Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p9
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 24512–27640

the identification and management of structural foreign exchange positions, to ensure that trading activities are not classified as structural, must also be included;

        2.            when and how the statement will be subject to regular review;

        3.           the extent to which legal restrictions or other operational requirements would impede the ADI's ability to effect an immediate liquidation or hedge of an exposure in the trading book; and

        4.           the extent to which the ADI is required to, and can, actively risk manage an exposure within its trading operations.

     1.          An ADI must immediately notify APRA of any material changes to its trading book policy statement.

     2.          The trading book policy statement must be incorporated in the ADI's risk management strategy required by CPS 220.

Measuring currency exposure
     1.          For the purpose of calculating its TFC capital requirement, an ADI must include in its measurement of exposure to each currency the following:

        1.           the net spot position, i.e. all asset items less all liability items, including accrued interest and other accrued income and accrued expenses, denominated in the currency in question;

        2.           the net forward position, i.e. all amounts to be received less all amounts to be paid under forward foreign exchange transactions, including currency futures, the principal on currency swaps not included in the spot position, and interest rate transactions such as futures and swaps denominated in a foreign currency;

        3.           guarantees (and similar instruments) that are certain to be called and likely to be irrecoverable; and

        4.           any other item representing a profit or loss in foreign currencies.

     1.          An ADI may also include in its measurement of currency exposure unearned but expected future interest and anticipated expenses if the amounts are certain and the ADI has hedged them. If an ADI includes future income/expenses, it must not select only expected future flows which reduce its position but must treat all on a consistent basis.

     2.          If an ADI has deliberately taken a position to either partially or totally hedge against the adverse effect of the exchange rate on its capital ratio, it may exclude the position from the measurement of exposure if:

        1.           the position is of a 'structural' (refer to paragraph 17 of this Attachment) or non-trading nature;

        2.           the 'structural' position does no more than protect the ADI's capital adequacy ratio;

        3.           the position cannot be manipulated for speculative or profit-driven purposes; and

        4.           any exclusion of the position is applied consistently, with the treatment of the hedge remaining the same for the life of the assets or other items.

     1.          A structural position includes:

        1.           any position arising from an instrument which qualifies as capital of the ADI under Prudential Standard APS 111 Capital Adequacy: Measurement