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CA-4.3.14

For repo-style transactions where the following conditions are satisfied, and the counterparty is a core market participant, conventional bank licensees are not required to apply the haircuts specified in the comprehensive approach and may instead apply a haircut of zero. This carve-out will not be available for conventional bank licensees using the modelling approaches as described in Paragraphs CA-4.3.22 to CA-4.3.25:

(a) Both the exposure and the collateral are cash or a sovereign security or PSE security qualifying for a 0% risk weight in the standardised approach;
(b) Both the exposure and the collateral are denominated in the same currency;
(c) Either the transaction is overnight or both the exposure and the collateral are marked-to-market daily and are subject to daily re-margining;
(d) Following a counterparty's failure to re-margin, the time that is required between the last mark-to-market before the failure to re-margin and the liquidation27 of the collateral is considered to be no more than four business days;
(e) The transaction is settled across a settlement system proven for that type of transaction;
(f) The documentation covering the agreement is standard market documentation for repo-style transactions in the securities concerned;
(g) The transaction is governed by documentation specifying that if the counterparty fails to satisfy an obligation to deliver cash or securities or to deliver margin or otherwise defaults, then the transaction is immediately terminable; and
(h) Upon any default event, regardless of whether the counterparty is insolvent or bankrupt, the conventional bank licensee has the unfettered, legally enforceable right to immediately seize and liquidate the collateral for its benefit.

27 This does not require the bank to always liquidate the collateral but rather to have the capability to do so within the given time frame.

January 2015