Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p22
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 22/35)
Character Range: 83005–85923

must be used for all equity derivative transactions. Within the core hedging set (refer to paragraph 19 of this Attachment), transactions must be further divided into categories, with each category (k) containing all the transactions referencing the same entity k. Each single name entity or index is a separate category.
35.         The add-on factor for the single core hedging set for the equity asset class, AddOnCOREEQ, must be calculated as:
where:
pkEQ = the supervisory correlation parameter for category k. An ADI must determine pkEQ depending on whether k is a single name or index entity, according to paragraph 49 of this Attachment; and
AddOnCORE,kEQ = the add-on factor for category k, calculated according to paragraph 36 of this Attachment.
36.         The add-on factor for category k, AddOnCORE,kEQ, must be calculated as:
where:
SFkEQ = the supervisory factor for category k determined according to paragraph 49 of this Attachment; and
EffectiveNotionalCORE,kEQ = the category-level (k) effective notional amount, calculated according to paragraph 37 of this Attachment.
37.         The effective notional amount for category k, denoted by EffectiveNotionalCORE,kEQ, must be calculated as the sum of all individual transaction level (i) quantities, according to:
where:
I(CORE,k) = the set of all transactions belonging to category k (i.e. reference entity k) within the core equity hedging set;
ẟi = the supervisory delta adjustment for transaction i, calculated according to paragraphs 43 to 47;
diEQ = the adjusted notional amount for transaction i, and must be calculated as the product of the current price of one unit of the stock and the number of units referenced by transaction i except where transaction i is an equity volatility transaction, in which case the adjusted notional amount for transaction i must be calculated as the product of the underlying volatility or variance referenced by transaction i and the contractual notional amount of transaction i. The adjusted notional amount is also subject to the requirements in paragraph 42 of this Attachment; and
MFi = the maturity factor for transaction i, calculated according to paragraph 48 of this Attachment.

Add-on for commodity derivative transactions
38.         For the commodity asset class, within each hedging set (refer to paragraph 19 of this Attachment), transactions must be further divided into categories, each one (k) containing all the transactions belonging to the same commodity type. An ADI must specify categories based on commodity type that are more granular than the four broad commodity groups defined in paragraph 19 of this Attachment. An ADI must determine the commodity types such that all material basis risks[36] are captured. All uncaptured basis risks must be formally identified and regularly monitored. An ADI must also regularly review and update the categorisation of commodity types to reflect