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MIFIDPRU 10.4 Own funds requirement for CCP default fund exposures

MIFIDPRU 10.4.1R

1This section applies to:

  1. (1)

    a MIFIDPRU investment firm that is a clearing member; and

  2. (2)

    a UK parent entity to which consolidation under MIFIDPRU 2.5.7R applies, where the relevant investment firm group includes one or more clearing members.

MIFIDPRU 10.4.2R
  1. (1)

    1A MIFIDPRU investment firm must include its pre-funded contributions to the default fund of a CCP in the calculation of its K-TCD requirement in accordance with the remainder of this rule.

  2. (2)

    The firm must apply the rules and guidance in MIFIDPRU 4.14 (K-TCD requirement) in relation to the relevant default contribution with the following modifications:

    1. (a)

      the transactions specified in MIFIDPRU 4.14.3R are deemed to include pre-funded contributions made by the firm to the default fund of a CCP;

    2. (b)

      for the purposes of MIFIDPRU 4.14.7R, the value of α shall be 1;

    3. (c)

      for the purposes of MIFIDPRU 4.14.9R, the replacement cost (RC) of the default fund contribution is the book value of that asset in accordance with the applicable accounting framework;

    4. (d)

      for the purposes of MIFIDPRU 4.14.29R, the applicable risk factor is:

      1. (i)

        the value of a C-factor calculated in accordance with the methodology in MIFIDPRU 10.4.3R where that C-factor has been published by an authorised central counterparty in relation to the default fund of the CCP;

      2. (ii)

        in the case of an authorised central counterparty that has not published a C-factor relating to its default fund, 1.6%; and

      3. (iii)

        where the CCP is not an authorised central counterparty, 8%; and

    5. (e)

      for the purposes of MIFIDPRU 4.14.30R, the credit valuation adjustment (CVA) is 1.

MIFIDPRU 10.4.3R
  1. (1)

    1For the purposes of MIFIDPRU 10.4.2R(2)(d), a C-factor is:

    1. (a)

      in the case of an authorised central counterparty that is subject to national rules implementing the requirements in BCBS 282 (Capital requirements for bank exposures to central counterparties) published by the Basel Committee on Banking Supervision in April 2014, a value determined in accordance with the formula in (2); or

    2. (b)

      in the case of any other authorised central counterparty, a value determined in accordance with the formula in (3).

  2. (2)

    The relevant formula under (1)(a) is:

    MIFIDPRU_10_4_3_2
  3. (3)

    The relevant formula under (1)(b) is:

    MIFIDPRU_10_4_3_3

    (Capital requirements for bank exposures to central counterparties) published by the Basel Committee on Banking Supervision in July 2012.

MIFIDPRU 10.4.4G

1An authorised central counterparty may publish C-factors for the purposes of national rules implementing both BCBS 227 and BCBS 282. In this case, the effect of MIFIDPRU 10.4.3R(1)(a) is that the C-factor published for the purpose of BCBS 282 must be used. Where the default fund relates to derivatives, the C-factor published for the purposes of the Standardised Approach to Counterparty Credit Risk (SA-CCR) will normally be the relevant C-factor.

MIFIDPRU 10.4.5G
  1. (1)

    1Where a MIFIDPRU investment firm that is a clearing member or an indirect clearing firm has trade exposures to a CCP, it should consider whether the exposures arise from a transaction listed in MIFIDPRU 4.14.3R as being within scope of the K-TCD requirement. MIFIDPRU 4.14.3R(1)(a) and MIFIDPRU 4.14.4R exclude from the scope of the K-TCD requirement derivatives contracts that are directly or indirectly cleared through an authorised central counterparty.

  2. (2)

    However, the exclusion in (1) does not apply to a pre-funded contribution of a clearing member to the default fund of a CCP, as this exposure is not a contract cleared through the authorised central counterparty. MIFIDPRU 10.4.2R explains how a firm should calculate the K-TCD requirement for the contribution.

MIFIDPRU 10.4.6R

1Where this section applies to a UK parent entity in accordance with MIFIDPRU 10.4.1R(2), the requirement in MIFIDPRU 10.4.2R and the modifications it makes to the rules and guidance in MIFIDPRU 4.14 apply to the UK parent entity in relation to any pre-funded contributions to the default fund of a CCP made by any entities included within the consolidated situation.