Document ID: chunk:federal_register_of_legislation:F2022L01577:body:0:p10
Version: federal_register_of_legislation:F2022L01577
Segment Type: other
Provision Reference: 
Character Range: 24951–27803

the requirements in Attachments G, I and J of APS 112.[9]

On-balance sheet netting
7.             Where an ADI has legally enforceable netting arrangements in place for loans and deposits, an ADI must use net credit exposures subject to the requirements for on-balance sheet netting for loans and deposits in APS 112.

Exposure values for trading book positions
8.             An ADI must aggregate banking book and trading book exposures to determine its total exposure to an individual counterparty.
9.             The exposure value for non-derivative debt instruments and equity instruments is the accounting value of the exposure i.e. the market value.
10.         The exposure value for swaps, futures, forwards and credit derivatives is calculated by converting the instruments into positions in accordance with Attachment B of APS 116 such that these instruments are decomposed into their individual legs. An ADI is to recognise only those transaction legs for which exposures are not excluded under paragraph 18 of this Prudential Standard.
11.         For credit derivatives that represent sold protection, the exposure to the referenced name is the amount due in the case that the referenced name triggers the instrument less the absolute market value of the credit protection.[10] For credit-linked notes, the protection seller must consider positions in the bond of the note issuer as well as in the underlying credit referenced by the note.
12.         For the purposes of this Prudential Standard, the exposure value of an option is calculated as the change in the option value that would result from a default of the respective underlying instrument as follows:[11]
(a)          for a call, the exposure is the market value of the option. For a long call this is a positive value whereas for a short call this is a negative value; and
(b)          for a put, the exposure value is the option's strike price less the market value of the option. For a short put this is a positive value whereas for a long put this is a negative value.
    An ADI must aggregate the resulting option exposures to each underlying counterparty. If there is a negative net exposure after aggregation of all option exposures, the option exposure must be set to nil.
13.         An ADI's exposure to transactions (e.g. index positions, securitisations, hedge funds, investment funds) must be calculated according to the requirements for similar instruments in paragraphs 21 to 30 of this Attachment. This may result in the exposure value being assigned to a structured vehicle itself and treated as a distinct counterparty, to counterparties corresponding to the underlying assets or to an aggregated unknown exposure amount (which is treated as applying to a distinct counterparty to the ADI) when the ADI is unable to identify underlying assets.

Offsetting