FW: ACI regulatory briefing from May 6th

 

 

From: Alekos Papandreou [mailto:alekospapandreou@yahoo.gr]
Sent: Tuesday, May 14, 2013 9:47 PM
To: 'alekospapandreou1.anarhseisforex@blogger.com'
Subject: ACI regulatory briefing from May 6th

 

From: Zelda Lehmann [mailto:zelda.lehmann@aciforex.org]
Sent: Tuesday, May 07, 2013 10:52 AM
Subject: CVA risk capital charge - ACI Regulatory briefing

 

                                                                                                                            

Dear councilors,

Please find attached the ACI regulatory briefing from May 6^th. The briefing's topic is: "CRR – CRD IV: The first adoption of BASEL III in national law. CVA risk capital charge".

Would you be so kind as to forward this to you members therefore allowing to stay in touch with the latest trends in financial regulation.

Thank you for your time,

Best regards,

Zelda Lehmann  | ACI Secretariat

 
ACI – The Financial Markets Association
8 rue du Mail
75002 Paris
France
É+33 (0) 1 42961958
Ê+33 (0) 1 42975116  

 
zelda.lehmann@aciforex.org
www.aciforex.org

 

 

6 May 2013 ACI REGULATORY BRIEFING

 

Disclaimer: ACI – The Financial Markets Association takes reasonable measures to ensure the quality and accuracy of the information. However, ACI – The Financial Markets Association cannot be held liable in any way for any information given or for any use to which it is put or the appropriateness, consequences or result of such use. In addition, ACI - The Financial Markets Association cannot, in any way, be held liable or responsible for the content. secretariat@aciforex.org www.aciforex.org 1

 

CRR – CRD IV: The first adoption of BASEL III in national law

CVA risk capital charge 1

Capital Requirement Regulation ("CRR") passed by the European Parliament in Europe

CRR impact on FX products

On 16th April 2013, the European Parliament adopted the text of the Capital Requirement Regulation ("CRR"), also known as CRD IV. The European Union is the first jurisdiction in the world to pass as law the Basel III framework.

As in Basel III, CRR imposes capital charges linked for potential mark-to-market losses (ie Credit Valuation Adjustment – CVA – risk) associated with deterioration in the credit worthiness of a counterparty when dealing derivatives products.

Key features

 Cost of the CVA risk capital charge has been estimated to be 2-3 times higher than under the previous regulatory environment

 

 Cleared transactions do not have CVA risk capital charge

 

Following the G20 Pittsburgh resolution, the European Union adopted the European Markets Infrastructure Regulation ("EMIR") in 2012. From the summer of 2014, financial institutions will have to clear their derivative transactions in the EU through central counterparties ("CCP", i.e. clearing houses). Derivatives traded by banks with CCP will not attract CVA risk capital charges.

 For non-cleared trades, CSA will lessen the impact of the CVA risk capital charge

 

CVA impact is substantially reduced when a two-way Credit Support Agreements ("CSA", as annex to an ISDA agreement) with daily exchange of collateral is in place to cover the derivative transactions. As a consequence, though the CVA risk capital charge still exists, the magnitude of it becomes much smaller.

 Exemption of CVA risk capital charge for European banks when trading with corporates, sovereigns and pension funds

 

In CRR, banks are exempted from such a CVA risk capital charge when dealing with certain counterparties. These exemptions mirror the treatment of certain counterparties under the European Markets Infrastructure Regulation ("EMIR"):

- Transactions with sovereigns which are exempted from EMIR;

- Transactions with non financial counterparties, provided they are below the EMIR clearing thresholds;

- On a temporary basis, transactions with pension funds.

 

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