Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p15
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 43536–46522

(refer to paragraphs 18 to 38 of Attachment D to APS 120). When estimating PDs and LGDs for calculating KIRB, the ADI must meet the minimum requirements for the IRB approach.

        2.           An ADI which has approval for using a value-at-risk measure for specific market risk (refer to paragraph 43 of Attachment C) for products or asset classes which include the underlying exposures may apply the supervisory formula approach (refer to paragraphs 18 to 38 of Attachment D to APS 120). When estimating PDs and LGDs for calculating KIRB, the ADI must meet the same standards as for calculating the incremental risk capital charge according to paragraphs 55 and 56 of Attachment C.

        3.           In all other cases an ADI must calculate the capital charge as eight per cent of the weighted-average risk weight that would be applied to the securitised exposures under the standardised approach, multiplied by a concentration ratio. This concentration ratio is equal to the sum of the nominal amounts of all the tranches divided by the sum of the nominal amounts of the tranches junior to or pari passu with the tranche in which the position is held, including that tranche itself.

The resulting specific risk capital charge must not be lower than any specific risk capital charge applicable to a rated more senior tranche. If an ADI is unable to determine the specific risk capital charge as described above or prefers not to apply the treatment described above to a position, it must apply a risk-weight of 1250 per cent i.e. a 100 per cent risk capital charge to that position.
Specific risk offsetting for the correlation portfolio

     1.          An ADI's correlation trading portfolio includes securitisation exposures and nth-to-default credit derivatives that meet all of the following criteria:

        1.           the positions are neither resecuritisation positions, nor derivatives of securitisation exposures that do not provide a pro-rata share in the proceeds of a securitisation tranche (this criterion therefore excludes options on a securitisation tranche, or a synthetically leveraged super-senior tranche);

        2.           all reference entities are single-name products, including single-name credit derivatives, for which a liquid two-way market exists[15];

        3.           the positions do not reference underlying exposures that would be treated as a retail exposure or a property exposure under the standardised approach to credit risk (refer to APS 112); and

        4.           the positions do not reference a claim on a special purpose entity.

     1.          An ADI may also include in the correlation trading portfolio positions that hedge the positions described above and which are neither securitisation exposures nor nth-to-default credit derivatives and where a liquid two-way market (as described in footnote 15) exists for the instrument or its underlying exposures.

     2.          APRA may allow an ADI