Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p27
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
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Character Range: 76092–78765

on the contract's expiry date;

        2.           commodity swaps where one leg is a fixed price and the other leg is the current market price are incorporated as a series of positions equal to the notional amount of the contract, with one position corresponding to each payment on the swap and entered into the maturity ladder accordingly. The positions are long positions if the ADI is paying fixed and receiving floating, and short positions if the ADI is receiving fixed and paying floating;[30] and

        3.           commodity swaps where the legs are in different commodities are incorporated in the relevant maturity ladder. An ADI must not offset positions except as allowed by paragraph 68 of this Attachment.

Maturity ladder approach

     1.          An ADI using the maturity ladder approach must enter positions in each separate commodity (expressed in Australian dollar terms) into a maturity band (refer to Table 9 of this Attachment). Physical stocks must be allocated to the first time band. Separate maturity ladders must be used for each commodity except where netting is allowed by paragraph 68 of this Attachment.[31]

     2.          Within each time band, an ADI must apply a capital charge for spread risk of three per cent of the matched position (the smaller of the absolute value of the short and long positions within a time band).

     3.          An ADI may then carry forward residual net positions from nearer time bands to offset exposures in time bands that are further out. A capital charge equal to 0.6 per cent of the net position carried forward is to be applied each time a position is carried forward to the next time band. The capital charge for each matched amount created by carrying net positions forward is three per cent of that matched position.

     4.          An ADI must apply a capital charge of 15 per cent of the net open position in the commodity.

Simplified approach

     1.          An ADI using the simplified approach must apply a capital charge equal to 15 per cent of the overall net position, long or short, in each commodity, plus three per cent of the ADI's gross positions (the absolute value of all long positions plus the absolute value of all short positions regardless of maturity) in each commodity. In valuing the gross positions in commodity derivatives for this purpose, an ADI must use the current spot price.

    Table 9: Commodity time bands

Time band
1 month or less
Over 1 month and up to 3 months
Over 3 months and up to 6 months
Over 6 months and up to 12 months
Over 1 year and up to 2 years
Over 2 years and up to 3 years
Over 3 years

Treatment of options
     1.