks maintain securities accounts with each other for the purpose of the cross-border
use of eligible assets. The precise procedure of the CCBM depends on whether the eligible assets are
earmarked for each individual transaction or whether they are held in a pool of underlying assets (76).

(74) Details are provided in the ‘Correspondent Central Banking Model brochure', which is available on the ECB's website (www.ecb.int).
(75) Eligible assets may be used through an account of a central bank in an SSS located in a country other than that of the central bank
in question if the Eurosystem has approved the use of such an account. Since August 2000, the Central Bank and Financial Services
Authority of Ireland has been authorised to open such an account in Euroclear. This account can be used for all eligible assets held
in Euroclear, i.e. including eligible assets transferred to Euroclear through eligible links.

(76) See the ‘Correspondent Central Banking Model brochure' for further explanations.

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— in an earmarking system, as soon as its bid for credit is accepted by the national central bank of the
Member State in which the counterparty is established (i.e. the ‘home central bank'), the counterparty
instructs (via its own custodian, if necessary) the SSS in the country in which its securities are held to
transfer them to the central bank of that country for the account of the home central bank. Once the
home central bank has been informed by the correspondent central bank that the collateral has been
received, it transfers the funds to the counterparty. Central banks do not advance funds until they are
certain that the counterparties' securities have been received by the correspondent central bank. Where
necessary to meet
settlement deadlines, counterparties may be able to pre-deposit assets with
correspondent central banks for the account of their home central bank using the CCBM procedures,

— in a pooling system, the counterparty is at any time able to provide the correspondent central bank with
securities for the account of the home central bank. Once the home central bank has been informed by
the correspondent central bank that the securities have been received, it will add these securities to the
pool account of the counterparty,

The CCBM is available to counterparties from 9 a.m. to 4 p.m. ECB time (C.E.T.) on each Eurosystem business
day. A counterparty wishing to make use of the CCBM must advise the national central bank from which it
wishes to receive credit — i.e. its home central bank — before 4 p.m. ECB time (C.E.T.). Furthermore, the
counterparty must ensure that the collateral for securing monetary policy operations is delivered to the
account of the correspondent central bank by 4.45 p.m. ECB time (C.E.T.) at the latest. Instructions or
deliveries not respecting this deadline will only be considered for credit given on the following business day.
When the counterparties foresee a need to use the CCBM late in the day, they should, where possible, deliver
the assets in advance (i.e. pre-deposit the assets). In exceptional circumstances or when required for monetary
policy purposes, the ECB may decide to extend the closing time of the CCBM until the closing time of
TARGET.

6.6.2.

Links between securities settlement systems

In addition to the CCBM, eligible links between EU SSSs can be used for the cross-border transfer of
securities.

CHART 4

Links between securities settlement system

A link between two SSSs allows a participant in one SSS to hold securities issued in another SSS without
being a participant in that other SSS. Before these links can be used to transfer collateral for Eurosystem
credit operations, they have to be assessed and approved against the standards for the use of EU SSSs (77) (78).

(77) The updated list of eligible links can be found on the ECB's website (www.ecb.int).
(78) See the ‘Standards for the use of EU securities settlement systems in ESCB credit operations', January 1998.

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From a Eurosystem perspective, the CCBM and the 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 from their home central bank, even if this collateral was issued in an SSS of another country.
The CCBM and the links between SSSs perform this function in different ways. In the CCBM, the cross-border
relationship is between the national central banks. They act as custodians for one another. Using the links,
the cross-border relationship is between the SSSs. They open omnibus accounts with one another. Assets
deposited with a correspondent central bank can only be used to collateralise Eurosystem credit operations.
Assets held through a link can be used for Eurosystem credit operations as well as for any other purpose
selected by the counterparty. Using links between SSSs, the counterparties hold the assets on their own
account with their home SSS and have no need for a custodian.

CHAPTER 7

7.

MINIMUM RESERVES (79)

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 system is
laid down in Article 19 of the Statute of the ESCB, Council Regulation (EC) No 2531/98 of 23 November
1998 concerning the application of minimum reserves by the European Central Bank (80) and Regulation (EC)
No 1745/2003 of the European Central Bank on the application of minimum reserves (ECB/2003/9) (81). The
application of Regulation (EC) No 1745/2003 of the European Central Bank on the application of minimum
reserves (ECB/2003/9) ensures that the terms and conditions of the Eurosystem's minimum reserve system
are uniform throughout the euro area.

The amount of minimum reserves to be held by each institution is determined in relation to its reserve base.
The Eurosystem's minimum reserve system enables counterparties to make use of averaging provisions,
implying that compliance with reserve requirements is determined on the basis of the average of the
end-of-calendar-day balances on the counterparties' reserve accounts over a maintenance period. Institutions'
holdings of required reserves are remunerated at the rate on the Eurosystem's main refinancing operations.

The Eurosystem's minimum reserve system primarily pursues the following monetary functions:

— Stabilisation of money market interest rates

The averaging provision of
the Eurosystem's minimum reserve system aims to contribute to the
stabilisation of money market interest rates by giving institutions an incentive to smooth the effects of
temporary liquidity fluctuations.

— Creation or enlargement of a structural liquidity shortage

The Eurosystem's minimum reserve system contributes to creating or enlarging a structural
liquidity
shortage. This may be helpful in order to improve the ability of the Eurosystem to operate efficiently as a
supplier of liquidity.

In the application of minimum reserves, the ECB is bound to act in pursuance of the objectives of the
Eurosystem as defined in Article 105(1) of the Treaty and Article 2 of the Statute of the ESCB, which implies,
inter alia, the principle of not inducing significant undesirable delocation or disintermediation.

7.2.

Institutions subject to minimum reserves

Pursuant to Article 19.1 of the Statute of the ESCB, the ECB requires credit institutions established in Member
States to hold minimum reserves. This implies that branches in the euro area of entities with no registered
office 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 this system.

(79) The content of this chapter is provided for information purposes only.
(80) OJ L 318, 27.11.1998, p. 1.
(81) OJ L 250, 2.10.2003, p. 10.

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Institutions will be automatically exempted from reserve requirements from the start of the maintenance
period within which their authorisation 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 Council Regulation (EC) No 2531/98 of 23 November 1998
concerning the application of minimum reserves by the European Central Bank and Regulation (EC)
No 1745/2003 of the European Central Bank on the application of minimum reserves (ECB/2003/9), the ECB
may also exempt institutions from their obligations under the Eurosystem's minimum reserve system on a
non-discriminatory basis if the purposes of this system would not be met by imposing these obligations on
those particular institutions. In its decision on any such exemption, the ECB takes into account one or more
of the following criteria:

— the institution is pursuing special purpose functions;

— the institution is not exercising active banking functions in competition with other credit institutions;

and/or

— the institution has all
development assistance.

its deposits earmarked for purposes related to regional and/or international

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 system for
reasons other than their being subject to reorganisation measures (82). Counterparties may rely on these lists
in deciding whether
to reserve
requirements. The lists, available to the public after close of business on the last Eurosystem business day of
each calendar month, are valid for the calculation of the reserve base for the maintenance period beginning
in the calendar month two months later. For example, the list published at the end of February would be
valid for the calculation of the reserve base for the maintenance period beginning in April.

their liabilities are owed to another

is itself subject

institution that

7.3.

Determination of minimum reserves

(a) R e s e r v e b a s e a n d r e s e r v e r a t i o s

The reserve base of an institution is defined in relation to elements of its balance sheet. The balance sheet
data are reported to the national central banks within the general framework of the ECB's money and
banking statistics (see Section 7.5) (83). For institutions subject to full reporting requirements, the balance
sheet data referring to the end of a given calendar month are used to determine the reserve base for the
maintenance period starting in the calendar month two months later. For example, the reserve base
calculated from the balance sheet of the end of February would be used to calculate the reserve
requirements to be fulfilled by counterparties in the maintenance period beginning in April.

The reporting framework for the ECB's money and banking statistics includes the possibility to relieve
small institutions of some of the reporting burden. Institutions to which this provision applies only need
to report a limited set of balance sheet data on a quarterly basis (as end-of-quarter data) and with a
reporting deadline which is longer than that set for larger institutions. For these institutions, the balance
sheet data reported for a specific quarter are used to determine, with a lag of two months, the reserve
base for the consecutive three reserve maintenance periods. For example, the balance sheet of the end of
the first quarter — March — would be valid for the calculation of the reserve base for the maintenance
periods beginning in June, July and August.

According to Council Regulation (EC) No 2531/98 of 23 November 1998 concerning the application of
minimum reserves by the European Central Bank, the ECB is entitled to include liabilities resulting from
the acceptance of funds together with liabilities resulting from off-balance-sheet items in the reserve base
of institutions. In the Eurosystem's minimum reserve system, only the liability categories ‘deposits' and
‘debt securities issued' are actually included in the reserve base (see Box 13).

Liabilities vis-à-vis other institutions included in the list of institutions subject to the Eurosystem's
minimum reserve system and liabilities vis-à-vis the ECB and the national central banks are not included
in the reserve base. In this respect, for the liability category ‘debt securities issued' the issuer needs to be
able to prove the actual amount of
to the
Eurosystem's minimum reserve system in order to be entitled to deduct them from the reserve base. If
such proof cannot be presented, issuers may apply a standardised deduction of a fixed percentage (84) to
this balance sheet item.

these instruments held by other institutions subject

(82) The lists are available to the public on the ECB's website (www.ecb.int).
(83) The reporting framework for the ECB's money and banking statistics is presented in Annex 4.
(84) See Regulation (EC) No 1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves
(ECB/2003/9). Further information relating to the standardised deduction ratio can be found on the ECB's website (www.ecb.int); see
also the Eurosystem websites (Annex 5).

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The reserve ratios are determined by the ECB subject to the maximum limit specified in Council
Regulation (EC) No 2531/98 of 23 November 1998 concerning the application of minimum reserves by
the European Central Bank. The ECB applies a uniform non-zero reserve ratio to most of the items
included in the reserve base. This reserve ratio is specified in the ECB Regulation on minimum reserves.
The ECB sets a zero reserve ratio on the following liability categories: ‘deposits with an agreed maturity
of over two years', ‘deposits redeemable at notice of over two years', ‘repos' and ‘debt securities with an
agreed maturity of over two years' (see Box 13). 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.

BOX 13

Reserve base and reserve ratios

A. Liabilities included in the reserve base and to which the positive reserve ratio is applied

Deposits

— Overnight deposits

— Deposits with agreed maturity up to two years

— Deposits redeemable at notice up to two years

Debt securities issued

— Debt securities with agreed maturity up to two years

B. Liabilities included in the reserve base and to which a zero reserve ratio is applied

Deposits

— Deposits with agreed maturity over two years

— Deposits redeemable at notice over two years

— Repos

Debt securities issued

— Debt securities with agreed maturity over two years

C. Liabilities excluded from the reserve base

— Liabilities vis-à-vis other institutions subject to the Eurosystem's minimum reserve system

— Liabilities vis-à-vis the ECB and the national central banks

(b) C a l c u l a t i o n o f r e s e r v e r e q u i r e m e n t s

The reserve requirement of each individual institution is calculated by applying, to the amount of eligible
liabilities, the reserve ratios for the corresponding categories of liabilities.

Each institution deducts an allowance of EUR 100 000 from its reserve requirement in each Member
State in which it has an establishment. The granting of such an allowance shall be without prejudice to
the legal obligations of institutions subject to the Eurosystem's minimum reserve system (85).

The reserve requirement for each maintenance period is rounded to the nearest euro.

(85) For institutions allowed to report statistical data as a group on a consolidated basis according to the provisions of the reporting
framework for the ECB's money and banking statistics (see Annex 4), only one such allowance will be granted to the group as a
whole, unless the institutions provide data on the reserve base and reserve holdings in a sufficiently detailed manner to enable the
Eurosystem to verify their accuracy and quality and to determine the respective reserve requirement of each individual institution
included in the group.

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7.4.

Maintenance of reserve holdings

(a) M a i n t e n a n c e p e r i o d

The ECB publishes a calendar of the reserve maintenance periods at least three months before the start of
each year (86). The maintenance period begins on the settlement day of the first main refinancing
operation following the meeting of the Governing Council, at which the monthly assessment of the
monetary policy stance is pre-scheduled. Under special circumstances, the published calendar may be
amended, depending, among other things, on changes in the schedule of Governing Council meetings.

(b) R e s e r v e h o l d i n g s

Each institution must hold its minimum reserves on one or more reserve accounts with the national
central bank in the Member State in which it is established. For institutions with more than one
establishment in a Member State, the head office is responsible for fulfilling the aggregate minimum
reserves of all the domestic establishments of the institution (87). An institution with establishments in
more than one Member State is required to hold minimum reserves with the national central bank of
each Member State in which it has an establishment, in relation to its reserve base in the corresponding
Member State.

Institutions' settlement accounts with the national central banks may be used as reserve accounts.
Reserve holdings on settlement accounts may be used for intraday settlement purposes. The daily reserve
holding of an institution is calculated as the end-of-day balance on its reserve account.

for permission to hold all

An institution may apply to the national central bank in the Member State in which the institution is
resident
its minimum reserves indirectly through an intermediary. The
possibility of holding minimum reserves through an intermediary is, as a rule, restricted to institutions
which are constituted in such a way that part of the administration (e.g. treasury management)
is
normally effected by the intermediary (e.g. networks of savings banks and co-operative banks may
centralise their reserve holdings). The holding of minimum reserves through an intermediary is subject to
the provisions specified in the ECB Regulation on minimum reserves.

(c) R e m u n e r a t i o n o f r e s e r v e h o l d i n g s

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 14. Reserve holdings exceeding the required reserves are not
remunerated. The remuneration is paid on the second NCB business day following the end of the
maintenance period over which the remuneration was earned.

(86) The calendar is normally announced in an ECB press release, to be found on the ECB's website (www.ecb.int). In addition, such a

calendar is published in the Official Journal of the European Union and on the NCBs' websites.

(87) If an institution has no head office in a Member State in which it is established, it has to designate a principal branch which would
then be responsible for fulfilling the aggregate minimum reserve requirements of all the establishments of the institution in the
relevant Member State.

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BOX 14

Calculation of the remuneration of holdings of required reserves

The holding of required reserves is remunerated according to the following formula:

Rt =

Ht . nt . rt
100 . 360

rt =

nt
X

i = 1

MRi
nt

Where:

Rt

= remuneration to be paid on holdings of required reserves for the maintenance period t.

Ht = average daily holdings of required reserves for the maintenance period t.

nt

rt

= number of calendar days in the maintenance period t.

= rate of remuneration on holdings of required reserves for the maintenance period t. Standard

rounding of the rate of remuneration to two decimals shall be applied.

i

= ith calendar day of the maintenance period t.

MRi = marginal

calendar day i.

interest rate for the most recent main refinancing operation settled on or before

7.5.

Reporting, acknowledgement and verification of the reserve base

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 framework of
the ECB's money and banking statistics (see Annex 4). Article 5 of Regulation (EC) No 1745/2003 of the
European Central Bank of 12 September 2003 on the application of minimum reserves (ECB/2003/9) defines
procedures for the notification and acknowledgement of the reserve base and the reserve requirement of the
institution.

The procedure for the notification and acknowledgement of an institution's minimum reserves is as follows.
Either the relevant participating national central bank or the institution takes the initiative to calculate that
institution's minimum reserves for the relevant maintenance period. The calculated minimum reserves are
notified by the calculating party at the latest three NCB business days before the start of the maintenance
period. The relevant participating national central bank may specify an earlier date as a time limit for the
notification of minimum reserves. It may also specify additional time limits for the institution to notify any
revisions to the reserve base, and any revisions to the notified minimum reserves. The notified party shall
acknowledge the calculated minimum reserves at the latest on the NCB business day preceding the start of
the maintenance period. If the notified party has not replied to the notification by the end of the NCB
business day preceding the start of the maintenance period, it shall be deemed to have acknowledged the
amount of minimum reserves of the institution for the relevant maintenance period. Once acknowledged, the
institution's minimum reserves for the relevant maintenance period cannot be revised.

For institutions that are allowed to act as intermediaries for indirect reserve holdings of other institutions,
special reporting requirements are specified in the ECB Regulation on minimum reserves. The holding of
reserves through an intermediary does not change the statistical reporting obligations of institutions holding
reserves via an intermediary.

The ECB and the national central banks have the right, within the scope of the Council Regulation (EC)
concerning the application of minimum reserves by the European Central Bank, to verify the accuracy and
quality of collected data.

7.6.

Non-compliance with minimum reserve obligations

Non-compliance with the minimum reserve obligations arises if an institution's average end-of-calendar-day
balance on its reserve account(s) over the maintenance period is less than its reserve requirement for the
corresponding maintenance period.

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Where an institution fails to comply with all or part of the reserve requirement, the ECB may, in accordance
with Council Regulation (EC) No 2531/98 of 23 November 1998 concerning the application of minimum
reserves by the European Central Bank, impose any one of the following sanctions:

— a payment of up to 5 percentage points above the marginal lending rate, applied to the amount of the

reserve requirement which the relevant institution failed to provide; or

— a payment of up to two times the marginal

lending rate, applied to the amount of

the reserve

requirement which the relevant institution failed to provide; or

— the requirement for the relevant institution to establish non-interest-bearing deposits with the ECB or the
national central banks of up to three times the amount of the reserve requirement which the relevant
institution failed to provide. The maturity of the deposit may not exceed the period during which the
institution failed to comply with the reserve requirement.

Where an institution fails to comply with other obligations under ECB Regulations and Decisions related to
if relevant data are not transmitted in time or are not
the Eurosystem's minimum reserve system (e.g.
accurate), 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 specify and publish the criteria according to which it will apply the
sanctions provided for in Article 7(1) of Council Regulation (EC) No 2531/98 of 23 November 1998
concerning the application of minimum reserves by the European Central Bank (88).

In addition, in the case of serious infringements of the minimum reserve requirements, the Eurosystem may
suspend counterparties from participation in open market operations.

(88) Such criteria were published in a notice in the Official Journal of the European Communities on 11 February 2000 entitled ‘Notice of

the European Central Bank on the imposition of sanctions for breaches of the obligation to hold minimum reserves'.

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Official Journal of the European Union

L 69/53

ANNEX

ANNEX 1

Examples of monetary policy operations and procedures

List of examples

Example 1 Liquidity-providing reverse transaction by fixed rate tender

Example 2 Liquidity-providing reverse transaction by variable rate tender

Example 3 Issuance of ECB debt certificates by variable rate tender

Example 4 Liquidity-absorbing foreign exchange swap by variable rate tender

Example 5 Liquidity-providing foreign exchange swap by variable rate tender

Example 6 Risk control measures

Liquidity-providing reverse transaction by fixed rate tender

EXAMPLE 1

The ECB decides to provide liquidity to the market by means of a reverse transaction organised with a fixed rate
tender procedure.

Three counterparties submit the following bids:

Counterparty

Bid (EUR millions)

Bank 1

Bank 2

Bank 3

30

40

70

140

Total

The ECB decides to allot a total of EUR 105 million.

The percentage of allotment is:

105
ð30 þ 40 þ 70Þ

= 75 %

The allotment to the counterparties is:

Counterparty

Bid (EUR millions)

Allotment (EUR millions)

Bank 1

Bank 2

Bank 3

30

40

70

140

Total

22,5

30,0

52,5

105,0

L 69/54

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Official Journal of the European Union

8.3.2004

EXAMPLE 2

Liquidity-providing reverse transaction by variable rate tender

The ECB decides to provide liquidity to the market by means of a reverse transaction organised with a variable rate
tender procedure.

Three counterparties submit the following bids:

Interest rate (%)

Bank 1

Bank 2

Bank 3

Amount (EUR millions)

3,15

3,10

3,09

3,08

3,07

3,06

3,05

3,04

3,03

Total

5

5

10

5

5

30

5

5

5

5

10

10

5

45

5

5

5

10

15

15

5

10

70

Total
bids

0

10

10

10

20

30

35

15

15

145

Cumulative
bids

0

10

20

30

50

80

115

130

145

The ECB decides to allot EUR 94 million, implying a marginal interest rate of 3,05 %.

All bids above 3,05 % (for a cumulative amount of EUR 80 million) are fully satisfied. At 3,05 % the percentage of
allotment is:

94 – 80
35

= 40 %

The allotment to Bank 1 at the marginal interest rate ist, for example:

The total allotment to Bank 1 is:

0;4 (cid:1) 10 = 4

5 þ 5 þ 4 = 14

The allotment results can be summarised as follows:

Counterparties

Total bids

Total allotment

Amount (EUR millions)

Bank 1

30,0

14,0

Bank 2

45,0

34,0

Bank 3

70,0

46,0

Total

145

94

If the allotment procedure follows a single rate (Dutch) auction, the interest rate applied to the amounts allotted to
the counterparties is 3,05 %.

If the allotment procedure follows a multiple rate (American) auction, no single interest rate is applied to the
amounts allotted to the counterparties; for example, Bank 1 receives EUR 5 million at 3,07 %, EUR 5 million at
3,06 % and EUR 4 million at 3,05 %.

8.3.2004

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Official Journal of the European Union

L 69/55

EXAMPLE 3

Issuance of ECB debt certificates by variable rate tender

The ECB decides to absorb liquidity from the market by issuing debt certificates using a variable rate tender
procedure.

Three counterparties submit the following bids:

Interest rate (%)

Bank 1

Bank 2

Bank 3

Total

Cumulative
bids

Amount (EUR millions)

3,00

3,01

3,02

3,03

3,04

3,05

3,06

3,08

3,10

Total

5

5

5

10

20

5

5

55

5

5

5

40

10

5

70

5

5

5

10

10

10

10

55

0

10

15

15

25

70

25

15

5

180

0

10

25

40

65

135

160

175

180

The ECB decides to allot a nominal amount of EUR 124,5 million, implying a marginal interest rate of 3,05 %.

All bids below 3,05 % (for a cumulative amount of EUR 65 million) are fully satisfied. At 3,05 % the percentage of
allotment is:

124;5 – 65
70

= 85 %

The allotment to Bank 1 at the marginal interest rate is, for example:

0;85 (cid:1) 20 = 17

The total allotment to Bank 1 is:

5 þ 5 þ 5 þ 10 þ 17 = 42

The allotment results can be summarised as follows:

Counterparties

Total bids

Total allotment

Amount (EUR millions)

Bank 1

55,0

42,0

Bank 2

70,0

49,0

Bank 3

55,0

33,5

Total

180,0

124,5

L 69/56

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Official Journal of the European Union

8.3.2004

Liquidity-absorbing foreign exchange swap by variable rate tender

EXAMPLE 4

The ECB decides to absorb liquidity from the market by executing a foreign exchange swap on the EUR/USD rate
by means of a variable rate tender procedure. (Note: The euro is traded at a premium in this example.)

Three counterparties submit the following bids:

Swap points
(× 10,000)

6,84

6,80

6,76

6,71

6,67

6,63

6,58

6,54

6,49

Total

Bank 1

Bank 2

Bank 3

Total

Cumulative
bids

Amount (EUR millions)

5

5

5

10

25

10

5

65

5

5

10

35

20

10

5

90

5

5

5

5

40

10

10

80

0

10

15

15

25

100

40

25

5

235

0

10

25

40

65

165

205

230

235

The ECB decides to allot EUR 158 millon,
cumulative amount of EUR 65 million) are fully satisfied. At 6,63 the percentage of allotment is:

implying 6,63 marginal swap points. All bids above 6,63 (for a

158 – 65
100

= 93 %

The allotment to Bank 1 at the marginal swap points is, for example:

0;93 (cid:1) 25 = 23;25

The total allotment to Bank 1 is:

5 þ 5 þ 5 þ 10 þ 23;25 = 48;25

The allotment results can be summarised as follows:

Counterparties

Total bids

Total allotment

Amount (EUR millions)

Bank 1

65,0

48,25

Bank 2

90,0

52,55

Bank 3

80,0

57,20

Total

235,0

158,0

The ECB fixes the spot EUR/USD exchange rate for the operation at 1,1300.

If the allotment procedure follows a single rate (Dutch) auction, at the start date of the operation the Eurosystem
buys EUR 158 000 000 and sells USD 178 540 000. At the maturity date of the operation, the Eurosystem sells
EUR 158 000 000 and buys USD 178 644 754 (the forward exchange rate is 1,130663 = 1,1300 + 0,000663).

8.3.2004

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Official Journal of the European Union

L 69/57

If the allotment procedure follows a multiple rate (American) auction, the Eurosystem exchanges the amounts of
EUR and USD as shown in the following table:

Spot transaction

Forward transaction

Exchange rate

Buy EUR

Sell USD

Exchange rate

Sell EUR

Buy USD

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

10 000 000

15 000 000

15 000 000

11 300 000

16 950 000

16 950 000

25 000 000

28 250 000

93 000 000

105 090 000

10 000 000

15 000 000

15 000 000

25 000 000

11 306 800

16 960 140

16 960 065

28 266 675

93 000 000

105 151 659

1,130684

1,130680

1,130676

1,130671

1,130667

1,130663

1,130658

1,130654

1,130649

Total

158 000 000

178 540 000

158 000 000

178 645 339

L 69/58

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Official Journal of the European Union

8.3.2004

Liquidity-providing foreign exchange swap by variable rate tender

EXAMPLE 5

The ECB decides to provide liquidity to the market by executing a foreign exchange swap on the EUR/USD rate by
means of a variable rate tender procedure. (Note: The euro is traded at a premium in this example.)

Three counterparties submit the following bids:

Swap points
(× 10,000)

6,23

6,27

6,32

6,36

6,41

6,45

6,49

6,54

6,58

Total

Bank 1

Bank 2

Bank 3

Total

Cumulative
bids

Amount (EUR millions)

5

5

10

10

20

5

5

60

5

10

40

20

5

5

85

5

5

5

20

20

10

10

75

10

10

20

40

80

35

20

5

220

10

20

40

80

160

195

215

220

The ECB decides to allot EUR 197 million,
cumulative amount of EUR 195 million) are fully satisfied. At 6,54 the percentage of allotment is:

implying 6,54 marginal swap points. All bids below 6,54 (for a

197 – 195
20

= 10 %

The allotment to Bank 1 at the marginal swap points is, for example:

0;10 (cid:1) 5 = 0;5

The total allotment to Bank 1 is:

5 þ 5 þ 10 þ 10 þ 20 þ 5 þ 0;5 = 55;5

The allotment results can be summarised as follows:

Counterparties

Total bids

Total allotment

Amount (EUR millions)

Bank 1

60,0

55,5

Bank 2

85,0

75,5

Bank 3

75,0

66,0

Total

220

197

The ECB fixes the spot EUR/USD exchange rate for the operation at 1.1300.

If the allotment procedure follows a single rate (Dutch) auction, at the start date of the operation the Eurosystem
sells EUR 197 000 000 and buys USD 222 610 000. At the maturity date of the operation, the Eurosystem buys
EUR 197 000 000 and sells USD 222 738 838 (the forward exchange rate is 1,130654 = 1,100 + 0,000654).

8.3.2004

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Official Journal of the European Union

L 69/59

If the allotment procedure follows a multiple rate (American) auction, the Eurosystem exchanges the amounts of
EUR and USD as shown in the following table:

Spot transaction

Forward transaction

Exchange rate

Sell EUR

Buy USD

Exchange rate

Buy EUR

Sell USD

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

1,1300

10 000 000

10 000 000

11 300 000

11 300 000

20 000 000

22 600 000

40 000 000

45 200 000

80 000 000

90 400 000

35 000 000

39 550 000

2 000 000

2 260 000

1,130623

1,130627

1,130632

1,130636

1,130641

1,130645

1,130649

1,130654

1,130658

10 000 000

10 000 000

20 000 000

40 000 000

80 000 000

35 000 000

2 000 000

11 306 270

11 306 320

22 612 720

45 225 640

90 451 600

39 572 715

2 261 308

Total

197 000 000

222 610 000

197 000 000

222 736 573

L 69/60

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8.3.2004

EXAMPLE 6

Risk control measures

framework applied to underlying assets used in the Eurosystem's
This example illustrates the risk control
liquidity-providing operations (1). The example is based on the assumption that a counterparty participates in the
following Eurosystem monetary policy operations:

— a main refinancing operation starting on 28 July 2004 and ending on 4 August 2004 where the counterparty

is allotted EUR 50 million at an interest rate of 4,24 %;

— a longer-term refinancing operation starting on 29 July 2004 and ending on 21 October 2004 where the

counterparty is allotted EUR 45 million at an interest rate of 4,56 %; and

— a main refinancing operation starting on 4 August 2004 and ending on 11 August 2004 where the

counterparty is allotted EUR 35 million at an interest rate of 4,26 %.

The characteristics of the underlying tier one assets used by the counterparty to cover these operations are
specified in Table 1 below.

Table 1 — Underlying tier one assets used in the transactions

Characteristics

Name

Asset class

Maturity date

Coupon
definition

Coupon
frequency

Residual
maturity

Haircut

Asset A

Asset B

Asset C

Asset-backed
instrument

Central
government
bond

Corporate
bond

29.8.2006

Fixed rate

6 months

2 years

3,50 %

19.11.2008

Variable rate

12 months

4 years

0,50 %

12.5.2015

Zero coupon
rate

>10 years

15,00 %

Prices in percentages (including accrued interest) (1)

28.7.2004

29.7.2004

30.7.2004

2.8.2004

102,63

101,98

98,35

100,55

97,95

101,03

98,15

3.8.2004

100,76

98,56

55,01

4.8.2004

101,02

98,73

54,87

5.8.2004

101,24

98,57

(1) The prices shown for a specific valuation date correspond to the most representative price on the business day preceding this

valuation date.

Earmarking system

First,
it is assumed that the transactions are carried out with a national central bank using a system where
underlying assets are earmarked for each transaction. The valuation of underlying assets is carried out on a daily
basis. The risk control framework can then be described as follows (see also Table 2 below):

1. On 28 July 2004 the counterparty enters into a repurchase transaction with the national central bank, which
purchases EUR 50,6 million of Asset A. Asset A is an asset-backed instrument with a fixed coupon maturing
on 29 August 2006. It thus has a residual maturity of two years, therefore requiring a valuation haircut of
3,5 %. The market price of Asset A on its reference market on that day is 102,63 %, which includes the
accrued interest on the coupon. The counterparty is required to provide an amount of Asset A, which after
deduction of the 3,5 % valuation haircut, exceeds the allotted amount of EUR 50 million. The counterparty
therefore delivers Asset A for a nominal amount of EUR 50,6 million, the adjusted market value of which is
EUR 50 113 203 on that day.

2. On 29 July 2004 the counterparty enters into a repurchase transaction with the national central bank, which
purchases EUR 21 million of Asset A (market price 101,98 %, valuation haircut 3,5 %) and EUR 25 million of
Asset B (market price 98,35 %). Asset B is a central government bond with variable rate coupon payments, to
which a 0,5 % valuation haircut is applied. The adjusted market value of Asset A and Asset B on that day is
EUR 45 130 810, thus exceeding the required amount of EUR 45 000 000.

(1) The example is based on the assumption that, in the calculation of the need for a margin call, accured interest on the liquidity

provided is taken into account and a trigger point of 0,5 % of the liquidity provided is applied.

8.3.2004

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Official Journal of the European Union

L 69/61

On 29 July 2004 the assets underlying the main refinancing operation initiated on 28 July 2004 are revalued.
With a market price of 101,98 %, the haircut-adjusted market value of Asset A is still within the lower and
upper trigger amounts. The initially pledged collateral is consequently considered to cater for both the initial
amount of liquidity provided and the accrued interest amounting to EUR 5 889.

3. On 30 July 2004 the underlying assets are revalued: the market price of Asset A is 100.55 % and the market
price of Asset B is 97,95 %. Accrued interest amounts to EUR 11 778 on the main refinancing operation
initiated on 28 July 2004 and EUR 5 700 on the longer-term refinancing operation initiated on 29 July 2004.
As a result, the adjusted market value of Asset A in the first transaction falls below the transaction's amount
to be covered (i.e. the liquidity provided plus the accrued interest) by EUR 914 218, but also below the lower
trigger level of EUR 49 761 719. The counterparty delivers EUR 950 000 of Asset A in nominal value terms,
which, after deducting a 3,5 % haircut from the market value based on a price of 100,55 %, restores sufficient
collateral coverage (1).

A margin call is also needed on the second transaction since the adjusted market value of the underlying
assets used in this transaction (EUR 44 741 520) is below the lower trigger level (EUR 44 780 672). The
counterparty therefore provides EUR 270 000 of Asset B with an adjusted market value of EUR 263 143.

4. On 2 and 3 August 2004 the underlying assets are revalued, without resulting in any margin call for the

transactions entered into on 28 and 29 July 2004.

5. On 4 August 2004 the counterparty repays the liquidity provided under the main refinancing operation
initiated on 28 July 2004, including the accrued interest of EUR 41 222. The national central bank returns
EUR 51 550 000 of Asset A in nominal value.

On the same day the counterparty enters into a new repurchase transaction with the national central bank,
which purchases EUR 75 million of Asset C in nominal value terms. Since Asset C is a zero coupon corporate
bond with a residual maturity of more than ten years requiring a valuation haircut of 15 %, the corresponding
haircut-adjusted market value on that day is of EUR 35 068 875.

The revaluation of assets underlying the long-term refinancing operation initiated on 29 July 2004 reveals that
the adjusted market value of the assets provided exceeds the upper trigger level by approximately EUR
262 000 and leads to the national central bank returning EUR 262 000 of Asset B in nominal value to the
counterparty (2).

Pooling system

Second, it is assumed that the transactions are carried out with a national central bank using a pooling system.
Assets included in the pool of assets used by the counterparty are not earmarked for specific transactions.

The same sequence of transactions is used in this example as in the above example illustrating an earmarking
system. The main difference is that, at revaluation dates, the adjusted market value of all the assets in the pool has
to cover the total amount of all of the counterparty's outstanding operations with the national central bank. The
margin call of EUR 1 178 398 occurring on 30 July 2004 is identical in this example to the one required in the
earmarking system case. The counterparty delivers EUR 1 300 000 of Asset A in nominal value terms, which, after
deducting a 3,5 % haircut from the market value based on a price of 100,55 %, restores sufficient collateral
coverage.

Moreover, on 4 August 2004, when the main refinancing operation entered into on 28 July 2004 matures, the
counterparty may keep the assets on its pledge account. An asset can also be exchanged for another asset as
shown in the example, where EUR 51,9 million of Asset A in nominal value are replaced with EUR 75,5 million
of Asset C in nominal value to cover the liquidity provided and the accrued interest under all refinancing
operations.

The risk control framework in the pooling system is described in Table 3.

(1) National central banks may perform margin calls in cash rather than securities.
(2) If a margin had to be paid to the counterparty by the national central bank in relation to the second transaction, such a margin
could, in certain cases, be netted out with the margin paid to the national central bank by the counterparty in relation to the
first transaction. As a result, there would only be one margin settlement.

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Official Journal of the European Union

8.3.2004

Table 2 — Earmarking system

Date

Outstanding transactions

Start date

End date

Interest
rate

Liquidity
provided

28.7.2004 Main refinancing

28.7.2004

4.8.2004

4,24

50 000 000

29.7.2004 Main refinancing

Longer-term refinancing

30.7.2004 Main refinancing

Longer-term refinancing

2.8.2004 Main refinancing

Longer-term refinancing

3.8.2004 Main refinancing

Longer-term refinancing

4.8.2004 Main refinancing

Longer-term refinancing

5.8.2004 Main refinancing

Longer-term refinancing

28.7.2004

4.8.2004

29.7.2004

27.10.2004

28.7.2004

4.8.2004

29.7.2004

27.10.2004

28.7.2004

4.8.2004

29.7.2004

27.10.2004

28.7.2004

4.8.2004

29.7.2004

27.10.2004

4.8.2004

11.8.2004

29.7.2004

27.10.2004

4.8.2004

11.8.2004

29.7.2004

27.10.2004

4,24

4,56

4,24

4,56

4,24

4,56

4,24

4,56

4,26

4,56

4,26

4,56

50 000 000

45 000 000

50 000 000

45 000 000

50 000 000

45 000 000

50 000 000

45 000 000

35 000 000

45 000 000

35 000 000

45 000 000

Accrued interest

Total amount to be
covered

Lower trigger
amount

Upper trigger
amount

Adjusted market
value

Margin call

—

5 889

—

11 778

5 700

29 444

22 800

35 333

28 500

—

34 200

4 142

39 900

50 000 000

49 750 000

50 250 000

50 113 203

50 005 889

49 755 859

50 255 918

49 795 814

45 000 000

44 775 000

45 225 000

45 130 810

—

—

—

50 011 778

49 761 719

50 261 837

49 097 560

45 005 700

44 780 672

45 230 729

44 741 520

– 914 218

– 264 180

50 029 444

49 779 297

50 279 592

50 258 131

45 022 800

44 797 686

45 247 914

45 152 222

50 035 333

49 785 157

50 285 510

50 123 818

45 028 500

44 803 358

45 253 643

45 200 595

35 000 000

34 825 000

35 175 000

35 068 875

—

—

—

—

—

45 034 200

44 809 029

45 259 371

45 296 029

261 829

35 004 142

34 829 121

35 179 162

34 979 625

45 039 900

44 814 701

45 265 100

45 043 420

—

—

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L 69/63

Table 3 — Pooling system

Date

Outstanding transactions

Start date

End date

Interest
rate

Liquidity
provided

28.7.2004 Main refinancing

28.7.2004

4.8.2004

4,24

50 000 000

29.7.2004 Main refinancing

Longer-term refinancing

30.7.2004 Main refinancing

Longer-term refinancing

2.8.2004 Main refinancing

Longer-term refinancing

3.8.2004 Main refinancing

Longer-term refinancing

4.8.2004 Main refinancing

Longer-term refinancing

5.8.2004 Main refinancing

Longer-term refinancing

28.7.2004

4.8.2004

29.7.2004

27.10.2004

28.7.2004

4.8.2004

29.7.2004

27.10.2004

28.7.2004

4.8.2004

29.7.2004

27.10.2004

28.7.2004

4.8.2004

29.7.2004

27.10.2004

4.8.2004

11.8.2004

29.7.2004

27.10.2004

4.8.2004

11.8.2004

29.7.2004

27.10.2004

4,24

4,56

4,24

4,56

4,24

4,56

4,24

4,56

4,26

4,56

4,26

4,56

50 000 000

45 000 000

50 000 000

45 000 000

50 000 000

45 000 000

50 000 000

45 000 000

35 000 000

45 000 000

35 000 000

45 000 000

Accrued interest

Total amount to be
covered

Lower trigger
amount (1)

Upper trigger
amount (2)

Adjusted market
value

Margin call

—

5 889

—

11 778

5 700

29 444

22 800

35 333

28 500

—

34 200

4 142

39 900

50 000 000

49 750 000

Not applicable

50 113 203

95 005 889

94 530 859

Not applicable

94 926 624

—

—

95 017 478

94 542 390

Not applicable

93 839 080

– 1 178 398

95 052 244

94 576 983

Not applicable

95 487 902

95 063 833

94 588 514

Not applicable

95 399 949

80 034 200

79 634 029

Not applicable

80 333 458

80 044 042

79 643 821

Not applicable

80 248 396

—

—

—

—

(1) In a pooling system, the lower trigger amount is the lowest threshold for margin calls. In practice most national central banks
require additional collateral whenever the haircut adjusted market value of the collateral pool falls below the total amount to
be covered.

(2) In a pooling system, the notion of upper trigger amount is not relevant, since the counterparty will constantly target an excess

amount of collateral provided in order to minimise operational transactions.

L 69/64

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Official Journal of the European Union

8.3.2004

ANNEX 2

Glossary

Actual/360: the day-count convention applied for the calculation of interest on a credit, implying that the interest is
calculated over the actual number of calendar days over which the credit is extended, on the basis of a 360-day year.
This day-count convention is applied in Eurosystem monetary policy operations.

American auction: see multiple rate auction.

Averaging provision: a provision allowing counterparties to fulfil their reserve requirements on the basis of their average
reserve holdings over the maintenance period. The averaging provision contributes to the stabilisation of money market
interest rates by giving institutions an incentive to smooth the effects of
temporary liquidity fluctuations. The
Eurosystem's minimum reserve system allows for averaging.

Bilateral procedure: a procedure whereby the central bank deals directly with only one or a few counterparties, without
making use of tender procedures. Bilateral procedures include operations executed through stock exchanges or market
agents.

Book-entry system: an accounting system that permits the transfer of securities and other financial assets without the
physical movement of paper documents or certificates
securities). See also
dematerialisation.

the electronic transfer of

(e.g.

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 (but
immobilised within the CSD) or in a dematerialised form (i.e. only as electronic records).

Close links: Article 1(26) of Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000
relating to the taking up and pursuit of the business of credit institutions states that ‘Close links shall mean a situation
in which two or more natural or legal persons are linked by: (a) participation, which shall mean the ownership, direct
or by way of control, of 20 % or more of the voting rights or capital of an undertaking, or (b) control, which shall
mean the relationship between a parent undertaking and a subsidiary, in all the 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 a subsidiary of the parent undertaking
which is at the head of those undertakings. A situation in which two or more natural or legal persons are permanently
linked to one and the same person by a control relationship shall also be regarded as constituting a close link between
such persons'.

Collateral pooling system: a central bank system for managing 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 earmarking system, the underlying assets are not earmarked for individual transactions.

Collection of fixed-term deposits: a monetary policy instrument that may be used by the Eurosystem for fine-tuning
purposes, where the Eurosystem offers remuneration on counterparties' fixed-term deposits on accounts with the national
central banks in order to absorb liquidity from the market.

Correspondent banking: an arrangement under which one credit institution provides payment and other services to
another credit institution. Payments through correspondents are often executed through reciprocal accounts (nostro and
loro accounts) to which standing credit lines may be attached. Correspondent banking services are primarily provided
across international boundaries but are also known as agency relationships in some domestic contexts. A loro account
is the term used by a correspondent to describe an account held on behalf of a foreign credit institution; the foreign
credit institution would in turn regard this account as its nostro account.

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Correspondent central banking model (CCBM): a mechanism established by the European System of Central Banks
with the aim of enabling counterparties to use underlying assets in a cross-border context. In the CCBM, national central
banks act as custodians for one another. This means that each national central bank has a securities account in its
securities administration for each of the other national central banks (and for the ECB).

Counterparty: the opposite party in a financial transaction (e.g. any transaction with the central bank).

Credit institution: refers in this document to an institution covered by the definition contained in Article 1(1) of
Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 relating to the taking up and
pursuit of the business of credit institutions, as amended by Directive 2000/28/EC of the European Parliament and of
the Council of 18 September 2000. Thus, a credit institution is: (i) an undertaking whose business is to receive deposits
or other repayable funds from the public and to grant credit for its own account, or (ii) an undertaking or any other
legal person, other than those under (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) stored on an electronic device,
(b) issued on receipt of funds of an amount not lower in value than the monetary value issued, and (c) accepted as a
means of payment by undertakings other than the issuer.

Cross-border settlement: a settlement which takes place in a country other than 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 securities and other financial assets on
behalf of others.

Day-count convention: the convention regulating the number of days included in the calculation of interest on
credits. The Eurosystem applies the day-count convention actual/360 in its monetary policy operations.

Delivery versus payment (DVP) 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
only if, the final transfer of another asset (or other assets) occurs.

Dematerialisation: the elimination of physical certificates or documents of title which represent ownership of financial
assets so that the financial assets exist only as accounting records.

Deposit facility: a standing facility of the Eurosystem which counterparties may use to make overnight deposits at a
national central bank, which are remunerated at a pre-specified interest rate.

Depository: an agent with the primary role of recording securities either physically or electronically and keeping
records of the ownership of these securities.

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 withdraw the funds. In some cases, there is the possibility of withdrawing a
certain fixed amount in a specific period or of earlier withdrawal subject to the payment of a penalty.

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. This category also encompasses some non-marketable debt
instruments, such as non-marketable (retail)
certificates of deposit.

Dutch auction: see single rate auction.

Earmarking system: a system for central banks' collateral management where liquidity is provided against assets
earmarked for each individual transaction.

ECB payment mechanism (EPM): the payment arrangements organised within the ECB and connected to the Target
system for the purpose of effecting: (i) payments between accounts held at the ECB, and (ii) payments through the Target
system between accounts held at the ECB and at the national central banks.

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ECB time: the time of the place in which the ECB is located.

EEA (European Economic Area) countries: the EU Member States and Iceland, Liechtenstein and Norway.

End-of-day: the time of the business day (after the TARGET system has closed) at which the payments processed in the
TARGET system are finalised for the day.

Equity price risk: the risk of loss arising from movements in equity prices. The Eurosystem is exposed to equity price
risk in its monetary policy operations to the extent that equities are considered to be eligible as tier two assets.

Euro area: the area encompassing the EU Member States which have adopted the euro as their single currency in
accordance with the Treaty and in which a single monetary policy is conducted under the responsibility of the
Governing Council of the ECB.

European System of Central Banks (ESCB): refers to the European Central Bank (ECB) and the national central banks
of the EU Member States. It should be noted that the national central banks of those Member States which have not
adopted the single currency in accordance with the Treaty retain their powers in the field of monetary policy according
to national law and are thus not involved in the conduct of the monetary policy of the Eurosystem.

Eurosystem: 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 Eurosystem are the Governing Council and the Executive Board of the ECB.

Eurosystem business day: any day on which the ECB and at least one national central bank are open for the purpose of
conducting Eurosystem monetary policy operations.

Final transfer: an irrevocable and unconditional transfer which effects a discharge of the obligation to make the
transfer.

Fine-tuning operation: a non-regular open market operation executed by the Eurosystem mainly in order to deal with
unexpected liquidity fluctuations in the market.

Fixed rate instrument: a financial instrument for which the coupon is fixed throughout the life of the instrument.

Fixed rate tender: a tender procedure where the interest rate is specified in advance by the central bank and
participating counterparties bid the amount of money they want to transact at the fixed interest rate.

Floating rate instrument: a financial instrument for which the coupon is periodically reset relative to a reference
index to reflect changes in short or medium-term market interest rates. Floating rate instruments have either pre-fixed
coupons or post-fixed coupons.

Foreign exchange swap: the simultaneous spot purchase/sale and forward sale/purchase of one currency against
another. The Eurosystem executes open market monetary policy operations in the form of foreign exchange swaps where
the national central banks (or the ECB) buy (or sell) euro spot against a foreign currency and at the same time sell (or
buy) it back in a forward transaction.

Gross settlement system: a transfer system in which the settlement of funds or the transfer of securities occurs on an
instruction-by-instruction basis.

Haircut: see valuation haircut.

Initial margin: a risk control measure that may be applied by the Eurosystem in reverse transactions, implying that the
collateral required for a transaction is equal to the credit extended to the counterparty plus the value of the initial
margin.

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Interlinking mechanism: within the TARGET system, the Interlinking mechanism provides common procedures and an
infrastructure which allow payment orders to move from one domestic RTGS system to another.

International Securities Identification Number (ISIN): an international
issued in financial markets.

identification code assigned to securities

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 settlements and can take the form of: (i) a collateralised overdraft, or (ii) a lending
operation against a pledge or in a repurchase agreement.

Inverse floating rate instrument: a structured note where the rate of interest paid to the holder of the note varies
inversely with changes in a certain reference interest rate.

Issuer: the entity which is obligated on a security or other financial instrument.

Link between securities settlement systems: a link consists of all the procedures and arrangements which exist
between two securities settlement systems (SSSs) for the transfer of securities between the two SSSs concerned through a
book-entry process.

Longer-term refinancing operation: a regular open market operation executed by the Eurosystem in the form of a reverse
transaction. Longer-term refinancing operations are executed through monthly standard tenders and normally have a
maturity of three months.

Lump-sum allowance: a fixed amount which an institution deducts in the calculation of its reserve requirement within
the minimum reserve framework of the Eurosystem.

Main refinancing operation: a regular open market operation executed by the Eurosystem in the form of a reverse
transaction. Main refinancing operations are conducted through weekly standard tenders and normally have a maturity of
one week.

Maintenance period: the period over which compliance with reserve requirements is calculated. The ECB publishes a
calendar of the reserve maintenance periods at least three months before the start of each year. Maintenance periods
begin on the settlement day of the first main refinancing operation following the meeting of the Governing Council at
which the monthly assessment of the monetary policy stance is pre-scheduled. They normally end on the day preceding
the similar settlement day in the following month. Under special circumstances, the published calendar may be
amended, depending, among other things, on changes in the schedule of Governing Council meetings.

implying that if the value, as regularly
Margin call: a procedure related to the application of variation margins,
measured, of the underlying assets falls below a certain level,
the central bank requires counterparties to supply
additional assets (or cash). Similarly, if the value of the underlying assets, following their revaluation, were to exceed the
amount owed by the counterparties plus the variation margin, the counterparty may ask the central bank to return the
excess assets (or cash) to the counterparty.

Marginal interest rate: the interest rate at which the total tender allotment is exhausted.

Marginal lending facility: a standing facility of the Eurosystem which counterparties may use to receive overnight credit
from a national central bank at a pre-specified interest rate against eligible assets.

Marginal swap point quotation: the swap point quotation at which the total tender allotment is exhausted.

Marking to market: see variation margin.

Maturity bucket: a class of debt instruments within a liquidity category of tier one assets or within a liquidity category
of tier two assets, the residual maturity of which is within a certain range of values, e.g. the three-to-five-year maturity
bucket.

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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 repurchase date.

Maximum bid limit: the limit on the largest acceptable bid from an individual counterparty in a tender operation. The
Eurosystem may impose maximum bid limits in order
to avoid disproportionately large bids from individual
counterparties.

Maximum bid rate: the upper limit to the interest rate at which counterparties may submit bids in variable rate tenders.
Bids at a rate above the maximum bid rate announced by the ECB are discarded.

Member State: refers in this document to an EU Member State which has adopted the single currency in accordance
with the Treaty.

Minimum allotment amount: the lower limit of the amount to be allotted to individual counterparties in a tender
operation. The Eurosystem may decide to allot a minimum amount to each counterparty in its tender operations.

Minimum allotment ratio: the lower limit, expressed in percentage terms, of the ratio of bids at the marginal interest
rate to be allotted in a tender operation. The Eurosystem may decide to apply a minimum allotment ratio in its tender
operations.

Minimum bid rate: the lower limit to the interest rates at which counterparties may submit bids in variable rate tenders.

Monetary financial institution (MFI): financial institutions which together form the money-issuing sector of the euro
area. These include central banks, resident credit institutions, as defined in Community law, and all other resident
financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than
MFIs and, for their own account (at least in economic terms), to grant credit and/or invest in securities.

Multiple rate auction (American auction): an auction at which the allotment interest rate (or price/swap point) equals
the interest rate offered in each individual bid.

National central bank (NCB): refers in this document to a central bank of an EU Member State which has adopted the
single currency in accordance with the Treaty.

NCB business day: any day on which the national central bank of a specific Member State is open for the purpose of
conducting Eurosystem monetary policy operations. In some Member States, branches of the national central bank may
be closed on NCB business days owing to local or regional bank holidays. In such cases, the relevant national central
bank is responsible for informing the counterparties in advance of the arrangements to be made for transactions
involving those branches.

Open market operation: an operation executed on the initiative of the central bank in the financial market. With
regard to their aims, regularity and procedures, Eurosystem open market operations can be divided into four categories:
fine-tuning operations and structural operations. As for the
main refinancing operations,
instruments used, reverse transactions are the main open market instrument of the Eurosystem and can be employed in
all four categories of operations. In addition, the issuance of debt certificates and outright transactions are available for
structural operations, while outright transactions, foreign exchange swaps and the collection of fixed-term deposits are available
for the conduct of fine-tuning operations.

longer-term refinancing operations,

Outright transaction: a transaction whereby assets are bought or sold up to their maturity (spot or forward).

Pooling system: see collateral pooling system.

Post-fixed coupon: a coupon on floating rate instruments which is determined on the basis of the values taken by the
reference index at a certain date (or dates) during the coupon accrual period.

Pre-fixed coupon: a coupon on floating rate instruments which is determined on the basis of the values taken by the
reference index at a certain date (or dates) before the start of the coupon accrual period.

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Purchase date: the date on which the sale of purchased assets by the seller to the buyer becomes effective.

Purchase price: the price at which purchased assets are sold or are to be sold to the buyer by the seller.

Quick tender: the tender procedure used by the Eurosystem for fine-tuning operations when it is deemed desirable to have a
rapid impact on the liquidity situation in the market. Quick tenders are executed within a time frame of one hour and
are restricted to a limited set of counterparties.

Repo operation: a liquidity-providing reverse transaction based on a repurchase agreement.

Repurchase agreement: an arrangement whereby an asset is sold while the seller simultaneously obtains the right and
obligation to repurchase it at a specific price 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 Eurosystem
uses repurchase agreements with a fixed maturity in its reverse transactions.

Repurchase date: the date on which the buyer is obliged to sell back assets to the seller in relation to a transaction
under a repurchase agreement.

Repurchase price: the price at which the buyer is obliged to sell back assets to the seller in relation to a transaction
under a repurchase agreement. The repurchase price equals the sum of the purchase price and the price differential
corresponding to the interest on the extended liquidity over the maturity of the operation.

Reserve account: an account with the national central bank on which a counterparty's reserve holdings are maintained. The
counterparties' settlement accounts with the national central banks may be used as reserve accounts.

Reserve base: the sum of the balance sheet items which constitute the basis for calculating the reserve requirement of a
credit institution.

Reserve holdings: counterparties' holdings on their reserve accounts which serve to fulfil reserve requirements.

Reserve ratio: the ratio defined by the central bank for each category of balance sheet items included in the reserve
base. The ratios are used to calculate reserve requirements.

Reserve requirement: the requirement for institutions to hold minimum reserves with the central bank. Within the
minimum reserve framework of the Eurosystem, 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, institutions deduct a lump-sum allowance from their reserve requirement.

Residual maturity: time remaining until the maturity date of a debt instrument.

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: a settlement system in which processing and settlement take place on an
order-by-order basis (without netting) in real time (continuously). See also TARGET system.

Safe custody account: a securities account managed by the central bank on which credit institutions can place securities
deemed suitable to back central bank operations.

Securities settlement system (SSS): a system which permits the holding and transfer of securities or other financial
assets, either free of payment (FOP) or against payment (delivery versus payment).

Settlement account: an account held by a direct participant in a national RTGS system with the central bank for the
purpose of processing payments.

Settlement agent: an institution which manages the settlement process (e.g. the determination of settlement positions,
the monitoring of payment exchanges, etc.) for transfer systems or other arrangements requiring settlement.

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Settlement date: the date on which a transaction is settled. The settlement might take place on the same day as the
trade (same-day settlement) or one or several days after the trade (the settlement date is specified as the trade date (T) +
the settlement lag).

Single rate auction (Dutch auction): an auction in which the allotment interest rate (or price/swap point) applied for
all satisfied bids is equal to the marginal interest rate.

Solvency risk: the risk of loss owing to the failure (bankruptcy) of an issuer of a financial asset or to the insolvency of
the counterparty.

Standard tender: a tender procedure used by the Eurosystem in its regular open market operations. Standard tenders are
carried out within a time frame of 24 hours. All counterparties fulfilling the general eligibility criteria are entitled to
submit bids in standard tenders.

Standardised deduction: the fixed percentage of the amount outstanding of debt securities with an agreed maturity of
up to two years (including money market paper) which can be deducted from the reserve base by the issuers which
cannot present evidence that such outstanding amount is held by other institutions subject to the minimum reserve
system of the Eurosystem, by the ECB or by a national central bank.

Standing facility: a central bank facility available to counterparties at their own initiative. The Eurosystem offers two
overnight standing facilities: the marginal lending facility and the deposit facility.

Start date: the date on which the first leg of a monetary policy operation is settled. The start date corresponds to the
purchase date for operations based on repurchase agreements and foreign exchange swaps.

Strip (separate trading of interest and principal): a zero coupon bond created in order to trade separately the claims
on particular cash flows of a security and the principal of the same instrument.

Structural operation: an open market operation executed by the Eurosystem mainly in order to adjust the structural
liquidity position of the financial sector vis-à-vis the Eurosystem.

Swap point: the difference between the exchange rate of the forward transaction and the exchange rate of the spot
transaction in a foreign exchange swap.

TARGET (Trans-European Automated Real-time Gross settlement Express Transfer) system: the real-time gross
settlement system for the euro. It is a decentralised system consisting of 15 national RTGS systems, the ECB payment
mechanism and the Interlinking mechanism.

Tender procedure: a procedure in which the central bank provides liquidity to or withdraws liquidity from the market
on the basis of bids submitted by counterparties in competition with each other. The most competitive bids are satisfied
first until the total amount of liquidity to be provided or withdrawn by the central bank is exhausted.

Tier one asset: a marketable asset fulfilling certain uniform euro area-wide eligibility criteria specified by the ECB.

Tier two asset: a marketable or non-marketable asset for which specific eligibility 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 transaction between two counterparties) is
struck. The trade date might coincide with the settlement date for the transaction (same-day settlement) or precede the
settlement date by a specified number of business days (the settlement date is specified as T + the settlement lag).

Treaty: the Treaty establishing the European Community. It is often referred to as the ‘Treaty of Rome', as amended.

Trigger point: a pre-specified level of the value of the liquidity provided at which a margin call is executed.

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Valuation date: the date on which the assets underlying credit operations are valued.

Valuation haircut: a risk control measure applied to underlying assets used in reverse transactions, implying that the
central bank calculates the value of underlying assets as the market value of the assets reduced by a certain percentage
(haircut). The Eurosystem applies valuation haircuts reflecting features of the specific assets, such as the residual maturity.

Variable rate tender: a tender procedure whereby the counterparties bid both the amount of money they want to transact
with the central bank and the interest rate at which they want to enter into the transaction.

Variation margin (marking to market): the Eurosystem requires a certain level of the market value of the underlying
assets used in its liquidity-providing reverse transactions to be maintained over time. This implies that if the value,
measured on a regular basis, of the underlying assets falls below a certain level, the national central bank will require the
counterparty to supply additional assets or cash (i.e. a margin call). Similarly,
if the value of the underlying assets,
following their revaluation, exceeds a certain level, the counterparty may retrieve the excess assets or cash. See also
Section 6.4.

Volume tender: see fixed rate tender.

Zero coupon bond: a security paying only one cash flow during its life. For the purpose of this document, zero
coupon bonds include securities issued at a discount and securities which deliver a single coupon at maturity. A strip is
a special type of zero coupon bond.

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ANNEX 3

Selection of counterparties for foreign exchange intervention operations and foreign exchange swaps for
monetary policy purposes

The selection of counterparties for foreign exchange intervention operations and foreign exchange swaps for monetary
policy purposes follows a uniform approach irrespective of the chosen organisational set-up for the Eurosystem's
external operations. The selection policy does not entail a substantial departure from existing market standards, as it
has been derived from the harmonisation of the national central banks' current best practices. The selection of
counterparties to Eurosystem foreign exchange intervention operations is based, primarily, on two sets of criteria.

The first set of criteria is inspired by the principle of prudence. A first prudential criterion is creditworthiness, which is
assessed using a combination of different methods (e.g. using credit ratings available from commercial agencies and the
in-house analysis of capital and other business ratios); a second criterion is that the Eurosystem requires all its potential
foreign exchange intervention counterparties to be subject to supervision by a recognised supervisor; and, as a third
criterion, all the Eurosystem's foreign exchange intervention counterparties need to follow high ethical standards and
have a good reputation.

Once the minimum prudence requirement is fulfilled, the second set of criteria inspired by efficiency considerations is
applied. A first efficiency criterion relates to competitive pricing behaviour and the counterparty's ability to handle
large volumes, even in turbulent market conditions. The quality and coverage of information provided by counterparties
feature among other efficiency criteria.

The pool of potential foreign exchange intervention counterparties is sufficiently large and diverse to guarantee the
necessary flexibility when implementing intervention operations. It enables the Eurosystem to choose from among
different intervention channels. In order to be able to intervene efficiently in different geographical locations and time
zones, the Eurosystem can use counterparties 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 are
selected for Eurosystem foreign exchange intervention operations.

The national central banks may apply limit-based systems in order to control credit exposures vis-à-vis individual
counterparties in foreign exchange swaps conducted for monetary policy purposes.

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ANNEX 4

The reporting framework for the money and banking statistics of the European Central Bank (1)

1.

Introduction

Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the collection of statistical information by
the European Central Bank (2) defines the natural and legal persons which are subject to reporting requirements
(the so-called reference reporting population),
the confidentiality regime and the appropriate provisions for
enforcement in accordance with Article 5.4 of the Statute of the European System of Central Banks and of the
European Central Bank (Statute of the ESCB). Furthermore, it entitles the ECB to use its regulatory power:

— to specify the actual reporting population;

— to define the ECB's statistical reporting requirements and impose them on the actual reporting population of

participating Member States; and

— to specify the conditions under which the ECB and the national central banks (NCBs) may exercise the right to

verify or to carry out the compulsory collection of statistical information.

2. General considerations

The purpose of Regulation (EC) No 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) (3) is to enable the ECB
and, 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 Regulation (EC) No 2423/2001 of the European Central Bank of 22
November 2001 concerning the consolidated balance sheet of
sector
(ECB/2001/13) is used to establish the consolidated balance sheet of the monetary financial institutions (MFI) sector,
the principal aim of which is to provide the ECB with a comprehensive statistical picture of monetary
developments covering the aggregated financial assets and liabilities of MFIs located in the participating Member
States, which are viewed as one economic territory.

the monetary financial

institutions

For statistical purposes the ECB's reporting requirements in the context of the consolidated balance sheet of the
MFI sector are based on three main considerations.

First, the ECB must receive comparable, reliable and up-to-date statistical information which is collected under
comparable terms and conditions throughout the euro area. Although the data are collected in a decentralised way
by NCBs in accordance with Articles 5.1 and 5.2 of the Statute and, as far as necessary, in combination with
further statistical requirements for Community or national purposes, a sufficient degree of harmonisation and
compliance with minimum reporting standards is required in view of the need to establish a reliable statistical basis
for the definition and conduct of the single monetary policy.

Second, the reporting obligations set out in Regulation (EC) No 2423/2001 of the European Central Bank of
22 November 2001 concerning the consolidated balance sheet of
institutions sector
(ECB/2001/13) must observe the principles of transparency and legal certainty. The reason for this is that said
Regulation is binding in its entirety and directly applicable throughout the euro area. It imposes obligations directly
on natural and legal persons on which the ECB may impose sanctions whenever the ECB's reporting requirements
are not fulfilled (see Article 7 of Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the
collection of statistical information by the European Central Bank). The reporting obligations are therefore clearly
defined and any discretion exercised by the ECB when verifying or compulsorily collecting statistical information
follows identifiable principles.

the monetary financial

the ECB must minimise the reporting burden involved (see Article 3(a) of Council Regulation
Third,
information by the European
(EC) No 2533/98 of 23 November 1998 concerning the collection of statistical
Central Bank). Therefore, the statistical material collected by NCBs under Regulation (EC) No 2423/2001 of the

(1) The content of this annex is provided for information purposes only.
(2) OJ L 318, 27.11.1998, p. 8.
(3) OJ L 333, 17.12.2001, p. 1. This Regulation has replaced Regulation (EC) No 2819/98 of the European Central Bank of 1 December

1998 (ECB/1998/16).

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European Central Bank of 22 November 2001 concerning the consolidated balance sheet of the monetary financial
is also used to calculate the reserve base in accordance with Regulation
institutions sector (ECB/2001/13)
(EC) No 1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves
(ECB/2003/9) (4).

The articles of 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) restrict themselves
to defining, in general terms, the actual reporting population, its reporting obligations and the principles according
to which the ECB and the NCBs normally exercise their competence to verify or compulsorily collect statistical
information. The details of the statistical information to be reported in order to fulfil the ECB's statistical reporting
to IV to Regulation
requirements and the minimum standards to be followed are specified in Annexes I
(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).

3. Actual reporting population; list of MFIs for statistical purposes

MFIs comprise resident credit institutions, as defined in Community law, and all other resident financial institutions
whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs and, for
their own account (at least in economic terms), to grant credit 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 Annex I to 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). The competence to establish
and maintain this List of MFIs for statistical purposes lies with the Executive Board of the ECB. The population of
MFIs resident in the euro area constitutes the actual reporting population.

NCBs are entitled to grant derogations to small MFIs if the MFIs which contribute to the monthly consolidated
balance sheet account for at least 95 % of the total MFI balance sheet in each participating Member State. These
derogations enable NCBs to apply the method of ‘cutting off the tail'.

4.

Statistical reporting obligations

the actual resident reporting population must report statistical
To establish the consolidated balance sheet,
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 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).

The relevant statistical data are collected by the NCBs, which must define the reporting procedures to be followed.
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) does not prevent NCBs from collecting,
from the actual reporting population, the statistical information necessary to fulfil the statistical requirements of
the ECB as part of a broader statistical reporting framework which the NCBs establish under their own
responsibility in accordance with Community or national
law or established practice and which serves other
statistical purposes. However, this should be without prejudice to the fulfilment of the statistical requirements set
out in 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). In specific cases, the ECB
may rely on statistical information collected for such purposes to fulfil its requirements.

The consequence of a derogation being granted by an NCB as defined above is that the small MFIs concerned are
subject to reduced reporting obligations (implying, inter alia, only quarterly reporting) which are compulsory in the
context of minimum reserves and are specified in Annex II to Regulation (EC) No 2423/2001 of the European
the monetary financial
Central Bank of 22 November 2001 concerning the consolidated balance sheet of
institutions sector (ECB/2001/13). Requirements for those small MFIs that are not credit institutions are set out in
Annex III to said Regulation. However, MFIs which have been granted a derogation have the option of fulfilling the
full reporting requirements.

5. Use of statistical information under the ECB Regulation on minimum reserves

To minimise the reporting burden and to avoid any duplication in the collection of statistical information, the
statistical information related to the balance sheet reported by MFIs under 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) is also used to calculate the reserve base under Regulation (EC) No 1745/2003 of
the European Central Bank of 12 September 2003 on the application of minimum reserves (ECB/2003/9).

(4) OJ L 250, 2.10.2003, p. 10.

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Indeed, for statistical purposes, the reporting agents have to report data to their respective NCBs in accordance
with the framework of Table 1 below, which is included in Annex I to 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). In Table 1, the boxes marked with an ‘*' are used by the reporting institutions to
calculate their reserve base (see Box 13 in Chapter 7 of this publication).

In order to make a correct calculation of the reserve base to which a positive reserve ratio is applied, a detailed
breakdown is required for deposits with an agreed maturity of over two years, for deposits redeemable at notice of
over two years and for repo liabilities of credit institutions vis-à-vis the (‘domestic' and ‘other participating Member
States') ‘MFIs', ‘credit institutions subject to reserve requirements, ECB and NCBs' and ‘Central government' sectors,
and vis-à-vis the Rest of the World (RoW).

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TAB

LE 1

Data required to be provided

at monthly frequency

MFIs (3)

A. Domestic

Non-MFIs

MFIs (3)

B. Other participating Member States

Non-MFIs

General government

Other resident sectors

General government

Other resident sectors

BALANCE SHEET ITEMS

of which
credit insti-
tutions sub-
ject to RRs,
ECB and
NCBs

Central
govern-
ment

Other
general
govern-
ment

Total

Other financial
intermediaries
+ financial
auxiliaries
(S.123+S.124)

Insurance
corpo-
rations and
pension
funds
(S.125)

Non-finan-
cial corpo-
rations
(S.11)

Households
+ non-
profit insti-
tutions
serving
households
(S.14+S.15)

of which
credit insti-
tutions sub-
ject to RRs,
ECB and
NCBs

Central
govern-
ment

Other
general
govern-
ment

Total

Other financial
intermediaries
+ financial
auxiliaries
(S.123+S.124)

Insurance
corpo-
rations and
pension
funds
(S.125)

Non-finan-
cial corpo-
rations
(S.11)

Households
+ non-
profit insti-
tutions
serving
households
(S.14+S.15)

C.
Rest of the world

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

(l)

(m)

(n)

(o)

(p)

(q)

(r)

*

*

*

*
*

*

*
*

*

*

*

*
*

*

*
*

*

*

*
*

*

*
*

*

*

*
*

*

*

*
*

*

*

*
*

*

*

*
*

*

*

*
*

*

*

*
*

*

*

*
*

*

*

*
*

LIABILITIES

8

9

Currency in circulation

Deposits

up to 1 year

over 1 year

9e

Euro

9.1e Overnight

9.2e With agreed maturity

up to 1 year

over 1 and up to 2 years
over 2 years (1)
9.3e Redeemable at notice
up to 3 months (2)
over 3 months
of which over 2 years (4)

9.4e Repos

9x

Foreign currencies

9.1x Overnight

9.2x With agreed maturity

up to 1 year

over 1 and up to 2 years
over 2 years (1)
9.3x Redeemable at notice
up to 3 months (2)
over 3 months
of which over 2 years (4)

9.4x Repos

10 MMFs shares/units

11 Debt securities issued

11e Euro

up to 1 year

over 1 and up to 2 years

over 2 years

11x Foreign currencies

up to 1 year

over 1 and up to 2 years

over 2 years

12 Capital and reserves
13 Remaining liabilities

*

*

*

*
*

*

*

*

*

*

*

*
*

*

*

*

*

*

*
*

*

*

*

*

*

*
*

*

*

*
*

*

*

*
*

*

*

*
*

*

*

*
*

*

*

*
*

*

*

*
*

*

*

*
*

(1) Including administratively regulated deposits
(2) Including non transferable sight savings deposits.
(3) Credit institutions may report positions vis-à-vis ‘MFIs other than CIs subject to minimum reserves, ECB and NCBs' rather than vis-à-vis ‘MFis' and ‘CIs subject to mini
(4) The reporting of this item is volumtary until further notice.

mum reserves, ECB and NCBs', provided that no loss of detail is implied and no bold printed positions are affected.

(s)

*

*

*
*

*

*
*

D.
Not
allocated

(t)

*

*
*

*

*

*

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A. Domestic

Non-MFIs

Other resident sectors

B. Other participating Member States

Non-MFIs

Other resident sectors

BALANCE SHEET ITEMS

MFIs

General
govern-
ment

Total

Other financial
intermediaries +
financial
auxiliaries
(S.123+S.124)

Insurance
corporations
and pension
funds (S.125)

Non-financial
corporations
(S.11)

Households + non-profit institutions
serving households (S.14+S.15)

Consumer
credit

Lending
for house
purchase

Other
(residual)

MFIs

General
govern-
ment

Total

Other financial
intermediaries +
financial
auxiliaries
(S.123+S.124)

Insurance
corporations
and pension
funds (S.125)

Non-financial
corporations
(S.11)

Households + non-profit institutions
serving households (S.14+S.15)

Consumer
credit

Lending
for house
purchase

Other
(residual)

C.
Rest of the world

D.
Not allocated

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

(l)

(m)

(n)

(o)

(p)

(q)

(r)

(s)

(t)

ASSETS

1

1e

2

2e

3

3e

Cash

of which euro

Loans

up to 1 year

over 1 and up to 5 years

over 5 years

of which euro

Securities other than
shares
Euro

up to 1 year

over 1 and up to 2 years

over 2 years

3x

Foreign currences
up to 1 year

over 1 and up to 2 years

over 2 years

MMF shares/units

Shares and other equity

Fixed assets

Remaining assets

4

5

6

7

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Reserve base (excluding negotiable instruments),
calculated as the sum of the following columns in Table 1
(Liabilities):
(a)–(b)+(c)+(d)+(e)+(j)–(k)+(l)+(m)+(n)+(s)

DEPOSIT LIABILITIES
(Euro and foreign currencies combined)

TOTAL DEPOSITS

9.1e + 9.1x
9.2e + 9.2x
9.3e + 9.3x
9.4e + 9.4x

of which:

9.2e + 9.2x with agreed maturity

over two years

of which:

9.3e + 9.3x redeemable at notice

Voluntary reporting

over two years

of which:

9.4e + 9.4x repos

Furthermore, depending on the national collection systems and without prejudice to full compliance with the
definitions and classification principles of the MFI balance sheet set out in 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), credit institutions subject to reserve requirements may alternatively report the
data necessary to calculate the reserve base, except those on negotiable instruments, in accordance with the table
below, provided that no bold printed positions of the previous table are affected.

Annex II to Regulation (EC) No 2423/2001 of the European Central Bank of 22 November 2001 concerning the
consolidated balance sheet of
institutions sector (ECB/2001/13) contains specific and
transitional provisions and provisions on mergers involving credit institutions in respect of the application of the
minimum reserve system.

the monetary financial

Annex II to Regulation (EC) No 2423/2001 of the European Central Bank of 22 November 2001 concerning the
consolidated balance sheet of the monetary financial
in particular,
a reporting scheme for credit institutions in the ‘tail'. Credit institutions in the tail have to report, as a minimum,
quarterly data necessary to calculate the reserve base 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.
institutions' reserve base data for three reserve maintenance periods are based on end-of-quarter data
The tail
collected by the NCBs.

institutions sector (ECB/2001/13)

includes,

The Annex also includes provisions on reporting on a consolidated basis. On receiving authorisation from the
European Central Bank, credit institutions subject to minimum reserves may carry out consolidated statistical
reporting for a group of credit institutions subject to minimum reserves within a single national territory, provided
that all the institutions concerned have renounced the benefit of any lump-sum allowance from the reserve
requirement. The benefit of
for the group as a whole. All the
institutions concerned are included separately in the ECB's list of MFIs.

the lump-sum allowance remains, however,

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Data required from small credit institutions to be provided at a quarterly frequency for minimum reserve
requirements

TABLE 1A

Reserve base calculated as the sum
of the following columns in Table 1
(Liabilities):
(a)–(b)+(c)+(d)+(e)+(j)–(k)+(l)+(m)+(n)+(s)

DEPOSIT LIABILITIES
(Euro and foreign currencies combined)

9 TOTAL DEPOSITS
9.1e + 9.1x
9.2e + 9.2x
9.3e + 9.3x
9.4e + 9.4x

of which:

9.2e + 9.2x with agreed maturity

over two years

of which:

9.3e + 9.3x redeemable at notice

Voluntary reporting

over two years

of which:

9.4e + 9.4x repos

Outstanding issues, column (t) in Table 1 Liabilities

NEGOTIABLE INSTRUMENTS
(Euro and foreign currencies combined)

11 DEPT SECURITIES ISSUED

11e + 11x with agreed maturity

up to two years

11 DEPT SECURITIES ISSUED

11e + 11x with agreed maturity

over two years

Furthermore, the Annex includes provisions to be applied in the case of mergers involving credit institutions. The
terms ‘merger',
‘merging institutions' and ‘acquiring institution' have the meaning determined in Regulation
(EC) No 1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves
(ECB/2003/9). For the maintenance period within which a merger takes effect, the reserve requirements of the
acquiring institution are calculated and have to be fulfilled as set out in Article 13 of said Regulation. For
consecutive reserve maintenance periods, the reserve requirements of the acquiring institution are calculated on the
information in accordance with specific rules (see the table in the
basis of a reserve base and of statistical
Appendix to Annex II to Regulation (EC) No 2423/2001 of the European Central Bank of 22 November 2001
concerning the consolidated balance sheet of
(ECB/2001/13)),
if applicable. Otherwise, the normal rules for the reporting of statistical information and the calculation of reserve
requirements, as set out
the European Central Bank of
12 September 2003 on the application of minimum reserves (ECB/2003/9), apply. Moreover, the relevant NCB may
authorise the acquiring institution to fulfil
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 the acquiring institution to fulfil
its reporting obligations in accordance with 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) and, if applicable, its obligation to assume the
reporting obligations of merging institutions. The acquiring institution has the obligation to inform the relevant
NCB, once the intention to merge has become public and in good time before the merger takes effect, of the
procedures that it intends to implement to fulfil its statistical reporting obligations relating to the determination of
reserve requirements.

in Article 3 of Regulation (EC) No 1745/2003 of

its obligation to report statistical

the monetary financial

institutions

sector

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6. Verification and compulsory collection

The ECB itself and the NCBs normally exercise the competence to verify and compulsorily collect statistical
information whenever minimum standards for transmission, accuracy, conceptual compliance and revisions are not
fulfilled. These minimum standards are set out in Annex IV to 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).

7. Non-participating Member States

As a regulation under Article 34.1 of the Statute does not confer any rights or impose any obligations on Member
States with a derogation (Article 43.1 of the Statute) and on Denmark (Article 2 of the Protocol on certain
provisions relating to Denmark) and is not applicable to the United Kingdom (Article 8 of the Protocol on certain
provisions relating to the United Kingdom of Great Britain and Northern Ireland), 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) is applicable only in the participating Member States.

However, Article 5 of the Statute concerning the competence of the ECB and the NCBs in the field of statistics and
Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the collection of statistical information
by the European Central Bank are applicable in all Member States. This also implies, together with Article 10
(ex Article 5) of the Treaty, an obligation on the non-participating Member States to design and implement at the
national level all the measures that they consider appropriate in order to carry out the collection of statistical
information needed to fulfil the ECB's statistical reporting requirements and the timely preparations in the field of
statistics in order for them to become participating Member States. This obligation has been made explicit in
Article 4 and Recital No 17 of Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the
information by the European Central Bank. For reasons of transparency, this special
collection of statistical
the European Central Bank of
obligation is recalled in the recitals of Regulation (EC) No 2423/2001 of
22 November 2001 concerning the consolidated balance sheet of
institutions sector
(ECB/2001/13).

the monetary financial

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ANNEX 5

The Eurosystem websites

Central bank

Website

European Central Bank

www.ecb.int

Nationale Bank van België/Banque Nationale de Belgique

www.nbb.be or www.bnb.be

Deutsche Bundesbank

Bank of Greece

Banco de España

Banque de France

www.bundesbank.de

www.bankofgreece.gr

www.bde.es

www.banque-france.fr

Central Bank and Financial Services Authority of Ireland

www.centralbank.ie

Banca d'Italia

www.bancaditalia.it

Banque centrale du Luxembourg

De Nederlandsche Bank

Oesterreichische Nationalbank

www.bcl.lu

www.dnb.nl

www.oenb.at

Banco de Portugal

www.bportugal.pt

Suomen Pankki — Finlands Bank

www.bof.fi

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Procedures and sanctions to be applied in the event of non-compliance with counterparty obligations

ANNEX 6

1.

Financial penalties

In the event of an infringement by a counterparty of tender rules (1), of bilateral transaction rules (2), of the rules
for the use of underlying assets (3), or of end-of-day procedures and access conditions for the marginal lending
facility (4), the Eurosystem shall apply financial penalties as follows:

(i)

For infringements of rules related to tender operations, bilateral transactions and the use of underlying assets,
for the first and the second infringements that occur within a 12-month period a financial penalty shall be
applied to each infringement. The financial penalties that can be applied shall be computed at the marginal
lending rate plus 2.5 percentage points.

— for infringements of rules related to tender operations and bilateral transactions, the financial penalties
shall be calculated on the basis of the amount of collateral or cash which the counterparty could not
settle, multiplied by the coefficient 7/360,

— for infringements of rules related to the use of underlying assets, the financial penalties shall be calculated
on the basis of the amount of ineligible assets (or assets that may not be used by the counterparty), 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 counterparty, multiplied by the coefficient 1/360.

(ii) The first time the rules for end-of-day procedures or for access to the marginal lending facility are infringed,
the financial penalties that can be applied shall be computed at 5 percentage points. In the event of repeated
infringements, the penalty interest rate shall be increased by a further 2.5 percentage points each time this
occurs within a 12-month period, calculated on the basis of the amount of the unauthorised access to the
marginal lending facility.

2. Non-financial penalties

The Eurosystem shall suspend a counterparty for infringements of rules related to tender operations and bilateral
transactions, and of rules for underlying assets as set out below:

(a) S u s p e n s i o n a f t e r i n f r i n g e m e n t s o f r u l e s r e l a t e d t o t e n d e r o p e r a t i o n s a n d b i l a t e r a l

t r a n s a c t i o n s

If a third infringement of the same type occurs within a 12-month period, the Eurosystem shall suspend
counterparties from the subsequent open market operation(s) of the same type and executed under the same
procedures, to be initiated during a certain period, in addition to a financial penalty calculated in accordance
with the rules outlined in Section 1. The suspension shall be applied in accordance with the following scale:

(i)

if the amount of non-delivered collateral or cash is up to 40 % of the total collateral or cash to be
delivered on the occasion of the third infringement, a suspension of one month shall be applied;

(ii)

if the amount of non-delivered collateral or cash is between 40 % and 80 % of the total collateral or cash
to be delivered on the occasion of the third infringement, a suspension of two months shall be applied;
and

(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-providing operation 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.

(2) This applies if a counterparty is unable to deliver a sufficient amount of eligible underlying assets or if it is unable to deliver a

sufficient amount of cash to settle the amount agreed in bilateral transactions.

(3) This applies if a counterparty is using assets that are or have become ineligible (or that it may not use) to secure an outstanding

credit.

(4) This applies if a counterparty has a negative balance on the settlement account at the end of the day and does not fulfil the access

conditions for the marginal lending facility.

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(iii) if the amount of non-delivered collateral or cash is between 80 % and 100 % of the total collateral or cash
to be delivered on the occasion of the third infringement, a suspension of three months shall be applied.

These financial penalties and suspension measures shall also apply, without prejudice to subsection (c) below,
to any other successive infringement during each 12-month period.

(b) S u s p e n s i o n a f t e r i n f r i n g e m e n t s o f r u l e s f o r u n d e r l y i n g a s s e t s

If a third infringement occurs within a 12-month period, the Eurosystem shall suspend the counterparty from
the subsequent open market operation, in addition to a financial penalty calculated in accordance with Section
1 above.

These financial penalties and suspension measures shall also apply, without prejudice to subsection (c) below,
to any other successive infringement during each 12-month period.

(c) S u s p e n s i o n f r o m a c c e s s t o a l l f u t u r e m o n e t a r y p o l i c y o p e r a t i o n s f o r a c e r t a i n p e r i o d

i n e x c e p t i o n a l c a s e s

In exceptional cases where required on account of the seriousness of the case(s) of non-compliance, and taking
into account in particular the amounts involved, the frequency or the duration of the cases of non-compliance,
consideration could be given, in addition to a financial penalty calculated in accordance with Section 1 above,
to the suspension of a counterparty from access to all future monetary policy operations for a period of three
months.

(d)

I n s t i t u t i o n s l o c a t e d i n o t h e r M e m b e r S t a t e s

The Eurosystem may also decide whether
the suspension measure proposed to be taken vis-à-vis the
non-compliant counterparty should also apply to branches of the same institution located in other Member
States.