148. Risk-mitigation techniques for OTC Derivative Contracts not cleared by a Recognised Clearing House

(1) Financial Counterparties and Non-Financial Counterparties that enter into an OTC Derivative Contract not cleared by a Recognised Clearing House, shall ensure, exercising due diligence, that appropriate procedures and arrangements are in place to measure, monitor and mitigate operational risk and Counterparty Credit Risk, including at least —
(a) the timely confirmation, where available, by electronic means, of the terms of the relevant OTC Derivative Contract; and
(b) formalised processes which are robust, resilient and auditable in order to reconcile portfolios, to manage the associated risk and to identify disputes between parties early and resolve them, and to monitor the value of outstanding contracts.
(2) Taking effect as from such date as is specified by the Regulator, Financial Counterparties and Non-Financial Counterparties referred to in section 147 shall mark to market on a daily basis the value of outstanding contracts. Where market conditions prevent marking to market, reliable and prudent marking-to-model shall be used.
(3) Taking effect as from such date as is specified by the Regulator, Financial Counterparties shall have risk management procedures that require the timely, accurate and appropriately segregated exchange of collateral with respect to OTC Derivative Contracts. Non-Financial Counterparties referred to in section 147 shall have risk management procedures that require the timely, accurate and appropriately segregated exchange of collateral with respect to OTC Derivative Contracts that are entered into on or after the clearing threshold is exceeded.
(4) Taking effect as from such date as is specified by the Regulator, Financial Counterparties shall hold an appropriate and proportionate amount of capital to manage the risk not covered by appropriate exchange of collateral.
(5) The requirement laid down in subsection (3) shall not apply to an Intragroup Transaction that is entered into by counterparties which are both established in the Abu Dhabi Global Market provided that there is no current or foreseen practical or legal impediment to the prompt transfer of own funds or repayment of liabilities between counterparties.
(6) An Intragroup Transaction that is entered into by a counterparty which is established in the Abu Dhabi Global Market and a counterparty which is established outside the Abu Dhabi Global Market shall be exempt from the requirement laid down in subsection (3), provided that the following conditions are fulfilled —
(a) the risk management procedures of the counterparties are adequately sound, robust and consistent with the level of complexity of the derivative transaction; and
(b) there is no current or foreseen practical or legal impediment to the prompt transfer of own funds or repayment of liabilities between the counterparties.
(7) The counterparty of an Intragroup Transaction that is exempt from the requirement laid down in subsection (3) shall publicly disclose information on the exemption.
(8) The obligations set out in subsections (1) to (7) shall apply to OTC Derivative Contracts entered into between Non-Abu Dhabi Global Market Firms that would be subject to those obligations if they were established in the Abu Dhabi Global Market, provided that those contracts have a direct, substantial and foreseeable effect within the Abu Dhabi Global Market or where such obligation is necessary or appropriate to prevent the evasion of any provision of these Regulations.
(9) The Regulator shall regularly monitor the activity in OTC Derivatives not eligible for Clearing in order to identify cases where a particular Class of Derivatives may pose systemic risk and to prevent regulatory arbitrage between cleared and non-cleared derivative transactions.
(10) The Regulator may make Rules specifying —
(a) the procedures and arrangements referred to in subsection (1);
(b) the market conditions that prevent marking to market and the criteria for using marking-to-model referred to in subsection (2);
(c) the risk management procedures, including the levels and type of collateral and segregation arrangements, required for compliance with subsection (3);
(d) the applicable criteria referred to in subsections (5) and (6) including in particular what should be considered as practical or legal impediment to the prompt transfer of own funds and repayment of liabilities between the counterparties;
(e) the details of the information on exempt Intragroup Transactions referred to in subsection (7);
(f) the contracts that are considered to have a direct, substantial and foreseeable effect within the Abu Dhabi Global Market or the cases where it is necessary or appropriate to prevent the evasion of any provision of these Regulations as referred to in subsection (8); and
(g) the dates on which the provisions in this section come into effect.