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  1. Home
  2. Single Rulebook Q&A
  3. 2018_4312 Definition of available cash for the purpose of determining intraday qualifying liquid resources in accordance with Regulation (EU) 2017/390 Art. 34(b)
Question ID
2018_4312
Legal act
Regulation (EU) No 909/2014 (CSDR) - only RTS 2017/390
Topic
Market infrastructures
Article
59
Paragraph
4
Subparagraph
(d)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) 2017/390 - RTS on prudential requirements of CSDs (CSDR-related)
Article/Paragraph
Art. 34, paragraph (b)
Name of institution / submitter
CSSF
Country of incorporation / residence
Luxembourg
Type of submitter
Competent authority
Subject matter
Definition of available cash for the purpose of determining intraday qualifying liquid resources in accordance with Regulation (EU) 2017/390 Art. 34(b)
Question

For the purpose of determining intraday qualifying liquid resources according to Regulation (EU) 2017/390 Art. 34, to what extent does “available cash” mentioned in Art. 34(b) include balances on nostro accounts held “at one of the creditworthy financial institutions identified in Article 38(1)”?

Background on the question

CSD customers (participants in the securities settlement system) generally hold cash on their accounts with the CSD-banking service provider for settlement purposes, which the CSD-banking service provider holds on nostro accounts to effect settlement payments. It is unclear to what extent the definition of available cash according to Regulation (EU) 2017/390 Art. 34(b) includes all balances held by the CSD-banking service provider on nostro accounts at creditworthy financial institutions, or if further restrictions apply regarding their availability under a wide range of potential stress scenarios including with regard to meeting the minimum qualifying liquid resource requirement in Regulation (EU) 2017/390 Article 35(3). Several provisions seem to suggest that nostro account balances that are held by the CSD-banking service provider to effect intraday settlement related payments or to meet intraday withdrawals of cash by customers are not considered reliably available: Regulation (EU) No 909/2014 Art. 59(4)(c) requires a CSD-banking service provider to have sufficient liquid resources in all relevant currencies for a timely provision of settlement services under a wide range of potential stress scenarios. Such provision seems to suggest that liquid resources which may be withdrawn under stress on an intraday basis are not considered a source of contingent funds during stress periods. Regulation (EU) 2017/390 Art. 36(2) requires the CSD-banking service provider to ensure, at least through rigorous due diligence and stress testing that each liquidity provider of its minimum required qualifying liquid resources established in accordance with Article 34, has sufficient information to understand and manage its associated liquidity risk. In addition, Regulation (EU) 2017/390 Art. 35(10) requires the CSD-banking service provider to include appropriate governance arrangements in its liquidity risk framework relating to the amount and form of total qualifying liquid resources. Such provisions seem to exclude cash provided by customers for settlement purposes. Regulation (EU) 2017/390 Article 35(10) requires “appropriate governance arrangements relating to the amount and form of total qualifying liquid resources that the CSD-banking service provider maintains, as well as relevant adequate documentation and, in particular one of the following: (a) placement of its liquid assets in a separate account under the direct management of the liquidity management function, which may only be used as a source of contingent funds during stress periods; (b) establishment of internal systems and controls to give the liquidity management function effective operational control to carry out both of the following: (i) convert into cash the holdings of liquid assets at any point in the stress period; (ii) access the contingent funds without directly conflicting with any existing business or risk management strategies, so that no assets are included in the liquidity buffer where their sale without replacement throughout the stress period would create an open risk position in excess of the internal limits of the CSD-banking service provider; (c) a combination of the requirements set out in points (a) and (b), where such a combination ensures a comparable result.”. Such provisions, in particular point (a) and (b) (ii) seem to exclude the reliance on funds that may be used for a different purpose than liquidity risk management.

Submission date
08/10/2018
Rejected publishing date
11/02/2022
Rationale for rejection

Please note that as part of adjustments to the Single Rulebook Q&A process, agreed by the EBA and the European Commission, it has been decided to reject outstanding questions submitted before 1 January 2020, when the Q&A process was updated as part of the last ESAs Review. In particular, the question that you have submitted has now regrettably been rejected and will not be addressed.

If you believe your question would still benefit from clarification, you are invited to resubmit your question, adapting it to reflect any legislative, regulatory or other relevant developments that may have occurred since the initial date of submission. The EBA will aim to address resubmitted questions as a matter of priority. When considering to resubmit, you are kindly requested to observe the updated admissibility criteria agreed in the context of the adjustment of the Q&A process, available in the Additional background and guidance for asking questions. We hope for your understanding.

For further information please refer to the press release and the updated Q&A page.

Status
Rejected question

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