Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p35
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 35/35)
Character Range: 118086–120431

[41]  The applicable supervisory factor must be multiplied by one-half for basis transactions and multiplied by a factor of five for volatility transactions, as specified in paragraph 17 of this Attachment.
[42]  These parameters include C, TH, MTA and NICA.
[43]  This is opposed to the simplest case where the set of transactions under a margin agreement and within the netting set coincide, in which case the replacement cost is calculated on the individual netting set-level (NS).
[44]  For the purposes of the adjusted CEM, bilateral transactions must be treated as margined transactions where there is exchange of variation margin with a zero threshold. Where a transaction does not meet these conditions, or where it unclear as to whether a transaction meets these conditions, the transaction must be treated as an unmargined transaction. Bilateral transactions with a one-way margining agreement in favour of an ADI's counterparty (that is, where an ADI posts, but does not collect, variation margin) must be treated as unmargined transactions. Centrally cleared transactions would be treated as either margined or unmargined transactions in accordance with the treatment adopted under paragraph 6 of Attachment B.
[45]  Refer to footnote 44 for the definition of margined transaction.
[46]  Alternatively, an ADI may elect to use the formula for CEA for netting agreements containing only unmargined transactions.
[47]  For example, a principal resetting cross-currency swap or a settled-to-market derivative where, at the next reset date, the outstanding exposure is settled and the terms are reset so that the fair value of the contract is zero. A derivative contract with a mandatory break (where there is a legal contractual obligation on both parties to terminate the transaction by the mandatory break date) would also be eligible where the outstanding exposure is settled completely.
[48]  The protection seller of a credit default swap would only be subject to the add-on factor where it is subject to closeout upon the insolvency of the protection buyer while the underlying asset is still solvent. The add-on should be capped to the amount of unpaid premiums.
[49]  The definition of qualifying is the same as for the qualifying category for the treatment of specific risk under the standardised measurement method in APS 116.