Document ID: chunk:federal_register_of_legislation:F2018L00363:body:0:p8
Version: federal_register_of_legislation:F2018L00363
Segment Type: other
Provision Reference: 
Character Range: 19637–22526

refers to the face value or gross amount of a given off-balance sheet transaction and not the fair value. Absolute values should be reported.  Netting, as defined in APS 112, should not be applied.

Fair value

The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm's-length transaction.  The fair value should be able to be determined through observation of similar transactions, quoted market prices, independent valuations or if there is no readily observable market, through the ability to liquidate the investment or through assessing the net present value of future cash flows.

Record the aggregate fair (or market) value of the derivative exposure/position by summing the absolute fair value of each exposure, for each of the items listed.

For the purposes of valuing derivative exposures, for this form, fair value should represent an estimate of the amount, which could be expected to be received from the disposal of the derivative instrument in an orderly market, ignoring transaction costs.  It is not necessarily related to the nominal value of the derivative.

Market value is defined for accounting purposes as a subset of fair value, where fair value means the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's-length transaction, and is determined as follows:

    (i)            the quoted market price in an active and liquid market (i.e. market value); or

    (ii)         when there is infrequent activity in a market, the market is not well established, small volumes are traded relative to the asset or liability to be valued, or a quoted market price is not available – an estimate of a price for the asset or liability in an active and liquid market.

Trading book

An ADI that wishes to operate a trading book must submit a trading book policy statement to APRA for approval that specifies those activities that belong in the trading book (refer to Prudential Standard APS 116 Capital Adequacy: Market Risk for details).

Banking book

The banking book covers all business not included in the trading book.

Specific instructions

Section A: Statement of Derivative Activity

The statement of derivative activity is collected for information purposes. The information in this section is not directly used for the calculation of an ADI's credit equivalent amounts for market-related off-balance sheet transactions as it does not allow for the contracts covered by eligible bilateral netting agreements (refer to APS 112 for the definition of eligible bilateral netting agreements).  The regulatory capital relating to the ADI's market-related off-balance sheet transactions is captured in Reporting Form ARF 112.2 Standardised Credit Risk – Off-balance Sheet Exposures or in the relevant