PRU A4.3.6

An Authorised Person using standard supervisory haircuts or own-estimate haircuts under the FCCA must calculate E* for any collateralised transaction not covered by a qualifying bilateral Netting agreement or a qualifying cross-product Netting agreement other than OTC Derivative transactions or long settlement transactions, using the following formula:

E* = max {0, [E (or EAD)(1 + HE) - C(1 - HC - HFX)]}


E* = Exposure value after risk mitigation;

E = fair value of the Exposure calculated in accordance with Section 4.9;

HE = haircut appropriate to the Exposure;

C = fair value of the eligible financial Collateral received;

HC = haircut appropriate to the Collateral, or if the Collateral is a basket of assets, the weighted sum of the haircuts appropriate to the assets in the basket where each weight is the proportion of the asset in the basket in units of currency; and

HFX = haircut appropriate for currency mismatch between the Collateral and Exposure.