Document ID: chunk:federal_register_of_legislation:F2022L01578:reg:3:p3
Version: federal_register_of_legislation:F2022L01578
Segment Type: reg
Provision Reference: reg 3 (pt 3/4)
Character Range: 64764–67670

a daily basis. If variation margin is exchanged at less than daily frequency, the minimum time horizon must be set equal to 10 days plus the number of days in between variation margin exchanges.
[17]  This applies to all products including those which have risk exposures in multiple asset classes (e.g. quantos).
[18]  For the avoidance of doubt, eligible collateral for margining purposes is distinct from the eligible collateral under APS 112 that can be used to reduce the credit risk capital requirement.
[19]  Wrong-way risk occurs when the value of the collateral collected exhibits a significant correlation with the creditworthiness of the counterparty or the value of the underlying non-centrally cleared derivatives portfolio in a way that undermines the effectiveness of the protection offered by the collateral collected.
[20]  For clarity, while an APRA covered entity may have approval to use a model to calculate haircuts on collateral for the purpose of calculating regulatory capital, a separate approval by APRA is required for the use of a model in calculating haircuts for margining collateral.
[21]  Classes of collateral must be consistent with the categories in Table 4 of Attachment B to this Prudential Standard and include (1) cash; (2) debt securities under paragraph 47(b) of this Prudential Standard; (3) debt securities under paragraphs 47(c), 47(d), 47(e) and 47(f) of this Prudential Standard; (4) equities; and (5) gold. Foreign exchange haircuts must be modelled consistently for all collateral classes.
[22]  For a life company or a friendly society, non-centrally cleared derivative transactions between any of its funds (e.g. statutory fund, benefit fund, management fund or shareholder fund) are not in the same Level 2 group and are therefore subject to the variation margin requirements.
[23]  For the avoidance of doubt, all requirements in this Prudential Standard are margin requirements except for the risk mitigation requirements in paragraphs 73 to 95 of this Prudential Standard.
[24]  For the avoidance of doubt, this includes an APRA covered entity to which subparagraph 66(a) of this Prudential Standard applies and the entity would be compliant with the foreign margin requirements or provisions in their entirety if the entity were directly subject to the requirements or provisions.
[25]  A long form confirmation that meets the conditions in paragraph 76 of this Prudential Standard and is received as soon as practicable after the execution of a transaction is considered to satisfy the requirement for trading relationship documentation.
[26]  This requirement applies to all transactions including transactions entered into from novation.
[27]  For example, a pay-fixed AUD interest rate swap with maturity of three years and notional of AUD 100 million could be netted against a pay-floating AUD interest rate swap with maturity of three years and