Overview and Scope

Effective from Dec 28 2022 - Dec 27 2022
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6.1.	The Standardized Approach for Counterparty Credit Risk (SA-CCR) applies to over the-counter (OTC) derivatives, exchange-traded derivatives and long settlement transactions.⁵ Banks that do not have approval to apply the internal model method (IMM) for the relevant transactions must use SA-CCR, as set out in this chapter.
6.2.	EAD is to be calculated separately for each netting set (as set out in 4.14 , each transaction that is not subject to a legally enforceable bilateral netting arrangement that is recognized for regulatory capital purposes should be interpreted as its own netting set).⁶ It is determined using the following formula, where:
	(1)	alpha = 1.4
	(2)	RC = the replacement cost calculated according to 6.5 to 6.21
	(3)	PFE = the amount for potential future exposure calculated according to 6.22 to 6.79
EAD = alpha (RC + PFE)*
6.3.	For credit derivatives where the bank is the protection seller and that are outside netting and margin agreements, the EAD may be capped to the amount of unpaid premia. Banks have the option to remove such credit derivatives from their legal netting sets and treat them as individual unmargined transactions in order to apply the cap.
6.4.	The replacement cost (RC) and the potential future exposure (PFE) components are calculated differently for margined and unmargined netting sets. Margined netting sets are netting sets covered by a margin agreement under which the bank’s counterparty has to post variation margin; all other netting sets, including those covered by a one-way margin agreement where only the bank posts variation margin, are treated as unmargined for the purposes of the SA-CCR. The EAD for a margined netting set is capped at the EAD of the same netting set calculated on an unmargined basis.

⁵ See chapter 12 and Chapter 13 of this framework for illustrative examples of the application of the SA-CCR to sample portfolios
⁶ The EAD can be set to zero only for sold options that are outside netting and margin agreements.