An eligible security is a security that is eligible to be posted as collateral to specific banking transactions such as repurchase agreement (repos). Eligible securities usually have better (i.e., lower) haircuts for collateralization compared to non-eligible securities, particularly those with no market price, no good liquidity, and no obvious method of estimating the market price.
The main types of eligible securities include:
- Treasury securities.
- Agency debts.
- Marketable mortgage-backed securities (MBSs).
- Investment grade corporate bonds and commercial paper.
Specific criteria are usually applied to determine eligibility such as quality of debt security, featuring a lower degree of structuring, closeness to maturity date, an embedded call feature (not being exercised), and so on.
