Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p30
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 30/35)
Character Range: 104840–107955

exposure.
6.             No potential future credit exposure is calculated for single currency floating/floating interest rate swaps as the credit exposure on these contracts must be evaluated solely on the basis of their mark-to-market values.
7.             For contracts that are structured to settle outstanding exposures following specified payment dates where the terms are reset such that the mark-to-market value of the contract is zero on these specified dates, the residual maturity must be set equal to the time until the next reset date.[47] In the case of interest rate contracts with these features and a remaining maturity of more than one year, the CCF to be applied is subject to a floor of 0.5 per cent even if there are reset dates of a shorter maturity.
8.             For contracts with multiple exchanges of principal, the CCFs must be multiplied by the number of remaining payments (i.e. exchanges of principal) still to be made under the contract.
9.             Contracts that do not fall within one of the specific categories listed in Table 8 must be treated as 'other commodities contracts'.
10.         An ADI must calculate the counterparty credit risk requirement for single name credit default swaps and single name total-rate-of-return swaps in the trading book using the potential future exposure CCFs in Table 9.
Table 9: Potential future exposure credit conversion factors
Type of swap                         Protection buyer (%)  Protection seller[48] (%)
Credit default swap
Qualifying[49] reference obligation  5                     5
Non-qualifying reference obligation  10                    10
Total-rate-of-return swap
Qualifying reference obligation      5                     5
Non-qualifying reference obligation  10                    10

11.         An ADI, in calculating the counterparty credit risk requirement for an nth-to-default credit derivative transaction (such as a first-to-default transaction), must use the add-on determined by the nth-lowest credit quality underlying asset in the basket.

Calculation of potential future credit exposure: Transactions covered by an eligible bilateral netting agreement
12.         An ADI must recognise the effects of netting agreements on its potential future credit exposure by applying the formula below to produce an adjusted add-on amount for potential future credit exposure on all contracts subject to the netting agreement. Thus:
13.         The potential future credit exposure (PFCEgross) is calculated as the sum of an ADI's potential future credit exposure for each individual transaction covered by a netting agreement with a counterparty as if no netting would occur (with the exception of transactions covered by the definition of NCCE in paragraph 2 of this Attachment). Potential future credit exposure for each transaction is calculated by multiplying the notional principal amount of the transaction by the appropriate CCF for that transaction as set out in Table 8.
14.         For the purpose of calculating PFCEgross, an ADI may treat matching transactions included in a netting agreement as a