The China Banking Regulatory Commission ("CBRC") has recently issued the Assets Measurement Rules for Counterparty Default Risks of Derivatives (the "Rules"), with effect from January 1, 2019.
The Rules, comprised of 12 articles, apply to any commercial bank in which the notional principal of derivative instruments reaches CNY500 billion or accounts for 30 percent or above of its total assets. Further, the Rules state that a commercial bank shall, pursuant to applicable rules, take the weighting or internal rating-based approaches to calculate the assets for the counterparty default risks of derivatives. The Rules also expressly state that a commercial bank shall distinguish the margin derivatives transactions from derivatives transactions without margin. For the same netting portfolio, the default exposure of the margin derivatives transactions is capped at the default exposure of the derivatives transactions without margin. According to the Rules, if a derivative transaction is secured by margin, the commercial bank shall ink with the counterparty an agreement for the receipt and payment of margin and collateral. In case an agreement with one-way margin is signed for a derivative transaction, this transaction shall be considered as a derivative transaction without margin.