Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p23
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 23/35)
Character Range: 85658–88569

ADI must determine the commodity types such that all material basis risks[36] are captured. All uncaptured basis risks must be formally identified and regularly monitored. An ADI must also regularly review and update the categorisation of commodity types to reflect any significant changes in materiality. Where an ADI is unable to demonstrate to APRA's satisfaction that the basis risks are appropriately captured or monitored, APRA may require the ADI to use a more refined set of commodity types.
39.         The add-on for each of the four hedging sets j, AddOnjCOM, must be calculated as:
where:
pCOM = the supervisory correlation parameter for the commodity asset class; and
AddOnj,kCOM = the add-on factor for category k, calculated according to paragraph 40 of this Attachment.
40.         The add-on factor for category k within hedging set j, AddOnj,kCOM, must be calculated as:
where:
SFkCOM = the supervisory factor for the commodity group[37] for category (i.e. commodity type) k, calculated according to paragraph 49 of this Attachment; and
EffectiveNotionalj,kCOM = the effective notional amount for category k, calculated according to paragraph 41 of this Attachment.
41.         The effective notional amount for category k, denoted by EffectiveNotionalj,kCOM, must be calculated as the sum of all individual transaction level (i) quantities, according to:
where:
I(j,k) = the set of all transactions belonging to category k and hedging set j;
ẟi = the supervisory delta adjustment for transaction i, calculated according to paragraphs 43 to 47 of this Attachment;
MFi = the maturity factor for transaction i, calculated according to paragraph 48 of this Attachment; and
diCOM = the adjusted notional amount for transaction i, and must be calculated as the product of the current price of one unit of the commodity and the number of units referenced by transaction i except where transaction i is a commodity volatility transaction, in which case the adjusted notional amount for transaction i must be calculated as the product of the underlying volatility or variance referenced by transaction i and the contractual notional amount of transaction i. The adjusted notional amount is also subject to the requirements in paragraph 42 of this Attachment.

Transaction-level and supervisory parameters

Adjusted notional amount
42.         For each transaction i in all asset classes, the adjusted notional amount, dia, is derived from transaction i's trade notional amount. In many cases the trade notional amount is stated clearly and fixed until maturity. Where this is not the case, an ADI must apply the following rules to determine the trade notional amount:
(a)          where the notional is a formula of market values, an ADI must use the current market values to determine the trade notional amount;
(b)          for interest rate and credit derivative transactions with variable notional