AI Summary of Article 429d Additional provisions on the calculation of the exposure value of written credit derivatives
This Article defines 'written credit derivative' as financial instruments, including credit default swaps and total return swaps, through which institutions provide credit protection. Institutions must calculate the exposure value of these derivatives based on effective notional amounts, adjusting for negative fair value changes reflected in Tier 1 capital.
Furthermore, institutions may reduce this exposure by the effective notional amount of purchased credit derivatives, subject to stringent conditions, including matching maturity and terms. Additionally, specific rules apply to pools of reference names and obligations, ensuring a consistent approach to credit protection within the regulatory framework.
Article 429d Additional provisions on the calculation of the exposure value of written credit derivatives
1. For the purposes of this Article, 'written credit derivative' means any financial instrument through which an institution effectively provides credit protection including credit default swaps, total return swaps and options where the institution has the obligation to provide credit protection under conditions specified in the options contract.
2. In addition to the calculation laid down in Article 429c, institutions shall include in the calculation of the exposure value of written credit derivatives the effective notional amounts referenced in the written credit derivatives reduced by any negative fair value changes that have been incorporated in Tier 1 capital with respect to those written credit derivatives.
Institutions shall calculate the effective notional amount of written credit derivatives by adjusting the notional amount of those derivatives to reflect the true exposure of the contracts that are leveraged or otherwise enhanced by the structure of the transaction.