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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Recognised Jurisdictions and Funds
Declaration Notices
Financial Markets Tribunal
Archive
Rulebook Modules
Prudential — Investment, Insurance Intermediation and Banking Module (PIB) [VER34/12-19]
Sourcebook Modules
Consultation Papers
Policy Statements
DFSA Codes of Practice
Amendments to Legislation
Media Releases
Notices

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  • Maturity Mismatches

    • PIB 4.13.14

      An Authorised FirmG may recognise the effects of Credit RiskG mitigation for an ExposureG where there is a maturity mismatch only if the Credit RiskG mitigant has an Original MaturityG of at least one year and a residual maturity of more than three months. For the purposes of calculating Credit RWAG , a maturity mismatch occurs when the residual maturity of the Credit RiskG mitigant is less than that of the underlying ExposureG .

      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 4.13.15

      (1) An Authorised FirmG must determine the maturity of the underlying ExposureG and the maturity of the Credit RiskG mitigant conservatively. The residual maturity of the underlying ExposureG must be gauged as the longest possible remaining time before the CounterpartyG is scheduled to fulfil its obligation, taking into account any applicable grace period.
      (2) In the case of Credit RiskG mitigant, embedded options which may reduce the term of the credit protection must be taken into account so that the shortest possible residual maturity is used. Where a call is at the discretion of the protection seller, the residual maturity will be at the first call date. If the call is at the discretion of the Authorised FirmG but the terms of the arrangement at origination of the Credit DerivativeG contain a positive incentive for the Authorised FirmG to call the transaction before contractual maturity, the remaining time to the first call date will be deemed to be the residual maturity.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 4.13.16

      (1) An Authorised FirmG must calculate the value of the Credit RiskG mitigation adjusted for any maturity mismatch (referred to as "PA"), using the following formula:
      PA = P(t-0.25)/(T-0.25)
      where —
      (a) P = value of the credit protection (e.g. CollateralG amount, guarantee amount) adjusted for any haircuts;
      (b) t = min (T, residual maturity of the Credit RiskG mitigant) expressed in years; and
      (c) T = min (5, residual maturity of the ExposureG ) expressed in years.
      (2) For residual maturity of the ExposureG in the case of a basket of ExposuresG with different maturities, an Authorised FirmG must use the longest maturity of any of the ExposuresG as the maturity of all the ExposuresG being hedged.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.13.16 Guidance

        The positive incentive for an Authorised FirmG to call the transaction before contractual maturity as referred in PIB Rule 4.13.15 would be, for example, a situation wherein there is a step-up in cost in conjunction with a call feature or where the effective cost of cover remains the same even if credit quality remains the same or increases.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]