CM-2.3.1
For the purpose of the banking book and the trading book, the measure of
(a) Claims on a counterparty , including actual and potential claims which would arise from the drawing down in full of undrawn advised facilities (whether revocable/irrevocable, conditional or unconditional) which the licensee has committed itself to provide, and claims which the licensee has committed itself to purchase or guarantee/underwrite. In the case of undrawn facilities (including overdrafts), the advised limit must be included in the measure of exposure (after deduction of any provisions). In the case of loans, the net outstanding balance to be repaid, as shown in the books of the licensee , must be included in the measure of exposure after deduction of any provisions. These claims would include, but are not limited to:
(i) Loans and other credit facilities (including overdrafts) whether or not drawn;
(ii) Exposures arising through lease agreements;
(iii) Margin held with exchanges or counterparties ;
(iv) Claims under derivative contracts such as futures, forwards, options, swaps and similar contracts on interest rates, foreign currencies, equities, securities, commodities or indexes;
(v) Claims arising in the course of settlement of securities transactions;
(vi) Receivables, such as fees or commissions;
(vii) Claims arising in the case of forward sales and purchases of financial instruments in the trading or banking books;
(viii) Amounts outstanding under sale and repurchase agreements, forward asset purchase agreements, buyback agreements, stock borrowing/lending or similar transactions;
(ix) Bonds , bills or other non-equity financial instruments; and
(x) Underwriting exposures for bonds , bills, or other non-equity financial instruments.
(b) Contingent liabilities arising in the normal course of business, and those contingent liabilities which would arise from the drawing-down in full of undrawn advised facilities (whether revocable or irrevocable, conditional or unconditional) which the licensee has committed itself to provide. In the case of an undrawn overdraft, letter of credit (‘L/C’) or similar facility, the advised limit must be included in the measure of exposure . Such liabilities may include:
(i) Direct credit substitutes (including guarantees, standby letters of credit, bills accepted but not held by the reporting bank, and endorsements creating payable obligations);
(ii) Claims sold with recourse (i.e. where the credit risk remains with the reporting bank);
(iii) Transaction-related contingents not having the character of direct credit substitutes (e.g. performance bonds , bid bonds, transaction-related L/Cs etc.);
(iv) Undrawn documentary letters of credit issued or confirmed;
(v) Credit derivatives sold (where the licensee is providing credit protection); and
(vi) Asset value guarantees (where the licensee provides protection on exit price or realisable value of a non-financial asset).
(c) Any other assets or transactions whose value depends wholly or mainly on a counterparty performing its obligations, or whose value depends upon that counterparty ’s financial soundness, but which do not represent a claim on the counterparty . Such assets or transactions include:
(i) Equities and other capital instruments ;
(ii) Equity warrants, options, or equity derivatives where the reporting bank is obtaining credit protection; and
(iii) Underwriting or purchase commitments for equities.
(d) Investments transactions in trading book (e.g. index positions, securitisations, investments in hedge funds or investment funds) must be calculated by applying the same rules as for similar instruments in the banking book (see Paragraph CM-2.3.27 to CM-2.3.41). The amount invested in a particular structure may be assigned to the structure itself, defined as a distinct counterparty to the counterparties corresponding to the underlying assets, or to the unknown client.
Added: June 2022