Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p6
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 6/35)
Character Range: 40820–43691

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 held in a manner that prevents any losses to the client ADI due to the joint default or insolvency of the clearing member and any of its 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); and
(c)          the relevant laws, regulation, rules, contractual or administrative arrangements provide that the offsetting transactions with the defaulted or insolvent clearing member are highly likely to continue to be indirectly transacted through the QCCP, or by the QCCP, if the clearing member defaults or becomes insolvent. In such circumstances, the client positions and collateral with the QCCP will be transferred at market value unless the client ADI requests to close out the position at market value.
23.         Where only conditions (a) and (c) of paragraph 22 of this Attachment are satisfied, the client ADI must apply a risk weight of four per cent to its calculated trade exposure to the QCCP (excluding any posted collateral eligible for a zero risk weight under paragraph 28(a) of this Attachment). The applicable risk weight on collateral posted by the client ADI that is included in the definition of trade exposure must be determined according to paragraphs 25 to 28 of this Attachment.[15]
24.         In any other case, the client ADI must treat the exposure as bilateral for the purposes of all counterparty credit risk requirements and apply the treatment set out in Attachment A (comprising both default risk RWE and a CVA risk capital charge).

Exposures arising from collateral posted to a QCCP
25.         For the purposes of this Attachment, collateral posted by an ADI to the QCCP includes but is not limited to: initial margin, any variation margin due to the ADI from the QCCP but not yet received, cash, securities, other pledged assets and any excess initial or variation margin. Posted collateral does not include any default fund contribution.
26.         An ADI that has posted collateral to a QCCP must risk weight those assets in accordance with the relevant banking book or trading book treatment that would otherwise apply regardless of the fact that such assets have been posted as collateral.
27.         For collateral