30.In the treatment of derivative exposures for the purpose of the leverage ratio exposure measure, the cash portion of VM exchanged between counterparties may be viewed as a form of pre-settlement payment if the following conditions are met:

• •For trades not cleared through a QCCP, the cash received by the recipient counterparty is not segregated. Cash VM would satisfy the non-segregation criterion if the recipient counterparty has no restrictions by law, regulation, or any agreement with the counterparty on the ability to use the cash received (i.e. the cash VM received is used as its own cash).
• •VM is calculated and exchanged on at least a daily basis based on mark-to-market valuation of derivative positions. To meet this criterion, derivative positions must be valued daily and cash VM must be transferred at least daily to the counterparty or to the counterparty’s account, as appropriate. Cash VM exchanged on the morning of the subsequent trading day based on the previous, end-of-day market values would meet this criterion.
• •The VM is received in a currency specified in the derivative contract, governing master netting agreement (MNA), credit support annex to the qualifying MNA, or as defined by any netting agreement with a CCP.
• •VM exchanged is the full amount that would be necessary to extinguish the mark-to-market exposure of the derivative subject to the threshold and minimum transfer amounts applicable to the counterparty.
• •Derivative transactions and VM are covered by a single MNA between the legal entities that are the counterparties in the derivative transaction. The MNA must explicitly stipulate that the counterparties agree to settle net any payment obligations covered by such a netting agreement, taking into account any VM received or provided if a credit event occurs involving either counterparty. The MNA must be legally enforceable and effective in all relevant jurisdictions, including in the event of default and bankruptcy or insolvency. For the purposes of this paragraph, the term “MNA” includes any netting agreement that provides legally enforceable rights of offset and a Master MNA may be deemed to be a single MNA.

31.If the conditions in the paragraph above are met, the cash portion of VM received may be used to reduce the RC portion of the leverage ratio exposure measure, and the receivables assets from cash VM provided may be deducted from the leverage ratio exposure measure as follows:

• •In the case of cash VM received, the receiving bank may reduce the RC (but not the PFE component) of the exposure amount of the derivative asset.
• •In the case of cash VM provided to a counterparty, the posting bank may deduct the resulting receivable from its leverage ratio exposure measure where the cash VM has been recognized as an asset under the bank’s operative accounting framework, and instead include the cash VM provided in the calculation of the derivative RC.