Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p20
Version: federal_register_of_legislation:F2024L01519
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Character Range: 57019–60016

may combine positions calculated using a pre-processing method with any weighted positions calculated using the duration method but must not offset such positions against weighted positions calculated using the maturity method.

Calculation of capital charge for derivatives under the standard method

     1.          Interest rate and cross-currency swaps, FRAs, forward foreign exchange contracts, interest rate futures and futures on an interest rate index are not subject to a specific risk charge. Where the underlying is a specific debt security or an index representing a basket of debt securities, a specific risk charge must be calculated in accordance with paragraphs 5 to 19 of this Attachment.[18]

     2.          Bank bill futures contracts traded on the Australian Securities Exchange are exempt from a specific risk charge. For other futures or forwards comprising a range of deliverable instruments with different issuers, a specific risk charge applies to long positions in the future or forward, but not short positions.

     3.          Positions in all derivative products are subject to a general market risk capital charge in the same manner as for cash positions, except for fully or very closely matched positions in identical instruments in compliance with paragraph 41 of this Attachment. These positions must be entered into the maturity ladder and treated according to paragraphs 20 to 28 of this Attachment.

     4.          An ADI may exclude long and short positions (both actual and notional) in identical instruments with exactly the same issuer, coupon, currency and maturity from the interest rate maturity framework. An ADI may also fully offset, and exclude from the calculation, a matched position in a future or forward and its corresponding underlying may also be fully offset. The leg representing the time to expiry of the future (i.e. the net exposure from the combination of the future and the underlying) must, however, be reported.

     5.          An ADI may only offset positions in a future or forward comprising a range of deliverable instruments and the corresponding underlying where there is a readily identifiable underlying security that is most profitable for the ADI with a short position to deliver. The price of this security, sometimes called the 'cheapest‑to‑deliver', and the price of the future or forward contract must move in close alignment.

     6.          An ADI must not offset between positions in different currencies. It must treat separate legs of cross-currency swaps or forward foreign exchange deals as notional positions in the relevant instruments and include them in the appropriate calculation for each currency.

     7.          An ADI may fully offset opposite positions within and across product groups, including (if using the delta-plus method for options)[19] the delta-equivalent value of options (including the delta-equivalent value of legs arising out of the treatment of caps and floors as