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ANNEX IV Standardised Method for the calculation of initial margin for the purposes of Articles 9 and 11

  1. (1)

    The notional amounts or underlying values, as applicable, of the |OTC derivative contracts in a netting set shall be multiplied by the percentages in the following Table 1:

    (1) Table 1

    Category

    Add-on factor

    Credit: 0-2 year residual maturity

    2 %

    Credit: 2-5 year residual maturity

    5 %

    Credit: 5+ year residual maturity

    10 %

    Commodity

    15 %

    Equity

    15 %

    Foreign exchange

    6 %

    Interest rate and inflation: 0-2 year residual maturity

    1 %

    Interest rate and inflation: 2-5 year residual maturity

    2 %

    Interest rate and inflation: 5+ year residual maturity

    4 %

    Other

    15 %
  2. (2)

    The gross initial margin of a netting set shall be calculated as the sum of the products referred to in paragraph 1 for all OTC derivative contracts in the netting set.

  3. (3)

    The following treatment shall be applied to contracts which fall within more than one category:

    1. (a)

      where a relevant risk factor for an OTC derivative contract can be clearly identified, contracts shall be assigned to the category corresponding to that risk factor;

    2. (b)

      where the condition referred to in point (a) is not met, contracts shall be assigned to the category with the highest add-on factor among the relevant categories;

    3. (c)

      the initial margin requirements for a netting set shall be calculated in accordance with the following formula:

      Net initial margin = 0,4 * Gross initial margin + 0,6 * NGR * Gross initial margin.

      where:

      1. (i)

        net initial margin refers to the reduced figure for initial margin requirements for all OTC derivative contracts with a given counterparty included in a netting set;

      2. (ii)

        NGR refers to the net-to-gross ratio calculated as the quotient of the net replacement cost of a netting set with a given counterparty in the numerator, and the gross replacement cost of that netting set in the denominator;

    4. (d)

      for the purposes of point (c), the net replacement cost of a netting set shall be the bigger between zero and the sum of current market values of all OTC derivative contracts in the netting set;

    5. (e)

      for the purposes of point (c), the gross replacement cost of a netting set shall be the sum of the current market values of all OTC derivative contracts calculated in accordance with Article 11(2) of Regulation (EU) No 648/2012 and Articles 16 and 17 of Delegated Regulation (EU) No 149/2013 with positive values in the netting set;

    6. (f)

      the notional amount referred to in paragraph 1 may be calculated by netting the notional amounts of contracts that are of opposite direction and are otherwise identical in all contractual features except their notional amounts.