Question
How do you calculate the effective maturity for Internal Model Method (IMM) eligible trades which are collateralised/ nearly collateralised?
Background on the question
Articles 162(2)(c) and 162(2)(d) CRR describe the effective maturity calculation for collateralised/ nearly collateralised trades for General case. However for IMM eligible trades which are collateralised/ nearly collateralised the calculation is not clear. Clarification on effective maturity calculation for IMM eligible, collateralised trades is necessary.
Answer
If an institution, which has received the permission of the competent authority to use own LGDs and own conversion factors for exposures to corporates, institutions or central governments and central banks pursuant to Article 143 CRR, clears bilaterally with a corporate, institution or central bank, the maturity for deriving the risk weight is determined according to Article 162(2) CRR. For netting sets for which an institution applies the internal model method and for which the longest-dated contract within the netting set has a maturity of more than one year, the maturity is calculated by the formula in Article 162(2)(g) CRR. This provision applies regardless of whether the transaction is collateralised or not. For netting sets for which an institution applies the internal model method and for which the longest-dated contract within the netting set has a maturity of less than or equal to one year, the maturity is calculated by the methods given in Article 162(2)(b) or (c) CRR for derivatives and Article 162(2)(d) CRR for Securities Financing Transactions (SFT).