Exposures to Qualifying CCPs: Trade Exposures

The clearing member will always capitalize its exposure (including potential credit valuation adjustment, or CVA, risk exposure) to clients as bilateral trades, irrespective of whether the clearing member guarantees the trade or acts as an intermediary between the client and the CCP. However, to recognize the shorter close-out period for cleared client transactions, clearing members can capitalize the exposure to their clients applying a margin period of risk of at least five days in IMM or SA-CCR. The reduced exposure at default (EAD) should also be used for the calculation of the CVA capital requirement. 8.13 If a clearing member collects collateral from a client for client cleared trades and this collateral is passed on to the CCP, the clearing member may recognize this collateral for both the CCP-clearing member leg and the clearing member-client leg of the client-cleared trade. Therefore, initial margin posted by clients to their clearing member mitigates the exposure the clearing member has against these clients. The same treatment applies, in an analogous fashion, to multi-level client structures (between a higher-level client and a lower-level client). Client exposures 8.14 Subject to the two conditions set out in 8.15 below being met, the treatment set out in 8.7 to 8.11 (i.e. the treatment of clearing member exposures to CCPs) also applies to the following: (1) A bank's exposure to a clearing member where: (a) the bank is a client of the clearing member; and (b) the transactions arise as a result of the clearing member acting as a financial intermediary (i.e. the clearing member completes an offsetting transaction with a CCP). (2) A bank's exposure to a CCP resulting from a transaction with the CCP where: (a) the bank is a client of a clearing member; and (b) the clearing member guarantees the performance the bank's exposure to the CCP. (3) Exposures of lower-level clients to higher-level clients in a multi-level client structure, provided that for all client levels in-between the two conditions in 8.15 below are met.