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  • Recognition of eligible financial Collateral under FCSA

    • PRU A4.3.27

      Subject to A4.3.28, an Authorised Person which has taken eligible financial Collateral for a CR Exposure and is using the FCSA may recognise the effects of CRM of the eligible financial Collateral as follows:

      (a) break down the Exposure into -
      (i) a collateralised portion with E equal to the latest fair value of the eligible financial Collateral; and
      (ii) an uncollateralised portion with E equal to the E of the CR Exposure less the latest fair value of the eligible financial Collateral;
      and
      (b) for the purposes of calculating the Credit RWA amount pursuant to Rule 4.8.3, use:
      (i) for the collateralised portion, the CRW that is applicable to the eligible financial Collateral as though the Authorised Person had a direct Exposure to that Collateral; and
      (ii) for the uncollateralised portion, the CRW that is applicable to the obligor.

    • PRU A4.3.28

      If the CRW determined in accordance with A4.3.27(b)(i) is less than 20%, an Authorised Person must apply a CRW of 20% to the collateralised portion of the CR Exposure, except in the following cases:

      (a) a qualifying SFT where the Counterparty in the transaction is a core market participant, in which case the Authorised Person may apply a risk weight of 0%;
      (b) a qualifying SFT where the Counterparty in the transaction is not a core market participant, in which case the Authorised Person may apply a risk weight of 10%;
      (c) an OTC Derivative transaction subject to daily mark-to-market that is collateralised by cash, and where there is no currency mismatch, in which case the Authorised Person may apply a risk weight of 0%;
      (d) an OTC Derivative transaction subject to daily mark-to-market that is collateralised by Exposures to central governments, Central Banks or PSE or a combination thereof qualifying for a 0% risk weight in accordance with the Rules in Chapter 4, and where there is no currency mismatch, in which case the Authorised Person may apply a risk weight of 10%; and
      (e) a transaction where there is no currency mismatch and the Collateral comprises -
      (i) cash on Deposit as set out in Rule 4.13.5(a); or
      (ii) Exposures in the central government and Central Bank asset class or in the PSE asset class or a combination thereof qualifying for a 0% risk weight under the Rules in Section 4.12, and the latest fair value of such Collateral has been discounted by 20% for the purposes of determining the value of the collateralised portion of the CR Exposure in accordance with Rule A4.3.27(a)(i), in which case the Authorised Person may apply a CRW of 0%.

    • PRU A4.3.29

      An Authorised Person which is using FCSA must not recognise the effects of CRM of any Collateral with a Maturity Mismatch.