43.For a bank acting as principal to an SFT, two components of exposure must be calculated, summed, and included in the leverage ratio exposure measure: adjusted gross SFT assets as described in the following paragraph, and a measure of CCR, as described below.

44.Gross SFT assets as recognized for accounting purposes (i.e. with no recognition of accounting netting) should be reduced by the value of any securities received under an SFT where the bank has recognized the securities as an asset on its balance sheet. In addition, cash payables and cash receivables in SFTs with the same counterparty may be measured net if all the following criteria are met:

• •The transactions have the same explicit final settlement date (transactions with no explicit end date but that can be unwound at any time by either party to the transaction are not eligible);
• •The right to set off the amount owed to the counterparty with the amount owed by the counterparty is legally enforceable both currently in the normal course of business and in the event of the counterparty’s default, insolvency, or bankruptcy; and
• •The counterparties intend to settle net, settle simultaneously, or the transactions are subject to a settlement mechanism that results in the functional equivalent of net settlement – that is, the cash flows of the transactions are equivalent, in effect, to a single net amount on the settlement date. To achieve such equivalence, both transactions must be settled through the same settlement system and the settlement arrangements must be supported by cash and/or intraday credit facilities intended to ensure that settlement of both transactions will occur by the end of the business day and that any issues arising from the securities legs of the SFTs do not interfere with the completion of the net settlement of the cash receivables and payables. If there is a failure of the securities leg of a transaction in such a mechanism at the end of the window for settlement in the settlement mechanism, then this transaction and its matching cash leg must be split out from the netting set and treated gross.

45.A bank must add a measure of CCR for SFTs to the adjusted gross SFT assets as calculated per the previous paragraph. The CCR measure is calculated as current exposure without an add-on for PFE, with current exposure calculated as follows:

• •Where a qualifying MNA is in place, the current exposure (E*) is the greater of zero and the total fair value of securities and cash lent to a counterparty for all transactions included in the qualifying MNA (∑E_i), less the total fair value of cash and securities received from the counterparty for those transactions (∑C_i). This is illustrated in the following formula:

  E* = max {0, [∑Ei – ∑Ci]}

           Where, E* = current exposure,

           ∑Ei = total fair value of securities and cash lent to counterparty “i” and

           ∑Ci = total fair value of securities and cash received from “i”

• •Where no qualifying MNA is in place, the current exposure for transactions with a counterparty must be calculated on a transaction-by-transaction basis – that is, each transaction is treated as its own netting set, as shown in the following formula:

  E* = max {0, [E – C]}

           where E* = current exposure,

           E = total fair value of securities and cash lent in the transaction, and C = total fair value of securities and cash received in the transaction.

E* may be set to zero if E is the cash lent to a counterparty, the transaction is treated as its own netting set, and the associated cash receivable is not eligible for the netting treatment in paragraph 45. For the purposes of this subparagraph, the term “counterparty” includes not only the counterparty of the bilateral repo transactions but also triparty repo agents that receive collateral in deposit and manage the collateral in the case of triparty repo transactions. Therefore, securities deposited at triparty repo agents are included in “total value of securities and cash lent to a counterparty”

(E) up to the amount effectively lent to the counterparty in a repo transaction. However, excess collateral that has been deposited at triparty agents but that has not been lent out may be excluded.