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Article 275 - Replacement cost

Article 275

Replacement cost

1.  

Institutions shall calculate the replacement cost RC for netting sets that are not subject to a margin agreement, in accordance with the following formula:

RC = max{CMVNICA, 0}
2.  

Institutions shall calculate the replacement cost for single netting sets that are subject to a margin agreement in accordance with the following formula:

RC = max{CMV – VM – NICA, TH + MTA – NICA, 0}
where:

RC

=

the replacement cost;

VM

=

the volatility-adjusted value of the net variation margin received or posted, as applicable, to the netting set on a regular basis to mitigate changes in the netting set's CMV;

TH

=

the margin threshold applicable to the netting set under the margin agreement below which the institution cannot call for collateral; and

MTA

=

the minimum transfer amount applicable to the netting set under the margin agreement.

3.  

Institutions shall calculate the replacement cost for multiple netting sets that are subject to the same margin agreement in accordance with the following formula:

image

where:

RC

=

the replacement cost;

i

=

the index that denotes the netting sets that are subject to the single margin agreement;

CMVi

=

the CMV of netting set i;

VMMA

=

the sum of the volatility-adjusted value of collateral received or posted, as applicable, to multiple netting sets on a regular basis to mitigate changes in their CMV; and

NICAMA

=

the sum of the volatility-adjusted value of collateral received or posted, as applicable, to multiple netting sets other than VMMA.

For the purposes of the first subparagraph, NICAMA may be calculated at trade level, at netting set level or at the level of all the netting sets to which the margin agreement applies depending on the level at which the margin agreement applies.

In Force

Version from: 08/07/2022

Amendment History