• Bilateral Netting

    • CA-15.4.1

      For the purpose of the leverage ratio measure, bilateral netting is allowed subject to the following conditions:

      (a) Bahraini conventional bank licensees may net transactions subject to novation under which any obligation between a bank and its counterparty to deliver a given currency on a given value date is automatically amalgamated with all other obligations for the same currency and value date, legally substituting one single amount for the previous gross obligations; or
      (b) Bahraini conventional bank licensees may also net transactions subject to any legally valid form of bilateral netting not covered in (a), including other forms of novation.
      Added: October 2018

    • CA-15.4.2

      In both cases in CA-15.5.1 (a) and (b), a Bahraini conventional bank licensee will need to satisfy the CBB that it has:

      (a) A netting contract or agreement with the counterparty that creates a single legal obligation, covering all included transactions, such that the Bahraini conventional bank licensee would have either a claim to receive or obligation to pay only the net sum of the positive and negative mark-to-market values of included individual transactions in the event a counterparty fails to perform due to any of the following: default, bankruptcy, liquidation or similar circumstances;
      (b) Written and reasoned legal opinions that, in the event of a legal challenge, the relevant courts and administrative authorities would find the Bahraini conventional bank licensee's exposure to be such a net amount under:
      (i) The law of the home jurisdiction in which the counterparty is incorporated and, if the foreign branch of a counterparty is involved, then also under the law of jurisdiction in which the branch is located;
      (ii) The law that governs the individual transactions; and
      (iii) The law that governs any contract or agreement necessary to effect the netting.
      The CBB must be satisfied that the netting is enforceable under the laws of each of the relevant jurisdictions; and
      (c) Procedures in place to ensure that the legal characteristics of netting arrangements are kept under review in the light of possible changes in relevant law.
      Added: October 2018

    • CA-15.4.3

      Contracts containing walkaway clauses are not eligible for netting for the purpose of calculating the leverage ratio requirements. A walkaway clause is a provision that permits a non-defaulting counterparty to make only limited payments, or no payment at all, to the estate of a defaulter, even if the defaulter is a net creditor.

      Added: October 2018