A bank, in its capacity as clearing member of a CCP, has posted VM to the CCP in an amount equal to the value of the trades it has with the CCP. The bank has posted AED10 million in cash as initial margin, and the initial margin is held in such a manner as to be bankruptcy-remote from the CCP. Assume that the value of trades with the CCP are -50 million, and the bank has posted AED50 million in VM to the CCP. Also assume that MTA and TH are both zero under the terms of clearing at the CCP.

In this case, the V-C term is zero, since the already posted VM offsets the negative value of V. The TH+MTA-NICA term is also zero, since MTA and TH both equal zero, and the initial margin held by the CCP is bankruptcy remote and thus does not affect NICA. Thus:

RC = MAX {(V-C), (TH+MTA-NICA), 0}

= MAX{(-50-(-50)), (0+0-0), 0}

= MAX{0,0,0} = 0
 

Therefore, the replacement cost RC is zero.