Assets that meet the conditions in Rules A9.2.2 to A9.2.9 are considered to be HQLA. Those assets are considered to be HQLA as they can be converted easily and immediately into cash at little or no loss of value. To qualify as HQLA, assets should be liquid in markets during a time of stress. In determining whether or not the market for an asset can be relied upon to raise liquidity during a time of stress, the following factors should be taken into account:
1. fundamental characteristics, for example:
a. low risk: high credit standing of the Issuer and a low degree of subordination, low duration, low legal risk, low inflation risk, denomination in a convertible currency with low foreign exchange risk;
b. ease and certainty of valuation;
c. low correlation with risky assets, not subject to wrong-way risk; and
d. listing on a developed and recognised exchange.
2. market-related characteristics, for example:
a. active and sizeable market, including active outright sale or repo markets at all times. This can be demonstrated through:
i. historical evidence of market breadth and market depth (low bid-ask spreads, high trading volumes, large and diverse number of market participants); or
ii. existence of robust market infrastructure (presence of multiple committed market makers);
b. low price volatility, including historical evidence of relative stability of market terms (e.g. prices and haircuts) and volumes during stressed periods; or
c. 'flight to quality', i.e. that historically the market has shown a tendency to move into these types of high quality assets in a systemic crisis.