THE SINGLE MONETARY POLICY IN STAGE THREE

Chapter 6 - Elegible Assets

6.1 General Considerations

Article 18.1 of the ESCB/ECB Statute allows the ECB and the national central banks to transact in financial markets by buying and selling underlying assets outright or under repurchase agreements and requires all ESCB credit operations to be based on adequate collateral. Consequently, all ESCB liquidity-providing operations are based on underlying assets provided by the counterparties either in the form of the transfer of ownership of assets (in the case of outright transactions or repurchase agreements) or in the form of a pledge granted over relevant assets (in the case of collateralised loans)²³.

With the aim of protecting the ESCB from incurring losses in its monetary policy operations, ensuring the equal treatment of counterparties and enhancing operational efficiency, underlying assets have to fulfil certain criteria in order to be eligible for ESCB monetary policy operations.

It is recognised that the harmonisation of eligibility criteria throughout the euro area would contribute to ensuring equal treatment and operational efficiency. At the same time, due attention has to be paid to existing differences in financial structure across Member States. A distinction is therefore made, essentially for purposes internal to the ESCB, between two categories of assets eligible for ESCB monetary policy operations. These two categories are referred to as "tier one" and "tier two", respectively:

tier one consists of marketable debt instruments fulfilling uniform Monetary Union-wide eligibility criteria specified by the ECB;
tier two consists of additional assets, marketable and non-marketable, which are of particular importance for national financial markets and banking systems and for which eligibility criteria are established by national central banks, subject to the minimum eligibility criteria established by the ECB. The specific eligibility criteria for tier two applied by the respective national central banks are subject to approval by the ECB.

No distinction is made between the two tiers with regard to the quality of the assets and their eligibility for the various types of ESCB monetary policy operations (except that tier two assets are not normally used by the ESCB in outright transactions). The eligibility criteria for underlying assets to ESCB monetary policy operations are the same as those applied for underlying assets to intraday credit.

Tier one and tier two assets are subject to the risk control measures specified in Section 6.4.

ESCB counterparties may use eligible assets on a cross-border basis, i.e. they may obtain funds from the central bank of the Member State in which they are established by making use of assets located in another Member State (see Section 6.6).

6.2 Tier One Assets

The ECB establishes and maintains a list of tier one assets. This list is available to the public.

Debt certificates issued by the ESCB are listed as tier one assets.

The following eligibility criteria are applied to other tier one assets (see also Table 4):

They must be debt instruments²⁴;
They must meet high credit standards. In the assessment of the credit standard of debt instruments, the ECB takes into account, inter alia, available ratings by market agencies as well as certain institutional criteria which would ensure particularly high protection of the holders²⁵;
They may not be issued or guaranteed by the counterparty or any other entity with which the counterparty has close links, as defined according to Article 1 (fifth indent) of the First Banking Co-ordination Directive²⁶ ²⁷;
They must be located in the euro area (so that realisation is subject to the law of a Member State of the euro area), transferable in book-entry form and deposited with a national central bank or with a central securities depository which fulfils the minimum standards established by the ECB;
They must be denominated in euro²⁸;
They must be issued (or guaranteed) by entities established in the EEA²⁹;
They must, at least, be listed or quoted on a regulated market as defined according to the Investment Services Directive³⁰, or listed, quoted or traded on certain non-regulated markets as specified by the ECB³¹. Furthermore, market liquidity may be taken into account by the ECB when determining the eligibility of individual debt instruments.

National central banks may decide not to accept as underlying assets the following instruments despite their inclusion in the tier one list:

Debt instruments falling due for repayment before the next valuation date or the maturity date of the monetary policy operation for which they are used as underlying assets³²;
Debt instruments with a coupon payment occurring in the period until the next valuation date.

All tier one assets may be used in a cross-border context, implying that a counterparty can receive credit from its home national central bank by making use of tier one instruments located in another Member State (see Section 6.6).

Tier one assets are eligible for all monetary policy operations which are based on underlying assets, i.e. reverse and outright open market transactions and the marginal lending facility.

6.3 Tier Two Assets

In addition to debt instruments fulfilling the eligibility criteria for tier one, national central banks may consider as eligible other assets, "tier two assets", which are of particular importance for their national financial markets and banking systems. Eligibility criteria for tier two assets are established by the national central banks in accordance with the minimum eligibility criteria stated below. The specific national eligibility criteria for tier two assets are subject to approval by the ECB. The national central banks establish and maintain national lists of eligible tier two assets. These lists are available to the public.

Tier two assets have to fulfil the following minimum eligibility criteria (see also Table 4):

They must be either debt instruments (marketable or non-marketable) or equities (traded on a regulated market as defined according to the Investment Services Directive³³). Debt instruments and equities issued by credit institutions and not complying strictly with the criteria set out in Article 22(4) of the UCITS Directive are normally not eligible in tier two. However, the ECB may authorise national central banks to include in their tier two lists such assets under certain conditions and restrictions;
They must be debt obligations against, or equities of, (or be guaranteed by) entities which are deemed financially sound by the national central bank which has included the assets in its tier two list;
They may not be debt obligations against or equities of the counterparty or any other entity with which the counterparty has close links, as defined according to Article 1 (fifth indent) of the First Banking Co-ordination Directive²⁶ ³⁴;
They must be easily accessible to the national central bank which has included the assets in its tier two list;
They would normally have to be located in the euro area (so that realisation is subject to the law of a Member State of the euro area);
They would normally have to be denominated in euro³⁵;
They would normally have to be issued (or guaranteed) by entities established in the euro area.

However, the ECB may authorise national central banks to include in their tier two lists debt instruments which are: 1) located in EEA countries outside the euro area; 2) issued by entities established in EEA countries outside the euro area; and 3) denominated in EEA-currencies and other widely traded currencies. Such authorisation is subject to the preservation of operational efficiency and the exercise of appropriate control over the specific legal risks relating to such debt instruments.

National central banks may decide not to accept as underlying assets the following assets despite their inclusion in the tier two lists:

Debt instruments falling due for repayment before the next valuation date or the maturity date of the monetary policy operation for which they are used as underlying assets³⁶;
Debt instruments with a coupon payment occurring in the period until the next valuation date.

Tier two assets may normally be used in a cross-border context, implying that a counterparty can receive funds from its home national central bank by making use of assets located in another Member State (see Section 6.6). However, if the ECB were to authorise national central banks to include "foreign" assets³⁷ in their tier two lists, the cross-border use of any such instrument may be restricted so that counterparties may use it only for receiving funds directly from the national central bank which has included the asset in its tier two list.

Tier two assets are eligible for reverse open market transactions and the marginal lending facility. Tier two assets are not normally used in ESCB outright transactions.

Table 4. Eligible assets

Criteria Tier one Tier two

Type of asset •ESCB debt certificates;
•Other marketable debt instruments (excluding "hybrid" instruments). •Marketable debt instruments;
•Non-marketable debt instruments;
•Equities traded on a regulated market.

Settlement procedures •Instruments must be centrally deposited in book-entry form with national central banks or a CSD fulfilling ECB minimum standards. •Assets must be easily accessible to the national central bank which has included them in its tier two list.

Type of issuer •ESCB;
•Public sector;
•Private sector ^a);
•International and supra-national institutions. •Public sector;
•Private sector^b).

Credit standard

•The issuer (guarantor) must be deemed financially sound by the ECB.

•The issuer/debtor (guarantor) must be deemed financially sound by the national central bank which has included the asset in its tier two list.

Place of establishment of the issuer (or guarantor) •EEA^c). •Euro area;
•Establishment in other EEA countries can be accepted subject to ECB approval.

Location of asset •Euro area. •Euro area;
•Location in other EEA countries can be accepted subject to ECB approval.

Currency •Euro^d). •Euro^d);
•Other EEA or widely traded currencies can be accepted subject to ECB approval.

Memo item:

Cross-border use

•Yes

•For "domestic" assets: Yes;
•For "foreign" assets: Possibly restricted.

Notes to the table:

a) Debt instruments issued by credit institutions and not complying strictly with the criteria set ou in Article 22(4) of the UCITS Directive (Directive 88/220/EEC amending Directive 85/611/EEC) are accepted in tier one only under the following three conditions. Firstly, each issue as such needs to be awarded a rating (by a rating agency) which indicates, in the view of the ESCB, that the debt instrument meets high credit standards. Secondly, the debt instruments need to be listed or quoted on a regulated market as defined according to the Investment Services Directive (Directive ../EEC). Thirdly, the debt instruments need to be issued under a prospectus complying with the requirements of the Prospectus Directive (Directive 89/298/EEC).

b) Debt instruments and equities issued by credit institutions and not complying strictly with the criteria set out in Article 22(4) of the UCITS Directive are normally not eligible in tier two. However, the ECB may authorise national central banks to include in their tier two lists such assets under certain conditions and restrictions.

c) The requirement that the issuing entity must be established in the EEA does not apply to international and supra-national institutions.

d) Expressed as such or in the national denominations of the euro.

6.4 Risk Control Measures

Risk control measures are applied to the assets underlying ESCB monetary policy operations in order to protect the ESCB against the risk of financial loss if underlying assets have to be realised owing to the default of a counterparty. The risk control measures at the disposal of the ESCB are described in Box 7.

Box 7. Risk control measures

Initial margins

The ESCB may apply initial margins to the underlying assets used in its liquidity-providing reverse transactions. This implies that counterparties need to provide underlying assets with a value at least equal to the liquidity provided by the ESCB plus the value of the initial margin.

Valuation haircuts

The ESCB may apply "valuation haircuts" in the valuation of underlying assets. This implies that the value of the underlying asset is calculated as the market value of the asset less a certain percentage (haircut).

Variation margins (marking to market)

The ESCB may require a specified margin to be maintained over time on the underlying assets used in its liquidity-providing reverse transactions. This implies that if the value, measured on a regular basis, of the underlying assets falls below a certain level, counterparties have to supply additional assets (or cash). Similarly, if the value of the underlying assets, following their revaluation, exceeds the amount owed by the counterparties plus the variation margin, the central bank returns excess assets (or cash) to the counterparty.

Limits in relation to issuers/debtors or guarantors

The ESCB may apply limits to the exposure vis-à-vis issuers/debtors or guarantors.

Additional guarantees

The ESCB may require additional guarantees by financially sound entities in order to accept certain assets.

Exclusion

The ESCB may exclude certain assets from use in its monetary policy operations.

6.4.1 Risk Control Measures for Tier One Assets

The appropriate risk control measures for tier one assets are determined by the ECB. Risk control measures for tier one assets are broadly harmonised across the euro area³⁸. The risk control framework for tier one assets includes the following main elements:

Initial margins are applied by adding a certain percentage of the amount of the credit to the requirement for the value of underlying assets. Two different initial margins are applied, taking into account the exposure time for the ESCB:

one margin for intraday and overnight credit; and
a higher margin for credit operations with a maturity of more than one day;

In addition, individual debt instruments may be subject to specific "valuation haircuts". These haircuts are differentiated according to the residual maturity of the debt instruments. The haircuts are applied by deducting a certain percentage from the market value of the underlying asset;
Depending on both the jurisdiction and national operational systems, national central banks allow for the pooling of underlying assets and/or require the earmarking of the assets used in each individual transaction. In pooling systems, the counterparty makes a pool of sufficient underlying assets available to the central bank to cover the related credits received from the central bank, thus implying that individual assets are not linked to specific credit operations. In contrast, in an earmarking system, each credit operation is linked to specific identifiable assets;
In pooling systems, the assets included in the pool are subject to daily valuation;
In earmarking systems, the valuation of underlying assets is carried out at least on a weekly basis. In this case, the settlement date of the main refinancing operations (normally each Wednesday) is a valuation date. In addition, the settlement dates of the longer-term refinancing operations are valuation dates;
On valuation dates, national central banks calculate the required value of underlying assets taking into account changes to outstanding credit volumes, the valuation principles outlined in Section 6.5 and the required initial margins and valuation haircuts;
If after valuation the underlying assets do not match the requirements as calculated on that day, symmetric margin calls are performed. In order to reduce the frequency of margin calls, trigger points may be specified. Depending on the jurisdiction, central banks may require margin calls either to be effected through supply of additional assets or by means of cash payments. This implies that if the market value were to fall below the lower trigger point, counterparties would have to supply additional assets (or cash). Similarly, if the market value of the underlying assets, following their revaluation, were to exceed the upper trigger point, the national central bank would return excess assets (or cash) to the counterparty;
In pooling systems, by definition, counterparties may substitute underlying assets on a daily basis;
In earmarking systems, the substitution of underlying assets may be permitted by national central banks;
The ECB may at any time decide to exclude individual debt instruments from the list of eligible tier one instruments.

6.4.2 Risk Control Measures for Tier Two Assets

The appropriate risk control measures for tier two assets are compiled by the national central bank which has included the asset in its tier two list. The application of risk control measures by national central banks is subject to ECB approval. The ESCB aims at ensuring non-discriminatory conditions for tier two assets across the euro area when establishing the appropriate risk control measures. Within this framework, the same initial margins according to exposure time are applied as for tier one assets. The valuation haircuts applied to tier two assets reflect the specific risks associated with these assets and are at least as stringent as the valuation haircuts applied to tier one assets. In this respect, a particularly cautious approach is applied to solvency risk, equity price risk and foreign exchange risk. In addition, national central banks may apply limits to their acceptance of tier two assets, they may require additional guarantees and they may at any time decide to exclude individual assets from their tier two lists.

6.5 Valuation Principles for Underlying Assets

When determining the value of underlying assets used in reverse transactions, the ESCB applies the following principles:

For each marketable asset eligible in tier one or tier two, the ESCB specifies a single reference market to be used as a price source. This also implies that for assets listed, quoted or traded on more than one market, only one of these markets is used as a price source for the relevant asset;
For each reference market, the ESCB defines the most representative price to be used for the calculation of market values. If more than one price is quoted, the lowest of these prices (normally the bid price) is used;
The value of marketable assets is calculated on the basis of the most representative price on the business day preceding the valuation date;
In the absence of a representative price for a particular asset on the business day preceding the valuation date, the last trading price is used. If no trading price is available, the national central bank will define a price, taking into account the last price identified for the asset in the reference market;
The market value of a debt instrument is calculated including accrued interest;
For reverse transactions based on repurchase agreements, income flows related to an asset which are received during the life of the reverse transaction are, as a rule, transferred to the counterparty only on the next valuation date and on condition that the transaction after the revaluation is fully covered by eligible assets. The coupon payment is capitalised at the rate of the monetary policy operation from its payment date until it is transferred to the counterparty³⁹;
For reverse transactions based on pledge arrangements, coupon payments are made directly to the counterparty. In such a case, counterparties are required to compensate for a reduction in the value of the underlying asset due to the coupon payment by pledging assets of an equivalent value at, or prior to, the date on which the coupon payment results in a revaluation. Such changes can be efficiently handled in a pool of collateral;
For non-marketable tier two assets, the national central bank which has included the asset in its tier two list specifies separate valuation principles.

6.6 Cross-Border Use of Eligible Assets

ESCB counterparties may use eligible assets on a cross-border basis, i.e. they may obtain funds from the central bank of the Member State in which they are established by making use of assets located in another Member State. A mechanism is being developed by central banks to ensure that all eligible assets may be used on a cross-border basis. This is the Correspondent Central Banking Model (CCBM), under which central banks act as custodians ("correspondents") for each other in respect of securities accepted in their local depository or settlement system. The model may be used for all tier one assets and for tier two assets that are marketable securities. Specific solutions may be used for certain types of non-marketable tier two assets. (Details of these solutions will be provided in separate documentation.) The CCBM as well as the specific solutions for non-marketable tier two assets may be used in the provision of overnight and intraday liquidity, in reverse transactions (taking the form of repurchase agreements or pledges) as well as in outright transactions⁴⁰. The CCBM is illustrated in Chart 3 below.

Chart 3. The Correspondent Central Banking Model

Use of eligible assets deposited in country B by a counterparty established in country A in order to obtain credit from the national central bank of country A.

All national central banks maintain securities accounts with each other for the purpose of the cross-border use of eligible assets. The precise procedure of the CCBM depends on whether the eligible assets are earmarked by the home central bank for each individual transaction or whether they are held in a pool of underlying assets at the home central bank (see Section 6.4.1):

In an earmarking system, the counterparty instructs (via its own custodian, if necessary), as soon as its bid for credit is accepted by the home central bank, the securities settlement system in the country in which its securities are held to transfer them to the central bank of that country for the account of the home central bank. Once the home central bank has been informed by the correspondent central bank that the collateral has been received, it transfers the funds to the counterparty. Central banks do not advance funds until they are certain that the counterparties' securities have been received by the correspondent central bank. Where necessary to meet settlement deadlines, counterparties may be able to pre-deposit assets with correspondent central banks for the account of their home central bank using the CCBM procedures.
In a pooling system, the counterparty is at any time able to transfer securities to the correspondent central bank for the account of the home central bank. Once the home central bank has been informed by the correspondent central bank that the securities have been received, it will transfer these securities to the pool account of the counterparty.

Underlying assets may be used on a cross-border basis in the settlement of all types of operations in which the ESCB provides liquidity against eligible assets. The precise procedures to be followed by counterparties in the cross-border use of assets may, for operational and legal reasons, differ slightly between Member States and are contained in documentation provided by each central bank.

23. Liquidity-absorbing outright and reverse open market operations are also based on underlying assets. For underlying assets used in liquidity-absorbing reverse open market operations, the eligibility criteria are identical to those applied for underlying assets used in liquidity-providing reverse open market operations.

24. Debt instruments convertible into equity (or with similar characteristics) and debt instruments which afford rights subordinate to the claims of holders of other debt instruments of the issuer are excluded.

25. Debt instruments issued by credit institutions and not complying strictly with the criteria set out in Article 22(4) of the UCITS Directive (Directive 88/220/EEC amending Directive 85/611/EEC) are accepted in tier one only if each issue as such is awarded a rating (by a rating agency) which indicates, in the view of the ESCB, that the debt instrument meets high credit standards.

26. Directive 77/780/EEC OJ L 322 of 17 December 1977, as amended by Directive ../EC, OJ L 168 of 29 June 1995. Article 2(1) of Directive ../EC reads as follows:
"Close links shall mean a situation in which two or more natural or legal persons are linked by:
(a) participation, which shall mean the ownership, direct or by way of control, of 20% or more of the voting rights or capital of an undertaking, or
(b) control, which shall mean the relationship between a parent undertaking and a subsidiary, in all the cases referred to in Article 1 (1) and (2) of Directive 83/349/EEC, or a similar relationship between any natural or legal person and an undertaking; any subsidiary undertaking of a subsidiary undertaking shall also be considered a subsidiary undertaking of the parent undertaking which is at the head of those undertakings. A situation in which two or more natural or legal persons are permanently linked to one and the same person by a control relationship shall also be regarded as constituting a close link between such persons."

27. This provision does not apply to the close links between the counterparty and the public authorities of EEA countries. Also exempted from the definition of close links are cases where such debt instruments were protected by specific legal safeguards, e.g. instruments complying with the criteria set out in Article 22(4) of the UCITS Directive (Directive 85/611/EEC as amended by Directive 88/220/EEC)

28. Expressed as such or in the national denominations of the euro.

29. The requirement that the issuing entity must be established in the EEA does not apply to international and supra-national institutions.

30. Directive ../EEC, Council Directive of 10 May 1993 on investment services in the securities field, OJ L 141 of 11 June 1993, page 27 ff.

31. Debt instuments issued by credit institutions and not complying strictly with thte criteria set out in Article 22(4) of the UCITS Directive (Directive 88/220/EEC amending Directive 85/611/EEC) are accepted in tier one only if they are listed or quoted on a regulated market as defined according to the Investment Services Directive (Directive ../EEC) and issued under a prospectus complying with the requirements of the Prospectus Directive (Directive 89/298/EEC).

32. If the national central banks were to allow the use of instruments with a maturity shorter than the monetary policy operations for which they serve as underlying assets, counterparties would be required to replace such assets at, or prior to, maturity.

33. Directive ../EEC, Council Directive of 10 May 1993 on investment services in the securities field, OJ L 141 of 11 June 1993, page 27 ff.

34. This provision does not apply to close links between the counterparty and the public authorities of EEA countries. Furthermore, trade bills, for which at least one entity (other than a credit institution) is liable in addition to the counterparty, are not considered to be debt obligations against the counterparty. Also exempted from the definition of close links are cases where such debt instruments were protected by specific legal safeguards, e.g. instruments complying with the criteria set out in Article 22(4) of the UCITS Directive (Directive 85/611/EEC as amended by Directive 88/220/EEC); any exemptions would need to be authorised by the ECB.

35. Expressed as such or in the national denominations of the euro.

36. If the national central banks were to allow the use of instruments with a maturity shorter than the monetary policy operations for which they serve as underlying assets, counterparties would be required to replace such assets at, or prior to, maturity.

37. "Foreign" assets are defined as assets fulfilling at least one of the following three criteria: they are issued by entities established outside the euro area; they are not denominated in euro; and they are not located in the euro area.

38. Owing to operational differences across Member States in respect of the procedures for counterparties' delivery of underlying assets to the national central banks (in the form of a pool of collateral pledged with the national central bank or as repurchase agreements based on individual assets specified for each transaction), minor differences may occur with regard to the timing of the valuation and other operational features of the margin framework.

39. National central banks may decide not to accept as underlying assets in reverse transactions debt instruments with a coupon payment occurring in the period until the next valuation date.

40. The ECB may decide to restrict the cross-border use of "foreign" tier two assets (see Section 6.3).

ECB - European Central Bank

Criteria	Tier one	Tier two
Type of asset	•ESCB debt certificates; •Other marketable debt instruments (excluding "hybrid" instruments).	•Marketable debt instruments; •Non-marketable debt instruments; •Equities traded on a regulated market.
Settlement procedures	•Instruments must be centrally deposited in book-entry form with national central banks or a CSD fulfilling ECB minimum standards.	•Assets must be easily accessible to the national central bank which has included them in its tier two list.
Type of issuer	•ESCB; •Public sector; •Private sector ^a); •International and supra-national institutions.	•Public sector; •Private sector^b).
Credit standard	•The issuer (guarantor) must be deemed financially sound by the ECB.	•The issuer/debtor (guarantor) must be deemed financially sound by the national central bank which has included the asset in its tier two list.
Place of establishment of the issuer (or guarantor)	•EEA^c).	•Euro area; •Establishment in other EEA countries can be accepted subject to ECB approval.
Location of asset	•Euro area.	•Euro area; •Location in other EEA countries can be accepted subject to ECB approval.
Currency	•Euro^d).	•Euro^d); •Other EEA or widely traded currencies can be accepted subject to ECB approval.
Memo item: Cross-border use	•Yes	•For "domestic" assets: Yes; •For "foreign" assets: Possibly restricted.

Notes to the table:
a)	Debt instruments issued by credit institutions and not complying strictly with the criteria set ou in Article 22(4) of the UCITS Directive (Directive 88/220/EEC amending Directive 85/611/EEC) are accepted in tier one only under the following three conditions. Firstly, each issue as such needs to be awarded a rating (by a rating agency) which indicates, in the view of the ESCB, that the debt instrument meets high credit standards. Secondly, the debt instruments need to be listed or quoted on a regulated market as defined according to the Investment Services Directive (Directive ../EEC). Thirdly, the debt instruments need to be issued under a prospectus complying with the requirements of the Prospectus Directive (Directive 89/298/EEC).
b)	Debt instruments and equities issued by credit institutions and not complying strictly with the criteria set out in Article 22(4) of the UCITS Directive are normally not eligible in tier two. However, the ECB may authorise national central banks to include in their tier two lists such assets under certain conditions and restrictions.
c)	The requirement that the issuing entity must be established in the EEA does not apply to international and supra-national institutions.
d)	Expressed as such or in the national denominations of the euro.

23.	Liquidity-absorbing outright and reverse open market operations are also based on underlying assets. For underlying assets used in liquidity-absorbing reverse open market operations, the eligibility criteria are identical to those applied for underlying assets used in liquidity-providing reverse open market operations.
24.	Debt instruments convertible into equity (or with similar characteristics) and debt instruments which afford rights subordinate to the claims of holders of other debt instruments of the issuer are excluded.
25.	Debt instruments issued by credit institutions and not complying strictly with the criteria set out in Article 22(4) of the UCITS Directive (Directive 88/220/EEC amending Directive 85/611/EEC) are accepted in tier one only if each issue as such is awarded a rating (by a rating agency) which indicates, in the view of the ESCB, that the debt instrument meets high credit standards.
26.	Directive 77/780/EEC OJ L 322 of 17 December 1977, as amended by Directive ../EC, OJ L 168 of 29 June 1995. Article 2(1) of Directive ../EC reads as follows: "Close links shall mean a situation in which two or more natural or legal persons are linked by: (a) participation, which shall mean the ownership, direct or by way of control, of 20% or more of the voting rights or capital of an undertaking, or (b) control, which shall mean the relationship between a parent undertaking and a subsidiary, in all the cases referred to in Article 1 (1) and (2) of Directive 83/349/EEC, or a similar relationship between any natural or legal person and an undertaking; any subsidiary undertaking of a subsidiary undertaking shall also be considered a subsidiary undertaking of the parent undertaking which is at the head of those undertakings. A situation in which two or more natural or legal persons are permanently linked to one and the same person by a control relationship shall also be regarded as constituting a close link between such persons."
27.	This provision does not apply to the close links between the counterparty and the public authorities of EEA countries. Also exempted from the definition of close links are cases where such debt instruments were protected by specific legal safeguards, e.g. instruments complying with the criteria set out in Article 22(4) of the UCITS Directive (Directive 85/611/EEC as amended by Directive 88/220/EEC)
28.	Expressed as such or in the national denominations of the euro.
29.	The requirement that the issuing entity must be established in the EEA does not apply to international and supra-national institutions.
30.	Directive ../EEC, Council Directive of 10 May 1993 on investment services in the securities field, OJ L 141 of 11 June 1993, page 27 ff.
31.	Debt instuments issued by credit institutions and not complying strictly with thte criteria set out in Article 22(4) of the UCITS Directive (Directive 88/220/EEC amending Directive 85/611/EEC) are accepted in tier one only if they are listed or quoted on a regulated market as defined according to the Investment Services Directive (Directive ../EEC) and issued under a prospectus complying with the requirements of the Prospectus Directive (Directive 89/298/EEC).
32.	If the national central banks were to allow the use of instruments with a maturity shorter than the monetary policy operations for which they serve as underlying assets, counterparties would be required to replace such assets at, or prior to, maturity.
33.	Directive ../EEC, Council Directive of 10 May 1993 on investment services in the securities field, OJ L 141 of 11 June 1993, page 27 ff.
34.	This provision does not apply to close links between the counterparty and the public authorities of EEA countries. Furthermore, trade bills, for which at least one entity (other than a credit institution) is liable in addition to the counterparty, are not considered to be debt obligations against the counterparty. Also exempted from the definition of close links are cases where such debt instruments were protected by specific legal safeguards, e.g. instruments complying with the criteria set out in Article 22(4) of the UCITS Directive (Directive 85/611/EEC as amended by Directive 88/220/EEC); any exemptions would need to be authorised by the ECB.
35.	Expressed as such or in the national denominations of the euro.
36.	If the national central banks were to allow the use of instruments with a maturity shorter than the monetary policy operations for which they serve as underlying assets, counterparties would be required to replace such assets at, or prior to, maturity.
37.	"Foreign" assets are defined as assets fulfilling at least one of the following three criteria: they are issued by entities established outside the euro area; they are not denominated in euro; and they are not located in the euro area.
38.	Owing to operational differences across Member States in respect of the procedures for counterparties' delivery of underlying assets to the national central banks (in the form of a pool of collateral pledged with the national central bank or as repurchase agreements based on individual assets specified for each transaction), minor differences may occur with regard to the timing of the valuation and other operational features of the margin framework.
39.	National central banks may decide not to accept as underlying assets in reverse transactions debt instruments with a coupon payment occurring in the period until the next valuation date.
40.	The ECB may decide to restrict the cross-border use of "foreign" tier two assets (see Section 6.3).