6.2.1.5 Identification of Eligible HQLA

The application identifies whether a bank’s asset or a mitigant received under re-hypothecation rights meets all the operational requirements prescribed by BNM. If an asset classified as HQLA meets all the relevant operational criteria, it is identified as eligible HQLA and included in the stock of HQLA. The application checks for the following operational criteria:

1. Operational Capability to Monetize HQLA

   An asset is considered HQLA only if the bank has demonstrated the operational capability to monetize such an asset, and has periodically monetized such an asset. The application captures this information for each asset as a flag.

2. Unencumbered

   The application looks at the encumbrance status, and includes only those assets in the stock which are unencumbered. If partially encumbered, then the portion of the asset that is unencumbered is considered as HQLA and included in the stock. If an asset is pledged to the central bank, or a PSE, but is not used, the unused portion of such an asset is included in the stock. The application assigns the usage of a pledged asset in the ascending order of asset quality i.e. the lowest quality collateral is marked as used first.

3. Inclusion and Exclusion of Certain Re-hypothecated Assets

   Assets received under re-hypothecation rights as part of reverse repo and securities financing transactions are considered as eligible HQLA, if they are not re-hypothecated. An asset pledged to central banks or PSEs, but not used is considered eligible HQLA. Any asset that a bank receives under a re-hypothecation right is not considered eligible HQLA, if the counterparty or beneficial owner of the asset has a contractual right to withdraw the asset at any time within 30 calendar days.

4. Unsegregated Assets

   The application includes unsegregated assets, received as collateral under re-hypothecation rights, for derivative transactions, in the stock of HQLA. Conversely, it excludes all segregated assets from the stock of HQLA.

5. HQLA Under the Control of the Treasurer

   To be considered eligible HQLA the asset is required to be under the control of the management function of the bank that manages liquidity For example, Treasurer. The application captures this information for each asset as a flag.

6. Exclusion of the HQLA assets used for Hedging

   The application assess whether an HQLA is encumbered based on the following factors:

   1. An asset must not be included in the stock if the sale of it without a replacement within a 30-day period removes a hedge that creates an open risk to the banking institution in the excess of an internal limit.