Question A1: Does a bank need written approval for each netting agreement it has in place, or will the Central Bank provide a list of pre-approved jurisdictions or counterparties?
The bank should establish an internal process that considers the factors identified in the Standards. That process should be subject to internal review and challenge per the Standards. The Central Bank will review the identification of netting sets as part of the supervisory process, and notify the bank of any determinations that netting is not appropriate. The Central Bank will not provide a list of pre-approved jurisdictions or counterparties.

Question A2: Do amendments to existing netting agreements require approval from the Central Bank?
Amendments that do not raise new questions about the validity of netting need not be raised to the Central Bank for consideration.

Question A3: What if netting is not valid? Can netting sets still be used for the calculation?
If the requirements of the Standards for recognition of netting are not satisfied, then each transaction is its own netting set – a netting set consisting of a single transaction – and many of the calculations are much simpler.

Question A4: Is use of the standard ISDA agreement sufficient to apply netting?
No, use of the standard ISDA agreement is not in itself sufficient to demonstrate that netting is valid and legally enforceable in the relevant jurisdictions under the requirements of the Standards.

Question A5: Can we treat trades with a UAE counterparty (UAE Bank or Foreign Bank operating in the UAE) having a signed ISDA / CSA as a netting set even though the UAE is not a netting jurisdiction?
No, as noted above, use of the standard ISDA agreement is not in itself sufficient to demonstrate that netting is valid and legally enforceable in the relevant jurisdictions under the requirements of the Standards, and is not a replacement for a determination regarding the legal enforceability of netting.

Question A6: If there is no netting agreement of any sort in place, what would the treatment be for trades with negative mark to market? Will they be included or excluded from the exposure calculation?
Trades with negative value have RC=0, but still have counterparty credit risk, which will be reflected in the calculation of the PFE component of exposure.

Question B1: What haircuts should be applied to collateral for the calculations of exposure net of collateral?
Banks should apply the standard supervisory haircuts from the capital framework.

Question B2: If a counterparty places initial cash margin against a derivatives facility, but has no signed ISDA / CSA in place, can this cash margin be considered as collateral for Replacement Cost calculations?
Yes, provided the arrangement allows the bank to retain the cash in the event of a default by the counterparty.

Question B3: Can collateral received under a CSA be considered as part of the RC calculation in absence of a netting agreement?
Yes. Note that in the absence of netting, the netting set would consist of a single trade and any collateral corresponding to that trade.

Question C1: For a currency swap involving principal and interest exchange, since there is exchange rate risk in addition to interest rate risk, do we need to assign the notional to both the currency and interest rate classes?
Yes, derivatives with exposure to more than one primary risk factor should be allocated to all relevant asset classes for the PFE calculation, so this transaction should be included in its full amount in both the Foreign Exchange hedging set and the Interest Rate hedging set.

Question C2: In a cross-currency swap with principal exchange at the beginning and at the end, and with fixed-rate to fixed-rate interest exchange so that there is no interest rate risk, should this trade be included only in the foreign currency category?
Yes, it should be treated as FX exposure.

Question C3: Is there any prescribed PFE treatment for a derivative such as a weather derivative?
Derivatives with "unusual" underlying such as weather or mortality are included in the "Other" hedging set within the Commodity asset class.

Question C4: Can trades with gold as the underlying asset be treated as currency derivatives?
No. Although gold often has been grouped with foreign exchange historically, for the CCR Standards it is to be treated as a metal within the commodity asset class.

Question D1: What is the Supervisory Delta for FX Swaps and FX Forwards?
These are linear contracts, so the Supervisory Delta is either +1 (for long positions) or -1 (for short positions).

Question D2: The Standards states that the Supervisory Delta for a short position (one that is not an option or CDO) should be -1. However, if netting is not permitted, should the Supervisory Delta be set to +1 for all the short (as well as the long) positions?
In principle, the Supervisory Delta should be -1 if the position is short. However, in the case of a single-trade netting set, there is no possibility of offsetting, so the sign of the Supervisory Delta does not affect the calculation.

Question D3: In the case of an option strategy such as a straddle or strangle involving more than one type of option (e.g. a long call and a long put), which Supervisory Delta should be used?
In the case of positions that involve combinations of options, the position should be decomposed into its simpler option components, appropriate Supervisory Deltas determined for each component, and the weighted average Supervisory Delta applied to the position as a whole.

Question D4: In the case of an option strategy involving multiple options with only one leg having a possibility of exercise, can we consider this structure as a "short" position if we are net receiver of the premium and a "long" position if we are net payer of premium?
As noted above, in the case of positions that involve combinations of options, the position should be decomposed into its simpler option components, appropriate Supervisory Deltas determined for each component, and the weighted average Supervisory Delta applied to the position as a whole. In this case, some of the Supervisory Deltas would be positive, and some would be negative. The sign of the overall Supervisory Delta would depend on the relative size of the positions, and the associated magnitude (in absolute value) of the deltas.

Question D5: Should the same set of Supervisory Deltas be used in the case of path dependent options such as barrier options, or other complex options? For such products, the simple option delta formula may not be appropriate.
Banks should apply the standardised formulas for the CCR calculations, including the Supervisory Delta adjustment for all options. Note that use of a single, simplified formula for the Supervisory Delta for options is a feature of the Standardised Approach. Like all standardised approaches, the SA-CCR involves numerous trade-offs between precision and simplicity. Many other aspects of the Standardised Approach use approximations, such as the assumption that a single correlation should be used for all commodity derivatives, or the use of a single volatility for all FX options. Banks should certainly use more analytically appropriate deltas for internal purposes such as valuation and risk management.

Question E1: Can different floating rates within the same base currency be included in single hedging set?
Yes, for interest rate derivatives, all rates within one base currency should be included in a single hedging set.

Question E2: Is it possible to determine a hedging set in the absence of a netting set?
Yes, without a netting set, the hedging set would consist of a single transaction, and the add-on would be simply the effective notional amount of that one transaction.

Question F1: For Supervisory Duration, should S and E be based on original maturity or residual maturity?
Calculation of S and E should be computed relative to the current date, not the date at which the trade was initiated; hence, they are most similar to residual maturity.

Question F2: When calculating the remaining maturity in business days, should we follow the business calendar given in the master agreement, or the business calendar within the jurisdiction in which the bank is operating?
The Basel Committee has provided guidance that the number of business days used for the purpose of determining the maturity factor must be calculated appropriately for each transaction, taking into account the market conventions of the relevant jurisdiction. The Central Bank follows this approach as well.

Question F3: What is the maturity factor if the remaining maturity is greater than 250 business days?
In that case, the maturity factor for the CCR calculations is equal to 1.0.

Question F4: What would be the maturity of a derivative with multiple exchanges of notional over a period of time?
The maturity date is the date of the final exchange or payment under the contract.

Question F5: What is the Maturity Factor for deals such as callable range accruals where the call date is less than 1 year, but the deal maturity is more than 1 year?
Since the deal maturity is more than one year, the Maturity Factor would be equal to 1.0.

Question G1: For certain capital calculations in the past, exchange rate contracts with an original maturity of 14 calendar days or less were excluded from certain capital requirements. Is that applicable for the CCR Standards?
No, all in-scope exchange rate contracts must be included, regardless of original or remaining maturity.

Question G2: A single hedging set might include derivatives on underlying rates, prices, or entities that span different Basel categories (e.g. corporates, financials, sovereigns); do these need to be calculated separately in order to compute and report RWA in the format required by the reporting template?
No, the risk-weight, and the category for reporting in the Central Bank’s template, depends on the nature of the counterparty, not the nature of the underlying reference asset. The counterparty for any netting set will fall into one and only one category for risk weighting and for reporting.

Question G3: For a variable notional swap, how should the average notional be calculated?
Use the time-weighted average notional in the CCR calculations.

Question G4: Should the current spot rate be used to compute adjusted notional?
Yes, the current spot rate should be used.

Question G5: Bank ask in case of calculating discounted counterparty exposure is a double count and will inflate CVA Capital charge given SA-CCR EAD already factors in maturity adjustment while computing adjusted notional which is product of trade notional & supervisory duration?
The use of the discount factor in the CVA capital charge does not result in double counting. While there is superficial similarity between the supervisory duration (SD) adjustment in SA-CCR and the discount factor (DF) in CVA, they are actually capturing different aspects of risk exposure. The use of SD in SA-CCR adjusts the notional amount of the derivatives to reflect its sensitivity to changes in interest rates, since longer-term derivatives are more sensitive to rate changes than are shorter-term derivatives. In contrast, the use of DF in the CVA calculation reflects the fact that a bank is exposed to CVA risk not only during the first year of a derivative contract, but over the life of the contract; the DF term recognizes the present value of the exposure over the life of the contract. Thus, these two factors, although they have similar functional forms and therefore appear somewhat similar, are not in fact duplicative.