Past version: effective from 21/02/2020 - 20/02/2020
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The Exposure Measure under Rule 3.21.2(b) must be calculated as the sum of:
(a) on-balance sheet items; and
(b) off-balance sheet items.
(i) In relation to on-balance sheet items:
a. for SFTs, the Exposure value should be calculated in accordance with IFRS and the Netting requirements referred to in Rule 4.9.14;
b. for Derivatives, including written credit protection, the Exposure value should be calculated as the sum of the on-balance sheet value in accordance with IFRS and an add-on for potential future Exposure calculated in accordance with Rules A4.6.14 to A4.6.21 of App 4; and
c. for other on-balance sheet items, the Exposure value should be calculated based on their balance sheet values in accordance with Rule 4.9.3.
(ii) In relation to off-balance sheet items:
a. for commitments that are unconditionally cancellable at any time by the Authorised Person without prior notice, the Exposure value should be the notional amount for the item multiplied by a CCF of 10%;
b. for short-term self-liquidating trade letters of credit arising from the movement of goods (e.g. documentary credits collateralised by the underlying shipment), the Exposure value should be the notional amount for the item multiplied by a CCF of 20% in relation to both issuing and confirming banks;
c. for certain transaction-related contingent items (e.g. performance bonds, bid bonds, warranties, and standby letters of credit related to particular transactions) the Exposure value should be the notional amount for the item multiplied by a CCF of 50%;
d. for note issuance facilities and revolving underwriting facilities, the Exposure value should be the notional amount for the item multiplied by a CCF of 50%;
e. for other off-balance sheet items, including:
i. direct credit substitutes;
ii. forward asset purchases, forward deposits and partly paid shares and securities which represent commitments with certain drawdown; and
iii. transactions, other than SFTs, involving the posting of Securities held by the Authorised Person as Collateral;
iv. the Exposure value should be the notional amount for each of the items multiplied by a CCF of 100%; and
f. where an Authorised Person has an undertaking to provide a commitment on an off-balance sheet item, an Authorised Person should apply the lower of the two applicable CCFs.
(iii) For an Islamic Financial Institution, assets corresponding to Unrestricted PSIAs will fall within the Exposure Measure and are therefore relevant to the Leverage Ratio calculation.