(1) For an Authorised Person using the FCSA, eligible financial Collateral compomises:
(a) cash (as well as certificates of Deposit or other similar instruments issued by the Authorised Person) on Deposit with the Authorised Person;
(c) any debt security:
(i) with an Original Maturity of one year or less that has a short-term Credit Quality Grade of 3 or better as set out in Section 4.12; or
(d) any debt security issued by a bank that does not have an external credit assessment by a recognised ECAI if it fulfils the following criteria:
(i) any debt security which is listed on a regulated exchange;
(ii) the debt security is classified as senior debt, not subordinated to any other debt obligations of its Issuer;
(iii) all other rated debt Securities issued by the same Issuer which rank equally with the mentioned debt security have a long term or short term (as applicable) Credit Quality Grade by a recognised ECAI of "3" or better;
(iv) the Authorised Person is not aware of information to suggest that the issue would justify a Credit Quality Grade of below "3" as indicated in (iii) above; and
(v) the Authorised Person can demonstrate to the Regulator that the market liquidity of the debt security is sufficient to enable the Authorised Person to dispose the debt security at market price;
(e) any equity security (including convertible bonds) that is included in a main index; or
(f) any Unit in a Collective Investment Fund where:
(i) a price for the units is publicly quoted daily; and
(ii) at least 90% of the deposited property of the Fund is invested in instruments listed in this Rule.
(2) Cash-funded CLNs issued by an Authorised Person against Exposures in the Non-Trading Book which fulfil the criteria for eligible Credit Derivatives must be treated as cash collateralised transactions.
(3) Cash, mentioned in (1)(a), includes cash on Deposit, certificates of Deposit or other similar instruments issued by the Authorised Person that are held as Collateral at a third-party bank in a non-custodial arrangement and that are pledged or assigned to the Authorised Person. This is subject to the pledge or assignment being unconditional and irrevocable. Under the FCSA, the risk weight to be applied to the Exposure covered by such Collateral must be the risk weight of the third-party bank.