Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p50
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 138278–141088

a position in the reference entity with maturity equal to the term to maturity of the credit derivative.

Credit-default swaps
     1.              If an ADI is a protection buyer in a credit-default swap, it must enter into the maturity ladder a short position in a notional debt instrument, where regular interest or fee cash flows are to be paid, to reflect the general market risk associated with those cash flows. The ADI must also calculate a specific risk capital charge on a short position in the reference entity.

     2.          If an ADI is a protection seller in a credit-default swap, it must enter into the maturity ladder a long position in a notional debt instrument, where regular interest or fee cash flows are to be received, to reflect the general market risk associated with those cash flows. The ADI must also calculate a specific risk capital charge on the long position in the reference entity.

Total-rate-of-return swaps
     1.          If an ADI is a protection buyer in a total-rate-of-return swap, it must enter into the maturity ladder a position in a notional debt instrument, where regular interest or fee cash flows are to be exchanged, to reflect the general market risk associated with those cash flows. General market risk and specific risk capital charges must also be calculated on the short position in the reference obligation.

     2.          If an ADI is a protection seller in a total-rate-of-return swap, it must enter into the maturity ladder a position in a notional debt instrument, where regular interest or fee cash flows are to be exchanged, to reflect the general market risk associated with those cash flows. General market risk and specific risk capital charges must also be calculated on the long position in the reference obligation.

Cash-funded credit‑linked notes
     1.          If an ADI is a protection buyer in a credit‑linked note, it must enter into the maturity ladder a short position in the underlying interest rate instrument for general market risk purposes. The ADI must also calculate a specific risk capital charge on the short position in the reference entity.

     2.          If an ADI is a protection seller in a credit‑linked note, it must enter into the maturity ladder a long position in the underlying interest rate instrument for general market risk purposes. The ADI must calculate a specific risk capital charge on the long position in the reference entity and the long position in the underlying interest rate instrument (i.e. the long position in the protection buyer).

Nth-to-default basket credit derivatives
     1.          If an ADI is a protection buyer in a first- or second-to‑default basket, it must enter into the maturity ladder a short position in a notional debt instrument, where regular interest