Covered bonds, with the exception of multi-cédulas, must be CRR-compliant to be eligible for buying under the European Central Bank’s third covered bond purchase programme (CBPP3), the ECB has confirmed to The CBR, after criteria released last Thursday caused some confusion.

To be eligible for purchase under CBPP1 covered bonds had to be UCITS-compliant and under CBPP2 either UCITS-compliant or with “similar safeguards”.

In its criteria for CBPP3, released last Thursday (2 October), the ECB did not refer to UCITS compliance but instead said that covered bonds must “be eligible for monetary policy operations as defined in Guideline ECB/2011/14 as amended and, in addition, fulfil the conditions for their acceptance as own-used collateral as laid out in Section 6.2.3.2 (fifth paragraph, lit. (b)) of the same Guideline”.

Upon release of the criteria some market participants interpreted this – in line with looser size, maturity and rating criteria than CBPP1 and CBPP2 – as meaning that a broader range of covered bonds – for example, aircraft Pfandbriefe and SME-backed covered bonds – could be eligible for CBPP3. (Multi-cédulas were separately explicitly mentioned as being eligible.)

However, other market participants argued that the above condition meant that covered bonds have to be CRR-compliant and the ECB told The Covered Bond Report that this is the case.

“The requirement is CRR compliance,” said a spokesperson for the central bank, “with the exception of Spanish multi-cédulas.”

Euro-zone covered bonds that are UCITS but not CRR-compliant include the aforementioned aircraft Pfandbriefe and certain Luxembourg issuance. CRR-compliance would also exclude an SME-backed structured covered bond issued by Commerzbank and any further SME-backed issuance even if based on a legislative framework, for example Obbligazioni Bancarie Collateralizzate in Italy. A market participant said that this was surprising in light of the recent focus of the ECB on SME finance, while another said it suggested the ECB was keen to emphasise clear rules on covered bonds.