LegalizeCommission Delegated Regulation (EU) 2016/2251 of 4 October 2016 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories with regard to regulatory technical standards for risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty (Text with EEA relevance )
By way of derogation from Article 36(1) and Article 37, in respect of all non-centrally cleared OTC derivatives which are single-stock equity options or index options, the Articles referred to in Articles 36(1) and 37 shall apply from 4 January 2024.
By way of derogation from Articles 36(1) and 37, where a counterparty established in the Union enters into a non-cleared OTC derivative contract with another counterparty which belongs to the same group, the Articles referred to in Articles 36(1) and 37 shall apply from the dates specified in accordance with those Articles or 4 July 2017, whichever is the later.
Article 39
Calculation of aggregate average notional amount
For the purposes of Articles 36 and 37, the aggregate average notional amount referred to shall be calculated as the average of the total gross notional amount that meets all of the following conditions:
- (a) that are recorded on the last business day of March, April and May of 2016 with respect to counterparties referred to in point (a) of Article 36(1);
- (b) that are recorded on the last business day of March, April and May of the year referred to in each of the points in Article 36(1);
- (c) it includes all the entities of the group;
- (d) it includes all the non-centrally cleared OTC derivative contracts of the group;
- (e) it includes all the intragroup non-centrally cleared OTC derivative contracts of the group, counting each one of them once.
For the purpose of paragraph 1, UCITS authorised in accordance with Directive 2009/65/EC and alternative investment funds managed by alternative investment fund managers authorised or registered in accordance with Directive 2011/61/EU shall be considered distinct entities and treated separately, where the following conditions are met:
- (a) the funds are distinct segregated pools of assets for the purposes of the fund's insolvency or bankruptcy;
- (b) the segregated pools of assets are not collateralised, guaranteed or otherwise financially supported by other investment funds or their managers.
Article 40
Entry into force
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
ANNEX I
Correspondence of Probability of default (‘PD’) to Credit quality steps for the purposes of Articles 6 and 7
An internal rating with a PD equal to or lower than the value in Table 1 shall be associated to the corresponding credit quality step.
Table 1
| Credit Quality Step | Probability of default, as defined in Article 4(54) of Regulation (EU) 575/2013 lower than or equal to: |
|---|---|
| 1 | 0,10 % |
| 2 | 0,25 % |
| 3 | 1 % |
| 4 | 7,5 % |
ANNEX II
Methodology to adjust the value of collateral for the purposes of Article 21
- 1.The value of the collateral shall be adjusted as follows:
- Cvalue = C · (1 – HC – HFX)
- where:
| C | = | the market value of the collateral; |
| --- | --- | --- |
| HC | = | the haircut appropriate to the collateral, as calculated under paragraph 2; |
| --- | --- | --- |
| HFX | = | the haircut appropriate to currency mismatch, as calculated under paragraph 6. |
- 2.Counterparties shall apply at least the haircuts provided in the following Tables 1 and 2 to the market value of the collateral:
Table 1
Haircuts for long term credit quality assessments
| Credit quality step with which the credit assessment of the debt security is associated | Residual maturity | Haircuts for debt securities issued by entities described in Article 4 (1) (c) to (e) and (h) to (k), in (%) | Haircuts for debt securities issued by entities described in Article 4 (1) (f), (g), (l) to (n) in (%) | Haircuts for securitisation positions meeting the criteria in Article 4 (1) (o) in (%) |
|---|---|---|---|---|
| 1 | ≤ 1 year | 0,5 | 1 | 2 |
| 1 | > 1 ≤ 5 years | 2 | 4 | 8 |
| 1 | > 5 years | 4 | 8 | 16 |
| 2-3 | ≤ 1 year | 1 | 2 | 4 |
| 2-3 | > 1 ≤ 5 years | 3 | 6 | 12 |
| 2-3 | > 5 years | 6 | 12 | 24 |
| 4 or below | ≤ 1 year | 15 | N/A | N/A |
| 4 or below | > 1 ≤ 5 years | 15 | N/A | N/A |
| 4 or below | > 5 years | 15 | N/A | N/A |
Table 2
Haircuts for short term credit quality assessments
| Credit quality step with which the credit assessment of a short term debt security is associated | Haircuts for debt securities issued by entities described in Article 4(1) (c) and (j) in (%) | Haircuts for debt securities issued by entities described in Article 4(1) (m) in (%) | Haircuts for securitisation positions and meeting the criteria in Article 4(1) (o) in (%) |
|---|---|---|---|
| 1 | 0,5 | 1 | 2 |
| 2-3 or below | 1 | 2 | 4 |
- 1.Equities in main indices, bonds convertible to equities in main indices and gold shall have a haircut of 15 %.
- 2.For eligible units in UCITS the haircut is the weighted average of the haircuts that would apply to the assets in which the fund is invested.
- 3.Cash variation margin shall be subject to a haircut of 0 %.
- 4.For the purpose of exchanging variation margin, a haircut of 8 % shall apply to all non-cash collaterals posted in a currency other than those agreed in an individual derivative contract, the relevant governing master netting agreement or the relevant credit support annex.
- 5.For the purpose of exchanging initial margin, a haircut of 8 % shall apply to all cash and non-cash collaterals posted in a currency other than the currency in which the payments in case of early termination or default have to be made in accordance with the single derivative contract, the relevant exchange of collateral agreement or the relevant credit support annex (‘termination currency’). Each of the counterparties may choose a different termination currency. Where the agreement does not identify a termination currency, the haircut shall apply to the market value of all the assets posted as collateral.
ANNEX III
Own volatility estimates of the haircuts to be applied to the market value of collateral for the purposes of Article 22
- 1.The calculation of the adjusted value of the collateral shall meet all of the following conditions:
- (a) counterparties shall base the calculation on a 99th percentile, one-tailed confidence interval;
- (b) counterparties shall base the calculation on a liquidation period of at least 10 business days;
- (c) counterparties shall calculate the haircuts by scaling up the daily revaluation haircuts, using the following square-root-of time formula: Image omitted; see official source where: H = the haircut to be applied; HM = the haircut where there is daily revaluation; NR = the actual number of business days between revaluations; TM = the liquidation period for the type of transaction in question;
- (d) counterparties shall take into account the lesser liquidity of low quality assets. They shall adjust the liquidation period upwards in cases where there are doubts concerning the liquidity of the collateral. They shall also identify where historical data may understate potential volatility. Such cases shall be dealt with by means of a stress scenario;
- (e) the length of the historical observation period institutions use for calculating haircuts shall be at least 1 year. For counterparties that use a weighting scheme or other methods for the historical observation period, the length of the effective observation period shall be at least 1 year;
- (f) the market value of the collateral shall be adjusted as follows: Cvalue = C · (1 – H) where: C = the market value of the collateral; H = the haircut as calculated in point (c) above.
- 2.Cash variation margin may be subject to a haircut of 0 %.
- 3.For debt securities that have a credit assessment from an ECAI, counterparties may use their own volatility estimate for each category of security.
- 4.In determining relevant categories of securities for the purposes of paragraph 3, counterparties shall take into account the type of issuer of the security, the external credit assessment of the securities, their residual maturity, and their modified duration. Volatility estimates shall be representative of the securities included in the category.
- 5.The calculation of haircuts resulting from the application of point (c) of paragraph 1 shall meet all of the following conditions:
- (a) a counterparty shall use the volatility estimates in the day-to-day risk management process including in relation to its exposure limits;
- (b) where the liquidation period used by a counterparty is longer than that referred to in point (b) of paragraph 1 for the type of OTC derivative contract in question, that counterparty shall increase its haircuts in accordance with the square root of time formula referred to in point (c) of that paragraph.
ANNEX IV
Standardised Method for the calculation of initial margin for the purposes of Articles 9 and 11
- 1.The notional amounts or underlying values, as applicable, of the |OTC derivative contracts in a netting set shall be multiplied by the percentages in the following Table 1:
Table 1
| Category | Add-on factor |
|---|---|
| Credit: 0-2 year residual maturity | 2 % |
| Credit: 2-5 year residual maturity | 5 % |
| Credit: 5+ year residual maturity | 10 % |
| Commodity | 15 % |
| Equity | 15 % |
| Foreign exchange | 6 % |
| Interest rate and inflation: 0-2 year residual maturity | 1 % |
| Interest rate and inflation: 2-5 year residual maturity | 2 % |
| Interest rate and inflation: 5+ year residual maturity | 4 % |
| Other | 15 % |
- 2.The gross initial margin of a netting set shall be calculated as the sum of the products referred to in paragraph 1 for all OTC derivative contracts in the netting set.
- 3.The following treatment shall be applied to contracts which fall within more than one category:
- (a) where a relevant risk factor for an OTC derivative contract can be clearly identified, contracts shall be assigned to the category corresponding to that risk factor;
- (b) where the condition referred to in point (a) is not met, contracts shall be assigned to the category with the highest add-on factor among the relevant categories;
- (c) the initial margin requirements for a netting set shall be calculated in accordance with the following formula: Net initial margin = 0,4 * Gross initial margin + 0,6 * NGR * Gross initial margin. where:
- (i) net initial margin refers to the reduced figure for initial margin requirements for all OTC derivative contracts with a given counterparty included in a netting set;
- (ii) NGR refers to the net-to-gross ratio calculated as the quotient of the net replacement cost of a netting set with a given counterparty in the numerator, and the gross replacement cost of that netting set in the denominator;
- (d) for the purposes of point (c), the net replacement cost of a netting set shall be the bigger between zero and the sum of current market values of all OTC derivative contracts in the netting set;
- (e) for the purposes of point (c), the gross replacement cost of a netting set shall be the sum of the current market values of all OTC derivative contracts calculated in accordance with Article 11(2) of Regulation (EU) No 648/2012 and Articles 16 and 17 of Delegated Regulation (EU) No 149/2013 with positive values in the netting set;
- (f) the notional amount referred to in paragraph 1 may be calculated by netting the notional amounts of contracts that are of opposite direction and are otherwise identical in all contractual features except their notional amounts.
[^E0001]: Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32).
[^E0002]: Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1).
[^E0003]: Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (OJ L 347, 28.12.2017, p. 35).
[^E0004]: Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).
[^E0005]: Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on indirect clearing arrangements, the clearing obligation, the public register, access to a trading venue, non-financial counterparties, and risk mitigation techniques for OTC derivatives contracts not cleared by a CCP (OJ L 52, 23.2.2013, p. 11).
[^E0006]: Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190).
[^E0007]: C(2016) 2398 final.
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