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  • Adjustment for Different Holding Periods and Non Daily Mark-to-market or re-Margining

    • CA-4.3.10

      For some transactions, depending on the nature and frequency of the revaluation and re-margining provisions, different holding periods are appropriate. The framework for collateral haircuts distinguishes between repo-style transactions (i.e. repo/reverse repos and securities lending/borrowing), "other capital-market-driven transactions" (i.e. OTC derivatives transactions and margin lending) and secured lending. In capital-market-driven transactions and repo-style transactions, the documentation contains remargining clauses; in secured lending transactions, it generally does not.

      Apr 08

    • CA-4.3.11

      The minimum holding period for various products is summarised in the following table.

      Transaction type Minimum holding period Condition
      Repo-style transaction five business days daily re-margining
      Other capital market transactions ten business days daily re-margining
      Secured lending twenty business days daily revaluation
      Apr 08

    • CA-4.3.12

      When the frequency of remargining or revaluation is longer than the minimum, the minimum haircut numbers will be scaled up depending on the actual number of business days between remargining or revaluation using the square root of time formula below:

      where:

      H = Haircut

      HM = Haircut under the minimum holding period

      TM = Minimum holding period for the type of transaction

      NR = Actual number of business days between remargining for capital market transactions or revaluation for secured transactions.

      When a bank calculates the volatility on a TN day holding period which is different from the specified minimum holding period TM, the HM will be calculated using the square root of time formula:

      TN = Holding period used by the bank for deriving HN

      HN = Haircut based on the holding period TN

      Amended: April 2011
      Apr 08

    • CA-4.3.13

      For example, for banks using the standard CBB haircuts, the 10-business day haircuts provided in paragraph CA-4.3.7 will be the basis and this haircut will be scaled up or down depending on the type of transaction and the frequency of re-margining or revaluation using the formula below:

      where:

      H = Haircut

      H10 = 10-business day standard CBB haircut for instrument

      NR = Actual number of business days between re-margining for capital

            = Market transactions or revaluation for secured transactions.

      TM = Minimum holding period for the type of transaction

      Amended: April 2011
      Apr 08