Commission Delegated Regulation (EU) 2017/390Show full title

Article 35 U.K. Managing intraday liquidity risk

1. For each currency of any of the securities settlement systems for which it acts as settlement agent, the CSD-banking service provider shall:

(a) estimate the intraday liquidity inflows and outflows for all the banking-type ancillary services provided;

(b) anticipate the intraday timing of those flows;

(c) forecast the intraday liquidity needs that may arise at different periods during the day.

2. For each currency of any of the securities settlement systems for which it acts as settlement agent, the CSD-banking service provider shall:

(a) arrange to acquire sufficient intraday funding to meet its intraday objectives as they result from the analysis referred to in paragraph 1;

(b) manage and be ready to convert into cash the collateral necessary to obtain intraday funds in stress situations, taking into account haircuts in accordance with Article 13 and concentration limits in accordance with Article 14;

(c) manage the timing of its liquidity outflows in line with its intraday objectives;

(d) have arrangements in place to deal with unexpected disruptions to its intraday liquidity flows.

3. For the purpose of meeting its minimum qualifying liquid resource requirement, a CSD-banking service provider shall identify and manage the risks to which it would be exposed following the default of at least two participants, including their parent undertaking and subsidiaries, to which it has the largest liquidity exposure.

4. For the risk of unexpected disruptions to its intraday liquidity flows, referred to in paragraph 2(d), the CSD-banking service provider shall specify extreme but plausible scenarios, including those identified in Article 36(7) where relevant, and based at least on one of the following:

(a) a range of historical scenarios, including periods of extreme market movements observed over the past 30 years, or as long as reliable data have been available, that would have exposed the CSD-banking service provider to the greatest financial risk, unless the CSD-banking service provider proves that recurrence of a historical instance of large price movements is not plausible;

(b) a range of potential future scenarios that fulfil the following conditions:

(i)

they are founded on consistent assumptions regarding market volatility and price correlation across markets and financial instruments;

(ii)

they are based on both quantitative and qualitative assessments of potential market conditions, including disruptions and dislocations or irregularities of accessibility to markets, as well as declines in the liquidation value of collateral, and reduced market liquidity where non-cash assets have been accepted as collateral.

5. For the purposes of paragraph 2, the CSD-banking service provider shall also take into account the following:

(a) the design and operations of the CSD-banking service provider, including in relation to the entities referred to in Article 30(2) and linked financial markets infrastructures or other entities that may pose material liquidity risk to the CSD-banking service provider, and, where applicable, cover a multiday period;

(b) any strong relationships or similar exposures between the participants of the CSD-banking service provider, including between the participants and their parent undertaking and subsidiaries;

(c) an assessment of the probability of multiple defaults of participants and the effects among the participants that such defaults may cause;

(d) the impact of multiple defaults referred to in point (c) on the CSD-banking service provider's cash-flows and on its counterbalancing capacity and survival horizon;

(e) whether the modelling reflects the different impacts that an economic stress may have both on the CSD-banking service provider's assets and its liquidity inflows and outflows.

6. The set of historical and hypothetical scenarios used to identify extreme but plausible market conditions shall be reviewed by the CSD-banking service provider, and, where relevant in consultation with the risk committee of the CSD, at least annually. Such scenarios shall be reviewed more frequently where market developments or the operations of the CSD-banking service provider affect the assumptions underlying the scenarios in a way that requires adjustments to such scenarios.

7. The liquidity risk framework shall consider, quantitatively and qualitatively, the extent to which extreme price movements in the collateral or assets could occur simultaneously in multiple identified markets. The framework shall recognise that historical price correlations may no longer be applicable in extreme but plausible market conditions. A CSD-banking service provider shall also take into account any of its external dependencies in its stress testing, referred to in this Article.

8. The CSD-banking service provider shall identify how the intraday monitoring metrics referred to in Article 30(1) are used to calculate the appropriate value of intraday funding required. It shall develop an internal framework to assess a prudent value of liquid assets which are deemed sufficient for its intraday exposure, including, in particular, all of the following:

(a) the timely monitoring of liquid assets, including the quality of the assets, their concentration and their immediate availability;

(b) appropriate policy on monitoring market conditions that can affect the liquidity of the intraday qualifying liquid resources;

(c) the value of the intraday qualifying liquid resources, valued and calibrated under stressed market conditions, including the scenarios referred to in Article 36(7).

9. The CSD-banking service provider shall ensure that its liquid assets are under the control of a specific liquidity management function.

10. The liquidity risk framework of the CSD-banking service provider shall include 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.

11. The requirements of this Article regarding the liquidity risk framework of the CSD-banking service provider shall apply also to cross-border and cross-currency exposures where relevant.

12. The CSD-banking service provider shall review the procedures referred to in paragraphs 2, 3 and 11 at least annually, taking into account all relevant market developments as well as the scale and concentration of exposures.