| (1) | A central counterparty’s aggregate required amount of capital relating to market risk must be equal to the sum of the amounts calculated in accordance with the relevant requirements specified in respect of the standardised approach. |
(2) A central counterparty must—
| (a) | in the calculation of its exposure to market risk and the related required amount of capital, from the date on which the relevant transaction was entered into, include all relevant on-balance sheet and off-balance sheet transactions, including any forward sale or purchase transaction; |
| (b) | manage its exposure to market risk arising from all relevant positions held in such a manner that the central counterparty continuously complies, that is, at the close of each business day, with the relevant prescribed minimum required amount of capital relating to market risk, if such a capital amount exceeds the specific financial resources; |
| (c) | have in place robust risk management policies, procedures, processes and systems to ensure that the central counterparty’s intraday exposures to market risk are within the approved internal limits set by the central counterparty; |
| (d) | have in place a written controlling body approved policy and procedures, which policy and procedures must— |
| (i) | specify the central counterparty’s appetite for open positions, including the nature and extent to which the central counterparty will guarantee returns on its liabilities; |
| (ii) | set out the time-line allowable to have un-hedged trades between clients (i.e. market risk) before such a trade is closed out; |
| (iii) | detail the central counterparty’s risk management capabilities and practices; |
| (iv) | be sufficiently robust to ensure the central counterparty’s continued compliance with these Regulations, including compliance with— |
| (aa) | the minimum required capital; and |
| (bb) | all the relevant requirements specified in the controlling body-approved policy, which compliance must be documented and be subject to periodic independent review; |
| (v) | be reviewed by the central counterparty on a regular basis but not less frequently than once a year; |
| (aa) | its exposures to be marked-to-market on a daily basis by reference to an active liquid two-way market; |
| (bb) | the extent to which the central counterparty is able to and required to obtain or derive valuations for exposures, which valuation may be externally validated in a consistent manner, especially in the event of client default; |
| (cc) | the extent to which legal restrictions or other operational requirements may impede the central counterparty’s ability to effect an immediate liquidation of relevant exposure; |
| (dd) | the extent to which the central counterparty is able to actively manage all relevant open exposures within its operations; |
| (ee) | in the case of exposures that are marked-to-model, specify the extent to which the central counterparty is able to— |
| (AA) | identify the material risks relating to the relevant exposures; |
| (BB) | hedge the material risks arising from the exposures and the extent to which any hedging instrument would have an active, liquid two-way market; |
| (CC) | derive reliable estimates for the key assumptions and parameters used in the central counterparty’s model; |
| (e) | based on the relevant requirements relating to securities in foreign exchange held, calculate and maintain capital in respect of such securities or positions held; |
| (f) | implement a robust risk management framework as contemplated in Regulation 13, for the prudent valuation of positions held by the central counterparty; |
| (g) | whenever relevant or required for reporting or calculation purposes, unless expressly stated otherwise in these Regulations, convert all relevant gross or net foreign exchange positions at the prevailing spot exchange rate. |
