Derivatives and long settlement transactions – Standardised Approach to Counterparty Credit Risk (SA-CCR)
The exposure at default (EAD) of Derivative transactions (OTC and exchangetraded) and long settlement transactions must be calculated in accordance with this Section unless the Authorised Person has been granted permission by the Regulator to use an internal model.
PRU A4.6.15 PRU A4.6.15
EAD is to be calculated separately for each netting set. It is determined as follows:
EAD = alpha* (RC + PFE)
alpha = 1.4
PFE = the amount for potential future exposure calculated according to Rule A4.6.26
Details of how to net the PFCE are given in Rule A4.6.22.
The replacement cost (RC) and the potential future exposure (PFE) components must be calculated differently for margined and unmargined netting sets. The EAD for a margined netting set is to be capped at the EAD of the same netting set calculated on an unmargined basis.