Article 7 Specific requirements for eligible assets

Counterparties shall only use the assets referred to in points (f), (g) and (j) to (p) of Article 4(1) as collateral where their credit quality has been assessed as credit quality steps 1, 2 or 3 in accordance with Article 6.

Counterparties shall only use the assets referred to in points (c), (d) and (e) of Article 4(1) that are not denominated or funded in the issuer's domestic currency as collateral where their credit quality has been assessed as credit quality steps 1, 2, 3 or 4 in accordance with Article 6.

Counterparties shall establish procedures for the treatment of assets exchanged as collateral in accordance with paragraphs 1 and 2 whose credit quality is subsequently assessed to be:

1. (a)

   step 4 or beyond for assets referred to in paragraph 1;

2. (b)

   beyond step 4 for assets referred to in paragraph 2.

The procedures referred to in paragraph 3 shall meet all of the following requirements:

1. (a)

   they shall prohibit counterparties from exchanging additional assets assessed to be of the credit quality referred to in paragraph 3;

2. (b)

   they shall establish a schedule by which assets assessed to be of the credit quality referred to in paragraph 3 and already exchanged as collateral are replaced over a period of time not exceeding 2 months;

3. (c)

   they shall set a credit quality step that requires the immediate replacement of the assets referred to in paragraph 3;

4. (d)

   they shall allow counterparties to increase the haircuts on the relevant collateral insofar as the collateral has not been replaced in accordance with the schedule referred to in point (b).

Counterparties shall not use assets classes referred to in Article 4(1) as collateral where they have no access to the market for those assets or where they are unable to liquidate those assets in a timely manner in case of default of the posting counterparty.