CONTRACTUAL NETTING (CONTRACTS FOR NOVATION AND OTHER NETTING AGREEMENTS)

This refinement results in a more appropriate compulsory capital cover taking into account the risk-reducing effects of supervisorily recognised contractual netting agreements on potential future credit risks.

With a view 'to the smooth functioning of the internal market and in particular with a view to ensuring a level playing field Member States are obliged to strive for uniform assessment of contractual netting agreements by their competent authorities.

the law that governs any contract or agreement necessary to effect the contractual netting;

The competent authorities may recognise as risk-reducing contractual-netting agreements covering foreign-exchange contracts with an original maturity of 14 calendar days or less written options or similar off-balance-sheet items to which this Annex does not apply because they bear only a negligible or no credit risk.

For the purpose of this point 3 'counterparty' means any entity (including natural persons) that has the power to conclude a contractual netting agreement.

If any of the competent authorities are not satisfied in that respect, the contractual netting agreement will not be recognised as risk-reducing for either of the counterparties.

If it is necessary to constitute all transactions under the agreement as a single contractual arrangement and/or to constitute the agreement as a master agreement in order to allow effective close-out and termination netting, such provision should be included.

The parties acknowledge that the terms of this Agreement, all transactions governed by this Agreement, any amendments to the terms of such transactions, and the single net balance payable under any netting agreement constitute a single business and contractual relationship and arrangement.

The Parties acknowledge that the terms of this Agreement, all transactions governed by this Agreement, any amendments to the terms of such transactions, and the single net balance payable under any netting agreement constitute a single business and contractual relationship and arrangement.

Each party represents and warrants to the other that it is a financial institution for purposes of the US Deposit Insurance Corporation Improvement Act of 1991 (hereinafter referred to as FIDICIA), and the parties agree that this Agreement shall be a netting contract, as defined in FDICIA, and that each receipt or payment obligation under the Agreement shall be a covered contractual payment entitlement or covered contractual payment obligation respectively, as defined in and subject to FDICIA.

a credit institution must have a contractual netting agreement with its counterparty which creates a single legal obligation, covering all included transactions, such that, in the event of a counterparty's failure to perform owing to default, bankruptcy, liquidation or any other similar circumstance, the credit institution would have a claim to receive or an obligation to pay only the net sum of the positive and negative mark-to-market values of included individual transactions;

whereas this refinement results in a more appropriate compulsory capital cover taking into account the risk-reducing effects of supervisorily recognised contractual netting agreements on potential future credit risks;

With a view to the smooth functioning of the internal market and in particular with a view to ensuring a level playing field Member States are obliged to strive for uniform assessment of contractual netting agreements by their competent authorities.

'The competent authorities may recognise as risk-reducing contractual-netting agreements covering foreign-exchange contracts with an original maturity of 14 calendar days or less written options or similar off-balance-sheet items to which this Annex does not apply because they bear only a negligible or no credit risk.

Whereas for Community credit institutions a similar refinement of the supervisory treatment of OTC derivative instruments including the possibility of taking into account the risk reducing effects of supervisorily recognised contractual netting agreements on potential future credit risks can be achieved only by amending Directive 89/647/EEC;

For the purpose of this point 3 "counterparty" means any entity (including natural persons) that has the power to conclude a contractual netting agreement.

Whereas European Parliament and Council Directive 96/10/EC of 21 March 1996 amending Directive 89/647/EEC as regards recognition of contractual netting by the competent authorities (2) is to be incorporated into the Agreement,

Whereas Articles 2(1)(a), Article 2(2), Article 2(3)(b), and Article 2(6) and Article 3(1) and (2) of this Directive and the Annex thereto are in accordance with the work of an international forum of banking supervisors on a refined and in some aspects more stringent supervisory treatment of the credit risks inherent in OTC derivative instruments, in particular the extension of compulsory capital cover to OTC derivative instruments concerning underlyings other than interest and foreign exchange rates and the possibility of taking into account the risk-reducing effects of contractual netting agreements recognised by competent authorities when calculating the capital requirements for the potential future credit risks inherent in OTC derivative instruments;