Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p2
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 4427–7969

- Specific risk......................................58
Credit-default swaps................................................58
Total-rate-of-return swaps...........................................58
Cash-funded credit linked notes......................................59
Nth-to-default basket credit derivatives................................59
Specific risk offsetting...............................................60

Authority
     1.              This Prudential Standard is made under section 11AF of the Banking Act 1959 (Banking Act).

Application
     1.              This Prudential Standard applies to all authorised deposit-taking institutions (ADIs), with the exception of:
             1.           foreign ADIs;
             2.           purchased payment facility providers; and
             3.           ADIs that:
            1.             do not conduct trading book activity and do not have any foreign exchange or commodity positions; and

            2.          have included a statement to this effect in the risk management strategy required by Prudential Standard CPS 220 Risk Management (CPS 220); and that statement also outlines the arrangements in place to ensure that trading book activity does not take place.

     1.              A reference to an ADI in this Prudential Standard shall be taken as a reference to:
         1.           an ADI on a Level 1 basis; and
         2.           a group of which an ADI is a member on a Level 2 basis.
     2.              If an ADI to which the Prudential Standard applies is:
             1.           the holding company for a group of bodies corporate, the ADI must ensure that the requirements in this Prudential Standard are met on a Level 2 basis, where applicable; or

             2.           a subsidiary of an authorised non-operating holding company (authorised NOHC), the authorised NOHC must ensure that the requirements in this Prudential Standard are met on a Level 2 basis, where applicable.

Interpretation
     1.              Terms that are defined in Prudential Standard CPS 001 Defined terms appear in bold the first time they are used in this Prudential Standard.
     2.              In this Prudential Standard, unless the contrary intention appears, a reference to an Act, Regulations, Prudential Standard or Reporting Standard is a reference to the Act, Regulations, Prudential Standard or Reporting Standard as in force from time to time.

Scope
     1.              This Prudential Standard applies to all:
         1.           trading book positions; and
         2.           banking and trading book positions that give rise to foreign exchange or commodity risks.
    For the purposes of this Prudential Standard, no distinction is drawn, in principle, between risks arising from physical positions and from positions in derivative instruments.
     1.              The treatment of counterparty credit risk capital requirements is excluded from this Prudential Standard and must be determined in accordance with Prudential Standards APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112) or APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk (APS 113), as appropriate.

Definitions
     1.              The following definitions are used in this Prudential Standard:
        1.           credit-event payment - the amount that is payable by the credit protection provider to the credit protection buyer under the terms of the credit derivative contract following the occurrence of a