Treatment of SFTs covered by master nettTreatment of SFTs covered by master netting agreements

Treatment of SFTs covered by master netting agreements

1. For SFTs covered by an eligible bilateral netting agreement that meets the requirements detailed in Attachment H to this Prudential Standard, an ADI that uses the comprehensive approach must calculate the EAD as:

Start formula A formula for E*, the adjusted EAD of the netting set, that an ADI that uses the comprehensive approach must use to calculate EAD, for SFTs covered by an eligible bilateral netting agreement that meets the requirements in Attachment H to this Prudential Standard end formula.

where:

E* is the adjusted EAD of the netting set

Ei is the current value of all cash lent and non-cash posted collateral

Cj is the current value of all cash borrowed and non-cash received collateral

Start formula net exposure equals absolute value of the sum across S of E subscript S H subscript S end formula.

Start formula gross exposure equals the sum across S of E subscript S absolute value of H subscript S end formula.

Es is the net current value of each security issuance under the netting set (always a positive value)

Hs is the haircut appropriate to Es, as set out in Table 23 and scaled by the margining frequency adjustment factor in paragraph 32 of this Attachment. Hs has a positive (negative) sign if the security is posted (received) collateral

N is the number of security issues contained in the netting set (except that issuances where the value of Es is less than one tenth of the value of the largest Es in the netting set are not included in the count)

Efx is the absolute value of the net position in each currency fx different from the settlement currency

Hfx is the haircut appropriate for currency mismatch of currency fx.