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

Article 285(3), point (b), of Regulation (EU) 575/2013 (CRR) states that for netting sets containing one or more trades involving either illiquid collateral, or an OTC derivative that cannot be easily replaced, the margin period of risk shall not be less than 20 business days. In relation to OTC derivatives that cannot be easily replaced, the second subparagraph of Article 285(3) of the CRR specifies that an institution shall determine whether OTC derivatives cannot be easily replaced in the context of stressed market conditions, characterised by the absence of continuously active markets where a counterparty would, within two days or fewer, obtain multiple price quotations that would not move the market or represent a price reflecting a premium. The last subparagraph of Article 285(3) of the CRR clarifies that institutions shall consider whether OTC derivatives referred to in point (b) and in the second subparagraph are concentrated in a particular counterparty and if that counterparty exited the market precipitously whether the institution would be able to replace those trades. In this regard, since point (b) and the second subparagraph of Article 285(3) of the CRR mention only OTC derivatives as derivative types, within the trades referred to in the last subparagraph to the extent these are derivatives, only OTC derivatives are meant. Note however that Article 285(3), point (b), of the CRR also refers to netting sets containing one or more trades involving illiquid collateral as e.g. securities financing transactions, and the last subparagraph of Article 285(3) of the CRR requires an institution to consider whether the securities it holds as collateral are concentrated in a particular counterparty and if that counterparty exited the market precipitously, whether the institution would be able to replace those securities. Accordingly, and due to point (b) of Article 285(3) of the CRR, netting sets with trades involving illiquid collateral or collateral concentrated in a particular counterparty which would not allow to replace the securities if that counterparty exited the market precipitously, should also be subject to the minimum margin period of risk of 20 business days.