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.