Use of Maturity Mismatch for Exposures arising under Master Netting Agreements

Do the requirements to adjust the value of collateral for maturity mismatch (Article 239) apply when using the supervisory volatility adjustments approach for Master Netting Agreements under Article 220?

Master Netting Agreements (MNAs) for repurchase, securities or commodities borrowing / lending and margin lending transactions which meet the conditions in Article 206 result in a single close-out amount upon counterparty default. Therefore, it could be taken that a maturity mismatch adjustment for the collateral value under Article 220 is not necessary because any default by the counterparty would immediately see the termination under the MNA of any longer term exposures (e.g. margin loans extended for a given period, typically less than one year) that would otherwise lead to a maturity mismatch haircut being applied to the collateral (e.g. long security positions or overnight cash deposits in the same prime brokerage account). Note, that since these agreements are not secured lending transactions, per Article 192 (2), they do convey the right to receive margin at least daily. When considering the future exposure that a bank might be exposed to under MNAs, the right to receive margin at least daily, along with applying the volatility adjustments from Article 224 or an approved own estimates of volatility adjustments permission, protects the bank from having insufficient collateral relative to the exposure at any future point in time such that an additional haircut to reflect any maturity mismatch would be similarly unwarranted. While the same considerations as above can be made in relation to the application of Article 223, sub-paragraph 5 of Article 223 requires that the collateral value be further adjusted in accordance with Section 5, Maturity mismatches. Therefore, the Level 1 text forces banks to apply maturity mismatch adjustments to collateral values when using the Financial Collateral Comprehensive Method to calculate exposure at default. There is no equivalent Level 1 instruction in relation to the application of Article 220 for MNAs. This distinction between the approaches in Article 220 and Article 223 is justifiable because exposure and credit protection which fall under Article 223 would not be held under a master netting agreement that meets the conditions in Article 206.