A Guide to Calculating Average Aggregate Notional Amount (“AANA”)

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The first step in complying with the regulatory requirements for non-centrally cleared derivatives is determining if your firm is in scope for the rules.  The way to do this is to calculate your “Average Aggregate Notional Amount” or AANA. To calculate your firms AANA is to sum the total outstanding amount of non-cleared derivative positions during the prescribed observation period on a gross notional basis. Once a firm determines if they are in scope they should begin the process of disclosing to their counterparty group(s).


In the US: CFTC/USPR-How do you calculate?

  • AANA is calculated on an average daily notional amount of uncleared swaps (non-cleared security based swaps, FX forwards including physically settled FX, FX swaps)
  • The calculation is inclusive of all affiliates within the counterparty group
  • Calculation is at the principal level, for example pension funds must look across all their portfolios across asset managers
  • For Phase 5 and 6 firms calculate for each business day of June, July and August of the year prior to when you believe you are in scope. For example firms who believe they are in scope for Phase 5 Sept 1 2020 should calculate AANA in June, July and August of 2019. Phase 6 firms will do the same in June, July and August of 2020 for September of 2021.
  • Summing up the AANA number calculated for each business day, and dividing the number by the number of business days in the Observation Period

 

 

CFTC/PR Margin Rules Compliance Schedule – Upcoming Phases
Phase AANA Threshold Calculation Period IM Compliance Date
4 > USD 750 billion March, April + May of 2019 September 1, 2019
5 > USD 50 billion June, July + August of 2019 September 1, 2020
6* > USD 8 billion June, July + August of 2020 September 1, 2021

 

Products to include in your calculation

On any date of calculation, all outstanding over-the counter derivatives of the trading entity’s Consolidated Group, including:

  • Uncleared swaps;
  • Uncleared security-based swaps;
  • Deliverable FX swaps; and
  • Deliverable FX forwards
  • FX swaps and deliverable FX forward even though they are exempt from calculating regulatory IM



What not to include

  • Do not include cleared derivatives



Other items of note:

  • This is Gross Notional calculation. Offsetting/netted positions must be counted.
  • Security based swaps that are either exempt pursuant to the SEC clearing exemption for affiliates of end users or satisfy the criteria for the SECs end-user exception for clearing would not be included in the calculation
  • Firms will need to calculate their AANA annually as it is possible to fall in and out of scope for the rules if you fall below the USD 8 BILLION threshold

 


What does Consolidated Group mean? All entities that are (or that would be if US accounting rules applied) included in the same consolidated financial statements as the relevant trading entity.

The In-Scope OTC Derivatives of all such entities must be included in the relevant trading entities AANA calculation.

 

 

 

In the EU/EMIR-How do you calculate AANA?

  • AANA is calculated for each counterparty group as of the last business day of the previous March, April, and May
  • Intra Group transactions, regardless of exemptions on the EMIR rules, are counted once
  • Summing up the notional amount of all In-Scope OTC Derivatives on the last business day of each month in the Observation Period and dividing by the number of months in the Observation Period

 


EU Margin Rule Compliance Schedule – Upcoming Phases
Phase AANA Threshold Observation Period IM Compliance Date
4 > EUR 750 billion March, April + May of 2019 September 1, 2019
5 > EUR 50 billion March, April + May of 2020 September 1, 2020
6* > EUR 8 billion March, April + May of 2021 September 1, 2021

 
 

Products to include in your calculation

The calculation includes:

  • Physically settled FX Swaps and Forwards
  • Currency Swaps
  • Covered Bond Swaps
  • Derivatives with exempted counterparties
  • Hedging trades



What not to include

  • OTC derivatives that are considered centrally cleared
  • Exchange-traded derivatives on a non-EU equivalent market
  • Exchange-traded derivatives trades on an EU regulated market



Other items of note:

  • This is a Gross Notional calculation. Offsetting/netted positions must be counted.
  • Deliverable FX forwards, FX swaps, currency swaps, single-stock equity options or index options and derivatives with counterparties in non-netting jurisdictions that are (or may be) exempt from the regulatory variation margin and/or initial margin requirements must be included in your AANA calculation.
  • Intra-group transactions are included but only counted once.

 

What does Consolidated Group mean? An entity’s group for purposes of the AANA calculation includes its ultimate parent and each of that ultimate parent’s subsidiaries, including where the ultimate parent company and any affiliates are located outside of the EU.

The In-Scope OTC Derivatives of all such entities must be included in the relevant trading entity’s AANA calculation.



*assumptions on Phase 6 AANA calculations are based on the BCBS IOSCO June 23 2019 recommendation on phase 5 extension. Additional updates may be required when local jurisdictions in US and EU comment on the extension.

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