Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p24
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 24/35)
Character Range: 88299–91067

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 amounts specified by the contract such as amortising and accreting swaps, an ADI must use the time-weighted average notional over the remaining life of the swap as the trade notional amount;
(c)          for a leveraged swap, the transaction must be converted to the notional of the equivalent unleveraged swap; that is, where all rates in a swap are multiplied by a factor, the stated notional must be multiplied by the factor on the interest rates;
(d)          for a derivative contract with multiple exchanges of principal, the notional is multiplied by the number of exchanges of principal in the derivative contract; and
(e)          for a derivative contract that is structured such that on specified dates any outstanding exposure is settled and the terms are reset so that the fair value of the contract is zero, the remaining maturity (Mi) equals the time until the next reset date.[38]

Supervisory delta adjustment and treatment of options
43.         For each transaction (other than options or collateralised debt obligation (CDO) tranches, refer to paragraphs 44 to 47 of this Attachment), the supervisory delta adjustment, ẟi, must be assigned based on whether transaction i is long or short in either: (i) the risk factor if i is exposed to a single risk factor, or (ii) the primary risk factor if i is exposed to multiple risk factors:
(a)          Transaction i is long in the risk factor if the market value of i increases when the risk factor increases. Where transaction i is long in the risk factor, the supervisory delta adjustment ẟi must be set to the value of 1.
(b)          Transaction i is short in the risk factor if the market value of i decreases when the risk factor increases. Where transaction i is short in the risk factor, the supervisory delta adjustment ẟi must be set to the value of -1.
44.         For options in all asset classes (with the exception of those in paragraph 45 of this Attachment), the supervisory delta adjustment ẟi must be calculated according to the formula in Table 4 and the requirements in paragraph 47 of this Attachment.
Table 4: Formula for supervisory delta adjustment
               Bought  Sold
Call options
Put options

where:
ϕ(⸱) represents the standard normal cumulative distribution function;
Ti = the time interval between the calculation date (today) and the latest contractual exercise date as referenced by transaction i, measured in years;
Pi = the underlying price[39] of option i;
Ki = the strike price of option