Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p21
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 21/35)
Character Range: 80414–83269

hedging set must be used for all credit derivative transactions. Within the core hedging set (refer to paragraph 19 of this Attachment), transactions must be further divided into different categories, with each category (k) containing all the transactions referencing the same entity k. Each single name entity or index is a separate category.
30.         The add-on factor for the single core hedging set for the credit asset class, AddOnCORECR, must be calculated as:
where:
pkCR = the supervisory correlation parameter for category k. An ADI must determine pkCR depending on whether k is a single name or index entity according to paragraph 49 of this Attachment; and
AddOnCORE,kCR = the add-on factor for category k, calculated according to paragraph 31 of this Attachment.
31.         The add-on factor for category k, AddOnCORE,kCR, must be calculated as:
where:
SFkCR = the supervisory factor for the rating class of category k (i.e. reference entity k) determined according to paragraph 49 of this Attachment; and
EffectiveNotionalCORE,kCR = the category-level (k) effective notional amount, calculated according to paragraph 32.
32.         The effective notional amount for category k, EffectiveNotionalCORE,kCR, must be calculated as the sum of all individual transaction level (i) quantities, according to:
where:
I(CORE,k) = the set of all transactions belonging to category k (i.e. reference entity k) within the core credit hedging set;
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
diCR = the adjusted notional amount for transaction i, calculated as:
where:
Ni is the notional amount of transaction i, converted to AUD, using the exchange rate on the calculation date. The parameter Ni is also subject to the requirements in paragraph 42 of this Attachment;
Si is the start date for transaction i; and
Ei is the end date for transaction i.
33.         For transaction i, where an ADI is the credit protection seller and the transaction is not in any netting or margin agreements, the ADI may cap the EAD to the amount of unpaid premiums. An ADI may also remove a transaction from its netting set where it is the credit protection seller and treat the transaction as an individual unmargined transaction in order to apply the cap.

Add-on for equity derivative transactions
34.         With the exception of separate hedging sets for basis and volatility transactions, a single core hedging set must be used for all equity derivative transactions. Within the core hedging set (refer to paragraph 19 of this Attachment), transactions must be further divided into categories, with each category (k) containing all the transactions referencing the same entity k.