Updated 09/12/2024
In force

Version from: 09/07/2024
Amendments (1)
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Article 204 - Eligible types of credit derivatives

Attention! This article will be amended on 01/01/2025. Please consult Regulation 2024/1623 to review the changes that will be made to the article.

Article 204

Eligible types of credit derivatives

1.  

Institutions may use the following types of credit derivatives, and instruments that may be composed of such credit derivatives or that are economically effectively similar, as eligible credit protection:

(a) 

credit default swaps;

(b) 

total return swaps;

(c) 

credit linked notes to the extent of their cash funding.

Where an institution buys credit protection through a total return swap and records the net payments received on the swap as net income, but does not record the offsetting deterioration in the value of the asset that is protected either through reductions in fair value or by an addition to reserves, that credit protection does not qualify as eligible credit protection.

2.  
Where an institution conducts an internal hedge using a credit derivative, in order for the credit protection to qualify as eligible credit protection for the purposes of this Chapter, the credit risk transferred to the trading book shall be transferred out to a third party or parties.

Where an internal hedge has been conducted in accordance with the first subparagraph and the requirements in this Chapter have been met, institutions shall apply the rules set out in Sections 4 to 6 for the calculation of risk-weighted exposure amounts and expected loss amounts where they acquire unfunded credit protection.