Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p18
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 51673–54638

(b); then

        4.           offset the weighted longs and shorts between zones using positions that have not already been offset under (b) and (c).

    The net amount remaining is the net position.

     1.          An ADI must then calculate the vertical disallowances for each time band as 10 per cent of the smaller of the offsetting positions determined according to paragraph 23(b) of this Attachment, whether long or short.

     2.          An ADI must then calculate the horizontal disallowances as the sum of:

        1.           40 per cent of the smaller of the offsetting weighted positions within zone 1 determined according to paragraph 23(c) of this Attachment;

        2.           30 per cent of the smaller of the offsetting weighted positions within zones 2 and 3 determined according to paragraph 23(d) of this Attachment; and

        3.           40 per cent of the smaller of the offsetting weighted positions between zones 1 and 2, and between zones 2 and 3 determined according to paragraph 23(d) of this Attachment.

     1.          An ADI must calculate the general market risk capital charge under the maturity method as the sum of the net position and the vertical and horizontal disallowances.

     2.          Under the duration method, an ADI must:

        1.           calculate the price sensitivity of each instrument in terms of a change in interest rates of between 0.6 and 1.0 percentage points depending on the modified duration of the instrument (refer to Table 6);

        2.           enter the resulting sensitivity measures into a duration-based ladder in the fifteen time bands set out in the second column of Table 6;

        3.           subject long and short positions in each time band to a five per cent vertical disallowance to capture basis risk; and

        4.           carry forward the net positions in each time band for horizontal offsetting subject to the disallowances (refer to Table 7).

     1.          An ADI must subject the gross positions in each time band for residual currencies to either the risk weightings in Table 6 if positions are reported using the maturity method, or the assumed changes in yield in Table 6, if positions are reported using the duration method, with no further offsets.

Interest rate derivatives

     1.          An ADI's measurement system must include all interest rate derivatives and off-balance sheet instruments in the trading book that react to changes in interest rates. Options must be treated in accordance with the methods outlined in paragraphs 77 to 95 of this Attachment.

     2.          An ADI must convert derivatives into positions in the relevant underlying to become subject to specific and general market risk charges. To determine the capital charge, the amounts reported must be the market value of the principal amount of the underlying or of the notional underlying.

     3.          An ADI must treat futures