Financial Markets Act, 2012 (Act No. 19 of 2012)

Regulations

Financial Markets Act Regulations

Chapter VI : Central Counterparties

26. Capital calculation requirements for credit risk

26.3 Reduction of credit exposure

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(1)A licensed central counterparty may reduce its credit risk exposure to the extent that it achieves an effective and verifiable transfer of risk, if it—
(a)obtains eligible collateral, guarantees or credit derivative instruments.
(b)enters into a netting agreement with a clearing member that maintains both debit and credit balances with the central counterparty.

 

(2)No transaction in respect of which the central counterparty obtained credit protection may be assigned a risk weight higher than the risk weight that applies to a similar transaction in respect of which no credit protection was obtained.

 

(3)A central counterparty may, if its clearing member maintains both debit and credit balances with the central counterparty and if it enters into a netting agreement in respect of the relevant debit and credit with the counterparty, regard the exposure, in the calculation of the its risk exposure, as a collateralised exposure in accordance with the provisions of subregulation (6) provided that the central counterparty—
(a)has a well-founded legal basis for concluding that the netting or offsetting agreement is enforceable in each relevant jurisdiction, regardless whether the counterparty is insolvent or in liquidation;
(b)is at any time be able to determine the assets and liabilities with the specific counterparty to the netting agreement;
(c)monitors and controls any potential roll-off risk in respect of the debit and credit balances; and
(d)monitors and controls the relevant exposures on a net basis.