Treatment of Eligible CRM CDS for Leverage Ratio

For purchased credit derivative that have a zero exposure value under Article 273(3) of Regulation (EU) No 575/2013 (CRR), this zero exposure value cannot be applied for the purposes of the calculation of leverage ratio exposures under Article 429a (1) 429c(1) CRR   of Delegated Regulation (EU) 2015/62 (DR) . Article 429c(1) CRR  429a(1) of the DR states that exposure measure for derivatives (on 13 and off- balance sheet) should be calculated in accordance with the method set out in Section 3 of Chapter 6 of Title II of Part Three according to Articles 274 and 299(2)(a) of the CRR. Section 3 of Chapter 6 of Title II of Part Three Article 274 CRR sets out the Mark-to-Market approach to calculate exposures (RC + PFE)   SA-CCR on derivative transactions and Article 299(2) CRR sets out the PFE calculation for total return swap and CDS . None of these articles contains a reference to Article 273(3) CRR. The leverage ratio framework is very specific on the treatment of credit derivatives where needed. Article 429d CRR 429a(5) of the DR expressly allows the notional amount (as part of the exposure value) of written credit derivatives to be reduced by the notional amount of a purchased credit derivatives on the same reference name if certain conditions are met. The CRR DR does instead not contain any provisions allowing reducing the exposure measure of purchased credit derivatives. In conclusion, the zero exposure value treatment specified in Article 273(3) CRR cannot be applied to calculate the leverage ratio exposure measure for purchased credit derivatives.