Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p1
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 1/35)
Character Range: 27946–30842

6                              10.0

18.         An ADI may include eligible CVA hedges in the calculation of the CVA risk capital charge as set out in paragraph 16(c) of this Attachment subject to the following conditions:
(a)          to qualify as an eligible CVA hedge, the hedge must be transacted with an external counterparty, used for the purposes of mitigating CVA risk, and managed as such;
(b)          the only CDS hedges that may qualify as eligible CVA hedges are single-name CDS (including sovereign CDS), single-name contingent CDS, other equivalent hedging instruments referencing the counterparty directly, and index CDS. A tranched or nth-to-default CDS may not be treated as an eligible CVA hedge; and
(c)          an instrument for which the associated payment depends on cross-default (such as a related entity hedged with a reference entity CDS and CDS triggers) may not be treated as an eligible CVA hedge.
19.         Other types of counterparty risk hedges must not be reflected within the calculation of the CVA risk capital charge, and these other hedges must be treated as any other instrument in the ADI's inventory for Regulatory Capital purposes. Eligible CVA hedges that are included in the CVA risk capital charge must not be included in the ADI's market risk capital charge calculation under APS 116.
20.         If a counterparty is also a constituent of an index on which a CDS is used for hedging counterparty credit risk, the notional amount attributable to that single name (as per its reference entity weight) may, with APRA's approval, be subtracted from the index CDS notional amount and treated as a single name eligible CVA hedge of the individual counterparty with maturity using the maturity of the index.

Attachment B — Counterparty credit risk requirements for centrally cleared transactions
     1. This Attachment applies to all transactions that are centrally cleared, including OTC derivative transactions, exchange-traded derivative transactions, SFTs and long settlement transactions. For the purposes of this Attachment, a long settlement transaction must be treated as an OTC derivative transaction.  Transactions that result in exposures arising from the settlement of cash transactions only (e.g. equities, fixed income, spot foreign exchange (FX) and spot commodities) are not subject to this treatment. [11]
2.             For transactions cleared through a QCCP, an ADI must apply the counterparty credit risk requirements for exposures to a QCCP and the ADI's clients in accordance with paragraphs 9 to 28 of this Attachment, and the risk management requirements in accordance with paragraphs 30 to 34 of this Attachment.
3.             Where a CCP does not meet the definition of a QCCP in paragraph 8(w) of this Prudential Standard, or where a CCP does not meet all of the requirements in paragraph 6 of Attachment C, the CCP is