Inclusion of transactions between trade and settlement dates

Question

We would welcome clarification on the reporting of transactions between trade and settlement dates. Firms apply typically a contractual approach which results in inflows and outflows being grossed up and subject to the 75% inflow cap - this means that a liquid asset requirement of 25% applies to trades that settle to a zero position or have a net cash flow of zero. For example, a bank might enter a trade to purchase a $100m bond from counterparty A, settlement at t+3. The bank also enters into an addition trade to sell the same bond to counterparty B with settlement also occurring at t+3. Both cash flows will occur on day 3 and net to zero and the balance sheet position will also be zero. However, if the inflows and outflows were reported separately then the 75% inflow cap would apply.

European Banking Authority · Accepted Answer

Each business transaction has to be seen as a single separate transaction within the LCR framework. Therefore a grossing up of in- and outflows is applied, apart from derivatives payables and receivables in application of Article 422.6 of the CRR. Eventually inflows could be subject to the 75% inflow cap. There is no need for a prudential easing in form of a netting provision for a sample of unsettled trades.

Inclusion of transactions between trade and settlement dates

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