Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p5
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 5/35)
Character Range: 38244–41110

be determined in accordance with paragraphs 25 to 28 of this Attachment.

Clearing member ADI's exposure to clients
19.         For the clearing member ADI-to-client leg of a transaction with a QCCP, a clearing member ADI must calculate its counterparty credit risk requirements on its exposures to its clients following the requirements for bilateral transactions set out in Attachment A (comprising both default risk RWE and a CVA risk capital charge). However, to recognise the shorter close-out period for cleared client derivative transactions, the clearing member ADI may apply a minimum MPOR of five business days in calculating the clearing member ADI's exposure amounts to its clients under the SA-CCR (refer to Attachment D). The reduced EAD may also be used in the calculation of the CVA risk capital charge.

Client ADI's exposure to a QCCP
20.         An ADI is considered a 'client ADI' where:
(a)          the ADI clears through a QCCP indirectly as a client of a clearing member acting as a financial intermediary (i.e. the clearing member completes an offsetting transaction with the QCCP); or
(b)          the ADI enters into a transaction with a QCCP, with a clearing member guaranteeing the client ADI's performance,
21.         A client ADI must:
(a)          calculate a trade exposure to the clearing member ADI or QCCP, as the case may be, using:
(i)            for an IRB ADI, the SA-CCR (refer to Attachment D); or
(ii)         for a standardised ADI, the adjusted CEM (refer to Attachment E); and
(b)          risk weight the trade exposure according to the requirements in paragraphs 22 to 24 of this Attachment.
22.         A client ADI must treat its trade exposure (excluding any posted collateral eligible for a zero risk weight under paragraph 28(a) of this Attachment), as if it were a clearing member ADI's trade exposure to the QCCP, and apply the requirements set out in paragraphs 11 to 16 of this Attachment when the following three conditions are met:
(a)          the offsetting transactions are identified by the QCCP as client transactions and the collateral to support the offsetting transactions is held in a manner that prevents any losses to the client ADI due to either the default or insolvency of the clearing member, or the default or insolvency of the clearing member's other clients. Additionally, the client ADI must have conducted a sufficient legal review, and undertake further review as necessary to ensure continuing enforceability of the arrangements. The client ADI must have a well-founded basis to conclude that, in the event of legal challenge, the relevant courts and administrative authorities would find that the arrangements would be legal, valid, binding and enforceable under the relevant laws of the relevant jurisdiction(s);
(b)          the collateral supporting the offsetting transactions is