Document ID: chunk:federal_register_of_legislation:F2024L01518:body:0:p18
Version: federal_register_of_legislation:F2024L01518
Segment Type: other
Provision Reference: 
Character Range: 47819–50755

a credit derivative, it may only recognise offsetting from another purchased credit derivative if the purchased protection is certain to deliver a payment to the ADI in all circumstances;
         2.           the remaining maturity of the credit protection purchased through credit derivatives is equal to or greater than the remaining maturity of the written credit derivatives;
         3.           the credit protection purchased through credit derivatives is not purchased from a counterparty whose credit quality is highly correlated with the value of the reference obligation(i.e. wrong-way risk);
         4.           in the event that the effective notional amount of a written credit derivative is reduced by any negative change in fair value reflected in the ADI's Tier 1 Capital, the effective notional amount of offsetting credit protection purchased through credit derivatives must also be reduced by any resulting positive change in fair value reflected in Tier 1 Capital; and
         5.           the credit protection purchased through credit derivatives is not included in a transaction that has been cleared on behalf of a client and for which the effective notional amount referenced by the corresponding written credit derivative is excluded from the exposure measure under paragraph 26 of this Attachment.
 5.          Credit protection purchased on a pool of reference names may only offset credit protection sold on individual reference names if the credit protection purchased is economically equivalent to buying protection separately on each of the individual names in the pool. If the credit protection purchased does not cover the entire pool (i.e. the protection covers only a subset of the pool, as in the case of an nth-to-default credit derivative or a securitisation tranche), no offsetting of credit protection sold on individual reference names is allowed.
 6.          Where an ADI purchases credit protection through a total return swap and records the net payments received as net income, but does not record the offsetting deterioration in the value of the written credit derivative (either through reductions in fair value or by an addition to reserves) in Tier 1 Capital, the credit protection must not be used to offset the effective notional amounts of the written credit derivatives.
 7.          An ADI may choose to exclude from the netting set for the calculation of PFE the portion of a written credit derivative which is not offset in accordance with paragraph 32 of this Attachment, and for which the effective notional amount is included in the exposure measure.

Securities financing transaction exposures
 1.          For the purpose of calculating the exposure measure, an ADI must apply the specific treatment set out in paragraphs 38 to 45 of this Attachment to any SFT exposures.[25]

ADI acting as a principal
 1.          When an ADI is acting as a principal in an SFT, its