To comply with the requirement of columns 150, 160 of C 34.02 of Annex 1 of Regulation (EU) 2021/451 (ITS on Supervisory Reporting) we seek clarification regarding what is expected to be delivered in these 2 columns.
Does any of the below 3 scenarios describe correctly the interpretation of the ITS guidance?
If none of below scenarios reflect the correct interpretation, what is the calculation expected to be performed to derive the EAD Pre-CRM and EAD Post-CRM?
Scenario 1: for EAD Pre-CRM value apply all SACCR formulas as if the netting set is unmargined and no form of collateral is accepted
For banks under SACCR, for margined and un-margined netting sets the EAD should be calculated as follows:
Maturity factor at trade level should use the following formula:
MF(unmargined) = sqt root [ (min {M;1year})/ 1year]
RC (replacement Cost) = max { sum V; 0}
Multiplier = min { 1; Floor + (1-Floor)*exp[ sum(V)/(2*(1-Floor)*AddOnaggregate)]
Exclude from all steps of the EAD calculation:
Initial margin given or received
Variation margin given or received
Any instrument identified as NICA:Collaterals or guarantees received
Collaterals or guarantees given
Scenario 2: For EAD Pre-CRM value, apply all SACCR formulas as if the netting set is unmargined
For banks under SACCR, margined netting sets will be treated as unmargined netting sets. The EAD should be calculated as follows:
Maturity factor at trade level should use the following formula:
MF(unmargined) = sqt root [ (min {M;1year})/ 1year]
RC (replacement Cost) = max { sum V-C; 0}
Multiplier = min { 1; Floor + (1-Floor)*exp[ sum(V-C)/(2*(1-Floor)*AddOnaggregate)]
Where V includes:
initial margin given
Collaterals or guarantees given identified as NICA
Where C includes:
Collaterals or guarantees received identified as NICA
Initial margin received
According to scenario 2, exclude from all steps of the EAD calculation (RC or PFE multiplier) the following items:
Variation margin given
Variation margin received
Scenario 3: For EAD Pre-CRM (col150), apply all SACCR formulas as prescribed in Chapters 4 and 6 of Title II of Part Three CRR, and for EAD Post-CRM (col160) show the effects of a third-party collateral/guarantee received pledging the netting set(s), mitigants of which, are out of the netting or margin agreement with the counterparty
EAD Pre-CRM (col 150 of c34.02) calculation follows the respective formulas for SACCR (simplified SACCR or OEM according to Chapters 6 of Title II of Part Three CRR articles 274 or 281 or 282 accordingly) depending if margined or unmargined netting sets.
Therefore, EAD Pre-CRM includes all the below items which are contractually part of the margining agreement with the counterparty, and which intrinsically are part of the EAD calculation and do not constitute an actual transfer of risk as per credit risk mitigation:
Initial margin given or received to/from
Variation margin given or received
Any instrument identified as NICA:Collaterals or guarantees received
Collaterals or guarantees given
EAD Post-CRM (C34.02 col160) reflects the effects of any mitigants given by a third-party (different entity from margin agreement counterparty). These mitigants may pledge one or more, derivative or SFT’s netting sets.
As these mitigants are given by a different counterparty from the counterparty with who the reporting entity has a margin agreement, and consequently the covered portions by these mitigants are subject to different risk weight and there is an actual transfer of risk, it is relevant to trace what is the EAD Post-CRM value net of the effects of these mitigants.
- Legal act: Regulation (EU) No 575/2013 (CRR)
- COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions
