... have objective and publicly-disclosed criteria for admission which permit fair and open access.

5.1 Criteria for admission to multilateral systems for the netting of financial contracts or payment orders should address the financial and managerial capacity of an institution to satisfy its obligations and to manage the associated credit and liquidity risks. To comply with the suggested minimum conditions for the design and operation of multilateral netting systems , netting systems will need to place limits on the level of participants' obligations that are consistent with the institutions' credit and liquidity resources. Netting systems will also be expected to be capable of ensuring the timely completion of settlement in the event of the inability to settle of the participant with the largest, single net-debit position . In combination, these two requirements should ensure that netting systems are capable of permitting participation by a wide number of institutions consistent with the prudent management of risks. Thus, both the centralised, collateral-based approach and the decentralised, credit-based approach to risk management should permit participation by institutions of varying sizes.

5.2 In centralised, collateral-based systems, participants effectively "prepay" for the risk of their own default by posting collateral sufficient to cover the exposures which their obligations create for the central counterparty. Participants can expand their obligations within the system only if they can also provide additional collateral. These systems should provide for quite broad access and, correspondingly, tight restrictions on membership would be difficult to justify.

5.3 In netting systems with decentralised risk-management procedures, participants will have strong incentives to limit their exposures based upon bilateral counterparty credit assessments. Participants will tend to set lower limits for smaller counterparties and also for counterparties of relatively lesser credit standing. In these systems, tight restrictions on access should not be necessary and institutions should be a l lowed to participate at a level of activity consistent with their counterparties' assessments of their credit and liquidity resources. But because of the reliance of these systems on the direct distribution of losses among the surviving participants, concerns with respect to the ability of some institutions to satisfy their contingent obligations may justify a somewhat more restrictive approach to membership in comparison with centralised, collateral-based systems. Such concerns could also be addressed by requiring such participants to post collateral to cover their contingent, and possibly their direct, obligations

5.4 Criteria for membership can appropriately distinguish between financial institutions that are subject to effective supervision and those institutions that are not. Moreover, if liquidity exposures are to be allocated directly to the participants, access to central bank credit facilities -in some or all of the relevant currencies -could be an important factor in determining the appropriateness of participation. Finally, it will always be necessary to establish the legal capacity of an institution both to enter into the transactions subject to netting and to participate in the netting system.