Related provisions for BIPRU 13.6.27
1 - 15 of 15 items.
(1) A firm must measure the exposure value at the level of the netting set.(2) The model must specify the forecasting distribution for changes in the market value of the netting set attributable to changes in market variables, such as interest rates, foreign exchange rates.(3) The model must then compute the exposure value for the netting set at each future date given the changes in the market variables.(4) For margined counterparties, the model may also capture future collateral
If the netting set is subject to a margin agreement, a firm must use one of the following EPE measures:(1) effective EPE without taking into account the margin agreement;(2) the margin threshold, if positive, under the margin agreement plus an add-on that reflects the potential increase in exposure over the margin period of risk:(a) the add-on is computed as the expected increase in the netting set'sexposure beginning from a current exposure of zero over the margin period of risk;(b)
(1) Exposure must be measured, monitored and controlled over the life of all contracts in the netting set (not just to the one year horizon).(2) A firm must have procedures in place to identify and control the risks for counterparties where the exposure rises beyond the one-year horizon.(3) A firm must input the forecast increase in exposure into the firm's internal capital model.[Note: BCD Annex III Part 6 point 31]
A firm must ensure that:(1) the model reflects transaction terms and specifications in a timely, complete, and conservative fashion;(2) such terms include at least:(a) contract notional amounts;(b) maturity;(c) reference assets;(d) margining arrangements; and(e) netting arrangements;(3) the terms and specifications are maintained in a database that is subject to formal and periodic audit;(4) the process for recognising netting arrangements requires:(a) signoff by legal staff
(1) A firm'sCCR internal model method model must meet the validation requirements in (2) to (8).(2) The qualitative validation requirements set out in BIPRU 7.10 must be met.(3) Interest rates, foreign currency rates, equity prices, commodities, and other market risk factors must be forecast over long time horizons for measuring CCRexposure. The performance of the forecasting model for market risk factors must be validated over a long time horizon.(4) The pricing models used to
(1) The volatility-adjusted value of the collateral to be taken into account is calculated as follows in the case of all transactions except those transactions subject to recognised master netting agreements to which the provisions set out in BIPRU 5.6.5 R to BIPRU 5.6.29 R are to be applied:CVA = C x (1-HC-HFX)(2) The volatility-adjusted value of the exposure to be taken into account is calculated as follows:EVA = E x (1+HE), and in the case of financial derivative instruments
A firm may choose to use the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach independently of the choice it has made between the standardised approach and the IRB approach for the calculation of risk weighted exposure amounts. However, if a firm seeks to use the own estimates of volatility adjustments approach, it must do so for the full range of instrument types, excluding immaterial portfolios where it may use the supervisory
In relation to repurchase transaction and securities lending or borrowing transactions, where a firm uses the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach and where the conditions set out in (1) – (8) are satisfied, a firm may, instead of applying the volatility adjustments calculated under BIPRU 5.4.30 R to BIPRU 5.4.61 R, apply a 0% volatility adjustment:(1) both the exposure and the collateral are cash or debt securities
In calculating the ‘fully adjusted exposure value’ (E*) for the exposures subject to an eligible master netting agreement covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions, a firm must calculate the volatility adjustments to be applied in the manner set out in BIPRU 5.6.6 R to BIPRU 5.6.11 R either using the supervisory volatility adjustments approach or the own estimates of volatility
The master netting agreement internal models approach1 is an alternative to using the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach in calculating volatility adjustments for the purpose of calculating the ‘fully adjusted exposure value’ (E*) resulting from the application of an eligible master netting agreement covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital
A firm may use the master netting agreement internal models approach independently of the choice it has made between the standardised approach and the IRB approach for the calculation of risk weighted exposure amounts. However, if a firm uses the master netting agreement internal models approach, it must do so for all counterparties and securities, excluding immaterial portfolios where it may use the supervisory volatility adjustments approach or the own estimates of volatility
(1) A firm must be able to satisfy the FSA that the firm's risk management system for managing the risks arising on the transactions covered by the master netting agreement is conceptually sound and implemented with integrity and that, in particular, the minimum qualitative standards in (2) – (11) are met.(2) The internal risk-measurement model used for calculation of potential price volatility for the transactions is closely integrated into the daily risk-management process of
The fully adjusted exposure value (E*) for a firm using the master netting agreement internal models approach must be calculated according to the following formula:E* = max {0, [(∑E -∑C) + (VaR output of the internal models)]}where(1) (where risk weighted exposure amounts are calculated under the standardised approach) E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection;(2) C is the value of the securities
(1) A firm must calculate maturity (M) for each of the exposures referred to in this rule in accordance with this rule and subject to BIPRU 4.4.68 R to BIPRU 4.4.70 R. In all cases, M must be no greater than 5 years.(2) For an instrument subject to a cash flow schedule M must be calculated according to the following formula:where CFt denotes the cash flows (principal, interest payments and fees) contractually payable by the obligor in period t.(3) For derivatives subject to a
(1) This rule sets out how the calculations under BIPRU 5.6.24 R (Using the internal models approach to master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach E is the exposure value for each separate exposure under
(1) This rule sets out how the calculations under BIPRU 5.6.29 R (Calculating risk-weighted exposure amounts and expected loss amounts for master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) E* must be taken as the exposure value of the exposure to the counterparty arising from the transactions subject to the master
A firm must calculate the exposure value of a long settlement transaction in accordance with either:(1) BIPRU 13; or(2) the master netting agreement internal models approach, if it has a master netting agreement internal models approachwaiver which permits it to apply that approach.[Note: BCD Article 78(2) second sentence, in respect of long settlement transaction]
Under the CCR mark to market method, the CCR standardised method and the CCR internal model method, a firm must determine the exposure value for a given counterparty as equal to the sum of the exposure values calculated for each netting set with that counterparty.[Note: BCD Annex III Part 2 point 5]
A firm must not recognise netting for the purpose of applying the CCR mark to market method to an exposure treated under BIPRU 13.5.9 R (that is, the exposure value must be determined as if there were a netting set that comprises just the individual transaction).[Note: BCD Annex III Part 5 point 19 (part)]
A firm must determine the exposure value net of collateral, as follows:exposure value = *max(CMV-CMC;(j)((i)(RPTij)-(l)(RPClj))*CCRMj)where:CMV = current market value of the portfolio of transactions within the netting set with a counterparty gross of collateral.That is, where:CMV = (i)(CMVi)where:CMVi = the current market value of transaction i;CMC = the current market value of the collateral assigned to the netting set.That is, where:CMC = (l)(CMCl)whereCMCl = the current market
In application of the CCR mark to market method:(1) in BIPRU 13.4.2 R a firm may obtain the current replacement cost for the contracts included in a netting agreement by taking account of the actual hypothetical net replacement cost which results from the agreement; in the case where netting leads to a net obligation for the firm calculating the net replacement cost, the current replacement cost is calculated as "0"; and(2) in BIPRU 13.4.3 R a firm may reduce the figure for potential
For the calculation of the potential future credit exposure according to the formula in BIPRU 13.4.17 R perfectly matching contracts included in the netting agreement may be taken into account as a single contract with a notional principal equivalent to the net receipts.[Note: BCD Annex III Part 7 point c(ii) (part)]
A firm may treat contractual netting as risk-reducing only under the following conditions:(1) the firm must have a contractual netting agreement with its counterparty which creates a single legal obligation, covering all included transactions, such that, in the event of a counterparty's failure to perform owing to default, bankruptcy, liquidation or any other similar circumstance, the firm would have a claim to receive or an obligation to pay only the net sum of the positive and
A firm must disclose the following information regarding its exposure to counterparty credit risk:(1) a discussion of the methodology used to assign internal capital and credit limits for counterparty credit exposures;(2) a discussion of policies for securing collateral and establishing credit reserves;(3) a discussion of policies with respect to wrong-way riskexposures;(4) a discussion of the impact of the amount of collateral the firm would have to provide given a downgrade
Without prejudice to BIPRU 5.6.1 R, eligibility is limited to reciprocal cash balances between a firm and a counterparty. Only loans and deposits of the lending firm may be subject to a modification of risk weighted exposure amounts and, as relevant, expected loss amounts as a result of an on-balance sheet netting agreement.[Note: BCD Annex VIII Part 1 point 4]
For on-balance sheet netting agreements - other than master netting agreements covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital market-driven transactions – to be recognised for the purposes of BIPRU 5 the following conditions must be satisfied:(1) they must be legally effective and enforceable in all relevant jurisdictions, including in the event of the insolvency or bankruptcy of a counterparty;(2) the firm must
Subject to BIPRU 13.8.3 R, in respect of a securities financing transaction, if a firm:(1) has a CCR internal model method permission which covers the transaction; or(2) has a master netting agreement internal models approach permission which covers the transaction;then the firm must use the CCR internal model method approach or the master netting agreement internal models approach, as applicable, to calculate the exposure value for that transaction unless an exception in BIPRU
A firm applying credit risk mitigation techniques must disclose the following information:(1) the policies and processes for, and an indication of the extent to which the firm makes use of, on- and off-balance sheet netting;(2) the policies and processes for collateral valuation and management;(3) a description of the main types of collateral taken by the firm;(4) the main types of guarantor and credit derivative counterparty and their creditworthiness;(5) information about market