Collateralized Transactions

Banks using standard supervisory haircuts for SFTs conducted under a master netting agreement must use the formula that follows to calculate their exposure amount, where: (1) E * is the exposure value of the netting set after risk mitigation (2) E i is the current value of all cash and securities lent, sold with an agreement to repurchase or otherwise posted to the counterparty under the netting agreement (3) C j is the current value of all cash and securities borrowed, purchased with an agreement to resell or otherwise held by the bank under the netting agreement (4) (5) (6) E s is the net current value of each security issuance under the netting set(always a positive value) (7) H s is the haircut appropriate to E S as described in tables of paragraphs 9.49 to 9.50, as applicable (a) H s has a positive sign if the security is lent, sold with an agreement to repurchased, or transacted in manner similar to either securities lending or a repurchase agreement (b) H s has a negative sign if the security is borrowed, purchased with an agreement to resell, or transacted in a manner similar to either a securities borrowing or reverse repurchase agreement (8) N is the number of security issues contained in the netting set (except that issuances where the value Es is less than one tenth of the value of the largest Es in the netting set are not included the count) (9) E fx is the absolute value of the net position in each currency fx different from the settlement currency (10) H fx is the haircut appropriate for currency mismatch of currency fx Collateralized OTC derivatives, exchange traded derivatives and long settlement transactions 9.65 Under the standardized approach for Counterparty Credit Risk Framework (SA-CCR) , the calculation of the counterparty credit risk charge for an individual contract will be calculated using the following formula, where: (1) Alpha = 1.4 (2) RC = the replacement cost calculated according to paragraphs 6.5 to 6.22 in The Counterparty Credit Risk (CCR) Framework . (3) PFE = the amount for potential future exposure calculated according to paragraphs 6.23 to 6.76 in the CCR framework . 9.66 As an alternative to the SA-CCR for the calculation of the counterparty credit risk charge, banks may also use the internal models method as set out in chapter 7 of the Counterparty Credit Risk (CCR) Framework , subject to SAMA’s approval. 41 Cash-funded credit-linked notes issued by the bank against exposures in the banking book that fulfil the criteria for credit derivatives are treated as cash-collateralized transactions. 42 When cash on deposit, certificates of deposit or comparable instruments issued by the lending bank are held as collateral at a third- party bank in a non-custodial arrangement, if they are openly pledged/assigned to the lending bank and if the pledge/assignment is unconditional and irrevocable, the exposure amount covered by the collateral (after any necessary haircuts for currency risk) receives the risk weight of the third-party bank. 43 When debt securities that do not have an issue specific rating are issued by a rated sovereign, banks may treat the sovereign issuer rating as the rating of the debt security. 44 However, the use or potential use by a UCITS/mutual fund of derivative instruments solely to hedge investments listed in this paragraph and paragraph 9.45 shall not prevent units in that UCITS/mutual fund from being eligible financial collateral. 45 Exposure amounts may vary where, for example, securities are being lent. 46 The holding period for the haircuts depends, as in other repo-style transactions, on the frequency of margining.