Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p29
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 29/35)
Character Range: 101691–105133

11 of this Attachment.
(b)          for OTC derivative transactions covered by an eligible bilateral netting agreement that satisfies the requirements in Attachment H of APS 112 for netting, an ADI must calculate the CEA of transactions subject to a netting agreement as:
for netting agreements containing only margined[45] transactions:
        for netting agreements containing only unmargined transactions:
       for netting agreements containing both margined and unmargined transactions:[46]
where:
       NCCE = the net current credit exposure (i.e. net mark-to-market) of all transactions covered by the netting agreement, if positive. NCCE must be calculated as the sum of all positive and negative mark-to-market values of all individual contracts covered by a netting agreement (i.e. positive mark-to-market values of transactions may be offset against negative mark-to-market values on other transactions covered by the netting agreement). If the net sum of individual mark-to-market values is positive, the NCCE is equal to that sum. If the sum of mark-to-market values is zero or negative, the NCCE is set equal to zero;
       PFCEadj = the add-on for potential future credit exposure based on the notional principal of all the individual underlying contracts (i.e. the gross potential future credit exposure (PFCEgross)) adjusted to reflect the effects of the netting agreement. PFCEadj must be determined in accordance with paragraphs 12 to 17 of this Attachment; and

Calculation of potential future credit exposure: transactions that are not covered by an eligible bilateral netting agreement
3.             An ADI must, for the purpose of calculating its potential future credit exposure for each transaction, multiply the notional principal amount of each of these transactions by the relevant credit conversion factor (CCF) specified in Table 8.
Table 8: Current exposure method – market-related CCFs
Residual maturity  Interest rate contracts (%)  Foreign exchange and gold contracts (%)  Equity contracts (%)  Precious metal contracts (other than gold) (%)  Other commodity contracts (other than precious metals) (%)
≤ 1 year           0.0                          1.0                                      6.0                   7.0                                             10.0
>1 year,           0.5                          5.0                                      8.0                   7.0                                             12.0
≤ 5 years
>5 years           1.5                          7.5                                      10.0                  8.0                                             15.0

4.             The notional or nominal principal amount, or value, of a contract must be the reference amount used to calculate payment streams between counterparties to a contract.
5.             Potential future credit exposure must be based on effective rather than apparent notional amounts. In the event that the stated notional amount of a contract is leveraged or enhanced by the structure of the transaction, an ADI must use the effective notional amount when calculating potential future credit 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