The ratio of the current net market value of open positions held between two counterparties related to the current gross market value of the positions between the same counterparties. The net-to-gross ratio (NGR) is used to determine the value or proportion of netting and, for certain capital requirements, it measures the extent to which the capital requirements of a financial intermediary (a bank) can be reduced to reflect possible gains from enforceable netting.
The ratio is calculated using the following formula:
Net-to-gross ratio = net MV of open positions/ gross MV of open positions
Differently stated, this ratio reflects the net current exposure of all the transactions covered by an eligible bilateral netting agreement related and measured up to the gross current credit exposure (GCCE) of the same transactions.
For a certain netting agreement, GCCE represents the sum of the mark-to-market values of all the transactions covered by the agreement (excluding the transactions having a positive mark-to-market value, with no offsetting against contracts with a negative mark-to-market value).
