12 CFR § 217.136 - Unsettled transactions.

§ 217.136 Unsettled transactions.

(a)Definitions. For purposes of this section:

(1) Delivery-versus-payment (DvP) transaction means a securities or commodities transaction in which the buyer is obligated to make payment only if the seller has made delivery of the securities or commodities and the seller is obligated to deliver the securities or commodities only if the buyer has made payment.

(2) Payment-versus-payment (PvP) transaction means a foreign exchange transaction in which each counterparty is obligated to make a final transfer of one or more currencies only if the other counterparty has made a final transfer of one or more currencies.

(3) A transaction has a normal settlement period if the contractual settlement period for the transaction is equal to or less than the market standard for the instrument underlying the transaction and equal to or less than five business days.

(4) The positive current exposure of a Board-regulated institution for a transaction is the difference between the transaction value at the agreed settlement price and the current market price of the transaction, if the difference results in a credit exposure of the Board-regulated institution to the counterparty.

(b)Scope. This section applies to all transactions involving securities, foreign exchange instruments, and commodities that have a risk of delayed settlement or delivery. This section does not apply to:

(1) Cleared transactions that are subject to daily marking-to-market and daily receipt and payment of variation margin;

(2)Repo-style transactions, including unsettled repo-style transactions (which are addressed in §§ 217.131 and 132);

(3) One-way cash payments on OTC derivative contracts (which are addressed in §§ 217. 131 and 132); or

(4) Transactions with a contractual settlement period that is longer than the normal settlement period (which are treated as OTC derivative contracts and addressed in §§ 217.131 and 132).

(c)System-wide failures. In the case of a system-wide failure of a settlement or clearing system, or a central counterparty, the Board may waive risk-based capital requirements for unsettled and failed transactions until the situation is rectified.

(d)Delivery-versus-payment (DvP) and payment-versus-payment (PvP) transactions. A Board-regulated institution must hold risk-based capital against any DvP or PvP transaction with a normal settlement period if the Board-regulated institution's counterparty has not made delivery or payment within five business days after the settlement date. The Board-regulated institution must determine its risk-weighted asset amount for such a transaction by multiplying the positive current exposure of the transaction for the Board-regulated institution by the appropriate risk weight in Table 1 to § 217.136.

Table 1 to § 217.136 - Risk Weights for Unsettled DvP and PvP Transactions

Number of business days after contractual settlement date Risk weight to be applied to positive
current
exposure
(in percent)
From 5 to 15 100
From 16 to 30 625
From 31 to 45 937.5
46 or more 1,250

(e)Non-DvP/non-PvP (non-delivery-versus-payment/non-payment-versus-payment) transactions.

(1) A Board-regulated institution must hold risk-based capital against any non-DvP/non-PvP transaction with a normal settlement period if the Board-regulated institution has delivered cash, securities, commodities, or currencies to its counterparty but has not received its corresponding deliverables by the end of the same business day. The Board-regulated institution must continue to hold risk-based capital against the transaction until the Board-regulated institution has received its corresponding deliverables.

(2) From the business day after the Board-regulated institution has made its delivery until five business days after the counterparty delivery is due, the Board-regulated institution must calculate its risk-based capital requirement for the transaction by treating the current fair value of the deliverables owed to the Board-regulated institution as a wholesale exposure.

(i) A Board-regulated institution may use a 45 percent LGD for the transaction rather than estimating LGD for the transaction provided the Board-regulated institution uses the 45 percent LGD for all transactions described in paragraphs (e)(1) and (2) of this section.

(ii) A Board-regulated institution may use a 100 percent risk weight for the transaction provided the Board-regulated institution uses this risk weight for all transactions described in paragraphs (e)(1) and (2) of this section.

(3) If the Board-regulated institution has not received its deliverables by the fifth business day after the counterparty delivery was due, the Board-regulated institution must apply a 1,250 percent risk weight to the current fair value of the deliverables owed to the Board-regulated institution.

(f)Total risk-weighted assets for unsettled transactions. Total risk-weighted assets for unsettled transactions is the sum of the risk-weighted asset amounts of all DvP, PvP, and non-DvP/non-PvP transactions.

[Reg. Q, 78 FR 62157, 62285, Oct. 11, 2013, as amended at 80 FR 41421, July 15, 2015]