EBA E-mail alert February 2, 2024

Does an institution which is a client of a clearing member or a lower-level client in a multi-level client structure (institution > intermediary/higher-level client > clearing member > central counterparty) need to verify that Art. 305 (2) or (3) conditions are met at every level of the structure to apply Art. 306 (1) CRR, which might also entail zeroing out the exposure value arising from the transaction between the institution and the clearing member or the higher-level client if the institution is acting as a financial intermediary between a client and a CCP?

Guidance is sought on 4 possible clearing flows:

Indirect clearing flows (clients’ transactions and institution’s own transactions)

1. Client > institution > clearing member > CCP
2. Institution > clearing member > CCP

Multi-level indirect clearing flows (clients’ transactions and institution’s own transactions)

3. Client > institution > intermediary/higher-level client > clearing member > CCP
4. Institution > intermediary/higher-level client > clearing member > CCP

Given the requirements of Articles 179(1)(a) and 175(4)(b) CRR, in case of a model development, should the last available one-year snapshot be used for risk quantification purposes (i.e., for the computation of the long-run average default rate) or be set aside for out-of-time validation tests?