Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p24
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 67591–70867

Where an ADI engages in a deliberate arbitrage strategy, in which a futures contract on a broadly-based index matches a basket of shares, the ADI may decompose the index position into notional positions in each of the constituent stocks and include these notional positions and the disaggregated physical basket in the country portfolio, netting the physical positions against the index-equivalent positions in each stock. The ADI may only apply the capital charge set out in paragraph 54 of this Attachment if:

        1.           the trade has been deliberately entered into and separately controlled; and

        2.           the composition of the basket of shares represents at least 90 per cent[24] of the index when broken down into its notional components, or a minimum correlation between the basket of shares and the index of 0.9 can be clearly established over a minimum period of one year. An ADI wishing to rely on the correlation based criteria will need to satisfy APRA of the accuracy of the method chosen.

    Where these conditions are not met, the ADI must use the approach in paragraph 55 of this Attachment to deal with the arbitrage.

     1.          If the values of the physical and futures positions are matched, an ADI must assess the capital charge as two per cent of the gross value of the positions on each side, giving a total of four per cent. The ADI must treat any excess value of the shares comprising the basket over the value of the futures contract, or excess value of the futures contract over the value of the basket, as an open long or short position and use the approach in paragraph 55 of this Attachment.

     2.          Where an arbitrage does not comply with paragraph 53 of this Attachment, the ADI must treat the index position using the approach in either paragraph 50 or 51 of this Attachment as appropriate. The ADI must then disaggregate the physical basket of shares into individual positions and include them in the country portfolio for calculation of the capital charge.

    Table 8: Market indices

Country    Index                                                        Country      Index
Australia  S&P/ASX 200                                                  Japan        Nikkei 225, Nikkei 300, TOPIX
Austria    ATX                                                          Korea        Kospi
Belgium    BEL20                                                        Netherlands  AEX
Canada     TSE 35, TSE 100, TSE 300                                     Singapore    Straits Times Index
European   Dow Jones Stoxx 50 Index, FTSE Eurotop 300, MSCI Euro Index  Spain        IBEX 35
France     CAC 40, SBF 250                                              Sweden       OMX
Germany    DAX                                                          Switzerland  SMI
Hong Kong  Hang Seng 33                                                 UK           FTSE 100, FTSE mid-250, FTSE All Share
Italy      MIB 30                                                       USA          S&P 500, Dow Jones Industrial Average, NASDAQ Composite, Russell 2000

Foreign exchange risk
     1.          The standard method also covers the risk of holding or taking positions in foreign currencies and gold.[25] Where, however, an