EBA · 2020_5482 Final Q&A

Formula to be applied in case of a switch from multiple netting sets to a single netting set

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
275, para. 3
Topic
Credit risk
Submitted by
Individual
Submitted
2020-09-09
Answered
2022-07-15
Answer provided by
ESAs (EBA, ESMA, EIOPA)
Browse ECB SSM Register → More Q&As on this regulation →

Question

Which formula shall or may be applied in case of a switch from multiple netting sets to a single netting set? Is it allowed to continue application of Formula 3 on single netting sets, - if the single netting set is covered by a margin agreement, which allows coverage for multiple netting sets? - If the singularity of the netting set is just temporary, eg due to the fact that further transactions have been closed or not yet opened?

Background

Article 275 of Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 defines the application of formulas for the calculation of the replacement cost for derivative risk positions. According to Article 275(2), replacement costs for single netting sets that are subject to a margin agreement shall be calculated in accordance with the formula described therein (“Formula 2”). According to Article 275(3), institutions shall calculate the replacement cost for multiple netting sets that are subject to the same margin agreement in accordance with the formula described therein (“Formula 3”). During its lifetime, a transaction may be included into multiple netting sets subject to the same margin agreement or only a single netting set - if no further transaction is open at that time. However, we assume that this change in number of transactions does not require a change in the applicable formula.

Answer

When institutions calculate the replacement cost RC in accordance with Article 275 of Regulation (EU) No 575/2013, institutions should consider whether a given margin agreement allows coverage of one single or several nettings sets. In the first case, paragraph 2 of Article 275 applies, whereas otherwise paragraph 3 applies irrespective of a temporary reduction of open transactions to one netting set.

Original source: European Banking Authority, Q&A ID 2020_5482

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

Similar Q&As

Determination of exposure value cap for netting sets subject to a margin agreement.

Answered 2024-03-15

v09808_m - netting set with IMM and SA-CCR positions

Answered 2023-02-17

Netting set treatment for trades with Specific Wrong Way Risk

Answered 2016-11-18

Excess of collaterals after deduction from netting set for NSFR

Answered 2022-12-22

Conditions for increasing the margin period of risk (MPOR) used for the exposure value of netting sets with margin agreements.

Answered 2025-01-31

More Q&As on this topic

Application of the currency mismatch treatment to self-employed individuals (natural persons carrying out an economic activity) under Article 123a CRR.

Answered 2026-07-31

Requirements for the purpose of treating exposures secured by mortgages on immovable property as duly secured from an RWA computation perspective under CRR Article 124(2) of the CRR.

Answered 2026-05-08

Use of credit assessments by ECAIs not in scope of Regulation (EC) No 1060/2009.

Answered 2026-03-13

US Hard test: adequacy of considering US charge-off rates corresponding to loss rates for exposures secured by residential property or commercial immovable property situated within the territory of the US

Answered 2026-02-27

Application of the SME definition in specific cases

Answered 2025-11-28

📋 Track EU financial regulation continuously

Forseti monitors EU financial regulation and delivers personalised alerts anchored to verified official sources.

Start free trial → Learn more

14-day free trial. No credit card required.