Document ID: chunk:federal_register_of_legislation:F2023L00288:reg:5:p24
Version: federal_register_of_legislation:F2023L00288
Segment Type: reg
Provision Reference: reg 5 (pt 24/27)
Character Range: 86055–88959

trading book in debt or other interest rate related securities must be included in the stress test calculations. Using the scenarios set out in Table 15, separate stress test results should be presented (in a separate row) for positions in each material currency.  Positions in immaterial currencies need not be included in the stress testing scenarios. Within each material currency, ADIs may net across all positions when applying the stress scenarios.  In applying these yield curve shifts, ADIs should use the same interpolation method used within their internal model to obtain intermediate points on the yield curve.

It should be noted that the stress tests are expressed in terms of proportional changes in interest rates. An example of the yield curves that would result from the two scenarios, given a hypothetical initial yield curve, is shown in the following table.

                                      Cash  90 days  180 days  1 year  3 years  5 years  10 years  15 years

Hypothetical initial yield curve      5.40  5.00     5.10      5.30    5.60     5.90     6.40      6.60
Yield curve scenario 1 (Yield x 1.2)  6.48  6.00     6.12      6.36    6.72     7.08     7.68      7.92
Yield curve scenario 2 (Yield x 0.8)  4.32  4.00     4.08      4.24    4.48     4.72     5.12      5.28

Table 16: Interest rate volatility scenarios

ADIs with interest rate options must complete this table.  Separate stress results should be reported for interest rate options in different material currencies. Within each currency, ADIs may net across all options. Positions in immaterial currencies need not be included in the stress testing scenarios.

Table 17: Equity scenarios

All equity positions within the trading book must be included in the stress test portfolio revaluations.  In assessing the change in portfolio value arising from the pre-specified scenarios, ADIs may net all positions within each national market (refer to paragraphs 42 and 43 of Attachment B to APS 116). A separate scenario matrix should be completed for each national market.

In column 3 (representing a negative change in volatility), only the entry corresponding to a zero per cent change in price needs to be completed. The changes in price in column 1 should be -50%, -25%, 0%, +10%, +20%.

Table 18: Exchange rate scenarios

All exchange rate sensitive positions (as specified in paragraph 58 of Attachment B to APS 116) must be included in the stress test portfolio revaluations. Positions in gold, however, should be excluded.

A separate scenario matrix should be completed for each material currency. For example, the USD scenario should include all spot and forward positions in USD (as specified in paragraphs 14(a) to (d) of Attachment A to APS 116), options on USD/AUD and options on USD against all non-AUD currencies. A decrease in price should be interpreted as a depreciation in the USD.