Document ID: chunk:federal_register_of_legislation:F2024L01073:reg:4:p7
Version: federal_register_of_legislation:F2024L01073
Segment Type: reg
Provision Reference: reg 4 (pt 7/21)
Character Range: 94351–97215

quarter, an ADI must set the minimum holding period to 20 business days for the following quarter;
         2.           for netting sets containing one or more trades involving either illiquid collateral, or an OTC derivative that cannot be easily replaced, an ADI must set the minimum holding period to 20 business days. An ADI must determine both liquidity and ease of replacement in the context of stressed market conditions; and
         3.           if an ADI has experienced more than two margin call disputes on a particular netting set over the previous two quarters that have lasted longer than the applicable minimum holding period (before consideration of this provision), the ADI must use a minimum holding period that is at least double the supervisory floor for that netting set for the subsequent two quarters.
    In determining the holding period, an ADI must consider whether trades or securities it holds as collateral are concentrated in a particular counterparty and whether, if that counterparty exited the market precipitously, the ADI would be able to replace its trades.
 1.          An ADI must calculate the margining frequency adjustment factor for a transaction or netting set as:
where:
           TM  is the minimum holding period for the type of transaction determined in accordance with paragraphs 30 to 31 of this Attachment
           NR  is the number of business days between remarginings or revaluations.

Treatment of SFTs covered by master netting agreements
 1.          For SFTs covered by an eligible bilateral netting agreement that meets the requirements detailed in Attachment H to this Prudential Standard, an ADI that uses the comprehensive approach must calculate the EAD as:
where:
    E*  is the adjusted EAD of the netting set
           Ei  is the current value of all cash lent and non-cash posted collateral
           Cj  is the current value of all cash borrowed and non-cash received collateral

           Es  is the net current value of each security issuance under the netting set (always a positive value)
           Hs  is the haircut appropriate to Es, as set out in Table 23 and scaled by the margining frequency adjustment factor in paragraph 32 of this Attachment. Hs has a positive (negative) sign if the security is posted (received) collateral
           N  is the number of security issues contained in the netting set (except that issuances where the value of Es is less than one tenth of the value of the largest Es in the netting set are not included in the count)
           Efx  is the absolute value of the net position in each currency fx different from the settlement currency
    Hfx  is the haircut appropriate for currency mismatch of currency fx.

Attachment H – Netting
 1.              An ADI may reduce its exposure amount, for the purpose of calculating its Regulatory Capital