On September 13, 2016, ITS listing the main indices and recognized exchanges for the use of eligible collateral in accordance with the Capital Requirements Regulation was published in the Official Journal of the European Union.
The CRR states that equities or convertible bonds included in a main index may be used by institutions as eligible collateral for credit risk mitigation purposes. One of the eligibility criteria for collateral is that it should be sufficiently liquid. To be considered as main indices for the purposes of the CRR, equity indices should consist mainly of equities that can reasonably be expected to be realizable when an institution needs to liquidate them. Equity indices listed include STOXX Asia/Pacific 600, TSX60, Hang Seng Mainland 100 Index (China), FTSE Europe Index, S&P BMI France, Nikkei 300 and the OMXS60. The convertible bond indices listed as main indices are Exane ECI-Europe, Jefferies JACI Global and Thomson Reuters Global Convertible.
The final draft ITS submitted by ESMA has been amended by the Commission to include Hang Seng Composite Index and the Russell 3000 Index. Those indices have been included, despite ESMA’s opinion that they should not be, to avoid the exclusion of any indices that have satisfied the eligibility criteria.
The CRR states that debt securities issued by certain institutions which do not have a credit assessment by an external credit assessment institution may be used as eligible collateral only where they fulfill a number of conditions, one of them being that they are listed on a recognized exchange. The CRR also provides that the treatment of instruments and commodities for the calculation of risk-weighted exposures for counterparty risk for items in the trading book must be the same as equities that are not on a main index but listed on a recognized exchange. Recognized exchanges included in the ITS are Powernext Derivatives, CME Europe Limited, ICE Futures Europe, the London Metal Exchange, Eurex Deutschland, ICE Endex Derivatives, Euronext Paris, Securitised Derivatives Market and the London Stock Exchange.
The Regulation is available at: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R1646&from=EN.