((b))in eligible collateral as defined in the collateral framework of the Eurosystem laid down in Guideline ECB/2011/14 of 20 September 2011 on monetary policy instruments and procedures of the Eurosystem(5), in particular if the SIPS operator has access to Eurosystem standing facilities.
((e))investments that are readily available and convertible into cash with prearranged funding arrangements for which the SIPS operator can demonstrate to the competent authority, based on an adequate internal assessment, that the funding arrangements are highly reliable, even in extreme but plausible market conditions.
1. 1. A SIPS operator shall establish a comprehensive framework to manage liquidity risks posed by the SIPS's participants, settlement banks, nostro agents, custodian banks, liquidity providers and other relevant entities. The SIPS operator shall provide the participants with adequate tools to effectively manage their liquidity and shall monitor and facilitate the smooth flow of liquidity in the system.
2. 2. A SIPS operator shall put in place operational and analytical tools,tools which enable it to identify, measure and monitor settlement and funding flows, including the use of intraday liquidity, on an on-goingongoing and timely basis.
2a. A SIPS operator operating a DNS system shall ensure that
(a)financial obligations are established no later than the moment at which a transfer order is included in the calculation of the net settlement positions accessible to each participant; and
(b)sufficient liquid resources are held in accordance with paragraphs 3 to 6 at the latest at the moment referred to in point (a).
3. 3. A SIPS operator shall hold, or ensure that participants hold, sufficient liquid resources at all times,times as from the moment financial obligations are established, in all currencies in which it operates, to effect same-day settlement of paymentfinancial obligations in a wide range of potential stress scenarios. Where appropriate, this shall include intraday or multiday settlement. The stress scenarios shall include: (a) athe default, under extreme but plausible market conditions, of the participant which, together with its affiliates, has the largest aggregate paymentfinancial obligation; and (b) other scenarios in accordance with paragraph 11.
4. 4. A SIPS operator settling one-sided payments in euro shall hold, or ensure that participants hold, sufficient liquid resources, in accordance with paragraph 3, to effect timely settlement of paymentfinancial obligations in the event of a default of the participant which, together with its affiliates, has the largest aggregate paymentfinancial obligation as determined by paragraph 3(a)3(a), in any of the following ways:
(a)((a)) in cash with the Eurosystem; or
(b)in eligible collateral as defined in the collateral framework of the Eurosystem laid down in Guideline (EU) 2015/510 of the European Central Bank (ECB/2014/60) (5) and Guideline ECB/2014/31 of the European Central Bank (6) provided that the SIPS operator can demonstrate that such collateral is readily available and convertible into cash on a same-day basis using prearranged and highly reliable funding arrangements, including in stressed market conditions.
5. 5. A SIPS operator settling one-sided payments in euro shall hold, or ensure that participants hold, additional liquid resources, in accordance with paragraph 3(b), in the ways definedreferred to in paragraph 4 or with a creditworthy commercial bank in one or more of the following instruments:
(a)((a)) committed lines of credit;
(b)((b)) committed foreign exchange swaps;
(c)((c)) committed repos;
(d)((d)) assets asmeeting definedthe inrequirements of Article 7(1), which are held by a custodian;
(e)investments.
All of these instruments must allow cash to be available within a timeframe that allows the completion of same-day settlement. In particular, the SIPS operator must be able to demonstrate that non-cash instruments are readily available and convertible into cash on a same-day basis using prearranged and highly reliable funding arrangements, including in stressed market conditions.
The SIPS operator shall be prepared to demonstrate to the competent authority, based on an adequate internal assessment, that the commercial bank is creditworthy.
((a))the peak historic price volatilities of the above mentioned assets;
((b))shifts in other market factors including, inter alia, price determinants and yield curves;
((c))one or more participant defaults on the same day and on different subsequent days;
((d))simultaneous pressures in funding and assets markets;
((e))a spectrum of forward-looking stress scenarios in a variety of extreme but plausible market conditions.
6. 6. A SIPS operator settling two-sided paymentspayments, or one-sided payments in currencies other than the euroeuro, shall hold, or ensure that participants hold, sufficient liquid resources, in accordance with paragraph 3, in the ways definedreferred to in paragraph 5.
7. 7. Where a SIPS operator supplements the resources referred to in paragraph 3 with other assets, these assets shall be likely to be marketable or acceptable as collateral (for(for, e.g.e.g., lines of credit, swaps, or repos) on an ad hoc basis following a default, even if this cannot be reliably prearranged or guaranteed under extreme but plausible market conditions. Where a participant supplements the resources referred to in paragraph 3 with other assets, the SIPS operator shall ensure that these other assets meet the requirements set out in the first sentence.sentence of this paragraph. Assets shall be presumed asto be likely to be marketable or acceptable as collateral if the SIPS operator has taken into account the rules and practices of the relevant central bank on the eligibility of collateral.
8. 8. A SIPS operator shall not assume that emergency central bank credit will be available.
9. 9. A SIPS operator shall carry out due diligence to verify that each provider of the SIPS'SIPS's liquid resourcesresources, underas referred to in paragraph 3: (a) has sufficient and up-to-date information to understand and to manage itsthe liquidity risks associated with the provision of cash or assets; and (b) has the capacity to provide cash or assets as required. AThe SIPS operator shall review its compliance with the due diligence obligation at least annually. Only entities with access to credit from the central bank of issue shall be accepted as liquidity providers. AThe SIPS operator shall regularly test itsthe SIPS's procedures for accessing the SIPSits liquid resources.
10. 10. A SIPS operator with access to central bank accounts, payment services or securities services shall use these services, where practicable.
11. 11. A SIPS operator shall, through rigorous stress testingtesting, determine howthe much cashamount and otherregularly assetstest arethe requiredsufficiency of its liquid resources to satisfy the requirements under paragraphs 3 and 4. ItIn conducting stress testing, the SIPS operator shall regularly review this amount, inter alia, by consideringconsider a wide range of relevant scenarios, including:including one or more participant defaults on the same day and on two or more subsequent days.
SuchWhen such scenarios shallare also take into accountconsidered, the design and operation of the SIPS;SIPS examineshall be taken into account and all entities that might pose material liquidity risks to the SIPS,SIPS including,shall interbe alia,examined, including settlement banks, nostro agents, custodian banks, liquidity providers,providers and linked FMIs;FMIs. and whereWhere appropriate, the scenarios shall cover a multiday period.
12. 12. A SIPS operator shall document its reasons for holding, and shall have appropriate governance arrangements relating to, the amount of cash and other assets maintained by the SIPS operatorit or by participants. It shall establish clear procedures for reporting the results of its stress tests to the Board.Board Itand shall use these results to evaluate the adequacy of and make adjustments to its liquidity risk-management framework.
13. 13. A SIPS operator shall establish clear rules and procedures enabling the SIPS to effect same-day and, where appropriate, timely intraday and multiday settlement of paymentfinancial obligations following the default of one or more of its participants. These rules and procedures shall:
(a)((a)) address unforeseen and potentially uncovered liquidity shortfalls;
(b)((b)) aim to avoid the unwinding, revocation or delay of same-day settlement of paymentfinancial obligations;
(c)((c)) indicate how to replenish the cash and other assets used by the SIPS during a stress event, to the extent required pursuant to paragraphs 3 to 5.