Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p16
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 16/35)
Character Range: 66369–69212

collateral increases;
V = the total current market value of all the derivative transactions within the netting set;
CH(⸱) = CH(1 year) for unmargined transactions and CH(MPOR) for margined transactions (refer to paragraphs 9 and 10 of this Attachment, respectively);
AddOna = the add-on factor for asset class a; and
A = the set containing all asset classes (interest rate, foreign exchange, credit, equity and commodity).
15.         For each asset class a, the add-on factor AddOna must be calculated as the sum of all hedging set level (j)29 add-ons within asset class a:
where:
AddOnja = the positive add-on factor for hedging set j within asset class a.
16.         The definition of a hedging set for each asset class is provided in paragraph 19 of this Attachment. Treatment of basis and volatility transactions is provided in paragraph 17 of this Attachment. The calculation of the add-on factor for a hedging set within each asset class is defined in the following paragraphs of this Attachment:
(a)          interest rate asset class, paragraphs 22 to 25;
(b)          foreign exchange asset class, paragraphs 26 to 28;
(c)          credit asset class, paragraphs 29 to 33;
(d)          equity asset class, paragraphs 34 to 37; and
(e)          commodity asset class, paragraphs 38 to 41.
17.         Within each asset class, basis and volatility transactions must form separate hedging sets:
(a)          A basis transaction is a non-foreign exchange transaction (i.e. both legs are denominated in the same currency) in which the cash flows of both legs depend on different risk factors from the same asset class.[29] A separate hedging set[30] must be used for each basis risk (i.e. for each specific pair of risk factors). For a hedging set consisting of basis transactions:
(i)            the same hedging set category definition must be applied given the particular asset class (refer to paragraph 19 of this Attachment); and
(ii)         the supervisory factor (SFa) applicable to a given asset class a as defined in paragraph 21 of this Attachment must be multiplied by one-half.
(b)          A volatility transaction is one in which the reference asset depends on the volatility (historical or implied) of a risk factor. For a hedging set consisting of volatility transactions:
(i)            the same hedging set category definition must be applied given the particular asset class (refer to paragraph 19 of this Attachment); and
(ii)         the supervisory factor (SFa) applicable to a given asset class a as defined in paragraph 21 of this Attachment must be multiplied by five.
18.         Aggregation of the add-on factors for basis and volatility hedging sets with those from other hedging sets within the same asset class must be performed according to the hedging set aggregation rule set out in paragraph 15 of this