Application of the creditor participation instrument to liabilities arising from derivatives

(1) The creditor participation instrument applies to liabilities arising from derivatives only after, or at the same time as, the close-out of the derivatives.
(2) Where the resolution conditions under section 62(1) are satisfied, the resolution authority is empowered to terminate and close out derivative contracts for the purpose of applying the creditor participation instrument, unless a liability arising from a derivative is excluded from the scope of the creditor participation instrument under section 92.
(3) Where transactions in derivatives are subject to a netting agreement, the resolution authority or an independent expert determines the net value of the liabilities on the basis of the derivative contracts, as part of the valuation under section 69.
(4) The resolution authority or the independent expert determines the net value of liabilities arising from derivatives under subsection (3) by reference to 1. appropriate methods for determining the value of categories of derivatives, including transactions subject to netting agreements; 2. principles for determining the point in time at which the value of a derivative position should be established; and 3. suitable methods for comparing the amount of value destruction that would result from close-out and the application of the creditor participation instrument to derivatives, with the amount of losses that would arise for those derivatives on applying the creditor participation instrument.
(5) Subsections (1) to (4) apply correspondingly to liabilities arising from financial performance within the meaning of section 104(1) of the Insolvency Code, combined in a master agreement under section 104(3) of the Insolvency Code.