CA-8.3.5

The counterparty credit risk charge for single name credit derivative transactions in the trading book must be calculated applying the following potential future exposure add-on factors:

There will be no difference depending on residual maturity.

The definition of "qualifying" is the same as for the treatment of specific risk in chapter CA-9.

** The protection seller of a credit default swap is only subject to the add-on factor where it is subject to closeout upon the insolvency of the protection buyer while the underlying is still solvent. Add-on must then be capped to the amount of unpaid premiums.

CA-8.3.6

Where the credit derivative is a first to default transaction, the add-on is determined by the lowest credit quality underlying in the basket, i.e. if there are any non-qualifying items in the basket, the non-qualifying reference obligation add-on is used. For second and subsequent to default transactions, underlying assets must continue to be allocated according to the credit quality, i.e. the second lowest credit quality determines the add-on for a second to default transaction etc.