The Bank of Canada is announcing the addition of Secured General Collateral Notes (SGC Notes) as eligible collateral under its Standing Liquidity Facility (SLF), with the intent to support the development of this new market. The Bank has determined that these securities meet its assessment for SLF-eligible collateral, subject to the following criteria:
- SGC Notes must be sponsored by CDCC Clearing Members with an acceptable credit quality as deemed by the Bank.
- The pledgor of SGC Notes as collateral may not be the originator or sponsor (or any related entity of the originator or sponsor), nor the administrative agent, or similar service provider for the SGC Note series.
- The SGC Note Trust must hold unencumbered ownership interest in the underlying securities such that they are bankruptcy remote from the associated Sponsor Dealer and the underlying securities would be available to satisfy the obligations of the SGC Note Trust to holders of the associated SGC Notes in the event of the insolvency of CDCC or default by CDCC with respect to the repurchase transaction relating to such SGC Notes.
- CDCC must provide timely disclosure to all investors and the Bank of any significant change to the Program. Significant changes would include but are not limited to changes to concentration limits, eligible collateral securities, and the haircut policy for overcollateralization.
- The Bank reserves the right to reject a series of Notes for any reason, including the credit quality of sponsor.
- The SGC Notes pledged to the Bank would be subject to SLF concentration limits such that:
- The combined amount of covered bonds, term ABS, ABCP and SGC Notes originated or sponsored by a single institution pledged by a Lynx participant cannot be more than 5% of the total value of all the collateral pledged by that participant.
- Out of the total collateral pledged by a Lynx participant, total municipal government and private sector securities (including SGC Notes) pledged must not be more than 20% for participants that pledge their non-mortgage loan portfolio (NMLP), or 40% for participants that do not pledge their NMLP.
- SGC Notes pledged to the Bank will be subject to margin requirements as below:
Collateral type Remaining Maturity Up to 3 months >3-12 months Secured General Collateral Notes 2.25% 2.5%
The Bank is in the process of implementing necessary system updates to operationalize the acceptance of SGC Notes as SLF collateral. The Bank will communicate to market participants once it is operationally ready to accept the SGC Notes in its systems later in the year. The list of Assets Eligible as Collateral under the Bank of Canada’s Standing Liquidity Facility will also be updated at the same time.
For further information, please contact:
Director
Financial Markets Department
Bank of Canada