Reply S.p.a. · MIL:REY

Reply — Reply Annual Risk & Regulatory Symposium 2016

10 slides from Reply's conference presentation, Nov 23, 2016

  1. Slide 1: Revisions to the Standardized Approach for Counterparty Credit Risk

    Revisions to the Standardized Approach for Counterparty Credit Risk Olivier Miart Director, Risk & Capital, ISDA Reply Annual Risk & Regulatory Symposium London, 23rd November 2016 CONFIDENTIAL – Not for further distribution

  2. Slide 2: Agenda

    • Overview • CEM vs. SA-CCR - Impact on Capital • SA-CCR implementation challenges • Key SA-CCR areas of improvement • Potential revisions in the SA-CCR transposition CONFIDENTIAL – Not for further distribution 2

  3. Slide 3: SA-CCR - Overview

    SA-CCR - Overview On 31st March 2014, the BCBS published a final paper mandating a new standardized, non-internal models calculation of counterparty exposure at default. The new rules are expected to be implemented by the 1st of January 2017. ► Designed to improve the risk sensitivity measure withou

  4. Slide 4: Overview of CEM / SM and SA-CCR

    Overview of CEM / SM and SA-CCR Current Exposure Method SA-CCR EAD = RC + PFE EAD =  (RC + PFE) • RC (replacement cost) is the current market value with offsetting of collaterals • Factor  = 1.4 (like in IMM) • RC considers collaterals and margining • Calculate PFE (potential future exposure) at t

  5. Slide 5: PFE Add-ons - Weighting Factors

    PFE Add-ons- Weighting Factors SA-CCR CEM CEM CEM ASSET CLASS DIMENSION (SUB-CLASS) ADD-ON 1Y >1Y – 5Y > 5Y INTEREST RATE 0.5%* 0% 0.5% 1.5% FX 4.0% 1% 5% 7.5% Master Rating AAA-AA 0.38%* 5% 5% 5% Master Rating A 0.42%* 5% 5% 5% Master Rating BBB 0.54%* 5% 5% 5% CREDIT (SINGLE NAME) Master Rating B

  6. Slide 6: Impact on Capital - CEM vs. SA-CCR

    Impact on Capital - CEM vs. SA-CCR • SA-CCR > CEM i.e. capital increases for: – Most non-margined portfolios (e.g. with corporate hedgers) – Non-diversified / directional portfolios – Some ‘diversified’ portfolios (where trades span different hedging sets) – Equity derivatives, short term FX • SA-CC

  7. Slide 7: SA-CCR: Implementation Challenges

    SA-CCR: Implementation Challenges ► All banks will need SA-CCR,, Leverage Ratio, Large Exposure and CCP Exposure, potential floor on IMM. - whole new system implementation, testing, etc. ► Additional data requirements: option delta, new hedging sets concept, duration, commodity type, margin info etc

  8. Slide 8: Key SA-CCR areas of improvement

    Key SA-CCR areas of improvement • Recognition of initial margin (IM) in SA-CCR’s PFE calculation • The level of PFE reduction resulting from exchange of IM is not aligned with the level of risk mitigation provided by the IM, leaving PFE meaningfully higher than it should be. • Industry suggestion: T

  9. Slide 9: Potential revisions in the SA-CCR transposition

    Potential revisions in the SA-CCR transposition • No alpha factor adjustment expected for now – remains 1.4x • “Inflation” is expected to be assigned to “interest rate” hedging sets when in the same underlying currency • Climate derivatives are expected to be assigned to “commodities” asset class •

  10. Slide 10: Q&A

    Q&A CONFIDENTIAL – Not for further distribution 10

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