The Bank Recovery and Resolution (No. 2) Order 2014

Liabilities arising from derivative contracts U.K.

158.—(1) This article applies for the purposes of valuing a derivative contract and the liabilities arising from it under section 6E(1) M1 (pre-resolution valuation), a provisional valuation by the Bank under section 6E(3) or a valuation under section 48X M2 (replacement of Bank's provisional valuation).

(2) Where the parties to the contract have rights to set off or net under a title transfer collateral arrangement, set-off arrangement or netting arrangement (within the meaning given by section 48(1)(b), (c) and (d)), the Bank must ensure that the value of the contract and of the liabilities arising from it are determined—

(a) on a net basis in accordance with the terms of the contract; and

(b) in accordance with—

(i) appropriate methodologies for determining the value of classes of derivative contracts, including transactions that are subject to netting arrangements;

(ii) principles for establishing the time at which the value of a derivative position should be established; and

(iii) appropriate methodologies for comparing with each other the following amounts—

(aa) the loss in value that would result from closing out a derivative contract and making special bail-in provision (within the meaning given by section 48B) in respect of that contract; and

(bb) the reduction in the liabilities of the institution which is subject to the special bail-in provision as a result of making that provision in respect of the derivative contract.

[F1 (3) Subject to paragraph (4), the Bank may make technical standards specifying—

(a) appropriate methodologies for the purposes of paragraph (2)(b)(i);

(b) principles for the purposes of paragraph (2)(b)(ii); or

(c) appropriate methodologies for the purposes of paragraph (2)(b)(iii).

(4) When exercising its functions under paragraph (3) in relation to derivative contracts that are subject to a netting arrangement, the Bank must take into account the methodology for close-out set out in the netting arrangement.]

Textual Amendments

F1 Art. 158(3)(4) inserted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 90(2); 2020 c. 1, Sch. 5 para. 1(1)

Marginal Citations

M1 Section 6E was inserted by S.I. 2014/3329.

M2 Section 48X was inserted by S.I. 2014/3329.