ANNEX II - Methodology to adjust the value of collateral for the purposes of Article 21
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Article I β Correspondence of Probability of default (βPDβ) to Credit quality steps for the purposes of Articles 6 and 7 β¬ οΈ | β‘οΈ Article III β Own volatility estimates of the haircuts to be applied to the market value of collateral for the purposes of Article 22
1.
The value of the collateral shall be adjusted as follows:
C
value
= C Ξ (1 β H
C
β H
FX
)
where:
C
=
the market value of the collateral;
H
C
=
the haircut appropriate to the collateral, as calculated under paragraph 2;
H
FX
=
the haircut appropriate to currency mismatch, as calculated under paragraph 6.
2.
Counterparties shall apply at least the haircuts provided in the following Tables 1 and 2 to the market value of the collateral:
Table 1
Haircuts for long term credit quality assessments
Credit quality step with which the credit assessment of the debt security is associated
Residual maturity
Haircuts for debt securities issued by entities described in Article 4 (1) (c) to (e) and (h) to (k), in (%)
Haircuts for debt securities issued by entities described in Article 4 (1) (f), (g), (l) to (n) in (%)
Haircuts for securitisation positions meeting the criteria in Article 4 (1) (o) in (%)
1
β€ 1 year
0,5
1
2
1 β€ 5 years
2
4
8
5 years
4
8
16
2-3
β€ 1 year
1
2
4
1 β€ 5 years
3
6
12
5 years
6
12
24
4 or below β€ 1 year
15
N/A
N/A
1 β€ 5 years
15
N/A
N/A
5 years
15
N/A
N/A
Table 2
Haircuts for short term credit quality assessments
Credit quality step with which the credit assessment of a short term debt security is associated
Haircuts for debt securities issued by entities described in Article 4(1) (c) and (j) in (%)
Haircuts for debt securities issued by entities described in Article 4(1) (m) in (%)
Haircuts for securitisation positions and meeting the criteria in Article 4(1) (o) in (%)
1
0,5
1
2
2-3 or below
1
2
4
1.
Equities in main indices, bonds convertible to equities in main indices and gold shall have a haircut of 15 %.
2.
For eligible units in UCITS the haircut is the weighted average of the haircuts that would apply to the assets in which the fund is invested.
3.
Cash variation margin shall be subject to a haircut of 0 %.
4.
For the purpose of exchanging variation margin, a haircut of 8 % shall apply to all non-cash collaterals posted in a currency other than those agreed in an individual derivative contract, the relevant governing master netting agreement or the relevant credit support annex.
5.
For the purpose of exchanging initial margin, a haircut of 8 % shall apply to all cash and non-cash collaterals posted in a currency other than the currency in which the payments in case of early termination or default have to be made in accordance with the single derivative contract, the relevant exchange of collateral agreement or the relevant credit support annex (βtermination currencyβ). Each of the counterparties may choose a different termination currency. Where the agreement does not identify a termination currency, the haircut shall apply to the market value of all the assets posted as collateral.# Table 1 in anx_I
| Credit Quality Step | Probability of default, as defined in Article 4(54) of Regulation (EU) 575/2013 lower than or equal to: |
|---|---|
| 1 | 0,10 % |
| 2 | 0,25 % |
| 3 | 1 % |
| 4 | 7,5 % |
Table 1 in anx_II
| C | = | the market value of the collateral; |
|---|
Table 2 in anx_II
| HC | = | the haircut appropriate to the collateral, as calculated under paragraph 2; |
|---|
Table 3 in anx_II
| HFX | = | the haircut appropriate to currency mismatch, as calculated under paragraph 6. |
|---|
Table 4 in anx_II
| Credit quality step with which the credit assessment of the debt security is associated | Residual maturity | Haircuts for debt securities issued by entities described in Article 4 (1) (c) to (e) and (h) to (k), in (%) | Haircuts for debt securities issued by entities described in Article 4 (1) (f), (g), (l) to (n) in (%) | Haircuts for securitisation positions meeting the criteria in Article 4 (1) (o) in (%) |
|---|---|---|---|---|
| 1 | β€ 1 year | 0,5 | 1 | 2 |
| > 1 β€ 5 years | 2 | 4 | 8 | |
| > 5 years | 4 | 8 | 16 | |
| 2-3 | β€ 1 year | 1 | 2 | 4 |
| > 1 β€ 5 years | 3 | 6 | 12 | |
| > 5 years | 6 | 12 | 24 | |
| 4 or below | β€ 1 year | 15 | N/A | N/A |
| > 1 β€ 5 years | 15 | N/A | N/A | |
| > 5 years | 15 | N/A | N/A |
Table 5 in anx_II
| Credit quality step with which the credit assessment of a short term debt security is associated | Haircuts for debt securities issued by entities described in Article 4(1) (c) and (j) in (%) | Haircuts for debt securities issued by entities described in Article 4(1) (m) in (%) | Haircuts for securitisation positions and meeting the criteria in Article 4(1) (o) in (%) |
|---|---|---|---|
| 1 | 0,5 | 1 | 2 |
| 2-3 or below | 1 | 2 | 4 |
Table 1 in anx_III
| H | = | the haircut to be applied; |
|---|
Table 2 in anx_III
| HM | = | the haircut where there is daily revaluation; |
|---|
Table 3 in anx_III
| NR | = | the actual number of business days between revaluations; |
|---|
Table 4 in anx_III
| TM | = | the liquidation period for the type of transaction in question; |
|---|
Table 5 in anx_III
| C | = | the market value of the collateral; |
|---|
Table 6 in anx_III
| H | = | the haircut as calculated in point (c) above. |
|---|
Table 1 in anx_IV
| Category | Add-on factor |
|---|---|
| Credit: 0-2 year residual maturity | 2 % |
| Credit: 2-5 year residual maturity | 5 % |
| Credit: 5+ year residual maturity | 10 % |
| Commodity | 15 % |
| Equity | 15 % |
| Foreign exchange | 6 % |
| Interest rate and inflation: 0-2 year residual maturity | 1 % |
| Interest rate and inflation: 2-5 year residual maturity | 2 % |
| Interest rate and inflation: 5+ year residual maturity | 4 % |
| Other | 15 % |