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OTC derivative instruments and credit derivatives;
Repurchase agreements, reverse repurchase agreements, securities or commodities lending or borrowing transactions based on securities or commodities included in the trading book;
margin lending transactions based on securities or commodities; and
long settlement transactions.
Annex IV to Directive 2006/48/EC shall be considered to be amended to include point 8 of Section C of Annex I to Directive 2004/39/EC;
Annex III to Directive 2006/48/EC shall be considered to be amended to include, after the footnotes of Table 1, the following text:
‘To obtain a figure for potential future credit exposure in the case of total return swap credit derivatives and credit default swap credit derivatives, the nominal amount of the instrument is multiplied by the following percentages:
where the reference obligation is one that if it gave rise to a direct exposure of the institution it would be a qualifying item for the purposes of Annex I: 5 %; and
where the reference obligation is one that if it gave rise to a direct exposure of the institution it would not be a qualifying item for the purposes of Annex I: 10 %.
However, in the case of a credit default swap, an institution the exposure of which arising from the swap represents a long position in the underlying shall be permitted to use a figure of 0 % for potential future credit exposure, unless the credit default swap is subject to closeout upon the insolvency of the entity the exposure of which arising from the swap represents a short position in the underlying, even though the underlying has not defaulted.’.
Where the credit derivative provides protection in relation to ‘nth to default’ amongst a number of underlying obligations, which of the percentage figures prescribed above is to be applied is determined by the obligation with the nth lowest credit quality determined by whether it is one that if incurred by the institution would be a qualifying item for the purposes of Annex I.
Where institutions are using the Own Estimates of Volatility adjustments approach under Part 3 of Annex VIII to Directive 2006/48/EC in respect of financial instruments or commodities which are not eligible under Annex VIII of that Directive, volatility adjustments must be calculated for each individual item. Where institutions are using the Internal Models Approach defined in Part 3 of Annex VIII to Directive 2006/48/EC, they may also apply this approach in the trading book.
all transactions are marked to market daily; and
any items borrowed, purchased or received under the transactions may be recognised as eligible financial collateral under Title V, Chapter 2, Section 3, Subsection 3 of Directive 2006/48/EC without the application of point 9 of this Annex.