Capital requirements for bank exposures to central counterparties: Difference between revisions

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Capital requirements for bank exposures to central counterparties (view source)

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 === Important provisions ===
-:192. Where a [[bank]] acts as a [[clearing member]] of a [[CCP]] for its own purposes, a risk weight of 2% must be applied to the [[bank]]’s trade exposure to the [[CCP]] in respect of OTC derivatives, exchange-traded derivative transactions, SFTs and long-settlement transactions. Where the [[clearing member]] offers clearing services to clients, the 2% risk weight also applies to the [[clearing member]]’s trade exposure to the [[CCP]] that arises when the [[clearing member]] is obligated to reimburse the client for any losses suffered
+:192. Where a [[bank]] acts as a [[clearing member]] of a [[CCP]] for its own purposes, a [[risk weighting|risk weight]] of 2% must be applied to the [[bank]]’s trade exposure to the [[CCP]] in respect of OTC derivatives, [[exchange-traded derivatives|exchange-traded derivative]] transactions, [[Securities finance transaction|SFT]]s and long-settlement transactions. Where the [[clearing member]] offers clearing services to clients, the 2% [[risk weighting|risk weight]] also applies to the [[clearing member]]’s trade exposure to the [[CCP]] that arises when the [[clearing member]] is obligated to reimburse the client for any losses suffered due to changes in the value of its transactions in the event that the [[CCP]] [[default]]s. The [[risk weighting|risk weight]] applied to collateral posted to the [[CCP]] by the [[bank]] must be determined in accordance with paragraphs 200-202.
-due to changes in the value of its transactions in the event that the [[CCP]] [[default]]s. The risk weight applied to collateral posted to the [[CCP]] by the [[bank]] must be determined in accordance with paragraphs 200-202.
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 :(a) The offsetting transactions are identified by the [[CCP]] as client transactions and collateral to support them is held by the [[CCP]] and/or the [[clearing member]], as applicable, under arrangements that prevent any losses to the client due to: (i) the [[default]] or [[insolvency]] of the [[clearing member]], (ii) the [[default]] or [[insolvency]] of the [[clearing member]]’s other clients, and (iii) the joint [[default]] or [[insolvency]] of the [[clearing member]] and any of its other clients.<ref>That is, upon the [[insolvency]] of the [[clearing member]], there is no legal impediment (other than the need to obtain a court order to which the client is entitled) to the transfer of the collateral belonging to clients of a [[default]]ing [[clearing member]] to the [[CCP]], to one or more other surviving [[clearing member]]s or to the client or the client’s nominee. National supervisors should be consulted to determine whether this is achieved based on particular facts and such supervisors should consult and communicate with other supervisors via the “frequently asked questions” process to ensure consistency. </ref><br>
-The client must have conducted a sufficient legal review (and undertake such further review as necessary to ensure continuing enforceability) and have a well-founded basis to conclude that, in the event of legal challenge, the relevant courts and administrative authorities would find that such arrangements mentioned above would be legal, valid, binding and enforceable under the relevant laws of the relevant jurisdiction(s). <br>
+:The client must have conducted a sufficient legal review (and undertake such further review as necessary to ensure continuing enforceability) and have a well-founded basis to conclude that, in the event of legal challenge, the relevant courts and administrative authorities would find that such arrangements mentioned above would be legal, valid, binding and enforceable under the relevant laws of the relevant jurisdiction(s). <br>
-(b) Relevant laws, regulation, rules, contractual, or administrative arrangements provide that the offsetting transactions with the [[default]]ed or insolvent [[clearing member]] are highly likely to continue to be indirectly transacted through the [[CCP]], or by the [[CCP]], if the [[clearing member]] [[default]]s or becomes insolvent.<ref>If there is a clear precedent for transactions being ported at a [[CCP]] and industry intent for this practice to continue, then these factors must be considered when assessing if trades are highly likely to be ported. The fact that [[CCP]] documentation does not prohibit client trades from being ported is not sufficient to say they are highly likely to be ported.</ref> In such circumstances, the client positions and collateral with the [[CCP]] will be transferred at market value unless the client requests to close out the position at market value.
+:(b) Relevant laws, regulation, rules, contractual, or administrative arrangements provide that the offsetting transactions with the [[default]]ed or insolvent [[clearing member]] are highly likely to continue to be indirectly transacted through the [[CCP]], or by the [[CCP]], if the [[clearing member]] [[default]]s or becomes insolvent.<ref>If there is a clear precedent for transactions being ported at a [[CCP]] and industry intent for this practice to continue, then these factors must be considered when assessing if trades are highly likely to be ported. The fact that [[CCP]] documentation does not prohibit client trades from being ported is not sufficient to say they are highly likely to be ported.</ref> In such circumstances, the client positions and collateral with the [[CCP]] will be transferred at market value unless the client requests to close out the position at market value.
+{{sa}}
+[[306(1) - CRR Provision]]
+{{ref}}