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GFMA, the International Institute of Finance (IIF) and the International Swaps and Derivatives Association, Inc. (ISDA) provide further response to the Basel Committee on Banking Supervision (BCBS) relating to notional definitions for the BCBS Consultative Document, The Non-Internal Model Method for Capitalizing Counterparty Credit Risk Exposures.
The groups believe the Consulative Document is a significant step in the right direction and believe that the proposed non-internal model method (NIMM) framework has great potential. As an alternative to the current exposure method (CEM), it is clear that NIMM performs significantly better as a measure of exposure.
However, the industry feels an articulation of supervisory standards for the definition of effective notional that will allow firms to reliably and consistently apply NIMM to the vast majority of derivative structures is important. We urge the Basel Committee to articulate these standards to help ensure global consistency and a level playing field, facilitating an effective application of NIMM.