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.
2. A SIPS operator shall put in place operational and analytical tools, which enable it to identify, measure and monitor settlement and funding flows, including the use of intraday liquidity, on an on-going and timely basis.
3. A SIPS operator shall hold, or ensure that participants hold, sufficient liquid resources at all times, in all currencies in which it operates, to effect same-day settlement of payment obligations in a wide range of potential stress scenarios. Where appropriate, this shall include intraday or multiday settlement. The stress scenarios shall include: (a) a default, under extreme but plausible market conditions, of the participant which, together with its affiliates, has the largest aggregate payment obligation; and (b) other scenarios in accordance with paragraph 11.
4. A SIPS operator settling one-sided payments in euro shall hold, or ensure that participants hold, liquid resources, in accordance with paragraph 3, to effect timely settlement of payment obligations in the event of a default of the participant which, together with its affiliates, has the largest aggregate payment obligation as determined by paragraph 3(a) in any of the following ways:
in cash with the Eurosystem; or
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 Eurosystem5, in particular if the SIPS operator has access to Eurosystem standing facilities.
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 defined in paragraph 4 or with a creditworthy commercial bank in one or more of the following instruments:
committed lines of credit;
committed foreign exchange swaps;
committed repos;
assets as defined in Article 7(1), which are held by a custodian;
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.
The SIPS operator shall be prepared to demonstrate to the competent authority, based on an adequate internal assessment, that the commercial bank is creditworthy.
6. A SIPS operator settling two-sided payments or one-sided payments in currencies other than the euro shall hold, or ensure that participants hold, liquid resources, in accordance with paragraph 3, in ways defined in paragraph 5.
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 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. Assets shall be presumed as 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. A SIPS operator shall not assume that emergency central bank credit will be available.
9. A SIPS operator shall carry out due diligence to verify that each provider of the SIPS' liquid resources under paragraph 3: (a) has sufficient and up-to-date information to understand and to manage its liquidity risks associated with the provision of cash or assets; and (b) has the capacity to provide cash or assets as required. A 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. A SIPS operator shall regularly test its procedures for accessing the SIPS liquid resources.
10. A SIPS operator with access to central bank accounts, payment services or securities services shall use these services, where practicable.
11. A SIPS operator shall, through rigorous stress testing determine how much cash and other assets are required to satisfy the requirements under paragraphs 3 and 4. It shall regularly review this amount, inter alia, by considering a wide range of scenarios, including:
the peak historic price volatilities of the above mentioned assets;
shifts in other market factors including, inter alia, price determinants and yield curves;
one or more participant defaults on the same day and on different subsequent days;
simultaneous pressures in funding and assets markets;
a spectrum of forward-looking stress scenarios in a variety of extreme but plausible market conditions.
Such scenarios shall also take into account the design and operation of the SIPS; examine all entities that might pose material liquidity risks to the SIPS, including, inter alia, settlement banks, nostro agents, custodian banks, liquidity providers, and linked FMIs; and where appropriate, cover a multiday period.
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 operator or participants. It shall establish clear procedures for reporting the results of its stress tests to the Board. It shall use these results to evaluate the adequacy of and make adjustments to its liquidity risk-management framework.
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 payment obligations following the default of one or more of its participants. These rules and procedures shall:
address unforeseen and potentially uncovered liquidity shortfalls;
aim to avoid the unwinding, revocation or delay of same-day settlement of payment obligations;
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.