Document ID: chunk:federal_register_of_legislation:F2022L01578:front:0:p13
Version: federal_register_of_legislation:F2022L01578
Segment Type: other
Provision Reference: 
Character Range: 33957–36975

credit rating grade of either three (or better) for securities issued by: ADIs, overseas banks, Australian and international local governments and corporates;
(d)          debt securities not rated by an ECAI where these securities are issued by an ADI or overseas bank as senior debt and are listed on a recognised exchange. This is subject to the condition that all rated issues of the same seniority by the issuing ADI or overseas bank have a long-term or short-term credit rating grade of at least three and the APRA covered entity holding the security has no information suggesting that the security justifies a rating below this level;
(e)          covered bonds rated by an ECAI with a credit rating grade of either three (or better);
(f)           senior securitisation exposures rated by an ECAI with a credit rating grade of one;
(g)          equities included in a major stock index; and
(h)          gold bullion.
48.         Resecuritisation exposures, irrespective of credit ratings, are not eligible collateral for margining purposes.
49.         Collateral in the form of securities issued by a counterparty to the transaction (or by any person or entity related or associated with the counterparty) is considered to have a material positive correlation with the credit quality of the counterparty and is therefore not eligible collateral for margining purposes.
50.         An APRA covered entity must have appropriate controls in place to ensure that the collateral collected does not exhibit significant wrong-way risk[19] or significant concentration risk. The controls must consider concentrations in terms of an individual issuer, issuer type and asset type.
51.         Eligible collateral that was originally posted or collected may be substituted provided that:
(a)          both parties agree to the substitution;
(b)          the substitution is made on the terms applicable to their agreement; and
(c)          the substituted eligible collateral meets all the requirements of this Prudential Standard and the value of the substituted eligible collateral, after the application of risk-sensitive haircuts, is sufficient to meet the margin requirement.

Collateral haircuts
52.         Risk-sensitive haircuts appropriately reflecting the credit, market and FX risk must be applied to the collected collateral. The risk-sensitive haircuts must be calculated using either a model approach approved by APRA or the standardised schedule set out in Attachment B to this Prudential Standard.
53.         APRA may, upon written request by an APRA covered entity, approve the use of a model approach for the calculation of risk-sensitive haircuts.[20] The model used must be subject to appropriate internal governance standards.
54.         For the model approach, an APRA covered entity must ensure that an independent review of the risk-sensitive haircut model and risk measurement system is carried out initially (i.e. at the time when model approval is sought) and then regularly as part of the