BIPRU 13.8 Securities financing transactions

Purpose

BIPRU 13.8.1G

BIPRU 13.8 summarises the treatment for securities financing transactions.

Calculation of exposure value for SFTs

BIPRU 13.8.2R

Subject to BIPRU 13.8.3 R, in respect of a securities financing transaction, if a firm:

  1. (1)

    has a CCR internal model method permission which covers the transaction; or

  2. (2)

    has a master netting agreement internal models approach permission which covers the transaction;

then the firm must use the CCR internal model method approach or the master netting agreement internal models approach, as applicable, to calculate the exposure value for that transaction unless an exception in BIPRU 13 or BIPRU 5 allows the firm to use another method.

[Note: BCD Article 78(2), second sentence, in respect of SFTs]

BIPRU 13.8.3R

If a firm has a CCR internal model method permission and a master netting agreement internal models approach permission, and both cover a securities financing transaction, then the firm may choose which of those approaches it wishes to use to calculate the exposure value for that transaction.

BIPRU 13.8.4R

Where BIPRU 13.8.2 R does not apply, a firm must use one of the following approaches to determine the exposure value of a securities financing transaction, as appropriate:

  1. (1)

    if the transaction is covered by a master netting agreement which satisfies the requirements for recognition set out in BIPRU 5.6.1 R to BIPRU 5.6.3 R, a firm may calculate the exposure value under the master netting agreement method set out in BIPRU 5.6.5 R to BIPRU 5.6.11 R (Calculation of the fully adjusted exposure value: the supervisory volatility adjustments approach and the own estimates of volatility adjustments approach);

  2. (2)

    otherwise, a firm must calculate the exposure value of the transaction as its on-balance sheet value.

BIPRU 13.8.5G

A firm calculating risk weighted exposure amounts under the standardised approach to credit risk will not be eligible to use the approach in BIPRU 13.8.4 R (1) if it is using the financial collateral simple method to determine the effects of credit risk mitigation, as set out in BIPRU 5.4.16 R.

BIPRU 13.8.6G

If a firm calculates the exposure value of a securities financing transaction as its on-balance sheet value, in accordance with BIPRU 13.8.4 R (2), it may recognise the effects of financial collateral in the same way as for its other exposures, for example by using either the financial collateral simple method or the financial collateral comprehensive method. However firms should note that the financial collateral simple method is not available:

  1. (1)

    to a firm using the IRB approach (BIPRU 5.4.16 R); or

  2. (2)

    for securities financing transactions in the trading book (BIPRU 14.2.11 R).

Exposure to a central counterparty

BIPRU 13.8.7R

Notwithstanding BIPRU 13.8.2 R, a firm must determine the exposure value of a credit risk exposure outstanding with a central counterparty in accordance with BIPRU 13.8.8 R1, provided that the central counterparty's counterparty credit risk exposures with all participants in its arrangements are fully collateralised on a daily basis.

[Note: BCD Article 78(4) in respect of SFTs]

BIPRU 13.8.8R

A firm may attribute an exposure value of zero for CCR to a securities financing transaction or to any other exposures in respect of that transaction (but excluding an exposure arising from collateral held to mitigate losses in the event of the default of other participants in the central counterparty's arrangements) which is outstanding with a central counterparty and has not been rejected by the central counterparty.

[Note: BCD Annex III Part 2 point 6 in respect of SFTs]