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VI. Illustrations of Replacement Cost Calculations with Margining

C 52/2017 STA Effective from 1/4/2021

Calculation of Replacement Cost (RC) depends whether or not a trade is collateralized, as illustrated below and in the summary table.

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Transaction CharacteristicsReplacement Cost (RC)
No collateralValue of the derivative transactions in the netting set, if that value is positive (else RC=0)
Collateralized, no marginValue of the derivative transactions in the netting set minus the value of the collateral after applicable haircuts, if positive (else RC=0)
Collateralized and marginedSame as the no margin case, unless TH+MTA-NICA (see definitions below) is greater than the resulting RC

 

  1. •TH = positive threshold before the counterparty must send collateral to the bank
  2. •MTA = minimum transfer amount applicable to the counterparty
  3. •NICA = net independent collateral amount other than variation margin (unsegregated or segregated) posted to the bank, minus the unsegregated collateral posted by the bank. The quantity TH + MTA – NICA represents the largest net exposure, including all collateral held or posted under the margin agreement that would not trigger a collateral call.