11.1 Banks may offset long and short positions in the same issue and consider only the net position in that issue for the purpose of calculating a Bank's exposure to that particular counterparty.

Two issues are defined as the same if the issuer, coupon, currency and maturity are all identical.

11.2 Positions in different issues from the same counterparty may be offset only when the long position is senior to the short position, or if the positions are of the same seniority.

11.3 For positions hedged by credit derivatives, the hedge may be recognised provided the underlying of the hedge and the position hedged fulfil the requirements of Article 11.2, i.e. that the long position is senior or of equivalent seniority to the short position.

11.4 To determine the relative seniority of positions, securities may be allocated into broad buckets of degrees of seniority, such as for example “equity”, “subordinated debt”, and “senior debt”.

11.5 Offsetting of long and short positions in different issues relating to the same counterparty is not allowed in case the Bank chooses not to allocate securities to seniority buckets as described in Article 11.4.

11.6 For positions hedged by credit derivatives, the provisions of Article 9.1 of this regulation apply and a new exposure to the credit protection provider must be recognised.

11.7 In case the credit protection takes the form of a credit default swap, and either the provider of the credit default swap or the referenced entity is not a financial entity, the amount to be assigned to the credit protection provider is the counterparty credit risk exposure value as calculated under the standardized approach for counterparty credit risk.

11.8 Financial entities, for this purpose, includes regulated financial institutions, including nonbank financial institutions and foreign financial institutions, as well as unregulated financial institutions whose main business includes the management of financial assets, lending, factoring, leasing, provision of credit enhancements, securitisation, investments, financial custody, central counterparty services, proprietary trading and other financial services activities identified by supervisors.

11.9 Netting across the banking and trading books is not permitted.

11.10 When the result of offsetting is a net short position with a single counterparty, this net exposure need not be considered as an exposure for the purposes of the large exposure framework.