82,891
edits
Amwelladmin (talk | contribs) |
Amwelladmin (talk | contribs) No edit summary |
||
Line 19: | Line 19: | ||
Under Chapter 6, the exposure value can be determined by using an internal model, assuming that the firm has regulatory approval for the use of such a model (Art. {{crrprov|273(2)}} of {{tag|CRR}}) or by one of the methods set out in that Chapter. | Under Chapter 6, the exposure value can be determined by using an internal model, assuming that the firm has regulatory approval for the use of such a model (Art. {{crrprov|273(2)}} of {{tag|CRR}}) or by one of the methods set out in that Chapter. | ||
{{crrsnap|273(2)}} | {{crrsnap|273(2)}} | ||
Although not expressly stated in relation to stock loans, these apply certain methodologies to particular “contracts” or “transactions”. | |||
A securities lending transaction is, both legally and economically a single transaction and is treated as such under {{tag|CRR}} (see, for example, Art. {{crrprov|92(3)(f)}}). | |||
{{crrsnap|92(3)(f)}} | |||
Where the conditions referred to in Art. {{crrprov|206}} of {{tag|CRR}} are satisfied, [[netting]] arrangements are recognised. | |||
{{crrsnap|206}} | {{crrsnap|206}} | ||
However, if those conditions are not satisfied, the exposure is calculated without giving effect to any close-out netting agreement that may exists, i.e. each transaction is treated individually. | |||
This is to be expected because netting arrangements are only recognised if they are legally enforceable. If they are not, the counterparties may have a gross exposure to each other due to the fact that an insolvency official may be able to “cherry pick” between individual transactions, i.e. disclaim unprofitable transactions while enforcing profitable ones. | |||
**It would be very unusual for an insolvency official to be able to cherry pick individual rights and obligations within a single transaction. I am not aware of any jurisdiction in which this is possible and certainly it is not possible under English law. | **It would be very unusual for an insolvency official to be able to cherry pick individual rights and obligations within a single transaction. I am not aware of any jurisdiction in which this is possible and certainly it is not possible under English law. | ||