The Basel Committee on Banking Supervision (BCBS) released revisions to the leverage ratio (LR) measurement of client-cleared derivatives to align it with the standardised approach to measuring counterparty credit-risk exposures (SA-CCR). The revised treatment permits both cash and non-cash forms of segregated initial margin and cash and non-cash variation margin received from a client to offset the replacement cost and potential future exposure for client-cleared derivatives only. In addition, the BCBS revised the LR disclosure requirements, setting out additional requirements for banks to disclose their LRs based on quarter-end and daily-average values of securities financing transactions (SFTs), to prevent regulatory arbitrage in the form of "window-dressing", whereby temporary reductions of transaction volumes around reference dates result in the reporting and public disclosure of artificially elevated LRs. Both revisions will be applicable to the version of the LR standard that will come into effect on 1 January 2022.
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