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SFT — Securities Financing Transactions (FCCM EAD)

Specifications for the Financial Collateral Comprehensive Method (FCCM) exposure-at-default (EAD) for securities financing transactions (SFTs) — repos, reverse repos, securities-borrowing/lending and margin-lending transactions. FCCM is a peer of the SA-CCR derivative method, not a sub-mode of it: the two regulatory methods diverge at the data boundary (separate input bundles, separate pipeline stages) and share zero computational code.

Primary regulatory source: CRR Art. 271(2) routes SFT EAD through the FCCM (Art. 220–223), not the SA-CCR Art. 274 EAD = α·(RC + PFE) derivative formula. References on this page follow the PRA-priority convention: CRR Art. numbers first, PRA PS1/26 as a secondary cross-reference.

Engine entry point: src/rwa_calc/engine/sft/fccm.py::sft_bundle_to_exposures — consumes the dedicated RawSFTBundle (RawDataBundle.sft) and emits one synthetic exposure row per SFT netting set with risk_type = "CCR_SFT", ccr_method = "fccm_sft" and drawn_amount = E*, compatible with the downstream Classifier / CRM / SA exposure ladder.

Two unrelated meanings of \"SFT\" — do not conflate

The FCCM SFT path described on this page (transaction_type == "sft", CCR EAD under CRR Art. 220–223) is a different concept from the is_sft Boolean carried on the loan / contingent / facility schemas (which selects the F-IRB 0.5-year repo-style supervisory maturity under CRR Art. 162(1) — a fixed value, not a floor; deleted under Basel 3.1). Same acronym, same schemas.py. They no longer have zero interaction, however: an FCCM SFT row that routes to IRB now carries a dedicated ccr_effective_maturity carrier into the IRB maturity chain (it is never delivered via is_sft, which stays a CRM-only input). See The two meanings of "SFT" below.

Why SFTs are a peer subsystem, not part of SA-CCR

Before the SFT/FCCM separation, FCCM lived inside engine/ccr/ and shared the SA-CCR TRADE_SCHEMA, discriminated only by a free-text transaction_type string. The two methods were physically co-mingled even though they share no arithmetic. The separation promotes FCCM to a sibling engine/sft/ package so the divergence is visible at the seams a developer naturally inspects.

Concern SA-CCR (derivatives) FCCM (SFTs)
Regulatory EAD basis CRR Art. 274 — EAD = α·(RC + PFE), α = 1.4 CRR Art. 271(2) → Art. 220–223 — E* = max(0, E·(1+HE) − CVA·(1−HC−HFX))
Input bundle RawDataBundle.ccr (RawCCRBundle) RawDataBundle.sft (RawSFTBundle)
Input schema TRADE_SCHEMA (30 cols, derivative-shaped) SFT_TRADE_SCHEMA (10 cols, lean) + optional SFT_COLLATERAL_SCHEMA
Dataload ccr_trades / ccr_netting_sets / … sft_trades (+ optional sft_collateral)
Pipeline stage ccr_sa_ccr (engine/stages/ccr.py) sft_fccm (engine/stages/sft.py)
Shared computation rulepack supervisory factors, hedging sets, add-ons supervisory haircuts (engine/crm/haircut_tables.py)
Output risk_type CCR_DERIVATIVE CCR_SFT
Output ccr_method sa_ccr fccm_sft

Details: the architectural rationale, alternatives weighed, and the phased migration are recorded in docs/plans/sft-fccm-separation.md.

"Where do SFTs diverge from derivatives?" is answered by reading the registry — two adjacent StageSpec entries, ccr_sa_ccr then sft_fccm (engine/registry.py).

The FCCM E* formula (Art. 223(5))

For an SFT netting set, the fully-adjusted exposure value E* is:

E* = max( 0,  E·(1 + HE)  −  CVA·(1 − HC − HFX) )

where:

Term Meaning Source
E Exposure amount lent / sold under the SFT (the trade notional) Art. 223(5)
HE Volatility (supervisory) haircut appropriate to the exposure Art. 223(5), Art. 224 Table 1
CVA Volatility-adjusted value of the collateral received (market value) Art. 223(5)
HC Volatility haircut appropriate to the collateral Art. 224 Table 1
HFX Haircut for any currency mismatch between collateral and exposure Art. 224 Table 4 (8%; 0 when currencies match)

The supervisory haircuts H_10 (10-business-day daily-revaluation holding period) come from the CRR Art. 224 Table 1 lookup by collateral type / issuer CQS / residual maturity. The applied haircut is the full three-factor expression:

H = H_10 · sqrt( T_M / 10 ) · sqrt( (N_R + T_M − 1) / T_M )

with:

  • sqrt( T_M / 10 ) — the Art. 224(2) liquidation-period rescale (the published 5/10/20-day columns are H_10 · sqrt(T_M/10)). T_M is the holding/liquidation period in business days appropriate to the branch (5 for unmargined repo/SFT, Art. 224(2)(b); the MPOR for margined sets).
  • sqrt( (N_R + T_M − 1) / T_M ) — the Art. 226 non-daily revaluation scale-up, driven by N_R = remargining_frequency_days. It collapses to 1.0 at daily revaluation (N_R = 1), so a daily-revalued unmargined SFT sees only the period rescale (the regression anchor). Art. 226 has no numbered paragraphs — do not write "Art. 226(2)".

The same three-factor form applies independently to HE (exposure security), HC (collateral security) and HFX (the 8% currency-mismatch base, Art. 224 Table 4 / Art. 233(4)). Both the haircut table and the business-day periods resolve from the rulepack — the FCCM engine declares no regulatory scalars of its own (project data/engine separation rule).

Two mutually-exclusive branches (margined vs unmargined)

The holding period T_M and whether the Art. 226 non-daily factor applies are selected per netting set on the is_margined flag. The two branches are never combined (engine/sft/fccm.py::_derive_margining_terms):

  • Branch (a) — unmargined / simply-collateralised (is_margined False or absent; today's behaviour). T_M is the transaction-type liquidation period — 5 business days for the FCCM repo/SFT path (Art. 224(2)(b)). The Art. 226 non-daily term is applied, with N_R = remargining_frequency_days. At daily revaluation (N_R = 1) the term is exactly 1.0, so the unmargined-daily path is bit-identical to the prior behaviour (verified by IEEE-754 hex probe and the unchanged CCR-A11/A12 goldens).
  • Branch (b) — margined (qualifying Art. 285(2)–(4) collateral agreement; legal hook = the final subparagraph of Art. 224(2)). T_M is the margin period of risk MPOR = F + N − 1 (Art. 285(5)), and the Art. 226 non-daily term is suppressed (N_R = 1) because the MPOR already encodes the remargin period N. The floor F is 5 for repo / securities- or margin-lending-only sets (Art. 285(2)(a)), 10 for other sets (Art. 285(2)(b)) and 20 for sets with > 5000 trades or illiquid / hard-to-replace collateral (Art. 285(3) — two independent triggers). F is doubled for the two quarters following more than two margin disputes (Art. 285(4)). An explicit mpor_days_override supersedes the F + N − 1 derivation. All F values and the dispute multiplier resolve from cited rulepack scalars — no regulatory numerics are hardcoded in the engine.

The five input columns that drive this selection (is_margined, remargining_frequency_days, mpor_floor_category, has_margin_dispute_doubling, mpor_days_override) are documented on the SFT input schema page; all default so that the unmargined-daily path reproduces today's E* exactly.

Engine entry point:

from rwa_calc.engine.sft.fccm import sft_bundle_to_exposures

# E* = max(0, E·(1+HE) − CVA·(1−HC−HFX))   (CRR Art. 223(5))
# Reads RawSFTBundle, writes one synthetic exposure row per netting set.

Source: src/rwa_calc/engine/sft/fccm.py — reuses lookup_collateral_haircut, scale_haircut_for_liquidation_period and FX_HAIRCUT from engine/crm/haircut_tables.py (pack-bound), which is its only cross-package engine dependency.

Pipeline placement — the sft_fccm stage

FCCM runs as a dedicated stage immediately after the SA-CCR stage:

hierarchy_resolver → ccr_sa_ccr → sft_fccm → classifier → crm_processor → …

The sft_fccm stage (engine/stages/sft.py::run):

  1. No-ops when data.sft is None — a firm with no SFT book is completely unaffected (RawDataBundle.sft defaults None).
  2. Fails loud on reserved methods. SFTConfig.method selects the SFT EAD method per Art. 271(2). Only "fccm" (Art. 220–223) is implemented; "var" (Art. 221) and "imm" (Art. 283) are reserved literals that raise NotImplementedError rather than silently dropping SFT rows.
  3. Computes E* at netting-set grain via sft_bundle_to_exposures.
  4. Enriches counterparty ratings onto each synthetic row (shared with the SA-CCR stage via engine/stages/_ccr_shared.py) so the SA institution risk-weight lookup (CRR Art. 120(1) Table 3) and any IRB routing see the same rating as a traditional lending row.
  5. Appends the SFT rows onto resolved.exposures via a diagonal_relaxed concat and re-seals against the existing ccr_exit brand — not a new sft_exit brand.

The SFT stage seals to the ccr_exit brand by design

Downstream stages select their CCR-variant edge by exact brand-string equality (the classifier expects ccr_exit). A fresh sft_exit brand would de-select SFT rows onto the non-CCR edge and strip their provenance columns (source_netting_set_id, ccr_method, ead_ccr), or the sealed-frame validator would reject the frame. SFT and derivative rows share the same resolved.exposures frame; the SFT-vs-derivative typing lives in the input bundle and schema, not in a new exit brand. SA-CCR provenance columns stay null on SFT rows naturally because the FCCM path never projects them.

From the seal onward an SFT row is treated like any other unsecured institution / corporate-style exposure: the Classifier resolves the counterparty class, the SA calculator looks up the risk weight (Art. 120–122), and the aggregator rolls the RWA into firm totals.

Downstream treatment (output floor + reporting)

FCCM SFTs are SA-risk-weighted, so under Basel 3.1 they participate in the output floor and report under the Standardised credit-risk template:

  • Output floor. FCCM SFT RWA enters the Basel 3.1 output-floor S-TREA / U-TREA numerators (PS1/26 Art. 92(3A) does not place SFTs on the S-TREA exclusion list). SFT rows receive the floor-eligible standardised_ccr tag. CRR runs have no output floor and are unaffected.
  • COREP. FCCM SFT EAD is reported under C 07.00 / OF 07.00 row 0090 ("SFT netting sets") — the Standardised credit-risk template — not the SA-CCR derivative templates (C 34.01/02/08). Template guidance: PS1/26 Appendix 17.
  • Pillar 3. SFT EAD is excluded from the SA-CCR CCR1 / CCR8 disclosure tables (which carry derivatives only) by the same risk_type != "CCR_SFT" collector exclusion.

The two meanings of "SFT"

The acronym "SFT" denotes two unrelated concepts in this codebase. They never interact, despite sharing the name and the schemas.py module.

FCCM SFT (this page) Lending is_sft
Carrier transaction_type == "sft" on SFT_TRADE_SCHEMA is_sft Boolean on LOAN / CONTINGENT / FACILITY schemas
Concept Securities financing transaction routed to FCCM CCR EAD A lending exposure that is a securities financing transaction for the F-IRB maturity carve-out
What it drives The sft_fccm stage: E* = max(0, E·(1+HE) − CVA·(1−HC−HFX)) The F-IRB 0.5-year fixed supervisory maturity (M) for repo-style transactions, in place of the 2.5-year default
Regulatory basis CRR Art. 220–223, Art. 271(2) CRR Art. 162(1) (fixed M = 0.5y; deleted under Basel 3.1)
Engine site engine/sft/fccm.py engine/irb/transforms.py

FCCM SFT rows now carry their own maturity into the IRB chain — via a carrier, never is_sft

When an FCCM SFT row (risk_type == "CCR_SFT") routes to IRB (its counterparty has an internal PD and the firm holds IRB permission for the class), the FCCM producer computes the Art. 162 effective maturity at netting-set grain and surfaces it on a dedicated ccr_effective_maturity Float64 carrier on CCR_EXIT_EDGE. The IRB maturity chain (engine/irb/transforms.py::_build_maturity_exprs) reads that carrier into the M column and, for an F-IRB CCR_SFT row, applies the fixed 0.5-year repo-style M (Art. 162(1)) via a widened gate — (is_sft OR risk_type == CCR_SFT). Crucially the synthetic row's is_sft Boolean stays null/False: re-arming is_sft would mis-fire its CRM consumers (Art. 226(2) liquidation-period scaling, Art. 207(2) covered-bond eligibility, the FCSM Art. 222(4) carve-out, multi-level beneficiary resolution) on a drawn_amount that is already the post-haircut E*, risking a double haircut. So the FCCM SFT M reaches IRB through the carrier and the gate — never through is_sft.

AIRB-routing limitation (follow-up). A CCR_SFT row reaches F-IRB end-to-end with the correct Art. 162 M. Reaching A-IRB additionally requires an own-modelled LGD on the synthetic row, which the FCCM producer does not yet emit; AIRB routing for CCR rows is tracked as a separate follow-up. The ccr_effective_maturity carrier and the new IRB rung are AIRB-ready, so closing that gap is purely additive.

Promoting FCCM to engine/sft/ already reduces the day-to-day grep ambiguity: CCR-SFT hits land in engine/sft/; lending-SFT hits land in engine/irb/ and the lending schemas. The is_sft Boolean is deliberately not renamed in this work — a rename would touch the sealed hierarchy_resolved edge, the IRB transforms, the firb_sft_supervisory_maturity pack feature and every fixture that sets is_sft, so it is reserved for a standalone future codemod.

Scope and reserved methods

The FCCM implementation is deliberately narrow (revisited as new SFT scenarios land):

In scope Out of scope (reserved / deferred)
FCCM (Art. 220–223), the only implemented method VaR method (Art. 221) — SFTConfig.method = "var", fails loud
Single-trade, single-counterparty netting sets (Art. 220(1)(a)) IMM method (Art. 283) — SFTConfig.method = "imm", fails loud
Unmargined SFTs (Art. 224(2)(b) 5-BD liquidation period) Own-estimate / VaR haircuts
Margined FCCM (Art. 285 MPOR; F + N − 1, dispute doubling) Art. 227(2)(a)–(h) 0% core-market-participant carve-out
Standardised supervisory haircuts (Art. 220(3)(a)(i))

References

  • CRR Art. 220(1)(a) — single-counterparty SFT / master-netting-set scope.
  • CRR Art. 220(3)(a)(i) — standardised supervisory haircuts.
  • CRR Art. 223(5) — E* = max(0, E·(1+HE) − CVA·(1−HC−HFX)).
  • CRR Art. 224 Table 1 — H_10 supervisory haircuts by collateral type / CQS / residual maturity.
  • CRR Art. 224(2)(b) — 5-business-day liquidation period for repo/SFT.
  • CRR Art. 224(2) final subparagraph — legal hook for the margined branch.
  • CRR Art. 224 Table 4 — 8% currency-mismatch haircut (HFX).
  • CRR Art. 226 — the applied haircut H = H_10 · sqrt(T_M/10) · sqrt((N_R+T_M−1)/T_M) (Art. 224(2) period rescale + Art. 226 non-daily revaluation scale-up). Art. 226 has no numbered paragraphs.
  • CRR Art. 271(2) — SFT EAD via FCCM, not SA-CCR Art. 274.
  • CRR Art. 285(2)–(5) — margined MPOR floors (F = 5/10/20), the F + N − 1 margin period of risk and the Art. 285(4) dispute-doubling multiplier.
  • PRA PS1/26 Art. 92(3A) — output-floor inclusion of SA-CCR / FCCM EAD.
  • PRA PS1/26 Appendix 17 — COREP / OF 07.00 row 0090 ("SFT netting sets") template guidance.
  • src/rwa_calc/engine/sft/fccm.py — FCCM engine implementation.
  • src/rwa_calc/engine/stages/sft.py — sft_fccm stage adapter.

Cross-references