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Collateralized Interbank Market

To foster a recovery in trading on the interbank circuits and a greater diversification of contract maturities, the Bank of Italy, together with e-MID and the Italian Banking Association, has prepared an initiative to enable market participants to trade funds through a procedure that minimizes counterparty and liquidity risks.

The initiative is based on the creation of a special market segment in the e-MID trading platform, the Collateralized Interbank Market (MIC), which ensures complete anonymity of trades. Initially, the new market segment will handle trades on maturities of one week and longer. Participating banks will share in covering the risk up to predetermined limits.

The new market segment will be operational until 31 December 2009, but its activity could continue beyond that date, with appropriate modifications, once more relaxed market conditions are restored.

In the new interbank market segment's operational scheme, the Bank of Italy:

- evaluates the collateral provided by banks,

- verifies that trades comply with established limits and conditions, and

- ensures the prompt settlement of transactions in the event of default by a participant, subsequently recovering the amount from the collateral deposited.

The collateralized market is available for Italian banks; it may be extended to EU credit institutions that satisfy requirements similar to those established for Italian participants, subject to an understanding with their home-country authorities. For each banking group only a single bank may participate, but it will nevertheless be able to contribute collateral pertaining to other group banks.

An advisory committee composed of the Bank of Italy, e-MID, the Association of Bank Treasurers (ATIC) and the Italian Banking Association will examine any problems that arise in the functioning of the new market segment and assess proposed changes to its characteristics.

Market statistics are available on the e-MID website (www.e-mid.it).

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