1. Liquidity Risk Regulatory Calculations for Hong Kong Monetary Authority User Guide
  2. Liquidity Coverage Ratio Calculation
  3. Ratio Constituents
  4. Identifying Eligible HQLA

4.3.2 Identifying 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 HKMA. 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. The lowest quality collateral is marked as used first.

  3. Inclusion and Exclusion of Certain Rehypothecated Assets

    Assets received under rehypothecation rights as part of the reverse repo and securities financing transactions are considered as eligible HQLA if they are not rehypothecated. An asset pledged to central banks or PSEs, but not used, is considered eligible HQLA. Any asset that a bank receives under a rehypothecation 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 rehypothecation 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. Termination of Transaction Hedging HQLA

    If an HQLA is hedged by a specific transaction, then the application considers the impact of closing out the hedge to liquidate the asset that is, the cost of terminating the hedge while computing the stock of HQLA. The hedge termination cost is deducted from the market value of the asset and the difference is included in the stock of HQLA.