Document ID: chunk:federal_register_of_legislation:F2024L01073:front:0:p20
Version: federal_register_of_legislation:F2024L01073
Segment Type: other
Provision Reference: 
Character Range: 52853–55770

rights to the investment or by the liquidation of the issuer;
         2.           it does not embody an obligation of the issuer; and
         3.           it conveys a residual claim on the assets or income of the issuer.
 2.          Debt obligations and other securities, units in trusts, derivatives or other instruments which are structured for the purpose, or have the effect, of conveying the economic substance of equity ownership must be treated as equity exposures. This includes options and warrants on equities and short positions in equity securities. In addition, if a debt instrument is convertible into equity at the option of an ADI, it should be treated by the ADI as equity on conversion. If such an instrument is convertible at the option of the issuer or automatically by the terms of the instrument, it should be treated by the ADI as equity from inception.
 3.          Equities that are recorded as a loan but arise from a debt/equity swap made as part of the orderly realisation or restructuring of the debt must be treated as an equity exposure.
 4.          Instruments with a return directly linked to equities must be treated as equity exposures.
 5.          An ADI must risk-weight equity exposures that are not required to be deducted from Regulatory Capital under APS 111 at:
         1.           250 per cent if the equity exposure is listed on a recognised exchange, or where the equity exposure is to the ADI's banking or insurance subsidiary at Level 1;[11] and
         2.           400 per cent if the equity exposure is not listed on a recognised exchange.

Leases
 1.          Lease exposures include all lease and asset finance exposures, irrespective of the counterparty type, and include exposures generated by the leasing of right-of-use assets. For lease exposures, excluding residual value risk, an ADI must apply the risk weight of the counterparty, as specified in this Attachment.
 2.          Where an ADI is exposed to residual value risk, such as when it acts as the lessor in operating leases, it must measure the aggregate residual value and apply the risk weights in Table 15 to the residual value of its leased assets.

 1.         Risk weights for residual value under lease exposures
                             Risk weight (%) applying to the portion of aggregate residual value ≤ 10% of Tier 1 capital   Risk weight (%) applying to the portion of aggregate residual value > 10% of Tier 1 capital
Exposures to residual value  100                                                                                           250

Exposures through a third party
 1.          An ADI must apply a risk weight of 150 per cent to credit exposures originated through a third party, where the ADI:
         1.           does not undertake the credit assessment and approval of the underlying borrower under its own credit risk policies and processes;
         2.