S&P Seeks Comments on CCA, Repo
S&P Global Ratings published a "Request For Comment: Principal Stability Fund Rating Methodology," which states, "S&P Global Ratings is requesting comments on its proposed revision to the diversification requirements for counterparty credit risk in its 'Principal Stability Fund Rating Methodology' (PSFR), July 26, 2024. The proposed change takes into account the new U.S. SEC rule requiring every direct participant of a covered clearing agency (CCA) submit for clearance and settlement all eligible secondary market transactions in U.S. Treasury securities to which it is a counterparty. The change would be incorporated into section '3. Repo Diversification' of the criteria. The current criteria will remain in effect until we finalize these proposed criteria." Among the "Key Changes" listed: "We propose analyzing the counterparty credit quality and diversification limits at the level of the underlying counterparties rather than at the level of the CCA in situations where such CCA meets the proposed requirements. In these cases, we will apply the counterparty credit quality and diversification limits as if there were no CCA; In situations where the CCA does not meet the proposed requirements, we do not have enough information to assess whether the requirements are met, or we do not believe the structure of the CCA is conducive to mitigating the concentration risk otherwise arising from their central clearing activities, we will treat the CCA as the sole counterparty when considering the diversification limits of the criteria; We intend to amend paragraph 134 of our PSFR criteria to address this topic; We do not intend to make any other analytical changes to the PSFR criteria with this RFC." They write, "A section titled 'When and How to Submit Comments' says, "S&P Global Ratings is seeking feedback on the proposed criteria by Sept. 23, 2025. We encourage interested market participants to submit their written comments to https://disclosure.spglobal.com/ratings/en/regulatory/ratings-criteria. Comments may also be sent to CriteriaComments@spglobal.com should participants encounter technical difficulties." The brief adds, "The request for comment continues with an overview of the 'Proposed Methodology' which states, 'New version of paragraph 134: Table 12 lists the diversification limits for traditional repos (at least 100% collateralized) for funds rated 'BBBm' or higher. Investments that exceed the percentages listed in table 12 are 'higher risk investments.' In circumstances where traditional collateral is subject to clearing by a covered clearing agency (CCA) and all conditions below are met, we base the counterparty credit quality and the diversification limits in table 12 on the CCA’s member participants. We do this where the CCA: Is prudentially regulated; Is subject to minimum regulatory capital requirements; Has a comprehensive risk management program that, at minimum, mandates regular liquidity stress testing; and Is able to charge participants for any losses arising from failures of participants. In these cases, we will rely on the diversification limits as if there were no CCA. For example, if a CCA meeting the stipulations above has three member participants, we apply the table 12 diversification limits to the three member participants. Where the above requirements are not met, we do not have enough information to assess whether the requirements are met, or we do not believe the CCA’s structure is conducive to mitigating the concentration risk otherwise arising from its central clearing activities, we apply the table 12 limits to the CCA."
