Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p17
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 17/35)
Character Range: 68970–72656

18.         Aggregation of the add-on factors for basis and volatility hedging sets with those from other hedging sets within the same asset class must be performed according to the hedging set aggregation rule set out in paragraph 15 of this Attachment.
19.         No offsetting is permitted across different hedging sets. Partial or full offsetting may be permitted within a single hedging set.[31] Permitted offsetting varies based on the particular asset class as summarised in Table 2.[32]

Table 2: Definition of hedging sets and categories, and permitted offsetting within a single hedging set for each asset class
Asset class       Definition of hedging sets and categories                                                                            Permitted offsetting within a single hedging set
Interest rate     A separate hedging set must be established for all transactions that reference interest rates of the same currency.  Full offsetting is permitted in the same maturity category within each hedging set.
                  Each hedging set is further divided into three separate maturity categories.                                         Partial offsetting may be recognised across different maturity categories within each hedging set.
Foreign exchange  A separate hedging set must be established for each currency pair.                                                   Full offsetting is permitted within each hedging set.
                  No categories are defined within a hedging set.
Credit            All transactions form a single core hedging set.                                                                     Full offsetting is permitted within the same reference entity category within each hedging set.
                  The hedging set is further divided into separate categories for each reference entity, either single name or index.  Partial offsetting may be recognised across different reference entity categories within each hedging set.
Equity            All transactions form a single core hedging set.                                                                     Full offsetting is permitted within the same reference entity category within each hedging set.
                  The hedging set is further divided into separate categories for each reference entity, either single name or index.  Partial offsetting may be recognised across different reference entity categories within each hedging set.
Commodity         A separate hedging set must be established for each of four broad groups of commodities:                             Full offsetting is permitted in the same commodity type category within each hedging set.
                       * energy;[33]                                                                                                   Partial offsetting may be recognised across different commodity type categories within each hedging set.
                       * metals;[34]
                       * agricultural; and
                       * other commodities.
                  Each hedging set is further divided into separate ADI-defined categories based on commodity type.

Allocation of a transaction to one or more asset classes
20.         An ADI must treat transactions with multiple risk factors in a consistent manner. When a transaction is exposed to multiple risk factors referencing multiple asset classes (e.g. multi-asset or hybrid derivative transactions), an ADI must:
(a)          measure and record the sensitivities and volatilities of each risk factor of that transaction;
(b)          repeat the process at regular intervals or when substantial market movements take place;