Instruction No. 7/2024: Implementation of Eurosystem Monetary Policy

Instruction No. 7/2024
BO No. 4/2024 Supplement • 2024/05/02
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Topics
Markets :: Money Markets
Mod. 99999940/T – 01/14
Index
Text of the Instruction
Text of the Instruction
Subject: Implementation of Eurosystem monetary policy On 8 February 2024, the Governing Council of the ECB approved Guideline (EU) 2024/XX of the European Central Bank, amending Guideline (EU) 2015/510 of the European Central Bank (ECB/2014/60) on the framework for the implementation of Eurosystem monetary policy (ECB/2024/4), as well as Guideline (EU) 2024/XX of the European Central Bank, amending Guideline (EU) 2016/65 of the European Central Bank (ECB/2015/35) on the valuation haircuts to be applied in the implementation of Eurosystem monetary policy (ECB/2024/5).

Recalling that:
(1) The announcement, placement, and settlement dates of main refinancing operations and regular longer-term refinancing operations should be aligned to facilitate switching between the two types of operations, and the calendar of regular longer-term refinancing operations should be adjusted to avoid overlap between the two types of operations. Furthermore, the rounding rules for interest on regular longer-term refinancing operations should be clarified to ensure a harmonised approach; (2) Certain aspects of the issuance of European Central Bank (ECB) debt certificates require further clarification regarding the identity of their legal issuer and the form of their issuance and holding. (3) Some clarification is needed on the treatment of interest rate benchmarks in the context of the eligibility of collateral assets for Eurosystem monetary policy operations, particularly with regard to interest rate benchmarks administered from the United Kingdom. UK benchmark administrators, like other benchmark administrators located outside the Union, should be considered third-country benchmark administrators, and supervised entities in the Union should only use benchmarks provided by third-country administrators if those are authorised for use in the Union, in accordance with Regulation (EU) 2016/1011 of the European Parliament and of the Council.

Instruction No. 7/2024 BO No. 4/2024 Supplement • 2024/05/02 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14
(4) Clarification is needed regarding the eligibility as collateral assets of sustainability-linked bonds with coupon step-up rights.
(5) It is necessary to harmonise the Eurosystem collateral asset eligibility rules applicable to collateralised assets, specifying in greater detail the cases in which the relevant eligibility requirements apply. The applicability of these requirements should depend on the use of a guarantee to establish compliance by the asset with the Eurosystem credit quality requirements. (6) Greater clarity is needed in the Eurosystem credit assessment framework (ECAF) regarding the communication by counterparties of default probabilities based on their use of internal rating-based (IRB) methods and the provision of forms to be completed by credit rating agencies (CRAs) applying for acceptance as external credit assessment institutions (ECAIs). (7) With a view to the phase-out of asset flexibility measures in response to the COVID-19 pandemic, the Governing Council of the ECB decided, on 30 November 2023, to reinstate the minimum threshold of 25,000 EUR that securitised credit rights must meet on an individual basis in order to be accepted as collateral assets for domestic use under Guideline (EU) 2015/510 (ECB/2014/60). (8) With a view to strengthening the protection of the Eurosystem against risks associated with the acceptance of credit rights, National Central Banks (NCBs) may suspend the securitisation of credit rights by a counterparty, in whole or in part, if it is found that the procedures and systems used by that counterparty are no longer adequate for the submission of information on credit rights to the Eurosystem. (9) In accordance with the Governing Council of the ECB decision of 22 June 2022, a high-level principle regarding the disclosure in ECAI credit assessments of climate change risk will be introduced into the ECAF. (10) It is necessary to introduce adjustments to the Eurosystem counterparty framework for access to Eurosystem monetary policy operations, in order to make clearer the treatment of counterparties that do not meet the own funds requirements established in Regulation (EU) No 575/2013 of the European Parliament and of the Council, the treatment of counterparties that do not meet the initial capital requirement set out in Article 93 of Regulation (EU) No 575/2013 and applicable national legislation, as well as the treatment of counterparties and eligible assets issued by entities subject to restrictive measures of the European Union. (11) It is necessary to harmonise default situations within the Eurosystem. (12) Regulation (EU) 2021/378 of the European Central Bank (ECB/2021/1) was amended with regard to the remuneration of minimum reserves held, and this should be reflected in the provisions relating to minimum reserves. (13) It is necessary to amend the Eurosystem risk control framework to clarify the treatment of valuation haircuts for debt certificates that may be issued by the ECB.

Therefore, exercising the competence conferred upon it by Articles 12, 15, 16 and 24 of its Organic Law, approved by Law No. 5/98 of 31 January, in its current version, the Bank of Portugal determines that,

Instruction No. 3/2015 (BO No. 5, of 15-05-2015) is amended as follows:

1. Article 2 is amended as follows:
   a) Paragraph 24-a) shall have the following wording:
   “ECONS Credit”, the credit granted under the contingency processing referred to in Annex I, Appendix IV, numbers 2.3 and 3.2, of Guideline (EU) 2022/912 of the European Central Bank (ECB/2022/8).
   (*) Guideline (EU) 2022/912 of the European Central Bank, of 24 February 2022, on a new generation trans-European automated real-time gross settlement system (TARGET) and repealing Guideline ECB/2012/27 (ECB/2022/8) (OJ L 163 of 17.6.2022, p. 84). b) Paragraph 46) shall have the following wording:
   “Intraday credit”, the intraday credit within the meaning of Article 2, paragraph 35), of Guideline (EU) 2022/912 (ECB/2022/8), in conjunction with paragraph 35) of Annex III to that Guideline; c) Paragraph 91) shall have the following wording:
   91) “TARGET”, the new generation trans-European automated real-time gross settlement system, regulated by Guideline (EU) 2022/912 (ECB/2022/8);
   d) The following paragraph 91-a) is added:
   91-a) “TARGET Account”, the TARGET Account within the meaning of Article 2, paragraph 59), of Guideline (EU) 2022/912 (ECB/2022/8), in conjunction with paragraph 59) of Annex III to that Guideline;

2. Article 7, paragraph 6 is amended, taking the following wording:
6. Longer-term refinancing operations are executed through variable rate tenders, unless the Eurosystem decides to execute them through fixed rate tenders. In this case, the rate applicable to fixed rate tenders may be indexed to a reference rate (for example, the average rate of main refinancing operations) during the life of the operation, with or without a spread. If the applicable interest rate is calculated as the average of a reference rate during the life of the operation, that average must be rounded to at least the eighth decimal place.

3. Article 8, paragraph 2, letter d) is amended, taking the following wording:
d) are executed in a decentralised manner by the NCBs.;

4. Article 10, paragraph 4, letter e) is amended, taking the following wording:
e) are executed in a decentralised manner by the NCBs.;

5. Article 11, paragraph 5, letter d) is amended, taking the following wording:
d) are executed in a decentralised manner by the NCBs.;

6. Article 12 is amended as follows:
a) Paragraph 5 shall have the following wording:
5. Fixed-term deposits are held in accounts with the NCB of origin.;
b) In paragraph 6, letter d) shall have the following wording:
d) is executed in a decentralised manner by the NCBs.;

7. Article 13 is amended as follows:
a) Paragraph 2 shall have the following wording:
2. ECB debt certificates are issued in book-entry form in a securities central depository in a Member State whose currency is the euro. They must be registered in book-entry form.;
b) In paragraph 5, letter e) shall have the following wording:
e) are placed in auction in a decentralised manner by the NCBs.;

8. Article 19 is amended as follows:
a) Paragraph 5 shall have the following wording:
5. Counterparties may access the permanent liquidity lending facility by submitting a request to their NCB of origin no later than 18:15, Central European Time (CET)(), the deadline for the use of permanent facilities, in accordance with Appendix V of Annex I to Guideline (EU) 2022/912 (ECB/2022/8).
On the last working day of the Eurosystem of a minimum reserve maintenance period, the deadline to request access to the permanent liquidity lending facility expires 15 minutes later. In exceptional circumstances, the Eurosystem may decide to set longer deadlines. The request for access to the permanent liquidity lending facility must specify the amount of credit requested. The counterparty must deliver eligible assets of sufficient value to secure the transaction, unless such assets have already been deposited by the counterparty with the NCB of origin, as provided for in Article 18, paragraph 4. () The Central European time zone takes into account the change to Central European Summer Time.; b) The first sentence of paragraph 6 shall have the following wording:
If, at the end of each working day, the total balance in the TARGET accounts of a counterparty with its NCB of origin after the completion of end-of-day control procedures is negative, this negative balance shall be automatically considered as a request for access (“automatic request”) to the permanent liquidity lending facility.;

9. Article 20, paragraph 1 is amended, taking the following wording:
1. The term of the credit granted under the permanent liquidity lending facility is overnight. Repayment of the credit is made at the opening time of: a) TARGET; and b) the relevant SLT(s), on the following day when these systems are operational.;

10. Article 22 is amended as follows:
a) Paragraph 2 shall have the following wording:
2. Counterparties may access the permanent deposit facility by submitting a request to their NCB of origin no later than 18:15, Central European Time (CET)(), the deadline for the use of permanent facilities, in accordance with Appendix V of Annex I to Guideline (EU) 2022/912 (ECB/2022/8). On the last working day of the Eurosystem of a minimum reserve maintenance period, the deadline to request access to the permanent deposit facility expires 15 minutes later. In exceptional circumstances, the Eurosystem may decide to set longer deadlines. The request for access to the permanent deposit facility must specify the amount to be deposited.
() The Central European time zone takes into account the change to Central European Summer Time.;

11. Article 23, paragraph 1 is amended, taking the following wording:
1. The term of deposits under the permanent deposit facility is overnight. Deposits held under the permanent deposit facility mature at the opening time of TARGET on the following day when this system is operational.;

12. Article 25, paragraph 2 is amended as follows:
a) The second sentence shall have the following wording:
The operational characteristics of normal tenders and fast tenders are identical, except with regard to the timing and the counterparties participating in them.; b) Table 5 is repealed; c) The following Table 5-a is inserted:

Table 5-a
Indicative timing of normal tenders and fast tenders (times are presented in Central European Legal Time (1))

Tender Type	Normal Tenders	Fast Tenders
Main Refinancing Operations	Longer-Term Refinancing Operations (Regular)
Tender Announcement	T-1 15:40	T-1 15:55	T hh:mm
Deadline for Counterparty Bids	T 09:30	T 10:00 + 00:30
Tender Results Announcement	T 11:30	T 12:00 + 01:35
Settlement of Transactions	T+1	T+1	T

(1) The Central European Time (CET) time zone takes into account the change to Central European Summer Time.
T means “transaction day.”; d) Table 6 is repealed;

13. In Article 28, paragraph 3, Table 7 is amended as follows:

Table 7
Normal transaction days for main refinancing operations and regular longer-term refinancing operations

Category of Open Market Operations	Normal Transaction Day (T)
Main Refinancing Operations	All Tuesdays(*)
Regular Longer-Term Refinancing Operations	Last Tuesday of each month()

(*) Special changes may occur due to holidays.
() Due to the Christmas period, the December operation is usually advanced by one week, i.e., to the preceding Tuesday.

14. Article 49, paragraph 1 is amended, taking the following wording:
1. Payment orders relating to counterparties’ participation in open market operations or the use of permanent facilities are settled through the counterparties’ accounts with an NCB or through the accounts of other credit institutions participating in TARGET.;

15. Article 58, paragraph 2 is amended, taking the following wording:
2. In order to participate in Eurosystem credit operations, counterparties must deliver eligible assets to the Eurosystem as collateral for such operations. Since Eurosystem credit operations include intraday credit, the collateral assets submitted by counterparties in respect of intraday credit must also comply with the eligibility criteria set out in this Guideline, as defined in Guideline (EU) 2022/912 (ECB/2022/8).;

16. Article 63 is amended as follows:
a) In paragraph 1, letter b), sub-letter i., the first dash shall have the following wording:
– an euro money market rate whose use is permitted in the Union in accordance with Regulation (EU) 2016/1011 of the European Parliament and of the Council(), such as the euro short-term rate (€STR) (including the daily €STR compounded or average), the Euribor or similar indices; with regard to the first and/or last coupon, the reference rate may be a linear interpolation between two tenors of the same euro money market rate, such as a linear interpolation between two different tenors of the Euribor, () Regulation (EU) 2016/1011 of the European Parliament and of the Council, of 8 June 2016, on indices used as benchmarks in the context of financial instruments and financial contracts or for measuring the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 (OJ L 171 of 29.6.2016, p. 1).; b) In paragraph 1, letter c) shall have the following wording:
c) multi-step or variable rate coupons with steps linked to sustainability performance targets, provided that:
i. compliance with the sustainability performance targets by the issuer or any company belonging to the same group of issuers of sustainability-linked bonds is subject to verification by an independent third party, in accordance with the terms and conditions of the debt instrument; and
ii. the event determining the step-up and/or the associated stepped payment has not been cancelled or waived by the issuer or by other means.;
c) The following paragraph 5 is added:
5. By way of derogation from paragraph 4, the coupon structure cannot be considered ineligible in the case of multi-step or variable rate coupons with steps linked to sustainability performance targets solely due to the existence of the issuer’s right to cancel or waive the event determining the step-up and/or the associated stepped payment.;

17. In Article 69, the following paragraph 1-a is inserted:
1-a. The requirement set out in paragraph 1, first sentence, does not apply to the guarantor of a debt instrument if the guarantee is not used to establish compliance of that debt instrument with the applicable credit quality requirements for tradable assets.;

18. Article 70, paragraph 2 is amended, taking the following wording:
2. To be eligible, guarantors of debt instruments must be established in the EEA, unless a guarantee is not used to establish compliance of those debt instruments with the credit quality requirements for specific debt instruments, without prejudice to the exceptions provided for in paragraphs 3 and 4. The possibility of using a credit rating of the guarantor assigned by an ECAI to establish compliance with the credit quality requirements applicable to a given debt instrument is provided for in Article 84.;

19. The title of Part IV, Title II, Chapter 1, Section 2, Subsection 3 shall have the following wording:
Specific eligibility criteria for debt certificates issued by the ECB or by NCBs before the date of adoption of the euro in the respective Member State;

20. Article 81 is amended as follows:
a) The title shall have the following wording:
Eligibility criteria for debt certificates issued by the ECB or by NCBs before the date of adoption of the euro in the respective Member State; b) Paragraph 2 shall have the following wording:
2. Debt certificates issued by the ECB and debt certificates issued by NCBs before the date of adoption of the euro in the respective Member State whose currency is the euro are not subject to the criteria set out in Title II of this Part IV.;

21. Article 90, letter b), sub-letter iii), first dash, is amended, taking the first sub-dash the following wording:
– an euro money market rate whose use is permitted in the Union in accordance with Regulation (EU) 2016/1011, for example, the €STR (including the daily €STR compounded or average), the Euribor or similar indices;

22. Article 93 is amended, taking the following wording:
Article 93
Minimum size of credit rights
For domestic use, credit rights, at the time of their submission as collateral assets by the counterparty, must have a minimum threshold of 25,000 EUR. For cross-border use, a minimum threshold of 500,000 EUR applies.

23. Article 95, paragraph 1 is amended, taking the following wording:
1. Debtors and guarantors of eligible credit rights must be non-financial corporations, public sector entities (excluding public financial corporations), multilateral development banks or international organisations. This requirement does not apply to the guarantor of a credit right if the guarantee is not used to determine compliance of that credit right with the credit quality requirements applicable to non-tradable assets.;

24. Article 96, paragraph 2 is amended, taking the following wording:
2. The guarantor of a credit right must also be established in a Member State whose currency is the euro unless a guarantee is not used to determine compliance of that credit right with the credit quality requirements applicable to non-tradable assets.;

25. Article 97, letter d) is amended, taking the following wording:
d) to the guarantor (only in cases where there is a guarantee and it is used to determine the compliance of the credit right with the requirements of