Exposures to central counterparties¹⁸

Banks’ exposures to qualifying central counterparties (QCCPs - see note below) related to clearing activities are exempted from the large exposures limits. However, these exposures will be subject to the regulatory reporting requirements as defined in the table below, and the SAMA will monitor the need for this exemption

Note: The definition of QCCP for large exposures purposes is the same as that used for risk-based capital requirement purposes. A qualifying central counterparty (QCCP) is an entity that is licensed to operate as a CCP (including a license granted by way of confirming an exemption), and is permitted by the appropriate regulator/overseer to operate as such with respect to the products offered. This is subject to the provision that the CCP is based and prudentially supervised in a jurisdiction where the relevant regulator/overseer has established, and publicly indicated that it applies to the CCP on an ongoing basis, domestic rules and regulations that are consistent with the CPSS- IOSCO Principles for Financial Market Infrastructures.

In the case of non-QCCPs, banks must measure their exposure as a sum of both the clearing exposures described in sections titled “Calculation of exposures related to clearing activities” and "Other exposures” below', and must respect the general large exposure limit of 25% of the eligible capital base.

The concept of connected counterparties as described in Section 1.3, of these Rules, does not apply in the context of exposures to CCPs that are specifically related to clearing activities.

Calculation of exposures related to clearing activities:

Banks must identify exposures to a CCP related to clearing activities and sum together these exposures. Exposures related to clearing activities are listed in the table below together with the exposure value to be used:

Note A: When the initial margin (IM) posted is bankruptcy-remote from the CCP — in the sense that it is segregated from the CCP’s own accounts, eg when the IM is held by a third-party custodian — this amount cannot be lost by the bank if the CCP defaults; therefore, the IM posted by the bank can be exempted from the large exposure limit.

Note B: The exposure value for pre-funded default fund contributions may need to be revised if applied to QCCPs and not only to non QCCPs.

Note C: If equity stakes are deducted from the level of capital on which the large exposure limit is based, such exposures must be excluded from the definition of an exposure to a CCP

Regarding exposures subject to clearing services (the bank acting as a clearing member or being a client of a clearing member), the bank must determine the counterparty to which exposures must be assigned by applying the provisions of the risk-based capital requirements. (Refer to circular no. 351000095018 dated 21 May 2014, Basel Committee on Banking Supervision Document regarding Capital Requirements for bank exposures to central counterparties of April 2014)

Other exposures:

Other types of exposures that are not directly related to clearing services provided by the CCP, such as funding facilities, credit facilities, guarantees etc., must be measured according to the requirements set out in Section 5 of these rules , as for any other type of counterparty. These exposures will be added together and be subjected to the large exposure limit.

¹⁸ Paragraphs 84-89 of BCBS "Supervisory framework for measuring and controlling large exposures" April 2014, and FAQs issued in September 2016.