Legal uncertainty over netting in China threatens Shanghai QCCP status

Foreign banks operating in China's OTC markets face punitive capital charges


Uncertainty on the ability to enforce close-out netting in the event of default means the Shanghai Clearing House will not achieve CPSS/Iosco qualified central counterparty (QCCP) status from international regulators, ramping up the Basel III capital charge for foreign banks operating onshore.

Under Basel III, banks with exposures to a QCCP will incur a 2% risk weighting, while exposure to a non-qualifying CCP will be calculated using the standardised credit risk model, according to the category

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