A DTCC Company

Avox Collateral Monitoring Service

About Avox

Avoid close links and improve liquidity

Avox offers for all financial institutions engaged in open market operations in the Eurosystem a service solution to avoid close links. Today banks do not usually apply uncovered bonds to serve as collateral because of the close link risk. Therefore Avox® monitors the financial institutions’ hierarchy and maps it against eligible assets to prevent own issues or assets issued by a related party to be submitted as collateral towards the central bank. Hence, the amount of collateral available for open market operations can be increased at the same time limiting the risk of a penalty from the central bank. And with the enlarged amount of eligible assets banks can improve their liquidity.

Close links avoidance in the open market operations in the Eurosystem

With the aims of protecting the Eurosystem from incurring losses in its monetary policy operations and of ensuring the equal treatment of financial institutions, as well as of enhancing operational efficiency and transparency, underlying assets have to fulfill certain criteria in order to be eligible for Eurosystem monetary policy operations.

Marketable assets and non-marketable assets can be used as collateral for monetary policy operations. Irrespective of the fact that a marketable or nonmarketable asset fulfils all eligibility criteria, a financial institution may not submit as collateral any asset issued or guaranteed by itself or by any other entity with which it has close links. “Close links” means a situation in which the financial institution is linked to an issuer /debtor /guarantor of eligible assets because an issuer /debtor /guarantor or the financial institutions or a third party owns 20 % or more of the capital. In the event of an infringement by a financial institution of tender rules or the rules for the use of underlying assets, the Eurosystem will apply financial penalties or will suspend the financial institution from the subsequent open market operation, in addition to a financial penalty.

Collateral Monitoring Service