Document ID: chunk:federal_register_of_legislation:F2022C00868:reg:28:p1
Version: federal_register_of_legislation:F2022C00868
Segment Type: reg
Provision Reference: reg 28 (pt 1/2)
Character Range: 68353–71120

28  Counterparties and collateral for securities lending arrangements
 (1) For these rules, a securities lending arrangement is an arrangement under which an asset of the passport fund is transferred to another party and there is an obligation on that party to transfer that asset, or an equivalent asset, back to the passport fund.
 (2) A passport fund may enter into a securities lending arrangement only if:
 (a) the counterparty to the transaction:
 (i) is subject to prudential supervision broadly by a financial supervisory authority under the guidelines of the Basel Committee on Banking Supervision in an economy where the counterparty has a principal place of business; or
 (ii) is both:
 (A) regulated by a regulatory authority that is a member or associate member of IOSCO; and
 (B) subject to obligations relating to holding financial resources and having adequate arrangements to manage risk; and
 (b) there is an agreement between the passport fund and the counterparty to the transaction that provides that:
 (i) the counterparty will provide to the passport fund collateral by way of a transfer of asset to the passport fund free of any encumbrance, that exceeds the value of the asset transferred by the passport fund under the agreement; and
 (ii) if the current value on any business day of the collateral provided to meet the requirement under subparagraph (i) where all the collateral was tendered in cash does not exceed the fair value of the asset transferred by the passport fund under the agreement, or if the collateral tendered included money market instruments, is less than 103% of the fair value of the asset on that business day, the counterparty must provide additional collateral to the passport fund:
 (A) no later than the close of business on the next business day (shortfall payment day) in the place of the relevant office of the counterparty for the shortfall amount below 100%; and
 (B) if the collateral includes money market instruments, no later than the close of business on the business day in the place of the relevant office of the counterparty after the shortfall payment day for the excess 3%; and
 (c) where the counterparty to the transaction is a related party to the operator—there are adequate arrangements in place to manage potential conflicts of interest; and
 (d) the operator has assessed that the risk of loss from the counterparty not meeting its obligations to the passport fund under the arrangement or arrangements with the counterparty that include the arrangement, having regard to the counterparty, the collateral, the terms of the arrangement and any other relevant matter, is very low and recorded this assessment in writing.
 (3) Any collateral relied on by the passport fund to satisfy subsection