4.3.2. Collateral

(1) An Authorised Clearing House which requires collateral to manage its own, its Members’ or other participants’ credit risks arising in the course of or for the purposes of its payment, clearing, and settlement processes must:

• (a) only accept collateral with low credit, liquidity, and market risks; and
• (b) set and enforce appropriately conservative haircuts and concentration limits.

(2) An Authorised Clearing House must, for the purposes of meeting the requirement in (1), establish and implement a collateral management system that is well designed and operationally flexible. Such a system must, at a minimum:

• (a) limit the assets it accepts as collateral to those with low credit, liquidity, and market risks;
• (b) establish prudent valuation practices and develop haircuts that are regularly tested and take into account stressed market conditions;
• (c) to reduce the need for procyclical adjustments, establish, to the extent practicable and prudent, stable and conservative haircuts that are calibrated to include periods of stressed market conditions;
• (d) avoid concentrated holdings of certain assets where that would significantly impair the ability to liquidate such assets quickly without significant adverse price effects; and
• (e) mitigate, if it accepts cross-border collateral, the risks associated with such use. Such measures must ensure that the collateral can be used in a timely manner.