Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p15
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 15/35)
Character Range: 63888–66635

calculated in accordance with paragraph 11 of this Attachment, with a holding period of one year.

RC for a margined netting set
10.         For a margined netting set, the RC must be calculated as:
where:
V = the total current market value of all the derivative transactions within the netting set;
MPOR = the margin period of risk as defined in paragraph 8(o) of this Prudential Standard;
CH(MPOR) = the haircut value of net collateral held by the ADI calculated in accordance with paragraph 11 of this Attachment, with a holding period equal to the MPOR;
TH = the positive threshold above which the counterparty must send the ADI collateral as specified in the margin agreement;
MTA = the minimum transfer amount applicable to the counterparty as specified in the margin agreement; and
NICA = the net independent collateral amount.
11.         The following haircut formula must be applied to the current value of the net collateral (C) held by an ADI within the RC calculation for both the margined and unmargined cases:
where:
C = the current mark-to-market value of the net collateral held by an ADI. This includes all initial and variation margin posted and held by the ADI except for collateral posted by the ADI in a bankruptcy remote manner;
CH(t) = the haircut value of net collateral held;
t = the holding period applicable to the collateral; and
H(t) = the haircut appropriate to the collateral using a holding period of t, determined in accordance with paragraphs 28 to 33 of Attachment G of APS 112 (including FX haircuts).

Potential future exposure (PFE)
12.         The PFE for a netting set is determined by the aggregated PFE add-on factors for each asset class within a given netting set and a multiplier allowing partial recognition of excess collateral. The five asset classes are interest rate, foreign exchange, credit, equity and commodity.
13.         An ADI must either assign each transaction to one of the five asset classes based on the single risk factor referenced by its underlying instrument, or, where a transaction is exposed to multiple risk factors referencing multiple asset classes, an ADI must follow the approach set out in paragraph 20 of this Attachment.
14.         The PFE must be calculated as:
with m and AddOnaggregrate calculated as:
where:
m = the multiplier that allows for the recognition of over-collateralisation or negative mark-to-market value of the transactions. m decreases to a minimum value of five per cent as excess collateral increases;
V = the total current market value of all the derivative transactions within the netting set;
CH(⸱) = CH(1 year) for unmargined transactions and CH(MPOR) for margined transactions (refer to paragraphs 9 and 10 of this Attachment, respectively);