Division Standardised Method

United Kingdom Repealed

1. 1The Standardised Method (SM) can be used only for OTC derivatives and long settlement transactions. The exposure value shall be calculated separately for each netting set. It shall be determined net of collateral, as follows:
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11. 11Credit institutions may use the following formulae to determine the size and sign of a risk position:
12. 12The risk positions are to be grouped into hedging sets. For each hedging set, the absolute value amount of the sum of the resulting risk positions is computed. This sum is termed the ‘net risk position’ and is represented by:
13. 13For interest rate risk positions from money deposits received from the counterparty as collateral, from payment legs and from underlying debt instruments, to which according to Table 1 of Annex I to Directive 2006/49/EC a capital charge of 1,6 % or less applies, there are six hedging sets for each currency, as set out in Table 4 below. Hedging sets are defined by a combination of the criteria ‘maturity’ and ‘referenced interest rates’.
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15. 15There is one hedging set for each issuer of a reference debt instrument that underlies a credit default swap. ‘Nth to default’ basket credit default swaps shall be treated as follows:
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17. 17Underlying financial instruments other than debt instruments shall be assigned to the same respective hedging sets only if they are identical or similar instruments. In all other cases they shall be assigned to separate hedging sets. The similarity of instruments is established as follows:
18. 18The CCR multipliers (CCRM) for the different hedging set categories are set out in Table 5 below:
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