Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p53
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 146103–148965

of this Attachment but there is a currency or maturity mismatch[50] between the credit protection and the underlying asset; or

        3.           the position is captured in paragraph 19 of this Attachment but there is an asset mismatch between the cash position and the credit derivative. However, the underlying asset is included in the (deliverable) obligations in the credit derivative documentation.

    In each of these situations, rather than adding the specific risk capital requirements for each side of the transaction, an ADI may apply only the higher of the two capital requirements.

     1.          If an instrument does not comply with paragraphs 18, 19 or 20 of this Attachment, the ADI must assess a specific risk capital charge against both sides of the position.

    [1]  A reference obligation will typically also be a deliverable obligation unless otherwise excluded.
    [2]  Attachment D also contains certain requirements for ADIs transacting in credit derivatives irrespective of the method they use for calculating its traded market risk, foreign exchange and commodities capital requirement capital requirement.
    [3] A security which is the subject of a repurchase or securities lending agreement will be treated as if it were still owned by the lender of the security, i.e. it will be treated in the same manner as other security's positions.
    [4]  These external rating grades refer to long-term ratings issued by external credit assessment institutions within the meaning of APS 112 for the purpose of risk-weighting claims on rated counterparties and exposures.
    [5] Refer to APS 112 for acceptable collateral and guarantee arrangements.
    [6]  Refer to APS 112.
    [7] Only where the ADI is the first endorser.
    [8]  This includes banks in non-OECD countries of the Asia-Pacific areas that are accorded the same credit risk weight as OECD banks under APS 112.
    [9]  Instruments that are regarded as capital of the issuing institution should be assessed on the basis of the rating of the issue rather than the issuer.
    [10]  Australia Clearing House Pty Ltd, ASX Limited, and the European Economic Community's Capital Adequacy Directive are deemed to be equivalent regimes as are the regulators of investment firms from the following countries: Canada, Hong Kong, Japan, Switzerland and the USA. An ADI may apply to APRA to have other countries or other regulators added to this list.
    [11]  Equivalent means the debt security has a one-year probability of default (PD) equal to or less than the one year PD implied by the long-run average one-year PD of a security with credit rating grade (refer to APS 112) of three or better.
    [12]  Where the ADI has guaranteed or accepted the instrument, capital must also be held against the credit risk of the issuer (refer to APS 112).
    [13]  Refer