BANK 3.4.13 Calculating PFCEadj

(1) PFCEadj, in relation to the contracts covered by a particular eligible bilateral netting agreement, is calculated by the formula:
PFCEadj = 0.4 (PFCEgross) + 0.6 (NGR × PFCEgross)
where PFCEgross and NGR are calculated according to the standardised approach for measuring counterparty credit risk.

Guidance

The standardised approach for measuring counterparty credit risk is set out in Annex 4 of the Basel II framework (June 2006), as amended by:
(i) Basel III: A global regulatory framework for more resilient banks and banking systems (June 2011), available at www.bis.org/publ/bcbs189.pdf;
(ii) The standardised approach for measuring counterparty credit risk exposures (April 2014), available at www.bis.org/publ/bcbs279.pdf; and
(iii) Capital requirements for bank exposures to central counterparties (April 2014), available at www.bis.org/publ/bcbs282.pdf.
Note NGR reflects the risk-reducing portfolio effects of netted contracts in relation to current credit exposure.
(2) When calculating PFCEgross, the firm may treat matching contracts included in a netting agreement as a single contract with a notional principal equivalent to the net receipts on the contracts. For that purpose, matching contracts means forward foreign exchange and other similar market-related contracts in which the notional principal is equivalent to cash flows, and those cash flows fall due on the same value date and are in the same currency.
(3) The firm must calculate NGR in relation to a particular eligible bilateral netting agreement using either the counterparty-by-counterparty approach (set out in subrule (4)), or the aggregate approach (set out in subrule (6)). The firm must use 1 approach consistently, and must notify the Regulatory Authority of the approach that it uses.
(4) Under the counterparty-by-counterparty approach, NGR is applied to each counterparty to calculate the exposure for contracts covered by the netting agreement with that counterparty:

(5) In calculating GCCE, negative mark-to-market values for individual contracts with a counterparty may not be used to offset positive mark-to-market values for other contracts with that counterparty.
(6) Under the aggregate approach, a single NGR is calculated and applied to all counterparties in calculating the exposure for contracts with each of those counterparties:

(7) In calculating GCCEaggregate, negative mark-to-market values of contracts with a particular counterparty may not be used to offset positive mark-to-market values of contracts with that counterparty or any other counterparty included in the aggregate calculations.
Inserted by QFCRA RM/2019-6 (as from 1st January 2020).