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UniCredit Group

Cell {220; 1}: (-) Exempted CCP leg of client-cleared trade exposures (initial margin)

According to Annex XI, we assume that the amount to be inserted refers to article 429(11) of EC Delegated Act.
But, since the instructions of Annex XI states refer to the “initial margin portion of exempted trade exposures to a QCCP from client-cleared DERIVATIVES transactions” , we would suggest to add a further cell to include the Initial Margin portion of exempted trade exposures to a QCCP from client-cleared SFT transactions, also included in article 429(11) of EC Delegated Act.

The reason is that in our understanding this amount should also be excluded from the “Other Assets” of the Leverage Ratio Exposure, when, according to CRR article 306, the institution is not obligated to reimburse the client for any losses suffered due to changes in the value of that transaction in the event that the CCP defaults.

If, instead, the EBA does not consider useful to have a specific cell for initial margin portion of exempted trade exposures to a QCCP from client-cleared SFT transactions, we would ask for clarifying if this amount:
• is intended to be included in the Leverage Ratio Exposure (so should not be subtracted from the “Other Assets”)
• is intended to be excluded in the Leverage Ratio Exposure, as for client-cleared derivatives transactions and in this case we would ask for clarifying in which cell this amount should be inserted
{010; 1} - SFTs: Exposure according to CRR 429 (5) and 429 (8)
The Leverage Ratio exposure for SFT transactions is calculated according to articles 429(5), 429(8) and 429(b).
As a consequence the only change with the current approach should refer to the inclusion of the exposure value of Asset related to SFT transactions.
We understood that no changes are foreseen in relation to SFT transaction in the liability side of the balance sheet (repo, security borrowing), for which only the add-on will be included in the SFT Leverage Ratio Exposure ({020; 1} - SFTs: Add-on for counterparty credit risk), while cash received is include in Other Asset Leverage Ratio Exposure ({190; 1} – Other Asset).

To clarify this, please find below an example.
1. Security Borrowing

A Bank (A) borrows securities from its client (90 €) providing a security as collateral (100 €);

For Leverage Ratio purposes:
• the received securities are booked as off-balance (90 €); the security provided as collateral (100 €) is retained in the Bank A portfolio and as a consequence inserted in {190; 1} – Other Asset;
• the add-on for this transaction calculated as “E-C” is 10 (100 – 90), booked in {020; 1} - SFTs: Add-on for counterparty credit risk

2. Reverse Repo

A Bank (A) provides cash to its client (120 €) receiving a security as collateral (105 €);
• the reverse repo (120 €) is booked as asset on-balance and inserted in {010; 1} - SFTs: Exposure according to CRR 429 (5) and 429 (8)
• the security received as collateral (105 €) is retained in the client portfolio and as a consequence is not inserted in {190; 1} – Other Asset;
• the add-on for this transaction calculated as “E-C” is 15 (120 – 105), booked in {020; 1} - SFTs: Add-on for counterparty credit risk

Would you please confirm our understanding?

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{010; 1} - SFTs: Exposure according to CRR 429 (5) and 429 (8)
{020; 1} - SFTs: Add-on for counterparty credit risk
{050; 1} - (-) Exempted CCP leg of client-cleared SFT exposures


SFT transactions performed as clearing member.

If the Institution enters in a contract as clearing member for its clients and is not obligated to reimburse the clients for any losses suffered due to changes in the value of that transaction in the event that the CCP defaults, we understood that this deal does not represent an exposure neither for Leverage Ratio purposes nor for accounting purposes.

So, we understood that such deals shouldn’t be included in {010; 1} “SFTs: Exposure according to CRR 429 (5) and 429 (8)”.
In fact, the instruction of {010; 1} “The exposure for repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions calculated in accordance with Article 429 (5)(d) and (8) of the CRR” would be disregarded because Article 495(5)(d) the fact that {010; 1} requires the amount calculated according to Article 111, so the Accounting Balance sheet value.

In addition, we understood that such deals shouldn’t be included in {020; 1} “SFTs: Add-on for counterparty credit risk” for SFT transaction performed as clearing member, because no add-on is calculated neither for Leverage Ratio and Own Fund purposes, according to article 306(1)(c) of CRR (“where an institution is acting as a financial intermediary between a client and a CCP and the terms of the CCP- related transaction stipulate that the institution is not obligated to reimburse the client for any losses suffered due to changes in the value of that transaction in the event that the CCP defaults, the exposure value of the transaction with the CCP that corresponds to that CCP-related transaction is equal to zero.”)

But, on the other hand, the last sentence of instructions for {050; 1} “Institutions shall, as if no exemption applies, also include the amount reported in this cell in {010; 1}, {020; 1} and {030; 1}, and, if the condition in the second half of the previous sentence is met, in {190; 1}. “.

So based on our consideration above we would suggest the following:
• to not ask to all Institutions to include such deals in {010; 1} and {020; 1}
• as a consequence those Institutions not including the deals in {010; 1} and {020; 1} should not include them in {050; 1} to avoid double counting (in terms of subtracting an amount twice)

As an alternative approach, we would suggest to change the Instructions and Templates as following:
• to change the instructions for {010; 1} – “SFTs: Exposure according to CRR 429 (5) and 429 (8)” and {020; 1} – “SFTs: Add-on for counterparty credit risk” by asking to exclude the deals performed as Clearing Member under article 306(1)(c)
• to remove the cell {050; 1} – “(-) Exempted CCP leg of client-cleared SFT exposures” from C 47.00 template and to insert this cell in another monitoring template


Please note that the only exposure related to deals under article 306(1)(c) recognized for accounting and regulatory purposes is the exposure related to margins, so we would in any case suggest adding a new cell for initial margin for SFTs (as for answer to Question 3).


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{060; 1} - Derivatives: Current replacement cost
{080; 1} - (-) Exempted CCP leg of client-cleared trade exposures (replacement costs)
{090; 1} - Derivatives: Add-on Mark-to-Market Method
{100; 1} - (-) Exempted CCP leg of client-cleared trade exposures (potential future exposure)
{110; 1} - Derogation for Derivatives: Original Exposure Method
{120; 1} - (-) Exempted CCP leg of client-cleared trade exposures (Original Exposure Method)


Derivatives transactions performed as clearing member.

If the Institution enters in a derivatives contract acting as clearing member for its clients and is not obligated to reimburse the clients for any losses suffered due to changes in the value of that transaction in the event that the CCP defaults, this deal is not booked for regulatory purposes, then we understood that this deal does not represent an exposure neither for Leverage Ratio purposes nor for accounting purposes.

So, we understood that such deals shouldn’t be included in rows:
• {060; 1} - Derivatives: Current replacement cost
• {090; 1} - Derivatives: Add-on Mark-to-Market Method
• {110; 1} - Derogation for Derivatives: Original Exposure Method

In fact, no exposure value is calculated neither for Leverage Ratio and Own Fund purposes, according to article 306(1)(c) of CRR (“where an institution is acting as a financial intermediary between a client and a CCP and the terms of the CCP- related transaction stipulate that the institution is not obligated to reimburse the client for any losses suffered due to changes in the value of that transaction in the event that the CCP defaults, the exposure value of the transaction with the CCP that corresponds to that CCP-related transaction is equal to zero.”)

But, on the other hand, the last sentence of instructions for rows
• {080; 1} - (-) Exempted CCP leg of client-cleared trade exposures (replacement costs)
• {100; 1} - (-) Exempted CCP leg of client-cleared trade exposures (potential future exposure)
• {120; 1} - (-) Exempted CCP leg of client-cleared trade exposures (Original Exposure Method)

“Institutions shall include the amount reported in this cell also in {090; 1} as if no exemption applies.”

So based on our consideration above we would suggest the following:
• to not ask to all Institutions to include such deals in {060; 1}, {090; 1} and {110; 1}
• as a consequence those Institutions not including the deals in {060; 1} , {090; 1} and {110; 1} should not include them in {080; 1}, {100; 1} and {120; 1} to avoid double counting (in terms of subtracting an amount twice)

As an alternative approach, we would suggest to change the Instructions and Templates as following:
• to change the instructions for {060; 1}, {090; 1} and {110; 1} by asking to exclude the deals performed as Clearing Member under article 306(1)(c)
• to remove the cells {080; 1}, {100; 1} and {120; 1} from C 47.00 template and to insert these cells in another monitoring template


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{060; 1} - Derivatives: Current replacement cost

Credit Derivatives – Cross product netting

Instructions of {060; 1} - Derivatives: Current replacement cost state that “Cross-product netting shall not apply. However, institutions may net within the product category referred to in point (25)(c) of Article 272 of the CRR and credit derivatives when they are subject to a contractual cross-product netting agreement referred to in Article 295(c) of the CRR.”

According to the definition of Article 272 – point 25, For the purposes of this definition, 'different product categories' means:
(a) repurchase transactions, securities and commodities lending and borrowing transactions;
(b) margin lending transactions;
(c) the contracts listed in Annex II; (Financial Derivatives)

so Credit Derivatives are not included in the list of products, so based on our understanding they cannot be included in Cross Product netting.

We understood that the condition for netting Financial Derivatives and Credit Derivatives is not the fact that this netting is included in a Cross Product Netting agreement, but that Financial Derivatives only are included in an authorized Cross Product Netting agreement.

Would you please confirm our understanding?


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{150; 1} - Off-balance sheet items with a 10% CCF according to CRR 429 (10)
{160; 1} - Off-balance sheet items with a 20% CCF according to CRR 429 (10)
{170; 1} - Off-balance sheet items with a 50% CCF according to CRR 429 (10)
{180; 1} - Off-balance sheet items with a 100% CCF according to CRR 429 (10)


We would kindly ask to confirm our understanding that for Off-balance sheet items, according to the article 429(10), (“institutions shall not reduce the nominal value of those items by specific credit risk adjustments”) the amount will be inserted GROSS of specific credit risk adjustments, even though the instructions refers to article 111(1) which states that “The exposure value of an off-balance sheet item listed in Annex I shall be the following percentage of its nominal value after reduction of specific credit risk adjustments”

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{250; 1} - (-) Exempted intragroup exposures (solo basis)
{260; 1} - (-) Exposures exempted according to CRR 429 (14)

We would kindly ask to clarify which will be the formal process to allow Banks to apply the abovementioned exceptions.
In particular we would kindly ask to clarify:
• which is the Authority competent for providing the authorization for take advantage on such exemptions
• if such authorization should be issued from the abovementioned competent Authorities for all Banks or should be formally required by single institutions
• in the case in which the authorization should be issued from the competent Authorities, if there is a deadline, in order to allow the Institution to plan the consequent implementations

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{290; 1} - (-) Asset amount deducted - Tier 1 - fully phased-in definition
{300; 1} - (-) Asset amount deducted - Tier 1 - transitional definition

Differently from the current version of the ITS, regulatory adjustment can only decrease the leverage ratio denominator in case such adjustment deducts a specific asset.
So, if our understanding is correct, considering the EBA Template C.01, we would exclude the following prudential filters in cells
• {270; 1} Cash flow hedge reserve
• {280; 1} Cumulative gains and losses due to changes in own credit risk on fair valued liabilities
• {285; 1} Fair value gains and losses arising from the institution's own credit risk related to derivative liabilities

Would you please confirm our understanding?
Silvia Toriello
+390288623214