7.2.4 Computing Derivatives

Derivatives are handled through the application of both ACF and RCF factors as applicable. They can behave as either an asset or a liability, depending on the marked-to-market value. The application of factors on derivatives is done on the market value after subtracting the variation margin posted/received against the account, using the following computation:

1. CFR Derivative Liabilities = Derivative Liabilities – (Total collateral posted as variation margin against the Derivative Liabilities)
2. CFR Derivative Assets = Derivative Assets – (Cash collateral received as variation margin against the Derivative Assets)
3. The factors are then applied as follows:
   • ACF Factor Application

     ACF Amount for Derivatives = 0% * Max ((CFR Derivative Liabilities – CFR Derivative Assets), 0)

   • RCF Factor Application

     RCF Amount for Derivatives = 100% * Max ((CFR Derivative Assets - CFR Derivative Liabilities), 0)

Derivative Liabilities refer to those Derivative Accounts where the market value is negative. Derivative Assets refer to those Derivative Accounts where the market value is positive. Apart from the variation margin, the initial margin against Derivative Contracts is also treated with the appropriate factor.