## 1. Global Pipes that move Pledged Collateral–US banks (2007-2019)

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### I. Introduction — economics of collateral re-use
- Collateral flows are central to market liquidity and a key indicator of financial stability.
- Collateral flows increasingly recognised as as important a driver of credit creation as money itself.
- Many aspects of collateral markets remain inadequately understood and are not fully captured in official statistics.
- Emerging Markets (EMs) observations:
  - Rely heavily on the Eurodollar system for funding; shocks from the United States often spill over and destabilize EMs.
  - Have sizable assets with no cross-border pledgeability; most pledgeable assets are U.S. dollar-denominated.
  - Low cross-border asset pledgeability of EM securities is a key factor for lingering financial instability.
  - Need coordinated regional efforts to expand the use of eligible collateral for cross-border transactions.
- Early bilateral/regional pipes examples:
  - J.P. Morgan executed a Hong Kong/China Stock Connect trade where China A shares were posted as collateral for a securities financing transaction.
  - Discussions for a cross-border DvP link between Japan and Hong Kong to allow JGBs as collateral for financing in HK (Bank of Japan, 2018).
- Policy suggestions for EMs to graduate from “original sin”:
  - (a) Global banks active in pledged collateral markets can swap excess reserves (i.e., in U.S. dollar/Euro holdings) for higher returns via haircuts on EM collateral.
  - (b) International Central Securities Depositories (ICSDs) should liaise with local authorities on regulatory issues to accept securities offshore.
  - (c) Central banks’ cross-border collateral pool.

### II. Definitions and mechanics of pledged collateral, reuse, and rehypothecation
- "Pledged for reuse": collateral taker has the right to reuse it in their own name; economically equivalent to title transfer (change in ownership).
- Title-transfer arrangements: collateral provider transfers ownership to collateral taker; collateral taker can utilise it and must return equivalent collateral when obligations are discharged.
- Equivalence: obligation is to return equivalent collateral (same type and value), not the identical security.
- Reuse vs. rehypothecation:
  - "Rehypothecation": use of financial collateral by a collateral taker as security for their own obligations to a third party (onward pledging).
  - "Reuse": broader, includes rehypothecation, selling, or lending compatible with ownership.
  - Rights of reuse are inherent in title-transfer arrangements; under a pledge, reuse must be expressly granted.
- Regional legal differences:
  - United States: rehypothecation rights are strictly limited; often done with a pledge with consent to reuse.
  - Europe/U.K.: prevalence of rehypothecation allows a market-clearing price for financial collateral; strong legal underpinning in the Financial Collateral Directive of the E.U.
  - U.K. broker-dealers typically operate subject to contractually agreed reuse limits.

### III. Regulatory attention post-Lehman and key debates
- Post-Lehman criticisms focused on lack of rigid quantitative caps on rehypothecation in the U.K. compared with U.S. SEC broker-dealer limits.
- Counterarguments from the text:
  - LBIE appeared to have broken U.K. client asset segregation rules; quantitative reuse limits do not protect clients if brokers do not follow rules.
  - Clients who voluntarily agreed broad rights of reuse assumed counterparty credit risk; consequences were contractual outcomes rather than fraud in many cases.
  - The perceived uniqueness of the U.K. regime is overstated; English law underpins the E.U. Financial Collateral Directive.
- Conceptual distinction: repo in Europe is treated as a sale with promise to repurchase; Basel treats such promises as capturing rehypothecation considerations.

### IV. The global pledged collateral market — scale, accounting, and velocity
- Pre-Lehman scale and institution examples:
  - Volume of funding via pledged collateral (including title transfer) was about US$10 trillion before the Lehman crash.
  - Lehman’s last annual balance-sheet size was US$691 billion.
  - "At November 30, 2007, the fair value of securities received as collateral that were permitted to sell or repledge was approximately $798 billion ... The fair value of securities received as collateral that was sold or repledged was approximately $725 billion at November 30, 2007".
  - UBS had a balance sheet of over CHF2.2 trillion as of end-2007.
  - Off-balance-sheet collateral received that could be onward repledged was almost CHF1.5 trillion for UBS.
- Market contraction and velocity:
  - Pledged-collateral market crashed from US$10 trillion (globally) to just over US$5 trillion during 2008–9.
  - Collateral velocity declined from about 3.0 before Lehman to below 2.0 after Lehman and remained below 2.0 during the Eurozone crisis (2011/12) and the new regulatory era.
  - Since 2017, velocity has rebounded to about 2.0 as dealer banks and new entrants find ways around new regulations.
- Data and measurement challenges:
  - Pledged collateral often appears only as footnotes in balance sheets, making disentangling bilateral repo, securities lending, prime brokerage, and OTC derivatives margin difficult.
  - Regulatory and accounting wedges exist between off-balance-sheet footnotes and on-balance-sheet entries; leverage ratio and LCR changes affect visibility.
- Market size references:
  - Office of Financial Research (OFR), U.S. Treasury, provides a range for the bilateral repo market in the U.S. of around US$1–2 trillion (Baklanova, et al, 2019).
- Economic analogy:
  - Slowing collateral usage is analogous to drying-up of interbank markets; distinction between “good” and “bad” collateral becomes crucial under stress.

### V. Institutional roles and market participants
- Market structure:
  - Approximately twenty dealer-banks largely dominate the global pledged collateral market.
  - Over half of the market is sourced via hedge funds.
- Demand and supply:
  - Asset management firms (pension funds, insurance funds, sovereign wealth funds, and related official sector accounts) typically demand specific collateral.
  - Hedge funds are primary suppliers of pledged collateral.
  - Asset managers (except hedge funds) or their affiliates are active in specific collateral markets (e.g., securities-lending of German Bunds).
- Regulatory note:
  - Collateral increasingly has regulatory value and functions as cash equivalent, but financial collateral is not yet fully quantified by regulators or part of official sector statistics.

### Rehypothecation rules and market implications (Box 1)
- U.S. SEC Rule 15c3-3:
  - Prevents a broker-dealer from using its customer’s securities to finance its proprietary activities, but permits rehypothecation up to 140 percent of the customer’s debit balance.
  - Example: customer has US$500 in pledged securities and a debit balance of US$200, resulting in net equity of US$300. The broker-dealer can rehypothecate up to US$280 (140 percent x US$200).
  - Efficiency depends on the rest of the dealer’s customers and creates other regulatory complications under Rule 15c3-3.
- SIPA created the Securities Investor Protection Corporation (SIPC) to restore securities (rather than cash) to investors with assets in the hands of bankrupt brokerage firms.
- U.K./E.U. approach:
  - No E.U. law that sets a cap on rehypothecation like the U.S.; approach is disclosure and consent, plus prohibition as regards retail customers (broadly speaking).
  - U.K. laws remain in line with the E.U.’s on this issue despite Brexit.
- Market-practice observations:
  - Rehypothecation historically a cheaper way of financing the prime business than repo market financing.
  - If rehypothecation loses ground, empirical assessment of its substitution effects on prime business and repo financing is important.
- Bilateral vs triparty repo mechanics:
  - Large collateral lots arrive; dealers search for high-quality “gems” for bilateral trades that command a premium; residual collateral goes to triparty repo markets.
  - Banks generally use securities first in the bilateral market because it offers better price.

### Asian collateral markets and plumbing constraints
- Key bottlenecks:
  - (i) U.S. wholesale funding market remains unsettled with spillovers to EMs;
  - (ii) exclusive collateral framework with G-SIBs inhibits plumbing with the Eurodollar system;
  - (iii) need to “rewire” pipes and valves of modern finance to improve plumbing.
- Reserve-currency constraint:
  - Global stability depends on global access to emergency secured loans of last resort in dollars.
  - Securities in Asia have limited pledgeability as collateral; EMs thus must secure dollar funding.
- Official liquidity facilities:
  - FIMA repo facility primarily for advanced EMs with sizable Treasury holdings.
  - Most EMs rely on FX swap markets during turbulent periods.
  - Federal Reserve Act’s section 23A exceptions now require FDIC to agree; exemptions are possible to exempt EM securities.
- Fed repo facilities and FX swap markets:
  - Fed repo facilities are centralized among primary dealers; insiders are heavily regulated and have limited balance sheet space and cannot always provide stable dollar credit to non-U.S. clients.
  - FX swap market (with lack of cross-currency repo) is vulnerable to persistent external shocks.
- Current situation of Asia’s prime collateral market:
  - Asia has become more dependent and vulnerable to external shocks; access to global plumbing remains restricted and more challenging.
  - Dominance of dollar assets and liabilities is striking in non-U.S. banks’ balance sheets.
  - Since the global financial crisis, dollar swap turnover and outstanding dollar denominated debt securities in Asia are exponentially growing.
- Collateral eligibility and fluidity:
  - Majority of government bonds (excluding Japan) in Asia are not eligible as collateral in cross-border securitized financing.
  - ASIFMA repo survey: Asian collaterals in repo and reverse repo market constitute only 7.1 percent and 0.5 percent, respectively.
  - Compared to Europe, Asia lacks a properly defined eligible collateral framework and collateral fluidity is limited.
- Frictions in cross-border collateral transactions:
  - Direct frictions: Capital controls, hedging limitations, inconsistent eligibility criteria.
  - Indirect frictions: Poor market infrastructure including regulatory transparency, price transparency, creditor protection, clearing, and settlement services; asymmetric legal systems across the region.
- Market-access and custody plumbing:
  - Regional central banks can agree on eligibility criteria, organize collateral pools, and disclose them to the market.
  - Collaboration with ICSDs and OTC platforms on a collateral pool can be viable.
  - ICSDs reportedly provide access for their customers to around 50-60 domestic securities markets in a similar number of currencies.
  - Major global custodians usually cover more than a hundred markets and offer tri-party collateral management for securities financing transactions, which remains limited in EMs.

### Central Bank Collateral Arrangement (CBCA)
- Rationale:
  - Demand in Asia for trade financing, development financing, etc., creates need for a tiered collateral pool based on CBCA criteria to allow better market access for periphery countries.
  - Collateralized and pledgeable assets are “information insensitive” cross-border tools for financial plumbing.
  - Inclusive financial plumbing may alleviate clogging problems in the Eurodollar system.
- CBCA features and practices:
  - Allows regional central banks to accept collateral denominated in foreign currency or located in a foreign jurisdiction to support funding to financial institutions.
  - Different practices exist in how CBCAs are conducted.
  - Even small CBCA steps with relevant market infrastructure can promote use of local currency bonds as eligible pledged collateral.
- Eurozone note:
  - Eurozone is moving to ECMS—Eurosystem Collateral Management System; communication will be enhanced, but not the legal issues that have undermined the CCBM model.
- Correspondent Central Banking Model (CCBM) example:
  - Korea–Indonesia example: Bank A files notice to BoK → Indonesian custody transfers asset to KSEI → KSEI transfers to BI → BoK provides loans to Bank A.

### Box 3 — The Case of Korea: legal, institutional, and policy constraints
- Overview:
  - Examines Korea's laws and regulations that apply to cross-border transfers and collateral use and parallels with ASEAN+3 countries.
- Legal mechanics and limitations:
  - Rehypothecation may be employed by: i) fiduciary transfer of title for security purposes; ii) repo (sale and repurchase agreement); iii) loan for consumption under current Korean law.
  - Legal hypotheses on "Entrusted Transfer of Title" vs. "limited real right" create uncertainty whether collateral holder may dispose to a third party.
  - Under incumbent Korean law, "the right of pledge" does not involve transfer of title; one cannot dispose of collateral at will.
- Constraints on fiduciary transfer of title:
  - Secured creditor pays income tax proportion to the holding period of bonds.
  - Illegal for any foreign company to transfer listed securities outside the securities exchange market.
  - Exceptions from financial regulations apply to the title's fiduciary transfer along with repo and loan for consumption.
- KSD monopoly and ICSD underutilization:
  - Korea Securities Depository (KSD) monopolizes national custodian services.
  - Foreign investors cannot go through ICSD for securities settlement due to difficulty tracking non-resident transaction records for tax purposes.
  - Government permitted omnibus accounts with Euroclear and Clearstream for some instruments, but use has been negligible.
- Regional and multilateral context:
  - Chiang Mai Initiative and cross-border collateral: backstop is secured; normal operations need cross-border collateral transactions.
  - Cross-border collateral arrangements by central banks can boost market-based support in addition to emergency swap arrangements.
- Policy implications and recommended actions:
  - Collateral capacity-building (both capacity and infrastructure).
  - Institution-building with an eligible collateral pool.
  - Formulate new governance, including a tiered collateral framework in collaboration with ICSD and CSDs.
  - Induce global banks to substitute excess reserves for higher returns (via haircuts on EM securities).
  - Create central banks’ cross-border collateral pool.
  - Consider digital transformation (e.g., digital tokens on blockchain platforms) to mobilize collateral resources.
- Observations on global banks and incentives:
  - Global banks’ balance sheets are constrained post Basel III on liquidity ratios, capital and cross-border risk limits.
  - Incentive to intermediate EM collateral depends on risk appetite and trade-off between excess return vs. excess deposit at central banks.
  - Large haircut on EM collateral is an incentive but there is a cap given limited market depth; if liquidity increases, more EMs (and quasi sovereigns) will join, improving liquidity.
- Korea-specific constraints highlighted:
  - Uncertainty on fiduciary transfer of title rehypothecation due to competing legal hypotheses.
  - Tax treatment: secured creditor taxed proportionally to holding period of bonds.
  - Prohibition on foreign companies transferring listed securities outside exchange.
  - KSD monopoly restricting direct ICSD settlement.
- Small-step progress and technology:
  - EMs taking small bilateral steps (e.g., China A-shares arrangements).
  - Digital fintech and payment system coordination (Singapore/Thailand/Hong Kong) can accelerate cross-border collateral reuse.

### Section I — Asset Pledgeability and Financial Stability (empirical findings)
- Concept:
  - Asset pledgeability (de facto usability of assets as collateral) is a market indicator of liquidity, financial stability, and bond market development.
  - Limited cross-border use of EM collateral can amplify spillovers and lead to market lockups under stress; FX reserves and swap arrangements may not prevent operational freezes when pledgeability is constrained.
- Theoretical links:
  - Equilibrium price of an asset depends on fundamentals and pledgeability (Chen et al., 2019).
  - Haircut-implied funding costs indigenize holding costs and liquidity discounts (Chen, Cui, He, and Milbradt, 2018).
  - Caballero’s SAM: Effective supply of safe assets = nominal supply times reuse rate (the pledgeability factor).
- Constructed pledgeability proxies and mapping:
  - PI Index: non-pledgeable = 1, narrowly pledgeable = 2, pledgeable = 3.
  - Credit ratings mapping (examples given): BBB+ = 1, A = 2, over AA = 3.
  - PIC (Total pledgeability) = PI * Credit rating.
  - PIC2 (Gap Indicator) = Credit rating / PI.
  - PIC3 = supervisory haircuts (regulatory haircuts used as proxy).
  - PIC4 = 1 / PIC3 - country risk premium.
- Haircut mapping (regulatory):
  - For residual maturities ≥ 10 years, applicable haircuts by category: 12 percent, 20 percent, not eligible, 20 percent, 30 percent. Mapping used:
    - credit rating 1 = haircut 30 percent
    - credit rating 2 = haircut 20 percent
    - credit rating 3 = haircut 12 percent
  - Basel Standard Supervisory Haircuts assume a 10-day holding period and add an 8 percent haircut for cross-currency repos and securities lending.
  - Provision exists for national supervisors to apply a zero haircut under specific conditions.
- Empirical approach:
  - Panel regression on 19 countries to investigate statistical significance of asset pledgeability on financial vulnerability measured by log-differences of nominal exchange rate.
  - Dependent variable: log difference in nominal exchange rate (National Currency per US dollar).
  - Crisis dummies for 1997-1998 and 2007-2008 included.
- Main empirical results:
  - Asset pledgeability measures have marginally significant explanatory power for changes in the nominal exchange rate when crisis episodes are controlled, especially PIC3.
  - PIC2 shows extra explanatory power when macro variables are controlled and crisis episodes included.
  - PIC3 (regulatory haircuts) shows statistically significant additional influence during crises, consistent with pro-cyclical haircut adjustments and OTC transactions with adjustable haircuts reflecting pledgeability importance.
  - Jurisdictional dummy generally insignificant in the specification used.
- Representative regression coefficients and statistical highlights (as reported):
  - Table 4 (PIC2 Index and Exchange Rate Depreciation):
    - PIC2 Index (column (1)): -0.0246 *  (z-score -1.72)
    - PIC2 Index (column (2)): 0.0151 **  (z-score 2.06)
    - PIC2 Index for crises (1997-8, 2007-8) (column (3)): 0.0164 ***  (z-score 4.84)
    - Crisis (column (1)): -0.0516 *  (z-score -1.71)
    - Crisis (column (3)): -0.1491 ***  (z-score -6.12)
    - DSGDP examples: 0.0427 ***  (z-score 3.73); 0.0295 **  (z-score 2.28)
  - Table 5 (PIC3 Index and Exchange Rate Depreciation):
    - PIC3 Index for crises (1997-8, 2007-8) (column (1)): -0.0044 **  (z-score -2.20)
    - PIC3 Index for crises (column (2)): -0.0094 ***  (z-score -5.66)
    - Crisis (column (2)): 0.1021 ***  (z-score 3.63)
    - Crisis (column (3)): 0.1023 ***  (z-score 3.64)
    - Example coefficients: Log of portfolio liability (column (1), Table 4): 0.0119 **  (z-score 2.33); Reserves/M2 (column (1), Table 4): 0.1422 **  (z-score 2.51); Inflation (CPI) (Table 5): 0.0067 **  (z-score 2.47)
  - Interpretation: interaction terms for PIC3 with crisis episodes show the most pronounced effect, indicating market-assessed haircut adjustments matter during crises.
- Key statistics (Table 3 summary of variables):
  - Pledgeability index: Obs 513, Mean 2.315789, Std.Dev 0.921575, Min 1, Max 3
  - Credit rating: Obs 513, Mean 2.536062, Std.Dev 0.772555, Min 1, Max 3
  - PIC: Obs 513, Mean 6.222222, Std.Dev 3.28368, Min 1, Max 9
  - PIC2: Obs 513, Mean 1.281027, Std.Dev 0.687834, Min 0.333333, Max 3
  - PIC3: Obs 513, Mean 15.90253, Std.Dev 6.878284, Min 12, Max 30
  - PIC4: Obs 443, Mean 0.162881, Std.Dev 1.469047, Min -8.83037, Max 4.338033
  - Percent change in NEER: Obs 469, Mean 0.001219, Std.Dev 0.076312, Min -0.57935, Max 0.273628
  - Increase in current account deficit (percent of GDP): Obs 475, Mean 0.129211, Std.Dev 2.222729, Min -11.5802, Max 14.54069
  - Increase in credit-to-GDP ratio: Obs 425, Mean 1.402935, Std.Dev 8.865643, Min -64.8959, Max 79.79653
  - Log of portfolio liability: Obs 509, Mean 26.76859, Std.Dev 1.586817, Min 22.17424, Max 30.45951
  - Reserves/M2 and Inflation (same summary rows): Obs 337, Mean 0.208741, Std.Dev 0.206787, Min 0.012528, Max 0.969346
  - Exchange rate regime: Obs 513, Mean 6.001949, Std.Dev 2.993156, Min 1, Max 12
  - DSDGDP: Obs 392, Mean 0.008592, Std.Dev 0.3640452, Min -2.031409, Max 1.184393
  - Share of FDI (percent of GDP): Obs 482, Mean 4.684437, Std.Dev 7.695408, Min -10.8093, Max 58.51875
  - Asia dummy: Obs 513, Mean 0.368421, Std.Dev 0.482847, Min 0, Max 1
  - Country risk premium: Obs 450, Mean 0.091327, Std.Dev 1.841975, Min -4.2547, Max 9.3225
  - Developing country dummy: Obs 513, Mean 0.736842, Std.Dev 0.440777, Min 0, Max 1
  - Haircut: Obs 513, Mean 15.90253, Std.Dev 6.878284, Min 12, Max 30
  - Crisis: Obs 513, Mean 0.101365, Std.Dev 0.302105, Min 0, Max 1
- Implications highlighted:
  - Pledgeability should be explicitly considered as an operational market indicator when designing financial-stability policies for emerging economies.
  - Strengthening cross-border pledgeability and market infrastructure could moderate shocks by increasing usable collateral in stressed conditions and reduce market lockups.
  - Practical tools: supervisory haircut design and sensitivity testing; collecting collateral-related information from derivatives, repo, securities lending, and prime brokerage agreements; fostering cross-jurisdictional collaboration to increase effective pledgeability, particularly in Asia.

*Source: wpiea2021094-print-pdf - 1. Global Pipes that move Pledged Collateral–US banks (2007-2019)*

### 1. Global Pipes that move Pledged Collateral–US banks (2007-2019) .....................................9

### 1. Global Pipes that move Pledged Collateral–US banks (2007-2019)

### I. Introduction — economics of collateral re-use
- Collateral flows are central to market liquidity and are a key indicator of financial stability.
- Collateral flows are increasingly recognised to be as important a driver of credit creation as money itself.
- Many aspects of collateral markets remain inadequately understood and are not fully captured in official statistics.
- Emerging Markets (EMs):
  - Rely heavily on the Eurodollar system for funding; shocks from the United States often spill over and destabilize EMs.
  - Have sizable assets with no cross-border pledgeability; most pledgeable assets are U.S. dollar-denominated.
  - Low cross-border asset pledgeability of EM securities is a key factor for lingering financial instability.
  - Need coordinated regional efforts to expand the use of eligible collateral for cross-border transactions.
- Examples of early bilateral/regional pipes:
  - J.P. Morgan executed a Hong Kong/China Stock Connect trade where China A shares were posted as collateral for a securities financing transaction.
  - Discussions for a cross-border DvP link between Japan and Hong Kong to allow JGBs as collateral for financing in HK (Bank of Japan, 2018).
- Policy suggestions for EMs to graduate from “original sin”:
  - (a) Global banks active in pledged collateral markets can swap excess reserves (i.e., in U.S. dollar/Euro holdings) for higher returns via haircuts on EM collateral.
  - (b) International Central Securities Depositories (ICSDs) should liaise with local authorities on regulatory issues to accept securities offshore.
  - (c) Central banks’ cross-border collateral pool.

### II. Definitions and mechanics of pledged collateral, reuse, and rehypothecation
- "Pledged for reuse": collateral taker has the right to reuse it in their own name; economically equivalent to title transfer (change in ownership).
- Title-transfer arrangements: collateral provider transfers ownership to collateral taker; collateral taker can utilise it and must return equivalent collateral when obligations are discharged.
- Equivalence: obligation is to return equivalent collateral (same type and value), not the identical security.
- Reuse vs. rehypothecation:
  - "Rehypothecation": use of financial collateral by a collateral taker as security for their own obligations to a third party (onward pledging).
  - "Reuse": broader, includes rehypothecation, selling, or lending compatible with ownership.
  - Rights of reuse are inherent in title-transfer arrangements; under a pledge, reuse must be expressly granted.
- Regional legal differences:
  - United States: rehypothecation rights are strictly limited; often done with a pledge with consent to reuse.
  - Europe/U.K.: prevalence of rehypothecation allows a market-clearing price for financial collateral; strong legal underpinning in the Financial Collateral Directive of the E.U.
  - U.K. broker-dealers typically operate subject to contractually agreed reuse limits.

### III. Regulatory attention post-Lehman and key debates
- Post-Lehman, criticism in the United States that the United Kingdom lacked rigid quantitative caps on rehypothecation comparable to U.S. SEC broker-dealer limits.
- Counterarguments noted in the source:
  - LBIE appears to have broken U.K. client asset segregation rules; quantitative reuse limits do not protect clients if brokers do not follow rules.
  - Clients who voluntarily agreed broad rights of reuse in contracts assumed counterparty credit risk; consequences were contractual outcomes rather than fraud in many cases.
  - The perceived uniqueness of the U.K. regime is overstated; English law underpins the E.U. Financial Collateral Directive and is valued for contractual adjudication.
- Conceptual distinction: repo in Europe is treated as a sale with promise to repurchase; Basel treats such promises as capturing rehypothecation considerations.

### IV. The global pledged collateral market — scale, accounting, and velocity
- Pre-Lehman scale:
  - Volume of funding via pledged collateral (including title transfer) was about US$10 trillion before the Lehman crash.
  - This exceeded the U.S. broad measure of money, M2 (comparison noted in the text).
- Lehman Brothers data:
  - Lehman’s last annual balance-sheet size was US$691 billion.
  - "At November 30, 2007, the fair value of securities received as collateral that were permitted to sell or repledge was approximately $798 billion ... The fair value of securities received as collateral that was sold or repledged was approximately $725 billion at November 30, 2007"
- Other institution examples:
  - UBS had a balance sheet of over CHF2.2 trillion as of end-2007.
  - Off-balance-sheet collateral received that could be onward repledged was almost CHF1.5 trillion for UBS.
- Market contraction and velocity:
  - The pledged-collateral market crashed from US$10 trillion (globally) to just over US$5 trillion during 2008–9.
  - Collateral velocity (global use/reuse metric) declined from about 3.0 before Lehman to below 2.0 in the aftermath of Lehman and remained below 2.0 during the Eurozone crisis (2011/12) and the new regulatory era.
  - Since 2017, velocity has rebounded to about 2.0 as dealer banks and new entrants find ways around new regulations.
- Data and measurement challenges:
  - Pledged collateral often appears only as footnotes in balance sheets, making disentangling bilateral repo, securities lending, prime brokerage, and OTC derivatives margin difficult.
  - Regulatory and accounting wedges exist between off-balance-sheet footnotes and on-balance-sheet entries; leverage ratio and LCR changes affect visibility.
- Market size references:
  - Office of Financial Research (OFR), U.S. Treasury, provides a range for the bilateral repo market in the U.S. of around US$1–2 trillion (Baklanova, et al, 2019).
- Economic analogy:
  - Slowing in collateral usage is analogous to drying-up of interbank markets; under such conditions, the distinction between “good” and “bad” collateral becomes crucial.

### V. Institutional roles and market participants
- Market dominance:
  - Approximately twenty dealer-banks largely dominate the global pledged collateral market.
  - Over half of the market is sourced via hedge funds.
- Demand and supply:
  - Asset management firms (pension funds, insurance funds, sovereign wealth funds, and related official sector accounts) typically demand specific collateral.
  - Hedge funds are primary suppliers of pledged collateral.
  - Asset managers (except hedge funds) or their affiliates are active in specific collateral markets (e.g., securities-lending of German Bunds).
- Regulatory notes:
  - Increasingly, collateral has regulatory value and functions as cash equivalent, but financial collateral is not yet fully quantified by regulators or part of official sector statistics.

*Source: wpiea2021094-print-pdf - 1. Global Pipes that move Pledged Collateral–US banks (2007-2019)*

### 2020. There may still be difference in reporting under International Financial Reporting

### wpiea2021094-print-pdf - 2020. There may still be difference in reporting under International Financial Reporting

### Rehypothecation rules and market implications (Box 1)
- SEC Rule 15c3-3 in the United States prevents a broker-dealer from using its customer’s securities to finance its proprietary activities, but permits rehypothecation up to 140 percent of the customer’s debit balance.
  - Example: customer has US$500 in pledged securities and a debit balance of US$200, resulting in net equity of US$300. The broker-dealer can rehypothecate up to US$280 (140 percent x US$200).
  - Efficiency of such rehypothecation depends on the rest of the dealer’s customers and creates other regulatory complications under Rule 15c3-3.
- Securities Investor Protection Act (SIPA) created the Securities Investor Protection Corporation (SIPC) to restore securities (rather than cash) to investors with assets in the hands of bankrupt brokerage firms.
- United Kingdom / European Union approach:
  - No E.U. law that sets a cap on rehypothecation like the U.S.; approach is disclosure and consent, plus prohibition as regards retail customers (broadly speaking).
  - U.K. laws remain in line with the E.U.’s on this issue despite Brexit.
- Market-practice observations:
  - Rehypothecation historically a cheaper way of financing the prime business than repo market financing.
  - If rehypothecation loses ground, empirical assessment of its substitution effects on prime business and repo financing is important.
  - Both prime business and repo financing are key elements whereby collateral lubricates financial plumbing.

### Bilateral collateral vs triparty repo market (analogy and mechanics)
- Bilateral repo likened to an old-clothing trade:
  - Large collateral lots arrive; collateral desks (like jobbers) search for high-quality “gems” to place in bilateral trades that command a premium.
  - Residual collateral is channeled to triparty repo markets.
- Operational implication:
  - Banks generally use securities first in the bilateral market because it offers better price; what is unused in bilateral then goes to triparty market.

### Asian collateral markets and plumbing constraints (Section II overview)
- Key bottlenecks identified:
  - (i) U.S. wholesale funding market remains unsettled with spillovers to EMs;
  - (ii) exclusive collateral framework with G-SIBs inhibits plumbing with the Eurodollar system;
  - (iii) need to “rewire” pipes and valves of modern finance to improve plumbing.
- Reserve-currency constraint:
  - Global stability depends on global access to emergency secured loans of last resort in dollars.
  - Securities in Asia have limited pledgeability as collateral; EMs thus must secure dollar funding.
- Official liquidity facilities:
  - FIMA repo facility primarily for advanced EMs with sizable Treasury holdings.
  - Most EMs rely on FX swap markets during turbulent periods.
  - Federal Reserve Act’s section 23A exceptions now require FDIC to agree; exemptions are possible to exempt EM securities.
- Fed repo facilities and FX swap markets:
  - Fed repo facilities are centralized among primary dealers; these insiders are heavily regulated and have limited balance sheet space and cannot always provide stable dollar credit to non-U.S. clients.
  - FX swap market (with lack of cross-currency repo) is vulnerable to persistent external shocks.
  - Fed repo and FX swap arrangements involve risks related to G-SIB regulation and reserve-draining intermediation by G-SIBs.

### Current situation of Asia’s prime collateral market (Subsection A)
- Asia has become more dependent and vulnerable to external shocks; access to global plumbing remains restricted and more challenging.
- Market and balance-sheet characteristics:
  - Dominance of dollar assets and liabilities is striking in non-U.S. banks’ balance sheets.
  - Non-U.S. banks borrow on a large scale to ease currency mismatch.
  - Since the global financial crisis, dollar swap turnover and outstanding dollar denominated debt securities in Asia are exponentially growing.
- Collateral eligibility and fluidity:
  - Majority of government bonds (excluding Japan) in Asia are not eligible as collateral in cross-border securitized financing.
  - ASIFMA repo survey: Asian collaterals in repo and reverse repo market constitute only 7.1 percent and 0.5 percent, respectively.
  - Compared to Europe, Asia lacks a properly defined eligible collateral framework and collateral fluidity is limited.
  - Fragmented markets and limited pledgeability lead to a dollar-dependent system and frictions in the Eurodollar system.

### Frictions in cross-border collateral transactions (Subsection B)
- Direct frictions:
  - Capital controls, hedging limitations, and inconsistent eligibility criteria.
- Indirect frictions:
  - Poor market infrastructure including regulatory transparency, price transparency, creditor protection, clearing, and settlement services.
  - Asymmetric legal systems across the region.
- Market-access and custody plumbing:
  - Regional central banks can agree on eligibility criteria, organize collateral pools, and disclose them to the market.
  - Collaboration with ICSDs and OTC platforms on a collateral pool can be viable.
  - Close coordination between ICSD and CSD is essential for effective and interoperable market infrastructure.
  - EM securities are commonly accessed and held by asset managers via global custodians who use local sub-custodians that are direct CSD participants.
  - ICSDs reportedly provide access for their customers to around 50-60 domestic securities markets in a similar number of currencies.
  - Major global custodians (e.g., BONY, JPM, Euroclear, Clearstream, Citi, etc.) usually cover more than a hundred markets and offer tri-party collateral management for securities financing transactions, which remains limited in EMs.

### Central Bank Collateral Arrangement (CBCA) (Subsection C)
- Rationale:
  - Demand in Asia for trade financing, development financing, etc., creates need for a tiered collateral pool based on CBCA criteria to allow better market access for periphery countries.
  - Collateralized and pledgeable assets are “information insensitive” cross-border tools for financial plumbing.
  - Inclusive financial plumbing may alleviate clogging problems in the Eurodollar system.
- CBCA features and practices:
  - Allows regional central banks to accept collateral denominated in foreign currency or located in a foreign jurisdiction to support funding to financial institutions.
  - Different practices exist in how CBCAs are conducted.
  - Even small CBCA steps with relevant market infrastructure can promote use of local currency bonds as eligible pledged collateral.
- Eurozone note:
  - Eurozone is moving to ECMS—Eurosystem Collateral Management System; communication will be enhanced, but not the legal issues that have undermined the CCBM model.

### Correspondent Central Banking Model (CCBM) example (Box 2)
- Illustration of CCBM between Korea and Indonesia for Bank A acquiring KRW funding via Bank of Korea (BoK) by collateralizing Indonesian securities:
  - Bank A files a notice to BoK specifying information of available collateral.
  - Bank A requests Indonesian local custody service to transfer stored asset (collateral) to the central securities depository of Indonesia (KSEI).
  - KSEI transfers received collateral to the central bank of Indonesia (BI).
  - Confirming the transfer, BoK provides loans to Bank A.

*Source: wpiea2021094-print-pdf - 2020. There may still be difference in reporting under International Financial Reporting*

### Box 3. The Case of Korea

### Box 3. The Case of Korea

### Overview
- Investigates Korea's laws and regulations that apply to cross-border transfers and collateral use.
- Expands scope of analysis to ASEAN+3 countries and draws parallels on barriers to developing cross-border collateral markets (China and Japan).

### Limitations of current Korean law on collateral
- In theory, rehypothecation of collateral may be employed by:
  - i) fiduciary transfer of title for security purposes,
  - ii) repo (sale and repurchase agreement), and
  - iii) loan for consumption under the current Korean [law].
- Legal distinctions and practical implications:
  - In repo and loan for consumption, collateral ownership is transferred to the purchaser or the borrower to rehypothecate (or re-use) the collateral.
  - When the borrower declares bankruptcy, the lender may not transfer their bankrupt borrowers' assets as the lender lacks ownership.
  - In the fiduciary transfer of title, a secured creditor rehypothecates the requested collateral.
  - Under incumbent Korean law, "the right of pledge" does not involve the transfer of title, and thus, one cannot dispose of collateral at will.
  - With "the transfer of security," the collateral ownership is acknowledged, but rehypothecation of collateral is restricted.
  - Two hypotheses on "Entrusted Transfer of Title":
    - According to the "Entrusted Transfer of Title" hypothesis, the collateral holder may dispose it to a third party.
    - According to "the limited real right" hypothesis, the collateral holder may not do so.

### Limitations to using fiduciary transfer of title in Korea
- Fiduciary transfer of title involves the transfer of ownership for security purposes until the debt dissolves.
- Several financial regulations in Korea constrain fiduciary transfer of title:
  - The secured creditor pays the income tax proportion to the holding period of bonds.
  - It is illegal for any foreign company to transfer listed securities outside the securities exchange market.
  - Along with repo and loan for consumption, exceptions from financial regulations apply to the title's fiduciary transfer.

### KSD monopoly and ICSDs: underutilized third-party platform
- Institutional setup and constraints:
  - Korea Securities Depository (KSD) monopolizes national custodian services.
  - Securities firms need to deposit FX securities at institutions designated by the KSD.
  - Euroclear and Clearstream offer omnibus accounts so that users can freely make securities transactions wherever ICSD has a presence; they serve as a gateway by streamlining the transaction process.
  - The Korean government permitted opening an omnibus account with Euroclear and Clearstream to trade government bonds and monetary stabilization bonds, but their use has been negligible.
  - Currently, foreign investors can open an omnibus account at domestic financial institutions or KSD.
  - Foreign investors are not allowed to go through ICSD for securities settlement due to the difficulty of tracking non-residents' transaction records for tax purposes.

### Regional and multilateral context: Chiang Mai Initiative and cross-border collateral
- Chiang Mai Initiative and implications:
  - The ASEAN Chiang Mai's Initiative, established in 2000 following the Asian financial crisis of 1997, was designed to prop up weakening currencies by letting countries exchange local money for the U.S. dollar to prevent capital flight.
  - Chiang Mai's backstop is secured; normal operations need to utilize cross-border collateral transactions.
  - Cross-border collateral arrangements by central banks can boost market-based support in addition to emergency swap arrangements.
  - LATAM also has similar thinking with Mexico, Brazil, and Colombia in the lead.
- Policy implication:
  - Asia needs to upgrade the current FX funding system for better plumbing to overcome vulnerability.
  - Required actions include collateral capacity-building (both capacity and infrastructure) initiative as well as institution-building with eligible collateral pool.

### Empirical support: pledgeability index findings
- The paper substantiates its analysis via empirical work using a "pledgeabilty index" (Annex 1 is self-contained—literature review, methodology and results—and updates Choi 2020).
- Key findings:
  - Asset pledgeability contributes toward financial stability via three channels:
    - (a) capital market development by recognizing the role of collateral,
    - (b) increased shock absorption capacity via collateral management, and
    - (c) the newly activated safe asset provision.

### Implications for EMs and global plumbing
- Core diagnosis:
  - Plumbing failure starts from the links made on dollar collateral, but underlying mismatches in EM introduce frictions for greater volatility.
  - Fragmented collateral resources and infrastructures interfere with global financial plumbing via creating endogenous frictions, especially during periods of market stress.
- Recommended actions and options:
  - Collateral capacity-building (both capacity and infrastructure).
  - Institution-building with an eligible collateral pool.
  - Formulate new governance, including a tiered collateral framework to expedite cross-border financial plumbing in collaboration with ICSD and CSDs.
  - Induce global banks to substitute their excess reserves for higher returns (via haircuts on EM securities).
  - Create central banks’ cross-border collateral pool.
  - Consider digital transformation (e.g., digital tokens on blockchain platforms) to mobilize collateral resources.
- Observations on global banks and incentives (Box 5 summary):
  - Global banks’ balance sheets are constrained post Basel III on liquidity ratios, capital and cross-border risk limits.
  - The impetus to intermediate EM collateral depends on the risk appetite of global banks and the trade-off between excess return vs. excess deposit at central banks.
  - Large haircut on EM collateral is an incentive but there is a cap given limited market depth.
  - If liquidity increases, more EMs (and quasi sovereigns) will join, improving liquidity further.

### Korea-specific and practical constraints highlighted
- Key legal and operational constraints that limit cross-border pledgeability of Korean collateral:
  - Uncertainty whether fiduciary transfer of title allows rehypothecation in practice due to competing legal hypotheses ("Entrusted Transfer of Title" vs. "limited real right").
  - Tax treatment: secured creditor taxed proportionally to holding period of bonds.
  - Prohibition on foreign companies transferring listed securities outside the securities exchange market.
  - KSD monopoly restricting direct ICSD settlement; negligible use of permitted omnibus accounts with Euroclear and Clearstream.
  - Difficulty tracking non-resident transaction records for tax purposes prevents ICSD settlement routes.

### Broader lessons and small-step progress
- Small bilateral steps and technology examples:
  - Positive trends: EMs are “waking up” to become part of the global plumbing—although in small bilateral steps (e.g., China A-shares where foreign investors do not have to face ChinaClear).
  - Digital fintech and payment system coordination (Singapore/Thailand/Hong Kong) can accelerate cross-border collateral reuse (references to Copic and Franke (2020) and Singh and Long (2020)).
  - Example bilateral pipe: between Japan and Hong Kong where JGBs may be used as collateral for financing in Hong Kong (Bank of Japan, 2018).

### Conclusion: priority actions for EMs including Korea
- Immediate priorities:
  - Improve cross-border collateral pledgeability as the first step to secure sustainable financial stability.
  - Central bank collateral arrangement (and liaison with ICSDs) is the first step to reach consensus about the use of eligible collateral for funding and risk management practices in EMs.
- Strategic directions:
  - Extensive re-wiring of present plumbing to connect existing institutions to allow movement across the border without incurring serious prudential implications for financial stability.
  - EMs need to make better use of their collateral to enhance financial stability and diversify from the focus on FX reserve and swap lines.
  - Legacy institutions need a more proactive approach towards expanding their collateral pool, including potential from digital transformation.

*Source: wpiea2021094-print-pdf - Box 3. The Case of Korea*

### References

### wpiea2021094-print-pdf - References

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### Annex 1. Asset Pledgeability: An Empirical Investigation — Key findings
- Empirical results support the hypothesis that asset pledgeability matters for financial vulnerability in situations when the sample contains crisis episodes.
- Asset pledgeability contributes toward financial stability via three channels:
  - capital market development by recognizing the role of collateral,
  - increased shock absorption capacity via collateral management,
  - the newly activated safe asset provision.

### Annex 1. Literature review — summary points
- The prevailing initial condition of relying only on external FX reserves (or swap lines) for financial stability needs to be re-thought.
- Literature is limited on examining the correlation between cross-border asset pledgeability (as measured by the market perception gap) and financial vulnerability (as measured by changes in exchange rates).
- Two aspects are relevant: the potential availability of pledgeable assets and the actual pledgeability in times of stress.
- Ignoring eligible assets as cross-border pledgeable has far-reaching and massive consequences.
- Collateral greases the wheels of global finance; lack of collateral in response to shocks has placed additional pressure on the global financial system.

*Source: wpiea2021094-print-pdf - References*

### Section I of this paper). On the other hand, if cross-border collateral is better utilized, it can

### Section I — Asset Pledgeability and Financial Stability

### Overview
- Asset pledgeability (de facto usability of assets as collateral) is presented as a market indicator of liquidity, financial stability, and bond market development.
- Limited cross-border use of emerging market (EM) collateral can amplify spillovers and lead to market lockups under stress; conventional macro measures such as FX reserves and swap arrangements may not prevent operational freezes when pledgeability is constrained.
- The paper emphasizes the need for a more in-depth approach to stability that accounts for operational usability of collateral during crises.

### Theoretical links and mechanisms
- Asset pledgeability affects asset prices and funding costs:
  - Chen et al. (2019): equilibrium price of an asset depends on fundamentals and pledgeability; regulatory differences can produce price wedges.
  - Chen, Cui, He, and Milbradt (2018): haircut-implied funding costs indigenize holding costs and liquidity discounts of illiquid assets.
- Caballero’s safe asset mechanism (SAM) is related: extra demand for safe assets in a region can originate from limited pledgeability of regional assets.
  - Effective supply of safe assets = nominal supply times reuse rate (the pledgability factor).
- In EMs, especially Asia, lack of pledgeability is linked to asset underpricing and sudden stops because FX liquidity and usable collateral are critical to creditworthiness.

### Data and modeling strategy
- Regulatory haircuts (BIS) are used as PIC3 in empirical analyses. For residual maturities ≥ 10 years, applicable haircuts by category: 12 percent, 20 percent, not eligible, 20 percent, 30 percent. Mapping used:
  - credit rating 1 = haircut 30 percent
  - credit rating 2 = haircut 20 percent
  - credit rating 3 = haircut 12 percent
- Other haircut features noted:
  - Basel Standard Supervisory Haircuts assume a 10-day holding period and add an 8 percent haircut for cross-currency repos and securities lending transactions.
  - Provision exists for national supervisors to apply a zero haircut under specific conditions.
- Empirical approach:
  - Panel regression on 19 countries to investigate statistical significance of asset pledgeability on financial vulnerability measured by log-differences of nominal exchange rate.
  - Dependent variable: log difference in nominal exchange rate (National Currency per US dollar).
  - Crisis dummies for 1997-1998 and 2007-2008.
- Constructed pledgeability proxies:
  - PI Index: non-pledgeable = 1, narrowly pledgeable = 2, pledgeable = 3.
  - Credit ratings: BBB+ = 1, A = 2, over AA = 3.
  - PIC (Total pledgeability) = PI * Credit rating.
  - PIC2 (Gap Indicator) = Credit rating / PI.
  - PIC3 = supervisory haircuts.
  - PIC4 = 1 / PIC3 - country risk premium.
- Note: asset pledgeability is often fixed in EMs since local-currency bonds are typically not recognized as cross-border collateral.

### Empirical results and interpretation
- General finding: asset pledgeability measures have marginally significant explanatory power for changes in the nominal exchange rate when crisis episodes are controlled, especially PIC3.
- PIC2 (gap between credit ratings and pledgeability) shows extra explanatory power when macro variables are controlled and crisis episodes are included.
- PIC3 (regulatory haircuts) shows statistically significant additional influence during crises, consistent with pro-cyclical haircut adjustments and OTC transactions with adjustable haircuts reflecting pledgeability importance.
- Jurisdictional dummy was generally insignificant in the current specification; economic zone classification (e.g., monetary union) may matter but is not captured fully.

Representative regression coefficients and statistical highlights (as reported)
- Table 4 (PIC2 Index and Exchange Rate Depreciation):
  - PIC2 Index (column (1)): -0.0246 *  (z-score -1.72)
  - PIC2 Index (column (2)): 0.0151 **  (z-score 2.06)
  - PIC2 Index for crises (1997-8, 2007-8) (column (3)): 0.0164 ***  (z-score 4.84)
  - Crisis dummy examples:
    - Crisis (column (1)): -0.0516 *  (z-score -1.71)
    - Crisis (column (3)): -0.1491 ***  (z-score -6.12)
  - DSGDP (examples):
    - 0.0427 ***  (z-score 3.73)
    - 0.0295 **  (z-score 2.28)
- Table 5 (PIC3 Index and Exchange Rate Depreciation):
  - PIC3 Index for crises (1997-8, 2007-8) (column (1)): -0.0044 **  (z-score -2.20)
  - PIC3 Index for crises (column (2)): -0.0094 ***  (z-score -5.66)
  - Crisis dummy examples:
    - Crisis (column (2)): 0.1021 ***  (z-score 3.63)
    - Crisis (column (3)): 0.1023 ***  (z-score 3.64)
  - Other example coefficients:
    - Log of portfolio liability (column (1), Table 4): 0.0119 **  (z-score 2.33)
    - Reserves/M2 (column (1), Table 4): 0.1422 **  (z-score 2.51)
    - Inflation (CPI) (Table 5 examples): 0.0067 **  (z-score 2.47)
- Interpretation: interaction terms for PIC3 with crisis episodes show the most pronounced effect, indicating market-assessed haircut adjustments matter during crises.

### Key statistics (Table 3 summary of variables)
- Pledgeability index: Obs 513, Mean 2.315789, Std.Dev 0.921575, Min 1, Max 3
- Credit rating: Obs 513, Mean 2.536062, Std.Dev 0.772555, Min 1, Max 3
- PIC: Obs 513, Mean 6.222222, Std.Dev 3.28368, Min 1, Max 9
- PIC2: Obs 513, Mean 1.281027, Std.Dev 0.687834, Min 0.333333, Max 3
- PIC3: Obs 513, Mean 15.90253, Std.Dev 6.878284, Min 12, Max 30
- PIC4: Obs 443, Mean 0.162881, Std.Dev 1.469047, Min -8.83037, Max 4.338033
- Percent change in NEER: Obs 469, Mean 0.001219, Std.Dev 0.076312, Min -0.57935, Max 0.273628
- Increase in current account deficit (percent of GDP): Obs 475, Mean 0.129211, Std.Dev 2.222729, Min -11.5802, Max 14.54069
- Increase in credit-to-GDP ratio: Obs 425, Mean 1.402935, Std.Dev 8.865643, Min -64.8959, Max 79.79653
- Log of portfolio liability: Obs 509, Mean 26.76859, Std.Dev 1.586817, Min 22.17424, Max 30.45951
- Reserves/M2 and Inflation (same summary rows): Obs 337, Mean 0.208741, Std.Dev 0.206787, Min 0.012528, Max 0.969346
- Exchange rate regime: Obs 513, Mean 6.001949, Std.Dev 2.993156, Min 1, Max 12
- DSDGDP: Obs 392, Mean 0.008592, Std.Dev 0.3640452, Min -2.031409, Max 1.184393
- Share of FDI (percent of GDP): Obs 482, Mean 4.684437, Std.Dev 7.695408, Min -10.8093, Max 58.51875
- Asia dummy: Obs 513, Mean 0.368421, Std.Dev 0.482847, Min 0, Max 1
- Country risk premium: Obs 450, Mean 0.091327, Std.Dev 1.841975, Min -4.2547, Max 9.3225
- Developing country dummy: Obs 513, Mean 0.736842, Std.Dev 0.440777, Min 0, Max 1
- Haircut: Obs 513, Mean 15.90253, Std.Dev 6.878284, Min 12, Max 30
- Crisis: Obs 513, Mean 0.101365, Std.Dev 0.302105, Min 0, Max 1

### Implications and policy considerations (as discussed in the text)
- Pledgeability should be explicitly considered as an operational market indicator when designing financial-stability policies for emerging economies; focusing solely on traditional targets (e.g., FX reserves) risks the “indicator becoming target problem.”
- Strengthening cross-border pledgeability and market infrastructure could:
  - Moderate the impact of shocks by increasing usable collateral in stressed conditions.
  - Reduce the gap between asset holdings and pledgeable asset holdings that leads to market lockups.
- Practical tools and areas for policy focus identified:
  - Consideration of supervisory haircut design and sensitivity testing (Lou (2016) parametric haircut model as complementary methodology).
  - Collecting and using collateral-related information from derivatives, repo, securities lending, and prime brokerage agreements for risk assessment.
  - Fostering market-friendly ecosystems and cross-jurisdictional collaboration to increase effective pledgeability, particularly in Asia where favorable credit ratings contrast with unfavorable pledgeability.

*Source: wpiea2021094-print-pdf - Section I of this paper.*

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