Regulation of the Banque centrale du Luxembourg 2013/No. 15 of 3 May 2013 implementing ECB Guideline ECB/2013/4 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility

BANQUE CENTRALE DU LUXEMBOURG
Regulation of the Banque centrale du Luxembourg 2013/No. 15 of 3 May 2013 implementing the European Central Bank Guideline of 20 March 2013 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility and amending Guideline ECB/2007/9 (recast) (ECB/2013/4) The Directorate of the Banque centrale du Luxembourg; Having regard to the Treaty on the Functioning of the European Union, and in particular Article 127(2), first indent; Having regard to the Statute of the European System of Central Banks and of the European Central Bank, and in particular Articles 3.1, first indent, and Articles 12.1, 14.3 and 18.2; Having regard to Article 108bis of the Constitution; Having regard to the Law of 23 December 1998 on the monetary status and the Banque centrale du Luxembourg (hereinafter the 'Central Bank'), as amended, in particular Articles 2(1), 2(2) and 34(1); Whereas the European Central Bank Guideline of 2 August 2012 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility and amending Guideline ECB/2007/9 (ECB/2012/18) 1 has been substantially amended on several occasions. Insofar as further amendments were to be made, Guideline ECB/2012/18 was recast in the interest of clarity. Whereas, under Article 18.1 of the Statute of the European System of Central Banks and of the European Central Bank, the European Central Bank (ECB) and the national central banks of the Member States whose currency is the euro (hereinafter the 'NCBs') may conduct credit operations with credit institutions and other market participants on the basis of appropriate collateral for the loans. The general conditions under which the ECB and the NCBs are willing to conduct credit operations, including the criteria determining the eligibility of collateral for Eurosystem credit operations, are set out in Annex I to Guideline ECB/2011/14 of 20 September 2011 concerning the instruments and procedures of monetary policy of the Eurosystem 2. Whereas, on 8 December 2011 and 20 June 2012, the Governing Council of the ECB decided to take additional measures for enhanced credit support in order to support the provision of bank credit and liquidity on the euro area money market; this includes in particular the measures defined in Decision ECB/2011/25 of 14 December 2011 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility 3. Whereas Decision ECB/2012/4 of 21 March 2012 amending Decision ECB/2011/25 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility 4 provided that the NCBs should not be required to accept as collateral for Eurosystem credit operations eligible bank bonds guaranteed by a Member State subject to an European Union/International Monetary Fund programme, or by a Member State whose rating does not meet the Eurosystem reference for the definition of its high credit quality standard. Whereas
Decision ECB/2012/12 of 3 July 2012 amending Decision ECB/2011/25 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility 5 also reviewed the derogation from the prohibition of close links provided for in Section 6.2.3.2 of Annex I to Guideline ECB/2011/14 regarding bank bonds guaranteed by a State which are issued by the counterparties and used as collateral for their own use. Whereas counterparties participating in Eurosystem credit operations should be able to increase the amounts of State-guaranteed bank bonds for their own use, which they had on 3 July 2012, subject to prior approval by the Governing Council in exceptional circumstances. Applications submitted to the Governing Council of the ECB for prior approval must be accompanied by a financing plan.

1 OJ L 218, 15.8.2012, p. 20.

Whereas on 2 August 2012, Decision ECB/2011/25 was replaced by Guideline ECB/2012/18, which was transposed by the NCBs within the framework of their contractual or regulatory provisions.
Whereas Guideline ECB/2012/18 was amended on 10 October 2012 by Guideline ECB/2012/23 6, which temporarily relaxed the asset eligibility criteria to be used as collateral in the context of Eurosystem monetary policy operations, by accepting that negotiable instruments denominated in sterling, yen or US dollars constitute eligible assets for the purposes of operations. A haircut reflecting the historical volatility of the relevant exchange rates was applied to these negotiable instruments. Whereas Guideline ECB/2013/2 of 23 January 2013 amending Guideline ECB/2012/18 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility 7 clarifies the procedure applicable to the early repayment by counterparties of longer-term refinancing operations in order to ensure that the same conditions are applied by all NCBs. In particular, the sanction mechanism provided for in Appendix 6 of Annex I to Guideline ECB/2011/14 applies when a counterparty that has chosen early repayment does not pay the full or part of the amount to be repaid to the relevant NCB at the due date. Whereas Guideline ECB/2012/18 also had to be amended in order to incorporate the content of Decision ECB/2012/34 of 19 December 2012 on temporary amendments to the rules applicable to the eligibility of collateral denominated in foreign currencies 8 and in order to ensure that the NCBs are not required to accept as collateral for Eurosystem credit operations eligible unsecured bank bonds which are: a) issued by the counterparties using them or by entities closely linked to the counterparties; and b) fully guaranteed by a Member State that does not have the high credit quality standard of the Eurosystem and which the Governing Council of the ECB considers to be complying with a European Union/International Monetary Fund programme. Whereas, for reasons of clarity, consistency and simplification, the text of Guideline ECB/2013/4 9 gathered the content of Decision ECB/2011/4 of 31 March 2011 on temporary measures concerning the eligibility of negotiable instruments issued or guaranteed by the Irish Government 10, of Decision

2 OJ L 331, 14.12.2011, p. 1.
3 OJ L 341, 22.12.2011, p. 65.
4 OJ L 91, 29.3.2012, p. 27.
5 OJ L 186, 14.7.2012, p. 38.

6 OJ L 284, 17.10.2012, p. 14.
7 OJ L 34, 5.2.2013, p. 18.
8 OJ L 14, 18.1.2013, p. 22.
9 OJ L95, 5.4.2013, p. 23.
10 OJ L 94, 8.4.2011, p. 33.

ECB/2011/10 of 7 July 2011 on temporary measures concerning the eligibility of negotiable instruments issued or guaranteed by the Portuguese Government 11, and of Decision ECB/2012/32 of 19 December 2012 on temporary measures concerning the eligibility of negotiable instruments issued or fully guaranteed by the Hellenic Republic 12, as well as all other temporary measures concerning Eurosystem refinancing operations and collateral eligibility. Whereas the additional measures set out in Guideline ECB/2013/4 should apply temporarily, until the Governing Council of the ECB considers that they are no longer necessary to ensure the proper functioning of the monetary policy transmission mechanism. Whereas the implementation of Guideline ECB/2013/4 by the Central Bank implies that Regulations of the Central Bank 2012/No. 12 of 12 September 2012 implementing the European Central Bank Guideline ECB/2012/18 of 2 August 2012, Regulation 2012/No. 13 of 9 November 2012 implementing the European Central Bank Guideline ECB/2012/23 of 10 October 2012 and Regulation 2013/No. 14 of 7 March 2013 implementing the European Central Bank Guideline ECB/2013/2 of 23 January 2013, are repealed and replaced by the following Regulation.

11 OJ L 182, 12.7.2011, p. 31.
12 OJ L 359, 29.12.2012, p. 74.

Article 1. Additional measures concerning refinancing operations and eligible collateral

1. The rules applicable to the conduct of Eurosystem monetary policy operations and the collateral eligibility criteria provided for in this Regulation apply in conjunction with the General Conditions of the Central Bank's operations.
2. In the event of a discrepancy between this Regulation and the General Conditions of the Central Bank's operations, this Regulation shall prevail. The provisions of the General Conditions of the Central Bank's operations apply without modification, unless otherwise provided for in this Regulation.
3. For the purposes of Article 5(1) and Article 7, Ireland, the Hellenic Republic and the Portuguese Republic are considered to be Member States of the euro area complying with a European Union/International Monetary Fund programme.

Article 2. Option to reduce the amount of longer-term refinancing operations or to terminate them

1. The Eurosystem may decide that, under certain conditions, counterparties may, before maturity, reduce the amount of certain longer-term refinancing operations or terminate them (this reduction in amount or termination is hereinafter also collectively referred to as 'early repayment'). The announcement of the tender specifies whether the option to reduce the amount of the operations in question or to terminate them before maturity applies, as well as the date from which this option may be exercised. This information may also be provided in another form that the Eurosystem considers adequate.
2. A counterparty may exercise the option to reduce the amount of longer-term refinancing operations or to terminate them before maturity by notifying the Central Bank of the amount it intends to repay under the early repayment procedure, as well as the date on which it intends to make this early repayment, at least one week before the date of this early repayment. Unless otherwise specified by the Eurosystem, an early repayment may be made on any day coinciding with the settlement day of a Eurosystem main refinancing operation, provided that the counterparty makes the notification referred to in this paragraph at least one week before that date.
3. The notification referred to in paragraph 2 becomes binding on the counterparty one week before the early repayment date to which it refers. Failure by a counterparty to pay the full or part of the amount due under the early repayment procedure at the fixed due date may result in the imposition of a pecuniary sanction as provided for in Section 5.7.1 of Annex 8 of the General Conditions of the Central Bank's operations. The provisions of Section 5.7.1 of Annex 8 which apply in the event of failure to comply with the rules relating to tender operations apply when a counterparty does not pay the full or part of the amount due on the early repayment date referred to in paragraph 2. The imposition of a pecuniary sanction is without prejudice to the right of the Central Bank to exercise the remedies provided for in the event of a default as provided for in the General Conditions of the Central Bank's operations.

Article 3. Admission of certain other asset-backed securities

1. In addition to asset-backed securities eligible under Chapter 4 of Annex 8 of the General Conditions of the Central Bank's operations 13, asset-backed securities which do not meet the credit rating requirements set out in Section 4.5.2 of Annex 8 of the General Conditions of the Central Bank's operations 14, but otherwise meet all other eligibility criteria applicable to asset-backed securities under the General Conditions of the Central Bank's operations 15, are eligible assets admitted as collateral for the purposes of Eurosystem monetary policy operations, subject to having at least two ratings equal to or higher than 'BBB' 16 at issuance and at any time thereafter. They also meet all of the following requirements:
   a) the assets generating the cash flows to which the securities are backed belong to one of the following categories of assets: i) mortgage loans; ii) loans to small and medium-sized enterprises (SMEs); iii) commercial real estate loans; iv) car loans; v) hire-purchase and vi) consumer credit; b) there is no mixing of assets from different categories within the assets generating the cash flows; c) the assets generating the cash flows to which the securities are backed do not contain loans which:
   i) are non-performing at the time of issuance of the asset-backed securities; ii) become non-performing when they are included in the asset-backed securities during the life of the securities, for example on the occasion of a substitution or replacement of the assets generating the cash flows; iii) at any time, are structured, syndicated or leveraged loans; d) the documents concerning the asset-backed securities transaction provide for provisions relating to service continuity.

13 Chapter 6 of Annex I to Guideline ECB/2011/14.
14 Section 6.3.2 of Annex I to Guideline ECB/2011/14.
15 Guideline ECB/2011/14.
16 A 'BBB' rating corresponds to a rating of at least 'Baa3' according to Moody's, 'BBB-' according to Fitch or Standard & Poor's or a rating equal to 'BBB' according to DBRS.

2. The asset-backed securities referred to in paragraph 1 which have at least two ratings equal to or higher than 'A' 17 are subject to a haircut of 16%.
3. The asset-backed securities referred to in paragraph 1 which do not have at least two ratings equal to or higher than 'A' are subject to the following haircuts: a) asset-backed securities guaranteed by commercial real estate loans are subject to a haircut of 32%; and b) all other asset-backed securities are subject to a haircut of 26%.
4. A counterparty may not offer as collateral asset-backed securities eligible under paragraph 1 if the counterparty, or any third party with which it has close links, acts as a provider of interest rate risk hedging in relation to the asset-backed securities.
5. The Central Bank may accept as collateral for Eurosystem monetary policy operations asset-backed securities, the underlying assets of which comprise either mortgage loans or loans to small and medium-sized enterprises (SMEs), or both, and which do not meet the credit rating requirements set out in Section 4.5.2 of Annex 8 of the General Conditions of the Central Bank's operations 18 nor the requirements referred to in paragraph 1, points a) to d), and paragraph 4 above, but which otherwise meet all eligibility criteria applicable to asset-backed securities under the General Conditions of the Central Bank's operations 19 and have at least two ratings equal to or higher than 'BBB'. Only asset-backed securities issued before 20 June 2012 are concerned, which are subject to a haircut of 32%.
6. For the purposes of this Article, the following definitions apply:

1. 'mortgage loan': in addition to loans backed by mortgage loans, residential real estate loans secured (without a mortgage) where the security gives rise to a quick payment after default. These securities may be provided in different contractual configurations, including insurance contracts, provided they are granted by a public sector entity or a financial institution subject to public control. The credit rating of the guarantor for the purposes of this guarantee must correspond to credit quality step 3 in the Eurosystem harmonised rating scale, for the life of the operation;
2. 'small enterprise' and 'medium-sized enterprise': any entity carrying out an economic activity, regardless of the legal status of that entity, when the declared turnover for the entity, or when the entity is part of a consolidated group, for the consolidated group, is less than EUR 50,000,000;

17 An 'A' rating corresponds to a rating of at least 'A3' according to Moody's, 'A-' according to Fitch or Standard & Poor's or a rating equal to 'A' according to DBRS.
18 See supra, note 14.
19 See supra, note 15.

3. 'non-performing loans': loans where the repayment of interest or principal is overdue by more than 90 days and the debtor is in default, as defined in Annex VII to Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 on the taking up and pursuit of the business of credit institutions 20, or loans where there are good grounds to doubt that they will be fully repaid;
4. 'structured loan': a structure involving subordinated private claims;
5. 'syndicated loan': a loan granted by a group of lenders grouped within a banking syndicate;
6. 'leveraged loan': a loan granted to a company already having a considerable level of indebtedness, for example to finance a buyout or takeover, which is used to acquire the share capital of a company which is also a debtor of the loan;
7. 'debt service continuity provisions': the provisions contained in the legal documentation concerning an asset-backed security, which guarantee that the failure of the management body does not lead to the stoppage of debt service, which trigger the appointment of a backup management body and which contain a high-level action plan indicating the operational measures to be implemented once the backup management body is appointed as well as how the management of the loans should be transferred.

Article 4. Admission of certain other private claims

1. The NCBs may accept as collateral for Eurosystem monetary policy operations private claims which do not meet the Eurosystem eligibility criteria.
2. The NCBs which decide to accept private claims in accordance with paragraph 1 determine the eligibility criteria and risk control measures for this purpose, specifying the points on which derogation is made from the requirements set out in Annex I to Guideline ECB/2011/14. These eligibility criteria and risk control measures include the criterion that private claims are governed by the law of the Member States of the NCBs establishing the eligibility criteria and risk control measures. The eligibility criteria and risk control measures are subject to prior approval by the Governing Council.
3. In exceptional circumstances, the NCBs may, subject to prior approval by the Governing Council, accept private claims: a) under the eligibility criteria and risk control measures established by another NCB pursuant to paragraphs 1 and 2; or b) governed by the law of a Member State other than the Member State in which the accepting NCB is established.
4. Another NCB provides support to an NCB accepting private claims pursuant to paragraph 1 only in the event of a bilateral agreement concluded between the two NCBs and subject to prior approval by the Governing Council.

Article 5. Acceptance of State-guaranteed bank bonds

1. The Central Bank is not required to accept as collateral for Eurosystem credit operations eligible unsecured bank bonds which: a) do not meet the Eurosystem high credit quality standard requirements; b) are issued by the counterparty using them or by entities closely linked to the counterparty; and c) are fully guaranteed by a Member State: i) whose rating does not meet the Eurosystem high credit quality standard requirements for issuers and guarantors of negotiable assets in accordance with Sections 4.5.1 and 4.5.2 of Annex 8 of the General Conditions of the Central Bank's operations 21; and ii) which complies with a European Union/International Monetary Fund programme, as assessed by the Governing Council of the ECB.
2. When the Central Bank decides not to accept as collateral the securities described in paragraph 1, it informs the Governing Council of the ECB.
3. Counterparties may not offer as collateral for Eurosystem monetary policy operations unsecured bank bonds, issued by themselves or by entities having close links, and guaranteed by a public sector entity of the European Economic Area authorised to levy taxes for an amount exceeding the nominal value of these bonds already presented as collateral on 3 July 2012.
4. In exceptional cases, the Governing Council of the ECB may decide to derogate from the temporary provisions provided for in paragraph 3, for a maximum period of three years. The application for derogation must be accompanied by a financing plan indicating the steps planned for the phasing out of the own use, by the requesting counterparty, of State-guaranteed unsecured bank bonds, at the latest within three years following the granting of the derogation. Any derogation granted since 3 July 2012 continues to apply until the time of its review.

Article 6. Admission of certain assets denominated in sterling, Japanese yen, US dollars, as eligible collateral

20 OJ L 177, 30.6.2006, p. 1.
21 Sections 6.3.1 and 6.3.2 of Annex I to Guideline ECB/2011/14.

1. Negotiable instruments described in section 4.1.1 of Annex 8 of the General Conditions of the Central Bank operations 22, if denominated in sterling, yen, or US dollars, constitute eligible collateral for Eurosystem monetary policy operations, provided that: a) they are issued and held/settled in the euro area, b) the issuer is established in the European Economic Area, and c) they meet all other eligibility criteria set out in section 4.1.1 of Annex 8 of the General Conditions of the Central Bank operations.

2. The Eurosystem applies the following haircuts to these negotiable instruments: a) a haircut of 16% for assets denominated in sterling or US dollars, and b) a haircut of 26% for assets denominated in yen.

3. Negotiable instruments described in paragraph 1, with coupons indexed to a single money market rate in the currency in which the instruments are denominated, or indexed to an inflation index that does not contain complex structures such as those where coupons are defined as in the case of exotic options ("discrete range", "range accrual", "ratchet") or other complex structures, for the country concerned, also constitute eligible collateral for Eurosystem monetary policy operations.

4. The ECB may publish on its website at the following address: www.ecb.europa.eu a list of other acceptable foreign currency reference interest rates, in addition to those referred to in paragraph 3, after approval by the Governing Council.

5. Only Articles 1, 3, 5, 6 and 8 of this Regulation apply to negotiable assets denominated in foreign currency.

Article 7. Suspension of credit quality threshold requirements for certain negotiable instruments

1. The Eurosystem's minimum requirements for credit quality thresholds, as specified by the rules of the Eurosystem credit assessment framework applicable to negotiable assets in section 5.3.2 of Annex 8 of the General Conditions of the Central Bank operations 23, are suspended in accordance with paragraph 2.

2. The Eurosystem's credit quality threshold does not apply to negotiable instruments issued or fully guaranteed by the central administrations of member states of the zone subject to an European Union/International Monetary Fund program, unless the Governing Council decides that the member state concerned does not comply with the conditions prescribed for financial support and/or the macroeconomic program.

3. Negotiable instruments issued or fully guaranteed by the central administration of the Hellenic Republic are subject to specific haircuts provided for in Annex I of this Regulation.

Article 8. Entry into force and application

1. This Regulation shall enter into force on the day of its publication, 3 May 2013.

2. Article 5 shall apply until 28 February 2015.

Article 9. Repeal

The Central Bank Regulations 2012/N° 12 of 12 September 2012 implementing the European Central Bank Guideline of 2 August 2012 (ECB/2012/18), Regulation 2012/N° 13 of 9 November 2012 implementing the European Central Bank Guideline of 10 October 2012 (ECB/2012/23) and Regulation 2013/N° 14 of 7 March 2013 implementing the European Central Bank Guideline of 23 January 2013 (ECB/2013/2) are repealed with effect from 3 May 2013.

Art. 10. Publication

This Regulation is published in the Mémorial and on the website of the Central Bank (www.bcl.lu).

CENTRAL BANK OF LUXEMBOURG
The Management

ANNEX I
Table of haircuts applicable to negotiable instruments issued or fully guaranteed by the Hellenic Republic

Maturity Band | Haircuts applicable to fixed coupons and instruments with variable rates | Haircuts applicable to zero coupons --- | --- | --- 0-1 | 15.0 | 15.0 1-3 | 33.0 | 35.5 3-5 | 45.0 | 48.5 5-7 | 54.0 | 58.5 7-10 | 56.0 | 62.0

10 | 57.0 | 71.0

Greek Government Bonds (GGB)

Maturity Band | Haircuts applicable to fixed coupons and instruments with variable rates | Haircuts applicable to zero coupons --- | --- | --- 0-1 | 23.0 | 23.0 1-3 | 42.5 | 45.0 3-5 | 55.5 | 59.0 5-7 | 64.5 | 69.5 7-10 | 67.0 | 72.5

10 | 67.5 | 81.0

State-Guaranteed Bank Bonds (GGBB) and private non-financial bonds guaranteed by the State

ANNEX II
REPEALED REGULATIONS

Regulation BCL 2012/N° 12 of 12 September 2012 implementing the European Central Bank Guideline ECB/2012/18 of 2 August 2012

Regulation BCL 2012/N° 13 of 9 November 2012 implementing the European Central Bank Guideline ECB/2012/23 of 10 October 2012

Regulation 2013/N° 14 of 7 March 2013 implementing the European Central Bank Guideline ECB/2013/2 of 23 January 2013