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Appendix G Utilising the Cash Portion of Variation Margin Received to Reduce the Replacement Cost

Appendix G: Utilising the Cash Portion of Variation Margin Received to Reduce the Replacement Cost26

Banks may use the cash portion of variation margin received to reduce the replacement cost portion (but not the potential future exposure) of the leverage ratio exposure measure, and may deduct the receivables assets from the cash variation margin provided from the leverage ratio exposure measure (if the cash variation margin provided has been recognized as an asset under the bank's accounting framework) subject to the following conditions being met:

a. For trades not cleared through a qualifying central counterparty ('QCCP') the cash received by the recipient counterparty is not segregated from the cash portion of the variation margin;
b. Variation margin is calculated and exchanged on a daily basis based on mark-to-market valuation of derivatives positions;
c. The cash variation margin is received in the same currency as the currency of settlement of the derivative contract;
d. Variation margin exchanged is enough to cover the mark-to-market exposure of the derivative; and
e. Derivatives transactions and variation margins are covered by a single MNA between the counterparties, and the MNA must be legally enforceable.

26 Based on the Leverage Ratio for Conventional Banks guidelines.

August 2018