Collateralized Transactions

Where, under the comprehensive approach, a foreign supervisor applies a specific carve-out to repo-style transactions in securities issued by its domestic government, banks are allowed to adopt the same approach to the same transactions. The comprehensive approach: treatment under the comprehensive approach of SFTs covered by master netting agreements 9.61 The effects of bilateral netting agreements covering SFTs may be recognized on a counterparty-by-counterparty basis if the agreements are legally enforceable in each relevant jurisdiction upon the occurrence of an event of default and regardless of whether the counterparty is insolvent or bankrupt. In addition, netting agreements must: (1) Provide the non-defaulting party the right to terminate and close out in a timely manner all transactions under the agreement upon an event of default, including in the event of insolvency or bankruptcy of the counterparty; (2) Provide for the netting of gains and losses on transactions (including the value of any collateral) terminated and closed out under it so that a single net amount is owed by one party to the other; (3) Allow for the prompt liquidation or set-off of collateral upon the event of default; and (4) Be, together with the rights arising from the provisions required in (1) to (3) above, legally enforceable in each relevant jurisdiction upon the occurrence of an event of default and regardless of the counterparty’s insolvency or bankruptcy. 9.62 Netting across positions in the banking and trading book may only be recognized when the netted transactions fulfil the following conditions: (1) All transactions are marked to market daily 46 ; and (2) The collateral instruments used in the transactions are recognized as eligible financial collateral in the banking book. 9.63 The formula in paragraph 9.64 will be used to calculate the counterparty credit risk capital requirements for SFTs with netting agreements. This formula includes the current exposure, an amount for systematic exposure of the securities based on the net exposure, an amount for the idiosyncratic exposure of the securities based on the gross exposure, and an amount for currency mismatch. All other rules regarding the calculation of haircuts under the comprehensive approach stated in paragraphs 9.40 to 9.60 equivalently apply for banks using bilateral netting agreements for SFTs.