Haircuts on collateral value of securities
Clearstream Banking1 would like to inform customers that effective
31 July 2020
the European Central Bank (ECB)2 Haircut Floor-rule will be extended and cause changes to the haircut applied to securities that are designed as collateral by customers. Please also refer to Announcement A19115.
The haircuts of other central banks will be used as floors by Clearstream Banking to assign a haircut to securities flagged as collateral. Clearstream Banking’s haircuts are already largely compliant with this rule but in some cases collateral haircuts may be increased.
For any collateral securities that are ineligible to the European Central Bank, the haircut calculated by the Clearstream Banking collateral management system must be compared against the haircut assigned by the central bank issuing the currency in which the security is denominated.
Clearstream Banking will apply this comparison check for all major central banks:
- United States Federal Reserve (FED);
- Bank of England (BoE); and
- Bank of Japan (BoJ).
As these central banks do not offer explicit ISIN-based lists with eligible collateral securities and haircuts, the list of securities potentially eligible to those central banks as well as central banks’ haircuts will be derived based on the rules published on the central banks’ websites.
The remaining instruments will be subject to an internal haircut floor.
The internal haircut floor will be calibrated based on price shortfall measures for different instrument type classes.
For further information, customers may contact Clearstream Banking Client Services or their Relationship Officer.
1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking AG customers using Creation Accounts), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.
2. CSDR Regulation introduces requirements which a CSD-banking service provider has to follow when setting haircuts on securities accepted as collateral. In particular, Article 13.1 of Commission Delegation Regulation (EU) 2017/390 states: “A CSD-banking service provider shall set the level of haircuts as follows:
(a) where collateral is eligible at the central bank to which the CSD-banking service provider has access to routine credit, the haircuts applied to that type of collateral by the central bank may be considered as the minimum haircut floor; (European Central Bank Floor-rule was already implemented since 19 November 2020).
(b) where collateral is not eligible at the central bank to which the CSD-banking service provider has access to routine credit, the haircuts applied by the central bank issuing the currency in which the financial instrument is denominated shall be considered as the minimum haircut floor." (scope of this announcement)