The Bank of Canada's Securities-Lending Program: Draft Terms and Conditions - Appendix B

Eligible Collateral for the Securities-Lending Program

The list of eligible collateral for the Bank's securities-lending program will consist of the following:

• Securities issued by the Government of Canada.
• Government of Canada stripped coupons and residuals.
• Securities guaranteed by the Government of Canada (including Canada Mortgage Bonds and NHA mortgage-backed securities (MBS) with a minimum pool size of $75 million).
• Securities issued or guaranteed by a provincial government.
• Bankers' acceptances and promissory notes (maximum term 364 days) with a minimum issuer credit rating of R1 (low) by the Dominion Bond Rating Service (DBRS), A-1 (mid) by Standard and Poor's (S&P) or P1 by Moody's Investors Service (Moody's).
• Commercial paper and short-term municipal paper (maximum term 364 days) with a minimum issuer credit rating of R1 (low) by DBRS, A-1 (mid) by S&P or P1 by Moody's.
• Corporate bonds and municipal bonds with a minimum long-term issuer credit rating of A (low) by DBRS, A- by S&P or A3 by Moody's.

The following conditions will be applied to the use of these securities as collateral:

• Only Canadian-dollar securities are eligible to be pledged as collateral.
• Securities used as collateral must be pledged using the Debt Clearing Service of the Canadian Depository for Securities Limited.
• No more than 20 per cent of the value of the collateral pledged by an institution should be the obligation of a single private sector issuer or related party. This condition does not apply for borrowings of less than $50 million.
• Securities issued by the pledgor of collateral (or any related party) cannot be used as collateral by the pledgor.
• The security must not have an embedded option or carry a right of conversion into equity securities.
• A minimum principal amount of $1 million of an individual security is required.

The following minimum margin requirements will be applied to securities loans. Note that, for securities with up to one year to maturity, the margins are adjusted by term divided by 365. The margin requirement is the greater of the margin rate corresponding to the security being lent and the margin rate of the securities being provided as collateral.

Margin Requirements (per cent)