An entity must calculate the net position of any type of security or merchandise by deducting from the total value of securities or products of this type lent, sold or supplied under the main clearing agreement the total value of securities or products of this type lent, purchased or received under the agreement. The value exposed to fully adjusted risk (E) of a company using the “master netting” approach must be calculated according to the following formula: the new banking law also supports the applicability of compensation because it specifies that, when netting is carried out, (a) the obligations that are put online are not taken into account in the bankruptcy or liquidation procedure; and (b) any net unpaid obligation is payable. The multilateral network is a network involving more than two parties. In this case, a clearing house or a central exchange is often used. Multilateral clearing can also be carried out within a company with several subsidiaries. If subs owe payments for different amounts, they can send their payments to a central business unit or clearing centre. The main institution would pay net the invoices and the various currencies of the subsidiaries and make the net payment to the parties due. Multilateral compensation involves pooling the resources of two or more parties in order to obtain a simplified billing and payment procedure. This clearing process takes place in a wide range of swaps, but there is a kind of swap where clearing does not occur. In the case of foreign exchange swequilles, the fictitious amounts are exchanged in different currencies for their respective currencies and all payments due are fully exchanged between two parties; There is no compensation.
An entity must apply the adjustment to exchange rate risk volatility (fx) to the net, positive or negative position, in any currency other than the base contract settlement currency. For the calculation of “fully adjusted risk exposure” for exposures that are intended to enter into an eligible principal clearing agreement, including pension transactions and/or securities or commodity lending or credit transactions and/or other capital market-fuelled transactions; An entity calculates volatility corrections calculated using the method to be applied in the BIPRU 5.6.6 R method to BIPRU 5.6.11 R, either using the prudential volatility adjustment approach or the own estimates of volatility adjustments in accordance with BIPRU 5.4.30 to BIPRU 5.4.65 R for the overall financial security method. For the use of own estimates of volatility adjustment, the conditions and requirements are identical to those of the overall financial guarantee method. In the case of an entity applying the overall method of financial guarantee, the effects of bilateral clearing contracts involving pension transactions, borrowing or credit transactions in securities or valuable products and/or other transactions on the capital market with a counterparty may be accounted for. Prior to the introduction of the Compensation Act, the use of derivative contracts by financial institutions was commonplace. However, the final analysis of the United Arab Emirates, which was the basis of these agreements, contained a number of qualifications, which meant that the United Arab Emirates could not be considered a jurisdiction in which the applicability of compensation was certain. There was even a case of basic precision that found derivative contracts to be unenforceable. The compensation law is a positive step towards clarifying and certainty in local and international markets that the fundamental aspects of clearing and derivative contracts are recognized in the United Arab Emirates.
This is another positive and dynamic step in the rapid implementation of the UAE`s legal system to promote greater financial activity in the country and strengthen the country`s position as the world`s leading commercial and financial centre. “…. the provisions of the compensation law may predominate over the concept of Gharar. When calculating the amounts of exposure weighted according to the internal approach of the model