CA-15.3.19
The sum of the amounts in subparagraphs (a) and (b) are to be included in the leverage ratio exposure measure:
(a) Gross SFT assets recognized for accounting purposes (i.e. with no recognition of accounting netting), adjusted as follows:
(i) Excluding from the exposure measure the value of any securities received under an SFT , where the Bahraini conventional bank licensee has recognised the securities as an asset on its balance sheet; and
(ii) Cash payables and cash receivables in SFTs with the same counterparty may be measured net if the following criteria are met:
(A) Transactions have the same explicit final settlement date but which can be unwound at any time by either party to the transaction are not eligible;
(B) The right to set off the amount owed to the counterparty with the amount owed by the counterparty is legally enforceable both currently in the normal course of business and in the event of: (i) default; (ii) insolvency; and (iii) bankruptcy; and
(C) The counterparties intend to settle net, settle simultaneously, or the transactions are subject to a settlement mechanism that results in the functional equivalent of net settlement, that is, the cash flows of the transactions are equivalent, in effect, to a single net amount on the settlement date. To achieve such equivalence, both transactions are settled through the same settlement system and the settlement arrangements are supported by cash and/or intraday credit facilities intended to ensure that settlement of both transactions will occur by the end of the business day any issues arising from securities legs of the SFTs do not result in the unwinding of net cash settlement24; and
(b) A measure of Counterparty Credit Risk calculated as the current exposure without an add-on for Potential Future Exposure (PFE), calculated as follows:
(i) Where a qualifying Master Netting Agreement25(MNA) is in place, the current exposure (E*) is the greater of zero and the total fair value of securities and cash lent to a counterparty for all transactions included in the qualifying MNA (SEi), less the total fair value of cash and securities received from the counterparty for those transactions (SCi). This is illustrated in the following formula:
E* = max {0, [SEi – SCi]}; and
E* = max {0, [SEi – SCi]}; and
(ii) Where no qualifying MNA is in place, the current exposure for transactions with a counterparty must be calculated on a transaction by transaction basis; that is, each transaction is treated as its own netting set, as shown in the following formula:
Ei* = max {0, [Ei – Ci]}
Ei* = max {0, [Ei – Ci]}
(ii) Ei* may be set to zero if (i) Ei is the cash lent to a counterparty, (ii) this transaction is treated as its own netting set and (iii) the associated cash receivable is not eligible for the netting treatment in Paragraph CA-15.3.20.
(iii) For the purposes of the above, the term "counterparty" includes not only the counterparty of the bilateral repo transactions but also triparty repo agents that receive collateral in deposit and manage the collateral in the case of triparty repo transactions. Therefore, securities deposited at triparty repo agents are included in "total value of securities and cash lent to a counterparty" (E) up to the amount effectively lent to the counterparty in a repo transaction. However, excess collateral that has been deposited at triparty agents but that has not been lent out may be excluded.
Added: October 2018
24 This latter condition ensures that any issues arising from the securities leg of the SFTs do not interfere with the completion of the net settlement of the cash receivables and payables. If there is a failure of the securities leg of a transaction in such a mechanism at the end of the settlement window for settlement in the settlement mechanism, then this transaction and its matching cash leg must be split out from the netting set and treated gross.
25 A "qualifying" MNA is one that meets the requirements under Paragraphs CA-15.6.14 and 15.