Article 5a
Exposure value of derivatives
1.
Institutions shall determine the exposure value of the derivate contracts listed in Annex II to Regulation (EU) No 575/2013, including those that are off-balance sheet, in accordance with the Mark-to-Market Method set out in Article 5b.
When determining the exposure value, institutions may take into account the effects of contracts for novation and other netting agreements in accordance with Article 5d. Cross-product netting shall not apply. However, institutions may net within any single product category included in Annex II to Regulation (EU) No 575/2013 when they are subject to a contractual cross-product netting agreement.
2.
Where the provision of collateral related to derivative contracts reduces the amount of liabilities under the applicable accounting framework, institutions shall reverse that reduction.
3.
For the purposes of paragraph 1, institutions may deduct from the current replacement cost portion of the exposure value the variation margin paid in cash to the counterparty in so far as under the applicable accounting framework the variation margin has not already been recognised as a reduction of the exposure value and provided that all of the following conditions are met:
(a)
for trades not cleared through a qualifying central counterparty as defined in Article 4(1), point (88), of Regulation (EU) No 575/2013, the cash given to the recipient counterparty is not segregated;
(b)
the variation margin is calculated and exchanged on a daily basis, based on a mark-to-market valuation of derivative positions;
(c)
the variation margin given in cash is in the same currency as the currency of settlement of the derivative contract;
(d)
the variation margin exchanged is the full amount that would be necessary to fully extinguish the mark-to-market exposure of the derivative subject to the threshold and minimum transfer amounts applicable to the institution;
(e)
the derivative contract and the variation margin between the institution and the counterparty to that contract are covered by a single netting agreement that the institution may treat as risk-reducing in accordance with Article 5d.
For the purposes of point (c) of the first subparagraph, where the derivative contract is subject to a qualifying master netting agreement, the currency of settlement means any currency of settlement specified in the derivative contract or the governing qualifying master netting agreement.
Where under the applicable accounting framework an institution recognises the variation margin received in cash from the counterparty as a payable liability, it may exclude that liability from the exposure measure provided that the conditions set out in the first subparagraph, points (a) to (e), are met.
4.
For the purposes of paragraph 3, the following shall apply:
(a)
the deduction of variation margin paid shall be limited to the negative current replacement cost portion of the exposure value;
(b)
an institution shall not use variation margin paid in cash to reduce the potential future credit exposure amount, including for the purposes of Article 5e(1), point (b)(ii).
5.
By way of derogation from paragraph 1, institutions may use the Simplified Exposure Method set out in Article 5c to determine the exposure value of derivative contracts listed in points 1 and 2 of Annex II to Regulation (EU) No 575/2013, provided that the size of the on- and off-balance-sheet derivative business of those institutions meets the conditions set out in Article 273a(2) of that Regulation.
Institutions that apply that Simplified Exposure Method shall not reduce the exposure measure by the amount of variation margin received in cash.