Art. 272 · Definitions

Previous version, in force 28 December 2020 02013R0575-20201228 → this version, in force 28 June 2021 02013R0575-20210629

Article 272 Definitions For the purposes of this Chapter and of Title VI of this Part, the following definitions shall apply: General terms (1) counterparty credit risk or CCR means the risk that the counterparty to a transaction could default before the final settlement of the transaction's cash flows; Transaction types (2) long settlement transactions means transactions where a counterparty undertakes to deliver a security, a commodity, or a foreign exchange amount against cash, other financial instruments, or commodities, or vice versa, at a settlement or delivery date specified by contract that is later than the market standard for this particular type of transaction or five business days after the date on which the institution enters into the transaction, whichever is earlier; (3) margin lending transactions means transactions in which an institution extends credit in connection with the purchase, sale, carrying or trading of securities. Margin lending transactions do not include other loans that are secured by collateral in the form of securities; Netting set, hedging sets, and related terms (4) netting set means a group of transactions between an institution and a single counterparty that is subject to a legally enforceable bilateral netting arrangement that is recognised under Section 7 and Chapter 4. Each transaction that is not subject to a legally enforceable bilateral netting arrangement which is recognised under Section 7 shall be treated as its own netting set for the purposes of this Chapter. Under the Internal Model Method set out in Section 6, all netting sets with a single counterparty may be treated as a single netting set if negative simulated market values of the individual netting sets are set to 0 in the estimation of expected exposure (hereinafter referred to as EE); (5) risk position means a risk number that is assigned to a transaction under the Standardised Method set out in Section5 following a predetermined algorithm; (6) hedging set means a group of risk positions arising from the transactions within a single netting set, where only the balance of those risk positions set for which full or partial offsetting is used allowed for determining the potential future exposure value under the Standardised Method methods set out in Section 5; 3 or 4 of this Chapter; (7) margin agreement means an agreement or provisions of an agreement under which one counterparty must supply collateral to a second counterparty when an exposure of that second counterparty to the first counterparty exceeds a specified level; (7a) one way margin agreement means a margin agreement under which an institution is required to post variation margin to a counterparty but is not entitled to receive variation margin from that counterparty or vice-versa; (8) margin threshold means the largest amount of an exposure that remains outstanding before one party has the right to call for collateral; (9) margin period of risk means the time period from the most recent exchange of collateral covering a netting set of transactions with a defaulting counterparty until the transactions are closed out and the resulting market risk is re-hedged; (10) effective maturity under the Internal Model Method for a netting set with maturity greater than one year means the ratio of the sum of expected exposure over the life of the transactions in the netting set discounted at the risk-free rate of return, divided by the sum of expected exposure over one year in the netting set discounted at the risk-free rate. This effective maturity may be adjusted to reflect rollover risk by replacing expected exposure with effective expected exposure for forecasting horizons under one year; (11) cross-product netting means the inclusion of transactions of different product categories within the same netting set pursuant to the cross-product netting rules set out in this Chapter; (12) Current Market Value (hereinafter referred to as CMV) for the purposes of Section 5 refers to current market value or CMV means the net market value of all the portfolio of transactions within a netting set, set gross of any collateral held or posted where both positive and negative market values are used netted in computing the CMV; (12a) net independent collateral amount or NICA means the sum of the volatility-adjusted value of net collateral received or posted, as applicable, to the netting set other than variation margin; Distributions (13) distribution of market values means the forecast of the probability distribution of net market values of transactions within a netting set for a future date (the forecasting horizon), given the realised market value of those transactions at the date … 567 unchanged words … the exchange of a financial instrument for a payment. In the case of transactions that stipulate the exchange of payment against payment, those two payment legs shall consist of the contractually agreed gross payments, including the notional amount of the transaction.