Instruction No. 16/2020: Implementation of Monetary Policy – Additional Temporary Measures — BDP — PT

Instruction No. 16/2020
Official Gazette No. 6/2020 2nd Supplement • 2020/06/23
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Topics
Markets :: Money Markets
Mod. 99999940/T – 01/14
Index
Instruction Text
Instruction Text
Subject: Implementation of monetary policy – Additional temporary measures On June 8, 2020, the ECB Governing Council, following its decision of April 7, 2020, on a package of temporary collateral easing measures, approved a third set (third wave) of changes to additional credit claims. With regard to the Banco de Portugal, it approved the acceptance, until December 31, 2020, of a new mechanism to mitigate set-off risk, with the application of an additional haircut of 8%, and the use of an extension to the Banco de Portugal's Internal Credit Assessment System (SIAC) for a credit quality assessment of non-financial companies carried out through a statistical process, without analyst intervention, as a new source of credit assessment for individual credit claims, additional short-term debt instruments and portfolios of corporate credit claims, and the acceptance of Full ICAS for portfolios of credit claims. Thus, in the exercise of the competence attributed to it by Articles 12, 15, 16, and 24 of its Organic Law, approved by Law No. 5/98, of January 31, in its current version, the Banco de Portugal determines the following:
Instruction No. 7/2012 (Official Gazette No. 3, of 15-03-2012) is amended as follows:
1. The structure of the body of the Instruction is changed to comprise VIII Parts and 25 articles, for reasons of simplification and harmonization with Instruction 3/2015. The Annexes maintain the references contained in the current Instruction, without any alteration.
2. In Article 2, two new paragraphs, 5 and 6, are added, which read as follows:
5. Counterparties that, since January 1, 2020, have not mobilized credit claims may, from June 23, 2020, mobilize additional credit claims that do not comply with the provisions of paragraph 3a of Article 104 of Instruction 3/2015, which establishes the waiver of the right of set-off, provided that they comply with all other eligibility requirements and were originated before July 23, 2020.
6. The provisions of paragraph 5 of this article apply until December 31, 2020.

Instruction No. 16/2020 Official Gazette No. 6/2020 2nd Supplement • 2020/06/23 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14
3. Article 3 is amended to read as follows:
1. The BdP accepts that Eurosystem credit operations are collateralized by individual credit claims which, fulfilling the remaining Eurosystem eligibility requirements, satisfy a minimum credit quality assessment corresponding to a probability of default (PD), for a 1-year horizon, not exceeding 1.5%.
2. Also admitted as collateral assets are individual credit claims that comply with paragraph 1 of this article, have been granted within the scope of economic support lines - COVID 19, and benefit from a guarantee. For the guarantee to be eligible, it must cover up to 80% or 90% of the capital, must be issued by a Mutual Guarantee Society and 100% counter-guaranteed by the Mutual Counter-Guarantee Fund. The guarantee does not require legal confirmation regarding its legal validity, binding effect, and enforceability. It must also comply with the remaining requirements of Instruction No. 3/2015, namely Article 114. For the purpose of valuing credit claims, only the guaranteed amount is considered.
3. The BdP accepts that, for the credit quality assessment of additional individual credit claims, the credit assessment sources provided for in Article 119 of Instruction No. 3/2015 are complemented by an extension to the Banco de Portugal's Internal Credit Assessment System (SIAC), to a credit quality assessment of non-financial companies carried out through a statistical process, without analyst intervention.
4. Revoked.
4. In Article 4, paragraph 5 is added, which reads as follows:
5. Additional individual credit claims eligible under paragraph 5 of Article 2 have an additional 8 p.p. to the valuation margins established in this article.
5. In Article 8, paragraph 5 is added, which reads as follows:
5. Portfolios of additional credit claims that have eligible credit claims under paragraph 5 of Article 2 have an additional 8 p.p. to the valuation margins established in this article.
6. Article 9 is amended to read as follows:
Portfolios of credit claims may be mobilized:
a) Using an internal ratings-based approach (IRB method), authorized by the BdP, under Article 14 of Decree-Law No. 104/2007, of April 3, or authorized by the supervisory authority of origin, in the case of branches of financial institutions headquartered in another European Union (EU) Member State:

Instruction No. 16/2020 Official Gazette No. 6/2020 2nd Supplement • 2020/06/23 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14
i. Counterparties must use, for each of the credit claims included in the credit claim portfolios, the probabilities of default (Probability of Default – PD) for a 1-year horizon and the loss given default (Loss Given Default – LGD) from the IRB method.
ii. If the Counterparties are branches of financial institutions headquartered in another EU Member State, confirmation from the supervisory authority of the country of origin is required that the authorization granted for the use of the IRB method includes the rating systems implemented by the said branches.
iii. These systems must also comply with the requirements set out in the Eurosystem Credit Assessment Framework (ECAF), established in Part IV of BdP Instruction No. 3/2015.
iv. IRB systems accepted after June 1, 2020, are temporarily exempt from obtaining ECAF approval established in Article 122 of Instruction No. 3/2015.
b) Using the BdP's SIAC, including the extension mentioned in paragraph 3 of Article 3 of this Instruction:
i. The Banco de Portugal applies, to each of the credit claims included in the credit claim portfolios, the probabilities of default (Probability of Default – PD) for a 1-year horizon assigned by SIAC and a value of 60% for the loss given default (Loss Given Default – LGD).
7. In Article 11, paragraph 1. f) and paragraph 2 are amended to read as follows:
1. f) The credit assessment of the instrument is determined by an assessment source accepted by the Eurosystem (and by the BdP), as established in paragraph 3 of Article 3 of this Instruction. The SIAC extension for unlisted debt instruments begins on July 27, 2020.
2. The valuation margins applicable to additional short-term debt instruments are those established in paragraph 1 of Article 4 of this Instruction, and the provisions of paragraphs 3 and 4 of Article 4 must also be observed. These valuation margins apply to the nominal value of the debt instrument.
8. In Annex II, in clause 6, the first paragraph of paragraph 7 is amended to read as follows:
7. For the purposes of this paragraph, the following circumstances constitute indications of a possible default situation:
9. In Annex III, in Article 8, the first paragraph of paragraph 6 is amended to read as follows:
6. For the purposes of this paragraph, the following circumstances constitute indications of a possible default situation:

Instruction No. 18/2014, published in Official Gazette No. 8, of August 18, 2014.
Instruction No. 14/2016, published in Official Gazette No. 10 Supplement, of October 26, 2016.
3. It is up to the BdP to regulate the constitution and mobilization of additional credit claims, by establishing, among others, eligibility requirements and risk control measures for this purpose, which were previously submitted for approval by the ECB.

The BdP accepts that Eurosystem credit operations are collateralized by individual credit claims which, fulfilling the remaining Eurosystem eligibility requirements, satisfy a minimum credit quality assessment corresponding to a probability of default (PD), for a 1-year horizon, not exceeding 1.5%.
Text amended by Instruction No. 18/2014, published in Official Gazette No. 8, of August 18, 2014.
Also admitted as collateral assets are individual credit claims that comply with paragraph 1 of this article, have been granted within the scope of economic support lines - COVID 19, and benefit from a guarantee. For the guarantee to be eligible, it must cover up to 80% or 90% of the capital, must be issued by a Mutual Guarantee Society and 100% counter-guaranteed by the Mutual Counter-Guarantee Fund. The guarantee does not require legal confirmation regarding its legal validity, binding effect, and enforceability. It must also comply with the remaining requirements of Instruction No. 3/2015, namely Article 114.
For the purpose of valuing credit claims, only the guaranteed amount is considered.
The BdP accepts that, for the credit quality assessment of additional individual credit claims, the credit assessment sources provided for in Article 119 of Instruction No. 3/2015

The valuation margins (expressed as a percentage) applied to individual credit claims, with fixed or variable interest rate payments and valuation assigned by the BdP based on the outstanding amount of the credit claim, assume the following values:
Text amended by:

Instruction No. 17/2016, published in Official Gazette No. 12/2016 Supplement, of December 22, 2016;
Instruction No. 11/2020, published in Official Gazette No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 14/2020, published in Official Gazette No. 5 4th Supplement, of June 1, 2020.

Revoked.
Revoked by Instruction No. 14/2019, published in Official Gazette No. 7 Supplement, of July 29, 2019.
The BdP reserves the right to apply valuation margins higher than those referred to in paragraph 1 of this article if, based on its assessment of the inherent risk of the credit claim under analysis, it considers it justified.
The BdP may adjust the limits of the credit levels presented in paragraph 1 of this article if, after assessing the credit assessment source used, it considers it justified.
Additional individual credit claims eligible under paragraph 5 of Article 2 have an additional 8 p.p. to the valuation margins established in this article.
Added by Instruction No. 18/2014, published in Official Gazette No. 8, of August 18, 2014.

Residual Term	Fixed Rate	Variable Rate	Fixed Rate	Variable Rate	Fixed and Variable Rate	Fixed and Variable Rate
	Level 1&2 (PD: 0.1%)	Level 1&2 (PD: 0.1%)	Level 3 (PD: 0.4%)	Level 3 (PD: 0.4%)	Level 4 (PD: 1.0%)	Level 5 (PD: 1.5%)
Up to 1 year	6.4	6.4	12	12	28	40
1 to 3 years	9.6	6.4	22.4	12	38.4	48
3 to 5 years	12.8	6.4	29.2	12	41.6	51.2
5 to 7 years	14.8	9.6	34.4	22.4	44	52.8
7 to 10 years	19.2	12.8	36	29.2	45.6	54.4
>10 years	28	14.8	38.4	34.4	48	56

Instruction No. 18/2014, published in Official Gazette No. 8, of August 18, 2014;
Instruction No. 11/2020, published in Official Gazette No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 14/2020, published in Official Gazette No. 5 4th Supplement, of June 1, 2020.
Credit claim portfolios
1. Credit claim portfolios may consist of credit claims of the types referred to in paragraph 1 of Article 5.
2. Credit claim portfolios must be homogeneous, i.e., composed of credit claims with the same purpose (housing loans, consumer loans, and corporate loans) and are hereinafter referred to as:
Text amended by Instruction No. 14/2020, published in Official Gazette No. 5 4th Supplement, of June 1, 2020. a) HIPO: portfolios of housing loans secured by mortgage granted to households;

Instruction No. 18/2014, published in Official Gazette No. 8, of August 18, 2014;
Instruction No. 14/2020, published in Official Gazette No. 5 4th Supplement, of June 1, 2020.
Added by Instruction No. 18/2014, published in Official Gazette No. 8, of August 18, 2014.
Concentration limits
Concentration limits are applied to credit claim portfolios, per debtor, using the Herfindahl-Hirschman Index (HHI) as a measure:
HHI = ∑(i=1 to n) Si^2
Where Si represents the percentage, in terms of outstanding amount/nominal value, of the debtor i's aggregated exposure in the total portfolio.
The HHI has an absolute maximum limit of 1 percent for the portfolio to be eligible.
Valuation margins

The valuation margins (haircuts) applied to credit claim portfolios are dynamic and calculated as follows:
Haircut = 0.8 × (∑(i=1 to n) (VNi * Haircut_i) / ∑(i=1 to n) VNi) Where:
n – number of loans in the portfolio.
VNi – outstanding amount/nominal value of loan i.

Residual maturity (in years)	PD ≤ 0.1%	0.1% < PD ≤ 0.4%	0.4% < PD ≤ 1.0%	1.0% < PD ≤ 1.5%	1.5% < PD ≤ 3.0%	3.0% < PD ≤ 5.0%	PD > 5.0%
0 – 1	3	8	15	20	31	41	100
1 – 3	5	13	24	32	42	68	100
3 – 5	8	21	38	48	59	82	100
5 – 7	11	29	49	59	70	89	100
7 – 10	17	40	62	72	81	94	100
10 – 15	27	56	75	83	90	97	100
15 – 25	46	75	89	93	96	99	100
> 25	55	81	92	95	97	99	100

Residual maturity (in years)	PD ≤ 0.1%	0.1% < PD ≤ 0.4%	0.4% < PD ≤ 1.0%	1.0% < PD ≤ 1.5%	1.5% < PD ≤ 3.0%	3.0% < PD ≤ 5.0%	PD > 5.0%
0 - 1	3	8	13	15	18	21	100
1 - 3	5	12	20	25	26	42	100
3 - 5	8	20	32	38	40	58	100
5 - 7	12	28	42	49	51	69	100
7 - 10	18	39	55	61	63	78	100
10 - 15	28	54	69	75	76	87	100
15 - 25	47	74	84	88	88	93	100
> 25	56	80	88	91	91	95	100
Table 3: Conditional/stressed PD for EMPR portfolios (in percentage)
Residual maturity (in years)	PD ≤ 0.1%	0.1% < PD ≤ 0.4%	0.4% < PD ≤ 1.0%	1.0% < PD ≤ 1.5%	1.5% < PD ≤ 3.0%	3.0% < PD ≤ 5.0%	PD > 5.0%
---	---	---	---	---	---	---	---
0 - 1	5	13	20	24	30	37	100
1 - 3	8	19	31	37	42	63	100
3 - 5	13	31	46	54	58	78	100
5 - 7	19	42	58	65	69	86	100
7 - 10	28	55	71	77	80	92	100
10 - 15	42	71	83	88	89	96	100
15 - 25	64	87	94	95	96	99	100
> 25	73	91	96	97	97	99	100
Table 4: Valuation-risk adjusted LGD (in percentage)
Residual maturity (in years)	Unadjusted LGD ≤ 10%	10% < LGD ≤ 20%	20% < LGD ≤ 30%	30% < LGD ≤ 40%	40% < LGD ≤ 50%	50% < LGD ≤ 60%	60% < LGD ≤ 70%
---	---	---	---	---	---	---	---
0 - 1	11	21	31	41	50	60	70
1 - 3	13	22	32	42	51	61	71
3 - 5	14	24	33	43	52	62	71
5 - 7	16	25	35	44	53	63	72
7 - 10	19	28	37	46	55	64	73
10 - 15	22	31	40	48	57	66	74
15 - 25	30	38	45	53	61	69	77
> 25	33	41	48	55	63	70	78
Text amended by Instruction No. 11/2020, published in Official Bulletin No. 4/2020 2nd Supplement, of April 20, 2020.

The BdP may apply valuation margins higher than those referred to in Article 8 if, based on its assessment of the inherent risk of the credit claims under analysis, it considers it justified.

Instruction No. 16/2020 Official Bulletin No. 6/2020 2nd Supplement • 2020/06/23 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14
4. The BdP may adjust the limits of the credit levels presented in Article 8 if, based on its assessment of the credit assessment source used, it considers it justified.
5. Portfolios of additional credit claims that have eligible credit claims under paragraph 5 of Article 2 have an additional 8 percentage points to the valuation margins established in this article.
Mobilization of credit claims portfolios
Renumbered by Instruction No. 18/2014, published in Official Bulletin No. 8, of August 18, 2014.
Credit claims portfolios may be mobilized:
a) Using an internal ratings-based method, also designated as the IRB (Internal Ratings-Based approach) method, authorized by the BdP, under the terms of Article 14 of Decree-Law No. 104/2007, of April 3, or authorized by the supervisory authority of origin, in the case of branches of financial institutions headquartered in another European Union (EU) Member State:
i. Counterparties must use, for each of the credit claims included in the credit claims portfolios, the Probability of Default (PD) for a 1-year horizon and the Loss Given Default (LGD) derived from the IRB method.
ii. If Counterparties are branches of financial institutions headquartered in another EU Member State, confirmation from the supervisory authority of the country of origin is required that the authorization granted for the use of the IRB method includes the rating systems implemented by the said branches.
iii. These systems must also comply with the requirements set out in the Eurosystem Credit Assessment Framework (ECAF), established in Part IV of BdP Instruction No. 3/2015.
iv. IRB systems accepted after June 1, 2020, are temporarily exempt from obtaining ECAF approval as established in Article 122 of Instruction No. 3/2015.
b) Using the BdP's SIAC, including the extension mentioned in paragraph 3 of Article 3 of this Instruction:
i. The Bank of Portugal applies, to each of the credit claims included in the credit claims portfolios, the Probability of Default (PD) for a 1-year horizon assigned by SIAC and a value of 60% for Loss Given Default (LGD).
Renumbered and amended by Instruction No. 18/2014, published in Official Bulletin No. 8, of August 18, 2014.
Text amended by:

Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016;
Instruction No. 14/2020, published in Official Bulletin No. 5 4th Supplement, of June 1, 2020.
Additional procedures
Counterparties, in addition to the rules stipulated in this Instruction, must comply with the procedures defined in Annex IV to this Instruction and with the operational requirements defined in the Transfer Manual related to the Reporting of Credit Claims Portfolios, made available by the BdP in the BPnet System (section “Monetary Policy Implementation”, under the title “Bank Loans”). Renumbered and amended by Instruction No. 18/2014, published in Official Bulletin No. 8, of August 18, 2014. Text amended by:
Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016;
Instruction No. 14/2020, published in Official Bulletin No. 5 4th Supplement, of June 1, 2020.
Part II
Additional short-term debt instruments
Added by Instruction No. 22/2014, published in Official Bulletin No. 10, of October 15, 2014.
Eligibility requirements

Certain short-term debt instruments are admitted as collateral assets for Eurosystem credit operations which, although not satisfying the Eurosystem eligibility criteria for marketable assets provided for in Title II of Part IV of Instruction No. 3/2015, nevertheless comply with the following requirements:
Text amended by Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016. a) The maturity of the debt instrument does not exceed 365 days on the issue date, or at any subsequent time. Text amended by Instruction No. 14/2020, published in Official Bulletin No. 5 4th Supplement, of June 1, 2020. b) The residual maturity of the debt instrument is not less than 25 days on the date the eligibility request is made to the BdP. Added by Instruction No. 17/2016, published in Official Bulletin No. 12/2016 Supplement, of December 22, 2016. Text amended by Instruction No. 14/2020, published in Official Bulletin No. 5 4th Supplement, of June 1, 2020. c) The debt instrument is issued by a non-financial corporation (as defined in the European System of Accounts 2010 – ESA 2010) established in the euro area. If it benefits from a guarantee, the guarantor must be a non-financial corporation established in the euro area, unless the guarantee is not necessary for the debt instrument to comply with the provisions relating to high credit standards provided for in subparagraphs e) and f) of this paragraph. Renumbered by Instruction No. 17/2016, published in Official Bulletin No. 12/2016 Supplement, of December 22, 2016. Text amended by Instruction No. 14/2020, published in Official Bulletin No. 5 4th Supplement, of June 1, 2020.

Instruction No. 16/2020 Official Bulletin No. 6/2020 2nd Supplement • 2020/06/23 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14 d) The debt instrument integrated into a Central Securities Depository (CSD) is not admitted to trading on a market accepted by the Eurosystem, as provided for in Article 68 of Instruction No. 3/2015 (unlisted debt instrument), or the debt instrument is not integrated into a CSD (non-integrated debt instrument). Text amended by Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016. Renumbered by Instruction No. 17/2016, published in Official Bulletin No. 12/2016 Supplement, of December 22, 2016. Text amended by Instruction No. 14/2020, published in Official Bulletin No. 5 4th Supplement, of June 1, 2020. e) The debt instrument is denominated in euros. Renumbered by Instruction No. 17/2016, published in Official Bulletin No. 12/2016 Supplement, of December 22, 2016. f) The credit assessment of the instrument is determined by an assessment source accepted by the Eurosystem (and by the BdP), as established in paragraph 3 of Article 3 of this Instruction. The extension of SIAC for unlisted debt instruments begins on July 27, 2020. Text amended by Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016. Renumbered by Instruction No. 17/2016, published in Official Bulletin No. 12/2016 Supplement, of December 22, 2016. g) Short-term debt instruments that satisfy a minimum credit quality assessment corresponding to a PD, for a 1-year horizon, not exceeding 1.5% are accepted. Renumbered by Instruction No. 17/2016, published in Official Bulletin No. 12/2016 Supplement, of December 22, 2016. h) The debt instrument must also comply with all other Eurosystem eligibility criteria for marketable assets provided for in Title II, Part IV of Instruction No. 3/2015. Text amended by Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016. Renumbered by Instruction No. 17/2016, published in Official Bulletin No. 12/2016 Supplement, of December 22, 2016.
2. The valuation margins applicable to additional short-term debt instruments are those established in paragraph 1 of Article 4 of this Instruction, and the provisions of paragraphs 3 and 4 of Article 4 must also be taken into account. These valuation margins apply to the nominal value of the debt instrument.
Text amended by Instruction No. 14/2020, published in Official Bulletin No. 5 4th Supplement, of June 1, 2020.
3. Unlisted short-term debt instruments that comply with the requirements established in paragraph 1 of this article, are issued in the euro area, another NCB, or a CSD that:
a) has been positively assessed by the Eurosystem based on the assessment standards and procedures described in the document entitled “Framework for the assessment of securities settlement systems and links to determine their eligibility for use in Eurosystem credit operations”; and b) is established in the euro area Member State where the other NCB is established, can only be accepted as collateral for Eurosystem credit operations if a bilateral agreement has been concluded between the BdP and that NCB. Text amended by Instruction No. 14/2020, published in Official Bulletin No. 5 4th Supplement, of June 1, 202

Instruction No. 22/2014, published in Official Gazette No. 10, of October 15, 2014;
Instruction No. 14/2016, published in Official Gazette No. 10 Supplement, of October 26, 2016;
Instruction No. 17/2016, published in Official Gazette No. 12/2016 Supplement, of December 22, 2016.
Definitions
Text amended by Instruction No. 18/2014, published in Official Gazette No. 8, of August 18, 2014.
Renumbered by Instruction No. 14/2016, published in Official Gazette No. 10 Supplement, of October 26, 2016.
Text amended by Instruction No. 14/2020, published in Official Gazette No. 5 4th Supplement, of June 1, 2020. a) The term “loans to individuals secured by mortgages” includes, in addition to housing loans secured by mortgages, also housing loans without mortgages, if, in case of default, the collateral can be immediately enforced and collected. Such collateral may be provided in different contractual forms, including insurance policies, provided they are granted by a public sector entity or financial institution subject to public supervision. The credit assessment of the collateral provider for this purpose must comply with credit quality level 3 of the Eurosystem's harmonised rating scale for the entire duration of the operation. b) “Small enterprise” and “medium-sized enterprise” mean any entity that, regardless of its legal form, carries out an economic activity and whose turnover, individually or, if part of a group, for the group as a whole, is less than 50 million euros. c) “Loan in arrears” includes loans where the payment of principal or interest is 90 days or more overdue and the debtor is in a situation of “default”, within the meaning of point 44 of Annex VII of Directive 2006/48/EC of the European Parliament and of the Council, of June 14, 2006, on the taking up and pursuit of the business of credit institutions, or when there are justified doubts that its payment will be made in full. d) “Structured loan” refers to a structure involving subordinated credit rights. e) “Syndicated loan” refers to a loan granted by a group of lenders gathered in a financial syndicate. f) “Leveraged loan” refers to a loan granted to a company that already has a high level of indebtedness, as is the case with financing takeover operations and acquisition of a majority of voting capital (buy out), in which cases the loan is used to purchase the share capital of a company that is also the borrower of the loan.

Instruction No. 16/2020 Official Gazette No. 6/2020 2nd Supplement • 2020/06/23 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14 g) “Debt service maintenance provisions” refers to provisions included in the legal documentation of a securitised debt instrument that consist of both provisions for the replacement of the debt service manager and the appointment of an entity (facilitator), hereinafter referred to as the facilitator, to find an alternative debt service manager (in the absence of provisions for the replacement of the debt service manager). If there are provisions for the replacement of the debt service manager, the facilitator must be appointed and mandated to find a suitable debt manager within a maximum period of 60 days after the occurrence of an event, in order to ensure the timely payment and debt service of the securitised debt instruments. These provisions must also include a description of the events that require the replacement of the debt service manager, which may be related to changes in the credit rating of the debt service manager, or to events of another nature, namely the failure of the incumbent debt service manager to fulfil its obligations. In the event of provisions for the replacement of the debt service manager, the alternative debt service manager must not have close links with the debt service manager. In the event of provisions for the facilitator of the alternative debt service manager, there must not be, simultaneously, close links between the debt service manager, the facilitator of the alternative debt service manager and the bank that manages the issuer's accounts; Text amended by Instruction No. 17/2016, published in Official Gazette No. 12/2016 Supplement, of December 22, 2016. h) “Close links” close links within the meaning of Article 133 of Instruction No. 3/2015. Added by Instruction No. 17/2016, published in Official Gazette No. 12/2016 Supplement, of December 22, 2016. i) “Retained securitised debt instrument” a securitised debt instrument used to an extent greater than 75% of the outstanding nominal amount, by the counterparty that originated the securitised debt instrument or by entities with close links to the originator. Added by Instruction No. 17/2016, published in Official Gazette No. 12/2016 Supplement, of December 22, 2016.
Part IV
Tradable assets denominated in pounds sterling, yen or US dollars Renumbered by Instruction No. 14/2016, published in Official Gazette No. 10 Supplement, of October 26, 2016.
Eligibility requirements
Tradable assets denominated in pounds sterling, yen or US dollars are eligible if they:
Renumbered by Instruction No. 14/2016, published in Official Gazette No. 10 Supplement, of October 26, 2016. a) Are issued and held or settled in the euro area; b) The issuer is established in the European Economic Area; and

The following additional valuation haircuts apply to these tradable assets:
Renumbered by Instruction No. 14/2016, published in Official Gazette No. 10 Supplement, of October 26, 2016. a) An additional valuation haircut of 16% on assets denominated in pounds sterling or US dollars; and b) An additional valuation haircut of 26% on assets denominated in yen.
Tradable debt instruments that have coupons linked to a single money market interest rate in their denomination currency, or to an inflation index that does not contain discrete ranges, range accrual, ratchet coupons or other similar complex structures for the respective country, are also eligible as collateral for Eurosystem monetary policy operations.
Renumbered by Instruction No. 14/2016, published in Official Gazette No. 10 Supplement, of October 26, 2016.
After approval by the ECB Governing Council, the ECB may publish on its website (www.ecb.europa.eu), in addition to those referred to in paragraph 2 of this article, a list of other accepted foreign currency reference interest rates.
Text amended by Instruction No. 22/2014, published in Official Gazette No. 10, of October 15, 2014.
Renumbered by Instruction No. 14/2016, published in Official Gazette No. 10 Supplement, of October 26, 2016.
Only Parts I, III, IV and IX of this Instruction apply to tradable assets denominated in foreign currency.
Text amended by Instruction No. 22/2014, published in Official Gazette No. 10, of October 15, 2014.
Amended and renumbered by Instruction No. 14/2016, published in Official Gazette No. 10 Supplement, of October 26, 2016.
Text amended by Instruction No. 14/2020, published in Official Gazette No. 5 4th Supplement, of June 1, 2020.
Part V
Tradable debt instruments issued or fully guaranteed by central governments of Member States subject to a European Union/International Monetary Fund programme Renumbered by Instruction No. 14/2016, published in Official Gazette No. 10 Supplement, of October 26, 2016.

Credit quality	Residual maturity (years)(*)	Category I
		Fixed coupon	Zero coupon	Variable coupon
Level 4	[0-1)	6.4
	[1-3)	9.6	10.4	9.6
	[3-5)	11.2	12	11.2
	[5-7)	12.4	13.6	12.4
	[7-10)	13.2	14.4	13.2
	[10,∞)	14.4	16.8	14.4
Level 5	[0-1)	8
	[1-3)	11.2	12	11.2
	[3-5)	13.2	14	13.2
	[5-7)	14.4	15.6	14.4
	[7-10)	15.2	16.4	15.2
	[10,∞)	16.4	18.8	16.4
(*) i.e., [0-1) residual maturity less than one year, [1-3) residual maturity equal to or greater than one year and less than three years, etc.
Text added by Instruction No. 11/2020, published in Official Gazette No. 4/2020 2nd Supplement, of April 20, 2020.
Part VII
Acceptance of certain tradable debt securities and eligible issuers on April 7, 2020 Eligibility criteria

Notwithstanding the provisions of Articles 59, paragraph 3, 71 and 82, paragraph 1, subparagraph a), of Instruction No. 3/2015, tradable assets – other than securitised debt instruments – issued on or before April 7, 2020, which, on April 7, 2020, had a public credit rating from at least one accepted IEAC system that met the Eurosystem's minimum credit quality requirements, constitute eligible collateral assets for Eurosystem credit operations provided that, after April 7, 2020, they continuously meet the following conditions:
a) Have a public credit rating from at least one accepted IEAC system, which meets, at a minimum, credit quality level 5 of the Eurosystem's harmonised rating scale 2; and

2 Level 5 of the Eurosystem's harmonised credit rating scale corresponds to a credit rating of at least “Ba2” from Moody’s and “BB“ from Fitch, Standard & Poor's or DBRS.

Instruction No. 16/2020 Official Gazette No. 6/2020 2nd Supplement • 2020/06/23 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14 b) Continue to meet all other eligibility criteria applicable to tradable assets provided for in Instruction No. 3/2015.
2. The public credit rating, on April 7, 2020, referred to in this paragraph is determined by the Eurosystem based on the rules established in Articles 82, paragraph 1, subparagraph a), 82, paragraph 2, 83, 84, subparagraphs a) and b), 85 and 86 of Instruction No. 3/2015.
3. When the compliance of a tradable asset with the Eurosystem's minimum credit quality requirements, on April 7, 2020, is determined based on an issuer rating or a guarantor rating carried out by an IEAC of an accepted IEAC system, the tradable asset constitutes an eligible collateral asset for Eurosystem credit operations provided that, after April 7, 2020, it continuously meets the following conditions:
a) The issuer rating carried out by an IEAC or the guarantor rating carried out by an IEAC, as applicable, relating to the tradable asset meets, at a minimum, credit quality level 5 of the Eurosystem's harmonised rating scale; and b) The tradable asset continues to meet all other eligibility criteria applicable to it provided for in Instruction No. 3/2015.
4. Tradable assets – other than securitised debt instruments – issued after April 7, 2020, whose issuer or guarantor, as applicable, had on April 7, 2020, a public credit rating from at least one accepted IEAC system, which met the Eurosystem's minimum credit quality requirements, constitute eligible collateral assets for Eurosystem credit operations provided that, after April 7, 2020, they continuously meet the following conditions:
a) The tradable assets have a public credit rating from at least one accepted IEAC system, which meets, at a minimum, credit quality level 5 of the Eurosystem's harmonised rating scale; and b) The tradable assets meet all other eligibility criteria applicable to tradable assets provided for in Instruction No. 3/2015.
5. The public credit rating referred to in subparagraph (i) is determined by the Eurosystem based on the rules established in Articles 82, paragraph 1, subparagraph a), 82, paragraph 2, 83, 84, subparagraphs a) and b), 85 and 86 of Instruction No. 3/2015.
6. Covered bonds issued after April 7, 2020, under a covered bond programme that, on April 7, 2020, had been subject to a credit assessment by at least one accepted IEAC system, which met the Eurosystem's minimum credit quality requirements, constitute eligible collateral assets for Eurosystem credit operations provided that:
a) At all times, after April 7, 2020, the covered bond programme has a public credit rating from at least one accepted IEAC system, which meets, at a minimum, credit quality level 5 of the Eurosystem's harmonised rating scale, and

Instruction No. 16/2020 Official Gazette No. 6/2020 2nd Supplement • 2020/06/23 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14 b) The covered bonds meet all other eligibility criteria applicable to them provided for in Instruction No. 3/2015.
7. Tradable assets referred to in Article 87, paragraph 2, of Instruction No. 3/2015 which, on April 7, 2020, did not have a public credit rating from an accepted IEAC system, but which, on April 7, 2020, had an implicit credit assessment, obtained by the Eurosystem in accordance with the rules provided for in Article 87, paragraphs 1 and 2, of Instruction No. 3/2015, which met the Eurosystem's credit quality requirements, constitute eligible collateral assets for Eurosystem credit operations, regardless of their issue date, provided that, after April 7, 2020, they continuously meet the following conditions:
a) The issuer or guarantor, as applicable, of the tradable assets meets, at a minimum, the credit quality requirements corresponding to credit quality level 5 of the Eurosystem's harmonised rating scale; and b) The tradable assets meet all other eligibility criteria applicable to them provided for in Instruction No. 3/2015.
8. Notwithstanding the provisions of Articles 59, paragraph 3, 71 and 82, paragraph 1, subparagraph b), of Instruction No. 3/2015, securitised debt instruments issued on or before April 7, 2020, which, on April 7, 2020, had at least two public credit ratings, each from a different accepted IEAC system, which met the Eurosystem's minimum credit quality requirements under Instruction No. 3/2015, constitute eligible collateral assets for Eurosystem credit operations provided that, after April 7, 2020, they continuously meet the following conditions:
a) Have at least two public credit ratings, each from a different accepted IEAC system, which meet, at a minimum, credit quality level 4 of the Eurosystem's harmonised rating scale 3; and b) Continue to meet all other eligibility criteria applicable to securitised debt instruments provided for in Instruction No. 3/2015.
9. The requirements set out in Article 12, Article 13 and Article 15, paragraph 1 of this Instruction do not apply to the securitised debt instruments referred to in this paragraph.
10. Securitised debt instruments which, on April 7, 2020, were admitted to the Eurosystem as eligible collateral assets under Article 12 and Article 13 of this Instruction, remain eligible provided that, after April 7, 2020, they continuously meet the following conditions:
a) Have two public credit ratings, of at least credit quality level 4 of the Eurosystem's harmonised rating scale, from two accepted IEAC systems; and

3 Level 4 of the Eurosystem's harmonised credit rating scale corresponds to a credit rating of at least “Ba1” from Moody’s, “BB+“ from Fitch or Standard & Poor's and “BBH” from DBRS.

Credit quality	Residual maturity (years) (*)	Category I		Category II		Category III		Category IV
		Fixed and variable rate coupon	Zero coupon	Fixed and variable rate coupon	Zero coupon	Fixed and variable rate coupon	Zero coupon	Fixed and variable rate coupon	Zero coupon
Level 4	[0-1)	6.4	6.4	8	8	12.8	12.8	20	20
	[1-3)	9.6	10.4	12	15.2	16	18.4	28	30
	[3-5)	11.2	12	16	20	19.2	23.6	33.6	37.2
	[5-7)	12.4	13.6	20	24.8	22.4	28.4	36.8	40.4
	[7-10)	13.2	14.4	21.6	28.4	24.8	32	40	44.8
	[10,∞)	14.4	16.8	23.2	31.6	26.4	34.8	41.6	46.8
Level 5	[0-1)	8	8	12	12	22.4	22.4	24	24
	[1-3)	11.2	12	16	19.2	25.6	28	32	34
	[3-5)	13.2	14	22.4	26.4	28.8	33.2	38.4	42
	[5-7)	14.4	15.6	27.2	32	31.6	37.6	43.2	46.8
	[7-10)	15.2	16.4	28.8	35.6	33.2	40.4	46.4	51.2
	[10,∞)	16.4	18.8	30.4	38.8	33.6	42	48	53.2
(*) i.e., [0-1) residual maturity less than one year, [1-3) residual maturity equal to or greater than one year and less than three years, etc.

Insofar as they continue to be admitted as eligible collateral assets by the Eurosystem under this Part VII, the securitised debt instruments referred to in paragraphs 8 to 11 of this article are subject to the valuation haircuts specified in subparagraph a) of this paragraph. The valuation haircuts are calculated based on the current rating applicable on any date after April 7, 2020, in accordance with

Credit Quality	Weighted average life*	Valuation margin
Level 3	0-1	4.8
	1-3	7.2
	3-5	10.4
	5-7	12.0
	7-10	14.4
	> 10	24.0
Level 4	0-1	11.2
	1-3	15.2
	3-5	18.0
	5-7	24.8
	7-10	30.4
	> 10	43.2

i.e., 0-1 residual maturity/weighted average duration less than one year, 1-3 residual maturity/weighted average duration equal to or greater than one year and less than three years, etc.

In addition to the valuation margins provided for in paragraphs 12 and 13, the following additional valuation margins apply:
a) Securitized debt instruments, covered bonds, and unsecured debt instruments issued by credit institutions that are theoretically valued, in accordance with the rules set out in article 129 of Instruction No. 3/2015, are subject to an additional valuation margin in the form of an additional valuation reduction of 4%; b) Covered bonds for own use are subject to an additional valuation margin of i) 6.4% on the value of debt instruments with credit quality levels 1 and 2, and ii) 9.6% on the value of debt instruments with credit quality levels 3, 4 and 5; c) For the purposes of subparagraph (ii), "own use" means the presentation or use, by a counterparty, of covered bonds issued or guaranteed by the counterparty itself or by any other entity with which it has "close links", within the meaning of article 133 of Instruction No. 3/2015; d) If the additional valuation margin referred to in subparagraph (ii) cannot be applied in relation to the collateral management system of a CBB, a collateral management service provider (triparty agent) or TARGET2-Securities, for self-collateralization, the additional valuation margin must be applied in such systems or platform to the value of the entire issue of covered bonds that may be subject to own use.
The technical terms used in this article have the meaning attributed to them in Instruction No. 3/2015.

Purchase Programs
The provisions of Part VII are independent and are not taken into account for the purpose of assessing eligibility for outright purchases under the public sector asset purchase program in secondary markets (PSPP) 4, the third covered bond purchase program (CBPP3) 5, the asset-backed securities purchase program (ABSPP) 6, the corporate sector purchase program (CSPP) 7, and the pandemic emergency purchase program (PEPP) 8.

Text added by Instruction No. 12/2020, published in Official Bulletin No. 5/2020 Supplement, of May 18, 2020.

Part VIII
Final Provisions
Early repayment of operations
Renumbered by:

Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016;
Instruction No. 11/2020, published in Official Bulletin No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 12/2020, published in Official Bulletin No. 5/2020 Supplement, of May 18, 2020.

The Eurosystem may decide that, under certain conditions, Counterparties may reduce the value of certain longer-term refinancing operations or terminate these operations before their maturity (such reduction in value or termination also collectively referred to as "early repayment"). The auction announcement must specify whether the option to reduce the value or terminate these operations before their maturity is applicable, as well as the date from which this option may be exercised. This information may alternatively be provided in another format deemed appropriate by the Eurosystem.

Text amended by Instruction No. 18/2014, published in Official Bulletin No. 8, of August 18, 2014.

4 Decision (EU) 2020/188 of the European Central Bank, of February 3, 2020, on a public sector asset purchase program in secondary markets (recast) (ECB/2020/9) (OJ L 39 of 12.2.2020, p. 12). 5 Decision (EU) 2020/187 of the European Central Bank, of February 3, 2020, on the implementation of the third covered bond purchase program (ECB/2020/8) (OJ L 39 of 12.2.2020, p. 6). 6 Decision (EU) 2015/5 of the European Central Bank, of November 19, 2014, on the implementation of the asset-backed securities purchase program (ECB/2014/45) (OJ L 1 of 6.1.2015, p. 4.). 7 Decision (EU) 2016/948 of the European Central Bank, of June 1, 2016, on the implementation of the corporate sector purchase program (ECB/2016/16) (OJ L 157 of 15.6.2016, p. 28.). 8 Decision (EU) 2020/440 of the European Central Bank, of March 24, 2020, on a temporary pandemic emergency purchase program (ECB/2020/17) (OJ L 91 of 25.3.2020, p. 1).

Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016;
Instruction No. 11/2020, published in Official Bulletin No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 12/2020, published in Official Bulletin No. 5/2020 Supplement, of May 18, 2020.

Counterparties may exercise the option to reduce the value of certain longer-term refinancing operations or terminate them before their maturity, by notifying the BdP of the amount they intend to repay under the early repayment procedure, indicating the date on which they intend to make such repayment at least one week in advance of the early repayment date. Unless otherwise indicated by the Eurosystem, early repayment may be made on any day coinciding with the settlement date of a Eurosystem main refinancing operation, provided that Counterparties make the notification referred to in this paragraph at least one week in advance of that date.

Text amended by Instruction No. 22/2014, published in Official Bulletin No. 10, of October 15, 2014.
Renumbered by:

Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016;
Instruction No. 11/2020, published in Official Bulletin No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 12/2020, published in Official Bulletin No. 5/2020, of May 15, 2020.

The notification referred to in paragraph 2 of this article becomes binding on the Counterparty one week before the scheduled early repayment date. Failure by the Counterparty to settle, in whole or in part, the amount due under the early repayment procedure on the determined date may also result in the imposition of a pecuniary penalty, in accordance with the provisions of Parts V and VII of Instruction No. 3/2015.

Text amended by Instruction No. 22/2014, published in Official Bulletin No. 10, of October 15, 2014.
Amended and renumbered by Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016.
Renumbered by:

Instruction No. 11/2020, published in Official Bulletin No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 12/2020, published in Official Bulletin No. 5/2020 Supplement, of May 18, 2020.
Renumbered by:
Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016;
Instruction No. 11/2020, published in Official Bulletin No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 12/2020, published in Official Bulletin No. 5/2020 Supplement, of May 18, 2020.

Subsidiary application and addressees

The rules for conducting liquidity-providing operations and the eligibility criteria for collateral assets established in this Instruction are applicable in conjunction with the provisions of BdP Instruction No. 3/2015, which implements Guideline (EU) 2015/510 (ECB/2014/60) at the national level. In case of divergence between this Instruction and Instruction No. 3/2015, this Instruction shall prevail.

Amended and renumbered by Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016.
Renumbered by:

Instruction No. 11/2020, published in Official Bulletin No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 12/2020, published in Official Bulletin No. 5/2020 Supplement, of May 18, 2020.

Repealed.

Text amended by:

Instruction No. 4/2014, published in Official Bulletin No. 4, of April 15, 2014;
Instruction No. 18/2014, published in Official Bulletin No. 8, of August 18, 2014;
Instruction No. 22/2014, published in Official Bulletin No. 10, of October 15, 2014.
Renumbered by:
Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016;
Instruction No. 11/2020, published in Official Bulletin No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 12/2020, published in Official Bulletin No. 5/2020 Supplement, of May 18, 2020.
Repealed by Instruction No. 14/2019, published in Official Bulletin No. 7 Supplement, of July 29, 2019.

The eligibility criteria and operational requirements established in BdP Instruction No. 3/2015, which are not expressly regulated in this Instruction, apply subsidiarily to additional credit claims.

Amended and renumbered by Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016.
Renumbered by:

Instruction No. 11/2020, published in Official Bulletin No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 12/2020, published in Official Bulletin No. 5/2020 Supplement, of May 18, 2020.

The addressees of this Instruction are credit institutions.

Renumbered by:

Instruction No. 4/2014, published in Official Bulletin No. 4, of April 15, 2014.
Instruction No. 22/2014, published in Official Bulletin No. 10, of October 15, 2014.
Instruction No. 14/2016, published in Official Bulletin No. 10 Supplement, of October 26, 2016.
Instruction No. 11/2020, published in Official Bulletin No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 12/2020, published in Official Bulletin No. 5/2020 Supplement, of May 18, 2020.
Republished with:
Instruction No. 28/2013, published in Official Bulletin No. 12, of December 16, 2013;
Instruction No. 11/2020, published in Official Bulletin No. 4/2020 2nd Supplement, of April 20, 2020;
Instruction No. 14/2020, published in Official Bulletin No. 5 4th Supplement, of June 1, 2020.

Instruction No. 16/2020: Implementation of Monetary Policy – Additional Temporary Measures

Lineage: No known changes

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