ANNEX IVU.K. Standardised Method for the calculation of initial margin for the purposes of Articles 9 and 11
1.The notional amounts or underlying values, as applicable, of the |OTC derivative contracts in a netting set shall be multiplied by the percentages in the following Table 1:U.K.
Table 1
Category | Add-on factor |
---|---|
Credit: 0-2 year residual maturity | 2 % |
Credit: 2-5 year residual maturity | 5 % |
Credit: 5+ year residual maturity | 10 % |
Commodity | 15 % |
Equity | 15 % |
Foreign exchange | 6 % |
Interest rate and inflation: 0-2 year residual maturity | 1 % |
Interest rate and inflation: 2-5 year residual maturity | 2 % |
Interest rate and inflation: 5+ year residual maturity | 4 % |
Other | 15 % |
2.The gross initial margin of a netting set shall be calculated as the sum of the products referred to in paragraph 1 for all OTC derivative contracts in the netting set.U.K.
3.The following treatment shall be applied to contracts which fall within more than one category:U.K.
where a relevant risk factor for an OTC derivative contract can be clearly identified, contracts shall be assigned to the category corresponding to that risk factor;
where the condition referred to in point (a) is not met, contracts shall be assigned to the category with the highest add-on factor among the relevant categories;
the initial margin requirements for a netting set shall be calculated in accordance with the following formula:
Net initial margin = 0,4 * Gross initial margin + 0,6 * NGR * Gross initial margin.
where:
net initial margin refers to the reduced figure for initial margin requirements for all OTC derivative contracts with a given counterparty included in a netting set;
NGR refers to the net-to-gross ratio calculated as the quotient of the net replacement cost of a netting set with a given counterparty in the numerator, and the gross replacement cost of that netting set in the denominator;
for the purposes of point (c), the net replacement cost of a netting set shall be the bigger between zero and the sum of current market values of all OTC derivative contracts in the netting set;
for the purposes of point (c), the gross replacement cost of a netting set shall be the sum of the current market values of all OTC derivative contracts calculated in accordance with Article 11(2) of Regulation (EU) No 648/2012 and Articles 16 and 17 of Delegated Regulation (EU) No 149/2013 with positive values in the netting set;
the notional amount referred to in paragraph 1 may be calculated by netting the notional amounts of contracts that are of opposite direction and are otherwise identical in all contractual features except their notional amounts.