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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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  • On-balance Sheet Netting

    • PIB 4.13.17

      (1) An Authorised FirmG may recognise as eligible the NettingG of an on-balance sheet ExposureG against an offsetting on-balance sheet item if the related NettingG agreement meets the condition in PIB Rule 4.13.19.
      (2) Eligibility for NettingG is limited to reciprocal cash balances between the Authorised FirmG and its CounterpartyG . Only loans and deposits of the Authorised FirmG may be subject to a modification of their Credit RWAsG as a result of an on-balance sheet NettingG agreement.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 4.13.18

      (1) Assets (loans) and liabilities (deposits) subject to recognised on-balance sheet NettingG are to be treated as cash CollateralG using the formula in PIB A4.3.6, under which an Authorised FirmG may use zero haircuts for ExposureG and CollateralG .
      (2) When a currency mismatch exists, an Authorised FirmG must apply the standard supervisory haircut of 8% for currency mismatch.
      (3) When a maturity mismatch exists between the off-setting items, an Authorised FirmG must apply the Rules PIB 4.13.14 to PIB 4.13.16 to address the maturity mismatch.
      (4) NetG credit ExposureG , after taking into account recognised NettingG , will be subject to the applicable CRW for the CounterpartyG .
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 4.13.19

      For an Authorised FirmG to recognise an on-balance sheet NettingG agreement for the purposes of PIB Rule 4.13.17, all of the following conditions must be satisfied:

      (1)
      (a) both the on-balance sheet ExposureG (asset) and the offsetting on-balance sheet item (liability) are owing between the Authorised FirmG and the same CounterpartyG ;
      (b) the Authorised FirmG nets the on-balance sheet ExposureG (asset) and the offsetting on-balance sheet item (liability) in a way that is consistent with its legal rights against the CounterpartyG ;
      (c) a legal right of set-off exists;
      (d) the agreement between the Authorised FirmG and the CounterpartyG does not contain a Walkaway ClauseG ;
      (e) the NettingG provided for in the agreement between the Authorised FirmG and the CounterpartyG is effective and enforceable in the event of default, bankruptcy, liquidation or other similar circumstances affecting either the CounterpartyG or the Authorised FirmG ;
      (f) the on-balance sheet ExposureG (asset) and the offsetting on-balance sheet item (liability) are monitored, controlled and managed on a net basis; and
      (g) the potential for roll-off ExposureG is monitored and controlled where there is a maturity mismatch; and
      (2) it has, in respect of each relevant jurisdiction, a written and reasoned legal opinion which:
      (a) has been provided by an external source of legal advice of appropriate professional standing;
      (b) confirms that the requirements of (1)(a)-(e) are met for all relevant jurisdictions; and
      (c) is kept under review to ensure that it remains correct and up to date in the event of changes to the relevant laws.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.13.19 Guidance

        1. An Authorised FirmG should assess whether any qualifications, assumptions or reservations contained in the legal opinion cast doubt upon the enforceability of the NettingG agreement. If, as a result of the qualifications, assumptions or reservations, there is material doubt about the enforceability of the agreement, the Authorised FirmG should assume that the requirements for NettingG have not been met.
        2. An Authorised FirmG using a standard form NettingG agreement and a supporting legal opinion should ensure that the relevant requirements in Rules PIB 4.13.17 to PIB 4.13.19 are met. A standard form NettingG agreement is a form of agreement which is prepared by a reputable, internationally recognised industry association and is supported by its own legal opinion. Where additional clauses are added to a standard form NettingG agreement, the Authorised FirmG should satisfy itself that the amended NettingG agreement continues to meet the legal and contractual requirements in Rules PIB 4.13.17 to PIB 4.13.19. For instance, in such cases, an Authorised FirmG may wish to obtain a second legal opinion to confirm that the relevant requirements in Rules PIB 4.13.17 to PIB 4.13.19 are still satisfied.
        3. PIB App4 sets out the calculation of the PFCE arising from OTC derivative contracts, on a net basis.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]