MIR 4.10.3

A Recognised Clearing House must, for the purposes of meeting the requirement in Rule 4.10.1, establish and implement a collateral management system that is well designed and operationally flexible to enable ongoing monitoring and management of collateral. A Recognised Clearing House must also ensure that it is confident of the collateral's value in the event of liquidation and its capacity to use that collateral quickly, especially in stressed market conditions. Such a system must, at a minimum:

(a) allow for timely calculation and execution of margin calls, accurate daily reporting of initial and variation margin, and the management of any disputes;
(b) track the extent of reuse of collateral by the Recognised Clearing House (both cash and non-cash) and the rights of the Recognised Clearing House to the collateral;
(c) accommodate timely deposit, withdrawal, substitution and liquidation of collateral;
(d) regularly adjust its requirements for acceptable collateral in accordance with changes in underlying risks;
(e) establish prudent valuation practices, including daily marking to market of the Recognised Clearing House's collateral;
(f) develop haircuts that are regularly tested, independently validated at least annually and take into account stressed market conditions;
(g) reduce the need for procyclical adjustments, by establishing, to the extent practicable and prudent, stable and conservative haircuts that are calibrated to include periods of stressed market conditions;
(h) establish concentration limits which are periodically reviewed by the Recognised Clearing House to determine their adequacy or imposing concentration charges to avoid concentrated holdings of certain assets where that would significantly impair the ability to liquidate such assets quickly without significant adverse price effects; and
(i) mitigate, if it accepts collateral held in another jurisdiction or governed by non-Abu Dhabi Global Market law, the risks and exposures associated with such use, including considering foreign exchange risk, legal and operational challenges such as differences in operating hours of foreign custodians and central securities depositories and conflicts of law risks. Such measures must ensure that the collateral can be used in a timely manner and should identify and address any significant liquidity effects and legal risks.