Scope of Counterparty Credit Risk Charge
Effective from Dec 28 2022 - Dec 27 2022
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| 5.3. | Banks must calculate a counterparty credit risk charge for all exposures that give rise to counterparty credit risk, with the exception of those transactions listed in 5.15 below. The categories of transaction that give rise to counterparty credit risk are: | |
| (1) | Over-the-counter (OTC) derivatives | |
| (2) | Exchange-traded derivatives | |
| (3) | Long settlement transactions | |
| (4) | Securities financing transactions | |
| 5.4. | The transactions listed in 5.3 above generally exhibit the following abstract characteristics: | |
| (1) | The transactions generate a current exposure or market value. | |
| (2) | The transactions have an associated random future market value based on market variables. | |
| (3) | The transactions generate an exchange of payments or an exchange of a financial instrument (including commodities) against payment. | |
| (4) | The transactions are undertaken with an identified counterparty against which a unique probability of default can be determined. | |
| 5.5. | Other common characteristics of the transactions listed in 5.3 include the following: | |
| (1) | Collateral may be used to mitigate risk exposure and is inherent in the nature of some transactions. | |
| (2) | Short-term financing may be a primary objective in that the transactions mostly consist of an exchange of one asset for another (cash or securities) for a relatively short period of time, usually for the business purpose of financing. The two sides of the transactions are not the result of separate decisions but form an indivisible whole to accomplish a defined objective. | |
| (1) | Netting may be used to mitigate the risk. | |
| (2) | Positions are frequently valued (most commonly on a daily basis), according to market variables. | |
| (3) | Remargining may be employed. | |