1.3. Master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions

Subject to points 12 to 21, in calculating the ‘fully adjusted exposure value’ (E*) for the exposures subject to an eligible master netting agreement covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions, the volatility adjustments to be applied shall be calculated either using the Supervisory Volatility Adjustments Approach or the Own Estimates Volatility Adjustments Approach as set out in points 30 to 61 for the Financial Collateral Comprehensive Method. For the use of the Own estimates approach, the same conditions and requirements shall apply as apply under the Financial Collateral Comprehensive Method The net position in each ‘type of security’ or commodity shall be calculated by subtracting from the total value of the securities or commodities of that type lent, sold or provided under the master netting agreement, the total value of securities or commodities of that type borrowed, purchased or received under the agreement. For the purposes of point 6, ‘type of security’ means securities which are issued by the same entity, have the same issue date, the same maturity and are subject to the same terms and conditions and are subject to the same liquidation periods as indicated in points 34 to 59. The net position in each currency, other than the settlement currency of the master netting agreement, shall be calculated by subtracting from the total value of securities denominated in that currency lent, sold or provided under the master netting agreement added to the amount of cash in that currency lent or transferred under the agreement, the total value of securities denominated in that currency borrowed, purchased or received under the agreement added to the amount of cash in that currency borrowed or received under the agreement. The volatility adjustment appropriate to a given type of security or cash position shall be applied to the absolute value of the positive or negative net position in the securities of that type. The foreign exchange risk (fx) volatility adjustment shall be applied to the net positive or negative position in each currency other than the settlement currency of the master netting agreement. E* shall be calculated according to the following formula: E^(*) = max 0, (Σ(E) — Σ(C)) + Σ(|nettopositie in elk effect| × Hsec) + (Σ|Efx| × Hfx) Where risk‐weighted exposure amounts are calculated under Articles 78 to 83, E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection. Where risk‐weighted exposure amounts and expected loss amounts are calculated under Articles 84 to 89, E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection. C is the value of the securities or commodities borrowed, purchased or received or the cash borrowed or received in respect of each such exposure. S(E) is the sum of all Es under the agreement. S(C) is the sum of all Cs under the agreement. E_(fx) is the net position (positive or negative) in a given currency other than the settlement currency of the agreement as calculated under point 8. H_(sec) is the volatility adjustment appropriate to a particular type of security. H_(fx) is the foreign exchange volatility adjustment. E* is the fully adjusted exposure value. As an alternative to using the Supervisory volatility adjustments approach or the Own Estimates volatility adjustments approach in calculating the fully adjusted exposure value (E*) resulting from the application of an eligible master netting agreement covering repurchase transactions, securities or commodities lending or borrowing transactions, and/or other capital market driven transactions other than derivative transactions, credit institutions may be permitted to use an internal models approach which takes into account correlation effects between security positions subject to the master netting agreement as well as the liquidity of the instruments concerned. Internal models used in this approach shall provide estimates of the potential change in value of the unsecured exposure amount (ΣE — ΣC). Subject to the approval of the competent authorities, credit institutions may also use their internal models for margin lending transactions, if the transactions are covered under a bilateral master netting agreement that meets the requirements set out in Annex III, Part 7. A credit institution may choose to use an internal models approach independently of the choice it has made between Articles 78 to 83 and Articles 84 to 89 for the calculation of risk‐weighted exposure amounts. However, if a credit institution seeks to use an internal models approach, it must do so for all counterparties and securities, excluding immaterial portfolios where it may use the Supervisory volatility adjustments approach or the Own estimates volatility adjustments approach as set out in points 5 to 11. The internal models approach is available to credit institutions that have received recognition for an internal risk‐management model under Annex V to Directive 2006/49/EC. Credit institutions which have not received supervisory recognition for use of such a model under Directive 2006/49/EC, may apply to the competent authorities for recognition of an internal risk‐measurement model for the purposes of points 12 to 21. Recognition shall only be given if the competent authority is satisfied that the credit institution's risk‐management system for managing the risks arising on the transactions covered by the master netting agreement is conceptually sound and implemented with integrity and that, in particular, the following qualitative standards are met: the internal risk‐measurement model used for calculation of potential price volatility for the transactions is closely integrated into the daily risk‐management process of the credit institution and serves as the basis for reporting risk exposures to senior management of the credit institution; the credit institution has a risk control unit that is independent from business trading units and reports directly to senior management. The unit must be responsible for designing and implementing the credit institution's risk‐management system. It shall produce and analyse daily reports on the output of the risk‐measurement model and on the appropriate measures to be taken in terms of position limits; the daily reports produced by the risk‐control unit are reviewed by a level of management with sufficient authority to enforce reductions of positions taken and of overall risk exposure; the credit institution has sufficient staff skilled in the use of sophisticated models in the risk control unit; the credit institution has established procedures for monitoring and ensuring compliance with a documented set of internal policies and controls concerning the overall operation of the risk‐measurement system; the credit institution's models have a proven track record of reasonable accuracy in measuring risks demonstrated through the back-testing of its output using at least one year of data; the credit institution frequently conducts a rigorous programme of stress testing and the results of these tests are reviewed by senior management and reflected in the policies and limits it sets; the credit institution must conduct, as Part of its regular internal auditing process, an independent review of its risk‐measurement system. This review must include both the activities of the business trading units and of the independent risk‐control unit; at least once a year, the credit institution must conduct a review of its risk‐management system; and the internal model shall meet the requirements set out in Annex III, Part 6, points 40 to 42. The calculation of the potential change in value shall be subject to the following minimum standards: at least daily calculation of the potential change in value; a 99th percentile, one-tailed confidence interval; a 5-day equivalent liquidation period, except in the case of transactions other than securities repurchase transactions or securities lending or borrowing transactions where a 10-day equivalent liquidation period shall be used; an effective historical observation period of at least one year except where a shorter observation period is justified by a significant upsurge in price volatility; and three-monthly data set updates. The competent authorities shall require that the internal risk‐measurement model captures a sufficient number of risk factors in order to capture all material price risks. The competent authorities may allow credit institutions to use empirical correlations within risk categories and across risk categories if they are satisfied that the credit institution's system for measuring correlations is sound and implemented with integrity. The fully adjusted exposure value (E*) for credit institutions using the Internal models approach shall be calculated according to the following formula: E^(*) = max 0, (ΣE — ΣC) + (uitkomst van het interne model) Where risk‐weighted exposure amounts are calculated under Articles 78 to 83, E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection. Where risk‐weighted exposure amounts and expected loss amounts are calculated under Articles 84 to 89, E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection. C is the value of the securities borrowed, purchased or received or the cash borrowed or received in respect of each such exposure. Σ(E) is the sum of all Es under the agreement. Σ(C) is the sum of all Cs under the agreement. In calculating risk‐weighted exposure amounts using internal models, credit institutions shall use the previous business day's model output. Standardised Approach E* as calculated under points 5 to 21 shall be taken as the exposure value of the exposure to the counterparty arising from the transactions subject to the master netting agreement for the purposes of Article 80. IRB Approach E* as calculated under points 5 to 21 shall be taken as the exposure value of the exposure to the counterparty arising from the transactions subject to the master netting agreement for the purposes of Annex VII.

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Source: EUR-Lex (Cellar) · retrieved 2026-10-09 · Text as adopted (Official Journal); later amendments are not incorporated in this text.