Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p34
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 34/35)
Character Range: 115505–118344

unmargined in the case that there is no exchange of variation margin, but collaterals other than VM such as in the form of independent collateral amount (ICA) may exist.
[29]  Derivative transactions with two floating legs that are denominated in different currencies (such as cross-currency swaps) must be treated as non-basis foreign exchange contracts.
[30]  Within this hedging set, long and short positions must be determined with respect to the basis.
[31]  A hedging set j within the asset class a represents one of the following three cases: (1) the core hedging set for the credit or equity class, or; (2) one of the hedging sets defined within the interest rate, foreign exchange or commodity class; or (3) one of the hedging sets defined for the basis or volatility transactions within asset class a.
[32]  Note, basis and volatility hedging sets follow the same hedging set aggregation rules for the relevant asset class.
[33]  Consists of both electricity and oil/gas.
[34]  Includes gold and other precious metals.
[35]  For guidance, an ADI may refer to examples of maturity dates, start dates and end dates for various transactions published by the Basel Committee on Banking Supervision.
[36]  These basis risks arise due to the impracticality and difficulty in specifying all relevant distinctions between commodity types (e.g. location and quality) within the same hedging set.
[37]  The groups used for determining the supervisory factors are slightly more granular than that used for defining the four hedging sets. In this case, the energy group is further divided into electricity and oil/gas.
[38]  For example, a principal resetting cross-currency swap or a settled-to-market derivative where, at the next reset date, the outstanding exposure is settled and the terms are reset so that the fair value of the contract is zero. A derivative contract with a mandatory break (where there is a legal contractual obligation on both parties to terminate the transaction by the mandatory break date) would also be eligible where the outstanding exposure is settled completely.
[39]  Whenever appropriate, forward (rather than spot) value of the underlying should be used in order to account for the risk-free rate as well as for possible cash flows prior to the option expiry, such as dividends.
[40]  The specification in paragraph 45 of this Attachment relates to interest rate options in the negative interest rate environment although a λ adjustment could also be applied in other cases where the supervisory delta adjustment cannot be computed appropriately.
[41]  The applicable supervisory factor must be multiplied by one-half for basis transactions and multiplied by a factor of five for volatility transactions, as specified in paragraph 17 of this Attachment.
[42]  These parameters include C, TH, MTA and NICA.