Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p17
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 48919–51949

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 bands (the 'horizontal disallowance'); and

        4.           a net charge for positions in options, where appropriate.

     1.          An ADI must use separate maturity ladders for positions in each currency, with capital charges calculated separately for each currency and then summed, with no offsetting between positions of different currencies. Where business in one or more currencies is insignificant (residual currencies), the ADI may construct a single maturity ladder for those currencies and record, within each appropriate time band, the net long or short position in each currency, rather than having to use separate maturity ladders for each currency. The ADI must sum the absolute value of the individual net positions within each time band, irrespective of whether they are long or short positions, to produce a gross position figure.

     2.          In the maturity method, long or short positions in debt securities and other sources of interest rate exposures, including derivative instruments, are entered into a maturity ladder comprising thirteen time bands (or 15 time bands in the case of low-coupon instruments) (refer to Table 6). An ADI must allocate fixed-rate instruments according to the residual term to maturity and floating-rate instruments according to the residual term to the next repricing date. Zero-coupon bonds and bonds with a coupon of less than three per cent must be entered according to the time bands set out in the second column of Table 6. An ADI may omit from the interest rate maturity framework opposite positions of the same amount in the same issue (but not different issues by the same issuer) and closely matched swaps, forwards, futures and forward rate agreements (FRAs) that comply with paragraphs 38 to 40 of this Attachment.

     3.          To calculate the general market risk capital charge using the maturity method, an ADI must:

        1.           weight the positions in each time band by the risk-weight corresponding to the position's time band (refer to Table 6); then

        2.           offset the weighted longs and shorts within each time band, where weighted positions arising from low-coupon instruments are combined with other weighted positions across corresponding time bands; then

        3.           offset the weighted longs and shorts within each zone (refer to Table 7), using only positions that have not been already been offset under (b); then

        4.           offset the weighted longs and shorts between zones using positions that have not already been offset under (b) and (c).

    The net amount remaining is the net position.

     1.          An ADI must then calculate the vertical disallowances