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Trade exposures with CCPs - CRR Provision: Difference between revisions
Trade exposures with CCPs - CRR Provision (view source)
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Looking at it another way, if such a [[carve-out]] did invalidate {{crrprov|306(1)(c)}} then the provision would have no application at all, because it would be commercially impossible to remove it. | Looking at it another way, if such a [[carve-out]] did invalidate {{crrprov|306(1)(c)}} then the provision would have no application at all, because it would be commercially impossible to remove it. | ||
===Wait - does this apply to intermediate brokers in the clearing chain too?=== | |||
Well, you would like to think so. It doesn’t make a lot of sense otherwise. But CRR itself is silent on the point. But here's the read across: | |||
* The [[BIS]] [[Capital requirements for bank exposures to central counterparties|paper on which CRR provision was modeled]] is framed in the positive: “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 due to changes in the value of its transactions in the event that the CCP defaults''.” | |||
**The theory being that unless the clearing member has agreed otherwise, it wouldn’t be liable for those provisions in the first place: ie, it assumes an [[agency]] model (Common in the US) for client clearing. | |||
**The European model is a back-to-back [[principal]] model, however, so unless you’ve somehow carved it out, you ''would'' be liable for it, all other things being equal. | |||
*The BIS does talk about this a little: “The treatment in paragraph 192 to 194 may also apply to exposures of lower level clients to higher level clients in a multi-level client structure, provided that for all client levels in-between the conditions in (a) and (b) below are met.” The conditions (see [[Capital requirements for bank exposures to central counterparties|here]] for their text) are predicated on all the structures being of an agency kind. | |||
*One is therefore obliged to extrapolate from an agency model to the economic equivalent under a principal model. | |||
{{seealso}} | {{seealso}} | ||
*The [[Basel]] / [[BIS]] paper on which this turbulent regulation was based: [[Capital requirements for bank exposures to central counterparties]] | *The [[Basel]] / [[BIS]] paper on which this turbulent regulation was based: [[Capital requirements for bank exposures to central counterparties]] | ||
*[[Agency]] versus [[prini | |||
{{ref}} | {{ref}} | ||