Article 13
Haircuts
1.
A CSD-banking service provider shall set the level of haircuts as follows:
(a)
where collateral is eligible at the central bank to which the CSD-banking service provider has access to routine credit, the haircuts applied to that type of collateral by the central bank may be considered as the minimum haircut floor;
(b)
where collateral is not eligible at the central bank to which the CSD-banking service provider has access to routine credit, the haircuts applied by the central bank issuing the currency in which the financial instrument is denominated shall be considered as the minimum haircut floor.
2.
The CSD-banking service provider shall ensure that its policies and procedures to determine haircuts take into account the possibility that the collateral may need to be liquidated in stressed market conditions and the time required to liquidate it.
3.
The haircuts shall be determined taking into consideration the relevant criteria, including all of the following:
(a)
the type of asset;
(b)
the level of credit risk associated with the financial instrument;
(c)
the country of issuance of the asset;
(d)
the maturity of the asset;
(e)
the historical and hypothetical future price volatility of the asset in stressed market conditions;
(f)
the liquidity of the underlying market, including bid-ask spreads;
(g)
the foreign exchange risk, where applicable;
(h)
the wrong-way risk in the meaning of Article 291 of Regulation (EU) No 575/2013, where applicable.
4.
The criteria referred to in point (b) of paragraph 3 shall be determined by an internal assessment of the CSD-banking service provider, based on a defined and objective methodology that does not exclusively rely on external opinions.
5.
No collateral value shall be assigned to securities provided by an entity that belongs to the same group as the borrower.
6.
The CSD-banking service provider shall ensure that the haircuts are calculated in a conservative manner to limit pro-cyclicality as far as possible.
7.
The CSD-banking service provider shall ensure that its policies and procedures on haircuts are validated at least annually by an independent unit of the CSD-banking service provider and applicable haircuts are benchmarked with the central bank issuing the relevant currency and, where the central bank benchmark is not available, other relevant sources.
8.
The haircuts applied shall be reviewed by the CSD-banking service provider on at least a daily basis.