A central counterparty, that adopts the current exposure method for the measurement of its exposure to counterparty credit risk, may, in the case of OTC transactions—
| (a) |
net transactions subject to novation, so that any obligation between the central counterparty and its counterparty to deliver a given currency on a given value date is automatically amalgamated with all other obligations for the same currency and value date, legally substituting one single amount for the previous gross obligations; |
| (b) |
net transactions subject to any legally valid form of bilateral netting not included in paragraph (a), including any other form of novation, provided that— |
| (i) |
the central counterparty has in place a netting contract or agreement with the counterparty which contract or agreement creates a single legal obligation, covering all included transactions, such that the central counterparty would have either a claim to receive or obligation to pay only the net sum of the positive and negative mark-to-market values of the transactions in the event of counterparty failure to perform in accordance with the contractual agreement, irrespective whether or not the failure relates to default, insolvency, liquidation or similar circumstances; |
| (ii) |
the central counterparty has in place written and reasoned legal opinions confirming that in the event of a legal challenge the relevant courts and administrative authorities would find the central counterparty’s exposure to be the net amount in terms of the law— |
| (aa) |
of the jurisdiction in which the counterparty is incorporated or chartered; |
| (bb) |
that governs the individual transactions; and |
| (cc) |
that governs any contract or agreement necessary to effect the said novation or netting; |
| (iii) |
where the Authority is not satisfied with the legal enforceability of the agreement, neither counterparty may apply netting in respect of the relevant transactions or contracts; |
| (iv) |
the central counterparty has in place robust procedures to continuously monitor the legal characteristics of the netting agreement for possible changes in relevant law that may affect the legal enforceability of the agreement; |
| (v) |
since the gross obligations are not in any way affected, no payment netting agreement, which agreement is designed to reduce the operational costs of daily settlements, may be taken into consideration in the calculation of the reporting central counterparty’s exposure amount, exposure-at-default or required capital; |
| (vi) |
no contract containing walk-away clauses, that is, any provision that permits a non-defaulting counterparty to make only limited payments or no payment at all to the estate of a defaulter, even when the defaulter is a net creditor, shall be eligible for netting in terms of these Regulations; |
| (vii) |
the exposure amount or exposure-at-default is the sum of the net mark-to-market replacement cost, if positive, plus the add-on amount, calculated in accordance with the relevant requirements specified above. |
National Environmental Management Act, 1998 (107 of 1998)
