ANNEX II

Conditions applicable to highly liquid financial instruments

1. For the purposes of Article 47(1) of Regulation (EU) No 648/2012, financial instruments can be considered highly liquid financial instruments, bearing minimal credit and market risk if they are debt instruments meeting each of the following conditions:

(a)

they are issued or explicitly guaranteed by:

(i)

a government;

(ii)

a central bank;

(iii)

a multilateral development bank as listed under Section 4.2 of Part 1 of Annex VI to Directive 2006/48/EC;

(iv)

the European Financial Stability Facility or the European Stability Mechanism where applicable;

(b)

the CCP can demonstrate that they have low credit and market risk based upon an internal assessment by the CCP. In performing such assessment the CCP shall employ a defined and objective methodology that shall not fully rely on external opinions and that takes into consideration the risk arising from the establishment of the issuer in a particular country;

(c)

the average time-to-maturity of the CCP’s portfolio does not exceed two years;

(d)

they are denominated in one of the following currencies:

(i)

a currency the risks of which the CCP can demonstrate that it is able to manage; or

(ii)

a currency in which the CCP clears transactions, in the limit of the collateral received in that currency;

(e)

they are freely transferable and without any regulatory constraint or third party claims that impair liquidation;

(f)

they have an active outright sale or repurchase agreement market, with a diverse group of buyers and sellers, including in stressed conditions and to which the CCP has reliable access;

(g)

reliable price data on these instruments are published on a regular basis.

2. For the purposes of Article 47(1) of Regulation (EU) No 648/2012, derivative contracts can also be considered highly liquid financial investments, bearing minimal credit and market risk if they are entered into for the purpose of:

(a)

hedging the portfolio of a defaulted clearing member as part of the CCP’s default management procedure; or

(b)

hedging currency risk arising from its liquidity management framework established in accordance with Chapter VIII.

Where derivative contracts are used in such circumstances, their use shall be limited to derivative contracts in respect of which reliable price data is published on a regular basis and to the period of time necessary to reduce the credit and market risk to which the CCP is exposed.

The CCP’s policy for the use of derivative contracts shall be approved by the board after having consulted the risk committee.