Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p16
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 46242–49230

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 to determine the capital charge for specific interest rate risk for the correlation trading portfolio as the larger of:

        1.           the total specific risk capital charges that would apply just to the net long positions from the net long correlation trading exposures combined; and

        2.           the total specific risk capital charges that would apply just to the net short positions from the net short correlation trading exposures combined.

Transitional provisions for securitisation positions

     1.          Until 31 December 2013, APRA may allow an ADI to determine the capital charge for specific interest rate risk for the securitisation instruments that are not included in the correlation trading portfolio as the larger of:

        1.           the total specific risk capital charges that would apply just to the net long positions in securitisation instruments in the trading book; and

        2.           the total specific risk capital charges that would apply just to the net short positions in securitisation instruments in the trading book.

    This calculation must be undertaken separately from the calculation for the correlation trading portfolio as described in paragraph 17 of this Attachment.

Limitation of specific risk capital charge to maximum possible loss

     1.          An ADI may limit the capital charge for an individual position in a credit derivative or securitisation instrument to the maximum possible loss. For a short risk position, an ADI may calculate this limit as a change in value due to the underlying names immediately becoming default risk-free. For a long position, the maximum possible loss may be calculated as the change in value in the event that all the underlying names were to default with zero recoveries.

General market risk

     1.          The capital charges for general market risk capture the risk of loss arising from changes in market interest rates. An ADI using the standard method may either use the maturity method or may apply to APRA for written approval to use the duration method of measuring general market risk. An ADI that has approval to use the duration method must do so on a continuing basis, unless a change in method is approved, in writing, by APRA. In each method, positions are allocated across a maturity ladder and the capital charge is calculated as the sum of four components:

        1.           the net short or long weighted position across the whole trading book;

        2.           a small proportion of the matched positions in each time band (the 'vertical disallowance');

        3.           a larger proportion of the matched positions across different time