Minimum Capital Requirements for Counterparty Credit Risk (CCR) and Credit Valuation Adjustment (CVA)

As regards the calculation in this first step (i.e. 8.28 to 8.34): (1) Any haircuts to be applied for SFTs must be the standard supervisory haircuts set out in 9.44 of the Minimum Capital Requirements for Credit Risk . (2) The holding periods for SFT calculations in 9.60 to 9.63 of the Minimum Capital Requirements for Credit Risk . (3) The netting sets that are applicable to regulated clearing members are the same as those referred to in 8.10 and 8.11. For all other clearing members, they need to follow the netting rules as laid out by the CCP based upon notification of each of its clearing members. SAMA may demand more granular netting sets than laid out by the CCP. Capital requirement for each clearing member 8.36. The second step in calculating the clearing member bank's capital requirement for its default fund contribution ( K CMi ) is to apply the following formula, 34 where: (1) K CMi is the capital requirement on the default fund contribution of clearing member bank i (2) DF CM Pref is the total prefunded default fund contributions from clearing members (3) DR CCP is the CCP's prefunded own resources (e.g. contributed capital, retained earnings, etc.), which are contributed to the default waterfall, where these are junior or pari passu to prefunded member contributions (4) DF i prefis the prefunded default fund contributions provided by clearing member bank i 8.37. The CCP, bank, CCP supervisor or other body with access to the required data, must make a calculation of K CCP , DF CM pref , DF CCP , in such a way to permit the supervisor of the CCP to oversee those calculations, and it must share sufficient information of the calculation results to permit each clearing member to calculate their capital requirement for the default fund and for SAMA to review and confirm such calculations. 8.38. K CCP must be calculated on a quarterly basis at a minimum; although SAMA may require more frequent calculations in case of material changes (such as the CCP clearing a new product). The CCP, bank, CCP supervisor or other body that did the calculations must make available to SAMA the sufficient aggregate information about the composition of the CCP's exposures to clearing members and information provided to the clearing member for the purposes of the calculation of K CCP , DF CM pref , DF CCP . Such information must be provided no less frequently than the SAMA would require for monitoring the risk of the clearing member. 8.39. K CCP and K CMi must be recalculated at least quarterly, and should also be recalculated when there are material changes to the number or exposure of cleared transactions or material changes to the financial resources of the CCP. Cap with regard to QCCPs 8.40. Where the sum of a bank's capital requirements for exposures to a QCCP due to its trade exposure and default fund contribution is higher than the total capital requirement that would be applied to those same exposures if the CCP were for a non-qualifying CCP, as outlined in 8.41 and 8.42 below, the latter total capital requirement shall be applied. 32 Where the firm’s internal model permission does not specifically cover centrally cleared products, the IMM scope would have to be extended to cover these products (even where the non-centrally cleared versions are included in the permission). Usually, national supervisors have a well-defined model approval/change process by which IMM firms can extend the products covered within their IMM scope. The introduction of a centrally cleared version of a product within the existing IMM scope must be considered as part of such a model change process, as opposed to a natural extension. 33 The 20% risk weight is a minimum requirement. As with other parts of the capital adequacy framework, the national supervisor of a bank may increase the risk weight. An increase in such risk weight would be appropriate if, for example, the clearing members in a CCP are not highly rated. Any such increase in risk weight is to be communicated by the affected banks to the person completing this calculation. 34 The formula puts a floor on the default fund exposure risk weight of 2%. Exposures to Non-Qualifying CCPs 8.41. Banks must apply the standardized approach for credit risk, according to the category of the counterparty, to their trade exposure to a non-qualifying CCP. 8.42. Banks must apply a risk weight of 1250% to their default fund contributions to a non-qualifying CCP. For the purposes of this paragraph, the default fund contributions of such banks will include both the funded and the unfunded contributions which are liable to be paid if the CCP so requires. Where there is a liability for unfunded contributions (i.e. unlimited binding commitments), the risk weight shall also be 1250%. Banks may, however, seek SAMA's approval to apply a different risk weight for the unfunded contributions. 9. Counterparty Credit Risk in the Trading Book