MIR 4.2 MIR 4.2 Capital requirements
MIR 4.2.1A Recognised Clearing House shall hold capital more than or equal to the sum of capital calculated in respect of the following risks:(a) winding down or restructuring activities. Six months' gross operational expenses.(b) operational risks. A Recognised Clearing House shall calculate its capital requirement for operational risks using either the Basic Indicator Approach or, with prior authorisation from the Regulator, the Standardised Approach or the Alternative Standardised Approach, both as provided specifically in Appendix 7.3 and generally in Appendix 7 of PRU.(c) credit, counterparty credit and market risks. A Recognised Clearing House shall calculate its capital requirements as the sum of 10% of its risk‐weighted exposure amounts for credit and counterparty credit risk and its capital requirements for market risk calculated in accordance with Appendix 6 of PRU, subject to the following:(i) For the calculation of the risk‐weighted exposure amounts for credit risk and counterparty credit risk, a Recognised Clearing House shall apply the Credit Risk Capital Requirement (CRCOM) method in Appendix 4.8 of PRU.(ii) Where a Recognised Clearing House does not use its own resources, the Recognised Clearing House shall apply a risk weight of 250% to its exposure stemming from any contributions to the default fund of another Clearing house and a risk weight of 2% to any trade exposures with another Clearing house.(d) business risk. A Recognised Clearing House shall submit to the Regulator for approval its own estimate of the capital necessary to cover losses resulting from business risk based on reasonably foreseeable adverse scenarios relevant to its business model. The capital requirement for business risk shall be equal to the approved estimate and shall be subject to a minimum amount of 25% of its annual gross operational expenses.
For the purposes of Rule 4.2.1, operational expenses shall be considered in accordance with:(a) International Financial Reporting Standards (IFRS);(b) in accordance with generally accepted accounting principles of a third country determined by the Regulator to be equivalent to IFRS; or(c) accounting standards of a third country the use of which is permitted by the Regulator.
Recognised Clearing Houses shall use the most recent audited information from their annual financial statement.
A Recognised Clearing House shall have procedures in place to identify all sources of risks that may impact its on-going functions and shall consider the likelihood of potential adverse effects on its revenues or expenses and its level of capital.
If the amount of capital held by a Recognised Clearing House is lower than 110% of the capital requirements or lower than 110% of USD 9.5 million (the "notification threshold"), the Recognised Clearing House shall immediately notify the Regulator in writing of the information set out in Rule 5.4.1 and keep it updated at least weekly, until the amount of capital held by the Recognised Clearing House returns above the notification threshold.