Entire Section
PIB 4.9 PIB 4.9 Methodology for Measurement of Exposures
PIB 4.9.1 PIB 4.9.1
An
Authorised Firm must apply theExposure measurement methodology set out in theRules in this part to calculate the value or amount of anExposure for anyCR Exposure or SEExposure .Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.1 Guidance
1. The measurement methodology in this section prescribes the manner of calculation ofExposures for the purpose of determining theCredit RWA forCredit Risk (CR)Exposures as provided in PIB Rule 4.8.3 and for securitisation (SE)Exposures as provided in PIB Rule 4.8.4.2. Due regard should be given to theGuidance relating to prudent valuation in PIB section 2.4 and related provisions in PIB A2.5.3. AnAuthorised Firm should consult with theDFSA on the appropriate treatment to apply in the measurement of E, for transactions that have not been addressed in this part.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.2
An
Authorised Firm must calculate E for anyCR Exposure or SEExposure , net of any individual impairment provision attributable to suchExposures , as determined in accordance with theInternational Financial Reporting Standards .Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]Measurement of E for On-Balance Sheet Assets
PIB 4.9.3 PIB 4.9.3
For each on-balance sheet asset, E should be the carrying value of the asset as determined in accordance with the
International Financial Reporting Standards .Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.3 Guidance
1. For any asset, E should be equal to the fair value of that asset presented in the balance sheet except that:a. for any asset held at cost, E, should be equal to the cost of the asset presented in the balance sheet; andb. for any available-for-sale (AFS) debt security or AFS loan, E, should be equal to the fair value less provision for impairment of that AFS debt security or AFS loan, adjusted by deducting any unrealised fair value gains and adding back any unrealised fair value losses on revaluation (broadly equivalent to the amortised cost of the AFS debt security or AFS loan less any provision for impairment).2. In the case of a lease where theAuthorised Firm is exposed to residual value risk (i.e. potential loss due to the fair value of the leased asset declining below the estimate of its residual value reflected on the balance sheet of theAuthorised Firm at lease inception), theAuthorised Firm should calculate (i) anExposure to the lessee equivalent to the discounted lease payment stream; and (ii) anExposure to the residual value of the leased assets equivalent to the estimate of the residual value reflected in the balance sheet of theAuthorised Firm .3. Any foreign exchange transaction or translation gain or loss from a foreign currency-denominated on-balance sheet item as well as interest earned on a fixed income instrument should be allocated to theExposure to which it accrues.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]Measurement of E for Off-Balance Sheet Items Other than Counterparty Risk Exposures
PIB 4.9.4 PIB 4.9.4
(1) For each off-balance sheet item other than a pre-settlementCounterparty Exposure arising from an OTCDerivative transaction, long settlement transaction or securities financing transaction (referred to inPIB as an "SFT"), anAuthorised Firm must calculate E by:(a) in the case of anEarly Amortisation Exposure , multiplying the amount of investors' interest by the applicable CCF set out in Rules PIB A4.2.1 and PIB A4.2.2 in PIB App4; and(b) in all other cases, multiplying the notional amount of each item by:Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.4 Guidance
1. AnAuthorised Firm which is exposed to the risk of the underlyingSecurities in an OTCDerivative transaction, long settlement transaction or SFT which is in substance similar to a forward purchase or credit substitute should calculate E, for such anExposure , in accordance with PIB Rule 4.9.4(1).2. Investors' interest is defined as the sum of:a. investors' drawn balances related to the securitisedExposures ; andb. E associated with investors' undrawn balances related to the SEExposures . E is determined by allocating the undrawn balances of securitisedExposures on a pro-rata basis based on the proportions of theOriginator's and investor shares of the securitised drawn balances.3. For avoidance of doubt, where anAuthorised Firm has provided unfunded credit protection via a total rate of return swap, E should be equal to the notional amount of the underlying reference credit for which theAuthorised Firm is providing protection adjusted for any payments received from or made to the protection buyer and recognised in the profit and loss account of theAuthorised Firm . Where anAuthorised Firm has provided unfunded credit protection via a credit default swap, E should be equal to the notional amount of the underlying reference credit for which theAuthorised Firm is providing protection.4. The notional amount of an off-balance sheet item refers to the amount which has been committed but is as yet undrawn. The amount to which the CCF is applied is the lower of the value of the unused committed credit line, and the value which reflects any possible constraining availability of the facility, such as the existence of a ceiling on the potential lending amount which is related to an obligor's reported cash flow. If the facility is constrained in this way, theAuthorised Firm must have sufficient line monitoring and management procedures to support this contention.5. Any foreign exchange transaction or translation gain or loss from a foreign currency-denominated off-balance sheet item should be allocated to theExposure to which it accrues.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]Recognition of Eligible Financial Collateral for On-Balance Sheet Assets and Off-Balance Sheet Items Other Than Counterparty Exposures
PIB 4.9.5
(1) AnAuthorised Firm which has taken eligible financialCollateral for any transaction other than an equityExposure , an SEExposure , an OTCDerivative transaction, long settlement transaction or SFT may recognise the effect of suchCollateral in accordance with Rules PIB 4.9.6 and PIB 4.9.7.(2) AnAuthorised Firm must use either the:(a) FinancialCollateral Simplified Approach (FCSA) which adopts the treatment under PIB Rule 4.13.5 in relation to the composition of financialCollateral ; or(b) FinancialCollateral Comprehensive Approach (FCCA) which adopts the treatment under PIB Rule 4.13.6;to recognise the effect of eligible financialCollateral .(3) AnAuthorised Firm must apply the chosen approach consistently to its entireNon-Trading Book and must not use a combination of both approaches.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.6
An
Authorised Firm using the FCSA may recognise the effect of eligible financialCollateral in accordance with theRules in PIB section 4.13.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.7
An
Authorised Firm using the FCCA may calculate theCR Exposure adjusted for eligible financialCollateral (referred to inPIB as "E*"), in accordance withRules in PIB section A4.3 of PIB App4 and substitute E* for E when calculating theCredit Risk -weightedExposure amount for thatCR Exposure under PIB section 4.8.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]Recognition of Eligible Financial Collateral for Securitisation (SE) Exposures
PIB 4.9.8
An
Authorised Firm that has taken eligible financialCollateral for an SEExposure may recognise the effect of suchCollateral in accordance with Rules PIB 4.9.9 to PIB 4.9.11.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.9
An
Authorised Firm calculatingRWAs for SEExposures must use either the FCSA or the FCCA approaches to recognise the effect of eligible financialCollateral . AnAuthorised Firm must apply the chosen approach consistently to the entireNon-Trading Book and must not use a combination of both approaches.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.10
An
Authorised Firm using the FCSA approach for an SEExposure may recognise the effect of eligible financialCollateral in accordance with PIB section 4.13 and PIB Rule 4.14.70.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.11
An
Authorised Firm using the FCCA approach for an SEExposure must calculate E*, the SEExposure adjusted for eligible financialCollateral , in accordance with Rules in PIB section A4.3 of PIB App4 and substitute E* for E when calculating theRWA for SEExposure under PIB section 4.8.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]Measurement of E for Counterparty Exposures
PIB 4.9.11 Guidance
Rules PIB 4.19.12 to PIB 4.19.21 should be read in conjunction with sections PIB A4.6 to PIB A4.8.
Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]Measurement of E for Counterparty Exposures Arising from OTC Derivative Transactions and Long Settlement Transactions
PIB 4.9.12
For each OTC
Derivative transaction or long settlement transaction which is not covered by a qualifying cross-productNetting agreement, anAuthorised Firm should calculate E for the pre-settlementCounterparty Exposure arising from that OTCDerivative transaction or long settlement transaction using the method set out in sections PIB A4.6 to PIB A4.8.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]Measurement of E for Pre-Settlement Counterparty Exposures Arising from SFTs
PIB 4.9.13
An SFT must be treated as
Collateralised lending, notwithstanding the wide range of structures which could be used for SFTs.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.14
An
Authorised Firm must calculate E, for a pre-settlementCounterparty Exposure arising from an SFT, other than anExposure covered by a qualifying cross-productNetting agreement, in accordance with Rules PIB 4.9.15 to PIB 4.9.20.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.15
An
Authorised Firm must determine E, for a pre-settlementCounterparty Exposure arising from an SFT which is not covered by a qualifying cross-productNetting agreement as follows:(a) in the case where theAuthorised Firm has lentSecurities to aCounterparty or soldSecurities to aCounterparty with a commitment to repurchase thoseSecurities at a specified price on a specified future date, the latest fair value of theSecurities lent or sold; and(b) in the case where theAuthorised Firm has lent cash to aCounterparty through the borrowing ofSecurities from theCounterparty or paid cash for the purchase ofSecurities from aCounterparty with a commitment to resell thoseSecurities at a specified price on a specified future date, the amount of cash lent or paid.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.16
An
Authorised Firm which has taken eligible financialCollateral for any SFT where the pre-settlementCounterparty Exposure is determined in accordance with PIB Rule 4.9.15 may recognise the effect of suchCollateral in accordance with Rules PIB 4.9.17 to PIB 4.9.20.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.17
An
Authorised Firm must use either the FCSA or the FCCA to recognise the effect of eligible financialCollateral for any SFT in theNon-Trading Book . TheAuthorised Firm must apply the chosen approach consistently to the entireNon-Trading Book and must not use a combination of both approaches. For a pre-settlementCounterparty Exposure arising from any SFT in theTrading Book , anAuthorised Firm must only use the FCCA to recognise the effect of eligible financialCollateral .Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.18
An
Authorised Firm using the FCSA may recognise the effect of eligible financialCollateral for any SFT in accordance with Rules PIB A4.3.27 to PIB A4.3.29 in PIB App4.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.19
An
Authorised Firm which has taken eligible financialCollateral for any SFT that is not covered by a qualifying bilateralNetting agreement and using the FCCA, must calculate E* in accordance with Rules PIB A4.3.2 to PIB A4.3.6 in PIB App4, and substitute E* for E when calculating theCredit Risk -weightedExposure amount for thatCR Exposure under PIB section 4.8.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.20
An
Authorised Firm which has taken eligible financialCollateral for an SFT that is covered by a qualifying bilateralNetting agreement and using the FCCA, must calculate E* for all itsCR Exposures to any singleCounterparty covered by the qualifying bilateralNetting agreement, in accordance with Rules PIB A4.3.2 to PIB A4.3.6 in PIB App4 (if theAuthorised Firm is using supervisory haircuts or own-estimate haircuts), and substitute E* for E when calculating theCredit Risk -weightedExposure amount for itsCR Exposures to thatCounterparty under PIB section 4.8.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]Exceptions to the Measurement of E
PIB 4.9.21 PIB 4.9.21
An
Authorised Firm may attribute a value of zero to E for:(a) any pre-settlementCounterparty Exposure arising from anyDerivative transaction or SFT outstanding with a CCPe and which has not been rejected by that CCP, provided that theExposure is fullyCollateralised on a daily basis;(b) anyCredit Risk Exposure arising from anyDerivative transaction, SFT or spot transaction which anAuthorised Firm has outstanding with a CCP for which the latter acts as a custodian on theAuthorised Firm's behalf, provided that theExposure is fullyCollateralised on a daily basis;(c) any pre-settlementCounterparty Exposure arising from anyCredit Derivative which anAuthorised Firm may recognise as eligible credit protection for aNon-Trading Book Exposure or another CCRExposure ; and(d) any pre-settlementCounterparty Exposure arising from any sold credit default swap in theNon-Trading Book , where the credit default swap is treated as credit protection sold by theAuthorised Firm .Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.9.21 Guidance
Credit Risk (CR)Exposures outstanding with a CCP would, for example, include creditExposures arising from monies placed and fromCollateral posted, with theCounterparty .Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]