Article 274
Exposure value
1.
An institution may calculate a single exposure value at netting set level for all the transactions covered by a contractual netting agreement where all the following conditions are met:
(a)
the netting agreement belongs to one of the types of contractual netting agreements referred to in Article 295;
(b)
the netting agreement has been recognised by competent authorities in accordance with Article 296;
(c)
the institution has fulfilled the obligations laid down in Article 297 in respect of the netting agreement.
Where any of the conditions set out in the first subparagraph are not met, the institution shall treat each transaction as if it was its own netting set.
2.
Institutions shall calculate the exposure value of a netting set under the standardised approach for counterparty credit risk as follows:
Exposure value = α · (RC + PFE)
where:
|
RC |
= |
the replacement cost calculated in accordance with Article 275; and |
|
PFE |
= |
the potential future exposure calculated in accordance with Article 278; |
|
α |
= |
1,4. |
3.
The exposure value of a netting set that is subject to a contractual margin agreement shall be capped at the exposure value of the same netting set not subject to any form of margin agreement.
4.
Where multiple margin agreements apply to the same netting set, or the same netting set includes both transactions subject to a margin agreement and transactions not subject to a margin agreement, an institution shall calculate its exposure value as follows:
(a)
the institution shall establish the hypothetical sub-netting sets concerned, composed of transactions included in the netting set, as follows:
(i)
all transactions subject to a margin agreement and to the same margin period of risk as determined in accordance with Article 285(2) to (5), shall be allocated to the same sub-netting set;
(ii)
all transactions not subject to a margin agreement shall be allocated to the same sub-netting set, distinct from the sub-netting sets established in accordance with point (i) of this paragraph;
(b)
the institution shall calculate the replacement cost of the netting set in accordance with Article 275(2), taking into account all transactions within the netting set, whether or not subject to a margin agreement, and apply all of the following:
(i)
CMV shall be calculated for all transactions within a netting set gross of any collateral held or posted where positive and negative market values are netted in computing the CMV;
(ii)
NICA, VM, TH, and MTA, where applicable, shall be calculated separately as the sum across the same inputs applicable to each individual margin agreement of the netting set;
(c)
the institution shall calculate the potential future exposure of the netting set referred to in Article 278 by applying all of the following:
(i)
(ii)
shall be calculated in accordance with Article 278, separately for each hypothetical sub-netting set referred to in point (a) of this paragraph.
5.
Institutions may set to zero the exposure value of a netting set that satisfies all the following conditions:
(a)
the netting set is solely composed of sold options;
(b)
the current market value of the netting set is at all times negative;
(c)
the premium of all the options included in the netting set has been received upfront by the institution to guarantee the performance of the contracts;
(d)
the netting set is not subject to any margin agreement.
6.
In a netting set, institutions shall replace a transaction which is a finite linear combination of bought or sold call or put options with all the single options that form that linear combination, taken as an individual transaction, for the purpose of calculating the exposure value of the netting set in accordance with this Section. Each such combination of options shall be treated as an individual transaction in the netting set in which the combination is included for the purpose of calculating the exposure value.
By way of derogation from the first subparagraph, institutions shall replace a vanilla digital option the strike of which equals K with the relevant collar combination of two sold and bought vanilla call or put options that meet the following requirements:
(a)
the two options of the collar combination have:
(i)
the same expiry date and the same spot or forward price of the underlying instrument as the vanilla digital option;
(ii)
strikes equal to 0,95 ·K and 1,05 ·K respectively;
(b)
the collar combination replicates exactly the vanilla digital option payoff outside the range between the two strikes referred to in point (a).
The risk position of the two options of the collar combination referred to in the second subparagraph shall be calculated separately in accordance with Article 279.
7.
The exposure value of a credit derivative transaction representing a long position in the underlying may be capped to the amount of outstanding unpaid premium provided it is treated as its own netting set that is not subject to a margin agreement.