17.Note that in mathematical terms, replacement cost for un-margined transactions is calculated as:

RC = max(V − C; 0)
 

where RC is replacement cost, V is the total current market value of all derivative contracts in the netting set combined, and C is the net value of collateral for the netting set, after application of relevant haircuts. (In the CCR Standards, the quantity V-C is referred to as the Net Current Value, or NCV.)

18.For margined transactions, the calculation becomes:

RC = max(V − C; TH + MTA − NICA; 0)
 

where TH is the threshold level of variation that would require a transfer of collateral, MTA is the minimum transfer amount of the collateral, and NICA is the Net Independent Collateral Amount equal to the difference between the value of any independent collateral posted by a counterparty and any independent collateral posted by the bank for that counterparty, excluding any collateral that the bank has posted to a segregated, bankruptcy remote account.

19.When determining the RC component of a netting set, the netting contract must not contain any clause which, in the event of default of a counterparty, permits a non-defaulting counterparty to make limited payments only, or no payments at all, to the estate of the defaulting party, even if the defaulting party is a net creditor.