Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2023

Reporting Standard ARS 116.0 Market Risk

Financial Sector (Collection of Data) Act 2001

I, Michael Murphy, delegate of APRA, under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (the Act) and subsection 33(3) of the Acts Interpretation Act 1901:

(a)   REVOKE Financial Sector (Collection of Data) (reporting standard) determination No. 10 of 2012, including Reporting Standard ARS 116.0 Market Risk made under that Determination; and

(b)   DETERMINE Reporting Standard ARS 116.0 Market Risk, in the form set out in the Schedule, which applies to the financial sector entities to the extent provided in paragraph 3 of the reporting standard.

Under section 15 of the Act, I DECLARE that the reporting standard shall begin to apply to those financial sector entities on 1 April 2023, and the revoked reporting standard shall cease to apply, on 1 April 2023.

This instrument commences on 1 April 2023.

Dated: 16 March 2023

Michael Murphy

General Manager – Chief Data Officer (Acting),

Technology and Data Division

Interpretation

In this Determination:

APRA means the Australian Prudential Regulation Authority.

financial sector entity has the meaning given by section 5 of the Act.

Schedule

Reporting Standard ARS 116.0 Market Risk comprises the document commencing on the following page.

Reporting Standard ARS 116.0

Market Risk

Authority

1. This Reporting Standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001. 

Purpose

2.        Information collected in the series of reporting forms ARF 116.0 Market Risk (ARF 116.0) is used by APRA for the purpose of prudential supervision including assessing compliance with Prudential Standard APS 116 Capital Adequacy: Market Risk (APS 116). It may also be used by the Reserve Bank of Australia and the Australian Bureau of Statistics.

Application and commencement

3.        This Reporting Standard applies to all authorised deposit-taking institutions (ADIs), with the exception of:

(a)          foreign ADIs; and

(b)          ADIs that:

(i)            do not conduct trading book activity and do not have any foreign exchange or commodity positions; and

(ii)         have included a statement to this effect in their description of their risk management systems, and that statement also outlines the arrangements in place to ensure that trading book activity does not take place.

This Reporting Standard may also apply to the non-operating holding company (NOHC) of an ADI (refer to paragraph 6).

4.        This Reporting Standard applies for reporting periods commencing on or after1 April 2023.

Information required

5.        An ADI to which this Reporting Standard applies must provide APRA with the information required by the version of ARF 116.0 designated for an ADI at Level 1 for each reporting period.

6.        If an ADI to which this Reporting Standard applies is part of a Level 2 group, the ADI must also provide APRA with the information required by the versions of ARF 116.0 designated for an ADI at Level 2 for each reporting period, unless the ADI is a subsidiary of an authorised NOHC. If the ADI is a subsidiary of an authorised NOHC, the ADI’s immediate parent NOHC must provide APRA with the information required by that form for each reporting period. In doing so, the immediate parent NOHC must comply with this Reporting Standard (other than paragraphs 5 and 12) as if it were the relevant ADI. 

Method of submission

7.        The information required by this Reporting Standard must be given to APRA:

(a)     in electronic format using an electronic method available on APRA’s website; or

(b)     by a method notified by APRA prior to submission.

Reporting periods and due dates

8.        Subject to paragraph 9, an ADI to which this Reporting Standard applies must provide the information required by this Reporting Standard in respect of each quarter based on the financial year (within the meaning of the Corporations Act 2001) of the ADI.

9.        APRA may, by notice in writing, change the reporting periods, or specified reporting periods, for a particular ADI, to require it to provide the information required by this Reporting Standard more frequently, or less frequently, having regard to:

(a)     the particular circumstances of the ADI;

(b)     the extent to which the information is required for the purposes of the prudential supervision of the ADI; and

(c)     the requirements of the Reserve Bank of Australia or the Australian Bureau of Statistics.

10.    The information required by this Reporting Standard must be provided to APRA within:

(a)     30 business days after the end of the reporting period to which the information relates, by an ADI that has APRA’s approval to use an internal ratings-based approach to credit risk and/or an advanced measurement approach to operational risk; or

(b)     20 business days after the end of the reporting period to which the information relates, by an ADI not covered by paragraph 10(a).

11.    APRA may grant an ADI an extension of a due date, in writing, in which case the new due date for the provision of the information will be the date on the notice of extension.

Quality control

12.    The information provided by an ADI under this Reporting Standard (except for the information required under paragraph 6) must be the product of processes and controls that have been reviewed and tested by the external auditor of the ADI. GS 012 Prudential Reporting Requirements for Auditors of Authorised Deposit-taking Institutions, issued by the Auditing and Assurance Standards Board, provides guidance on the scope and nature of the review and testing required from external auditors. This review and testing must be done on an annual basis or more frequently if necessary to enable the external auditor to form an opinion on the accuracy and reliability of the information.

13.    All information provided by an ADI under this Reporting Standard must be subject to processes and controls developed by the ADI for the internal review and authorisation of that information. It is the responsibility of the Board and senior management of the ADI to ensure that an appropriate set of policies and procedures for the authorisation of information submitted to APRA is in place.

Authorisation

14.    When an ADI submits information under this Reporting Standard, it will be necessary for an officer of the ADI to digitally sign, authorise and encrypt the relevant information. For this purpose, APRA’s certificate authority will issue ‘digital certificates’, for use with the software, to officers of the ADI who have authority from the ADI to transmit the information to APRA.

Transitional

15.    An ADI must report under the old reporting standard in respect of a transitional reporting period. For these purposes:

old reporting standard means the reporting standard revoked in the determination making this Reporting Standard; and

transitional reporting period means a reporting period under the old reporting standard:

(a)          which ended before the date of revocation of the old reporting standard; and

(b)          in relation to which the ADI was required, under the old reporting standard, to report by a date on or after the date of revocation of the old reporting standard.

Note: For the avoidance of doubt, if an ADI was required to report under an old reporting standard, and the reporting documents were due before the date of revocation of the old reporting standard, the ADI is still required to provide any overdue reporting documents in accordance with the old reporting standard.

Interpretation

16.    In this Reporting Standard:

ADI means an authorised deposit-taking institution within the meaning of the Banking Act 1959.

APRA means the Australian Prudential Regulation Authority established under the Australian Prudential Regulation Authority Act 1998.

authorised NOHC has the meaning given in the Banking Act 1959.

business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays.

due date means the relevant date under paragraph 10 or, if applicable, paragraph 11.

foreign ADI has the meaning given in the Banking Act 1959.

GS 012 means the auditing and assurance standard entitled Prudential Reporting Requirements for Auditors of Authorised Deposit-taking Institutions so made by the Auditing and Assurance Standards Board.

immediate parent NOHC means an authorised NOHC, or a subsidiary of an authorised NOHC, that is an immediate parent NOHC within the meaning of Prudential Standard APS 001 Definitions (APS 001).

Level 1 has the meaning in APS 001.

Level 2 has the meaning in APS 001.

reporting period means a period mentioned in paragraph 8 or, if applicable, paragraph 9.

subsidiary has the meaning given in the Corporations Act 2001.

17.     APRA may determine, in writing, that an individual ADI of one class of ADI is to be treated, for the purposes of this Reporting Standard, as though it was an ADI of another class of ADI.

Reporting Form ARF 116.0

Market Risk

Instruction Guide

This instruction guide is designed to assist in the completion of the series of Market Risk reporting forms. These forms measure an authorised deposit-taking institution’s (ADI’s) exposure to market risk arising from positions allocated to the trading book and all foreign exchange and commodity risks. In completing these forms, ADIs should refer to Prudential Standard APS 116 Capital Adequacy: Market Risk (APS 116) and Prudential Practice Guide APG 116 Market Risk (APG 116).

General directions and notes

Reporting entity

This form is to be completed at Level 1 and Level 2[1] by all ADIs, with the exception of:

(a)          foreign ADIs; and

(b)          ADIs that:

(i)            do not conduct trading book activity and do not have any foreign exchange or commodity positions; and

(ii)         have included a statement to this effect in their description of their risk management systems;  and that statement also outlines the arrangements in place to ensure that trading book activity does not take place.

If an ADI is a subsidiary of an authorised non-operating holding company (NOHC), the report at Level 2 is to be provided by the ADI’s immediate parent NOHC.[2]

Securitisation deconsolidation principle

Except as otherwise specified in these instructions, the following applies:

1. Where an ADI (or a member of its Level 2 consolidated group) participates in a securitisation that meets APRA’s operational requirements for regulatory capital relief under Prudential Standard APS 120  Securitisation (APS 120):

(a)          special purpose vehicles (SPVs) holding securitised assets may be treated as non-consolidated independent third parties for regulatory reporting purposes, irrespective of whether the SPVs (or their assets) are consolidated for accounting purposes;

(b)          the assets, liabilities, revenues and expenses of the relevant SPVs may be excluded from the ADI’s reported amounts throughout APRA’s regulatory reporting returns; and

(c)          the underlying assets (i.e. the pool) under such a securitisation may be excluded from the calculation of the ADI’s regulatory capital (refer to APS 120). However, the ADI must still hold regulatory capital for the securitisation exposures[3] that it retains or acquires and such exposures are to be reported in reporting form ARF 120.0 Standardised - Securitisation or the series of reporting forms ARF 120.1A to ARF 120.1C IRB - Securitisation (as appropriate). The risk-weighted assets relating to such securitisation exposures must also be reported in reporting form ARF 110.0 Capital Adequacy (ARF 110.0).

2.             Where an ADI (or a member of its Level 2 consolidated group) participates in a securitisation that does not meet APRA’s operational requirements for regulatory capital relief under APS 120, or the ADI elects to treat the securitised assets as on-balance sheet assets under Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk or Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk, such assets are to be reported as on-balance sheet assets throughout APRA’s regulatory reporting returns. In addition, these assets must also be reported as a part of the ADI’s total securitised assets within reporting form ARF 120.2 Securitisation – Supplementary Items.

Reporting period and timeframes for lodgement

These forms are to be completed as at the last day of the stated reporting period (i.e. the relevant quarter) and submitted to APRA:

(a)   within 30 business days after the end of the reporting period to which the information relates, by an ADI that has APRA’s approval to use an internal ratings-based approach to credit risk and/or an advanced measurement approach to operational risk;

(b)   within 20 business days after the end of the reporting period to which the information relates, by an ADI not covered by paragraph 1.

Unit of measurement

These forms should be completed in millions of Australian dollars (AUD) rounded to two decimal places, unless otherwise specified in this instruction guide.

Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates.

Basis of preparation

Capital charges for each relevant component of the traded market risk, foreign exchange and commodities capital requirement (TFC capital requirement) should be reported on these forms.  The total capital charge for each asset class, assessed using the standard method, is calculated by summing the various components. The total TFC capital requirement is calculated as the sum of the standard method charges for each asset class plus any charge reported under the internal model approach. 

For capital adequacy purposes, the capital charges must be multiplied by the constant factor of 12.5 to give a risk-weighted equivalent amount. The RWA equivalent amount of:

(a)                     the total of the standard method charges for each asset class should be reported under item 3.2 of section B of ARF 110.0; and

(b)                    the total of any charge under the internal model approach should be reported under item 3.3 of section B of ARF 110.0.

For commentary purposes, a box labelled Comments has been provided under each table.

Specific instructions

For reference purposes, an index of the tables referred to in this instruction guide is included in Attachment A.

1. STANDARD METHOD

Tables 1 & 2: Interest rate risk – General guidance

All positions forming part of the trading book in debt or other interest rate related securities, including interest rate derivatives, forward foreign exchange and quasi-debt securities that behave like debt (refer to paragraph 3 of Attachment B to APS 116), and securitisation and resecuritisation exposures (refer to APS 120) should be reported in Tables 1 and 2.

The total capital requirement for interest rate risk consists of charges for specific risk, general market risk, and interest rate-sensitive options risks.

Table 1: Specific risk

1. Non-securitisation exposures

Columns 1 & 2 - Short and long positions

The sum of the market values of individual positions, other than securitisation and resecuritisation positions in each issuer category, should be reported in columns 1 and 2 for short and long positions, respectively. In summing the market values within each category, if there is a matched position in the same security (i.e. both the issuer and issue are identical), the matching positions may be offset and omitted from the calculation of specific interest rate risk (refer to paragraphs 5, 35, 36 and 38 to 41 of Attachment B to APS 116).

Specific risk is to be assessed according to the classification of issuer of the security or underlying security in the case of derivative instruments. Issuers are classified into the categories of government, qualifying and other, as defined in paragraphs 6 to 10 of Attachment B to APS 116. Instruments with issuers in the government and qualifying categories should be further classified according to the residual term to final maturity of the security or underlying security.

Column 4 - Specific risk-weight

The specific risk-weights applicable to each category are detailed in Table 1 of Attachment B to APS 116.

Column 5 - Capital charge

Derived field calculated as column 3 Gross market value multiplied by column 4 Specific risk-weight.

2. Securitisation exposures

Refer to APS 120 for the definition of ‘securitisation exposure’.

In item 2.7, include securitisation exposures that do not meet the due diligence requirements in paragraph 11 in Attachment B to APS 116.

Do not include securitisation exposures that do not meet the due diligence requirements in items 2.1 to 2.6.

Columns 1 & 2 - Short and long positions

The sum of the market values of individual securitisation positions in each issuer category should be reported in columns 1 and 2 for short and long positions, respectively. In summing the market values within each category, if there is a matched position in the same security (i.e. both the issuer and issue are identical), the matching positions may be offset and omitted from the calculation of specific interest rate risk (refer to paragraphs 5, 35, 36 and 38 to 41 of Attachment B to APS 116).

Columns 3 & 4 - Capital charge (short and long positions)

Specific risk-weights applicable to securitisation exposures are set out in paragraphs 11, 12 and 13 and Tables 2, 3, 4 and 5 of Attachment B to APS 116. An ADI may apply different specific risk-weights in accordance with paragraphs 11 and 14 of Attachment B to APS 116. The capital charge is calculated as the position multiplied by the specific risk-weight. An ADI is permitted to limit the capital charge for an individual securitisation position to the maximum possible loss in accordance with the requirements of paragraph 19 of Attachment B to APS 116.

3. Resecuritisation exposures

Refer to APS 120 for the definition of ‘resecuritisation exposure’.

In item 3.7, include resecuritisation exposures that do not meet the due diligence requirements in paragraph 11 in Attachment B to APS 116.

Do not include resecuritisation exposures that do not meet the due diligence requirements in items 3.1 to 3.6.

Columns 1 & 2 - Short and long positions

The sum of the market values of individual resecuritisation positions in each issuer category should be reported in columns 1 and 2 for short and long positions, respectively. In summing the market values within each category, if there is a matched position in the same security (i.e. both the issuer and issue are identical), the matching positions may be offset and omitted from the calculation of specific interest rate risk (refer to paragraphs 5, 35, 36 and 38 to 41 of Attachment B to APS 116).

Columns 3 & 4 - Capital charge (short and long positions)

Specific risk-weights applicable to resecuritisation exposures are set out in paragraphs 11, 12 and 13 and Tables 2, 3, 4 and 5 of Attachment B to APS 116. An ADI may apply different specific risk-weights in accordance with paragraphs 11 and 14 of Attachment B to APS 116. The capital charge is calculated as the position multiplied by the specific risk-weight. An ADI is permitted to limit the capital charge for an individual securitisation position to the maximum possible loss in accordance with the requirements of paragraph 19 of Attachment B to APS 116.

4. Correlation trading portfolio

In item 4.7, include securitisation exposures that do not meet the due diligence requirements in paragraph 11 in Attachment B to APS 116.

Do not include securitisation exposures that do not meet the due diligence requirements in items 4.1 to 4.6.

Columns 1 & 2 - Short and long positions

The sum of the market values of individual positions in each issuer category should be reported in columns 1 and 2 for short and long positions, respectively.  In summing the market values within each category, if there is a matched position in the same security (i.e. both the issuer and issue are identical), the matching positions may be offset and omitted from the calculation of specific interest rate risk (refer to paragraphs 5, 35, 36 and 38 to 41 of Attachment B to APS 116).

Columns 3 & 4 - Capital charge (Short and long positions)

The specific risk capital charge (for both short and long positions) should be calculated based on the positions underlying the correlation trading portfolio. These may include securitisation exposures, nth-to-default credit derivatives and other positions used to hedge the correlation trading portfolio.

Specific risk-weights applicable to securitisation exposures are set out in paragraphs 11, 12 and 13 and Tables 2, 3, 4 and 5 of Attachment B to APS 116. An ADI may apply different specific risk-weights in accordance with paragraphs 11 and 14 of Attachment B to APS 116. The capital charge is calculated as the position multiplied by the specific risk-weight. An ADI is permitted to limit the capital charge for an individual securitisation position to the maximum possible loss in accordance with the requirements of paragraph 19 of Attachment B to APS 116.

Paragraph 17 of Attachment D to APS 116 details the capital treatment for nth-to-default credit derivatives. Any other positions used to hedge the correlation trading portfolio such as single name credit default swaps, credit indices or index tranches should be treated in a manner consistent with Attachment B and Attachment D to APS 116.

Column 5 - Capital charge

Derived field calculated as the maximum of the sum of column 3 Capital charge short position and the sum of column 4 Capital charge long position. Both of these are derived fields under item 4.10 of the table.

5. Total capital charge

The sum of the subtotals from the specific risk capital charge for non-securitisation exposures (item 1.14) and the correlation trading portfolio (item 4.11), plus the sum of:

(a)          the capital charges (long positions) for securitisation and resecuritisation exposures; and

(b)          the capital charges (short positions) for securitisation and resecuritisation exposures.

In accordance with paragraph 18 of Attachment B to APS 116 an ADI may until 31 December 2013 apply the following alternative calculation for the total capital charge:

The sum of the subtotals from the specific risk capital charge for non-securitisation exposures and the correlation trading portfolio, plus the maximum of:

(a)          the sum of the capital charges (long positions) for securitisation and resecuritisation exposures; and

(b)          the sum of the capital charges (short positions) for securitisation and resecuritisation exposures.

This charge will also be captured under item 1.1.1 of the Market risk summary table.

Table 2: General market risk

The data to be entered into Table 2 should be calculated according to the methodology detailed in paragraphs 20 to 41 of Attachment B to APS 116. These calculations should be performed and the results reported in Table 2 separately for each currency (without offsetting across currencies) in which material interest rate exposures are held, and in aggregate for all currencies in which interest rate exposures are not material.

APS 116 allows the choice between three methods for the calculation of general market risk (the maturity, duration and pre-processing methods).  The pre-processing method should only be used with APRA approval. For each currency, specify the method used in calculating the capital charge.  If more than one method is being used for a currency, report the calculations for each method on a different currency and method combination table. APS 116 allows the offsetting of positions between the duration and pre-processing methods.  ADIs performing such offsetting should report those positions (netted across the two methods) as pre-processing positions.

Columns 1 & 2 - Net long and short risk-weighted positions

The net long and net short risk-weighted positions for each time band should be reported according to the definitions of the bands in Table 6 of Attachment B to APS 116. Offsetting of positions is permitted in accordance with the requirements set out in paragraphs 38 to 41 of Attachment B to APS 116.

Column 3 - Total general market risk charge

The total general market risk charge is to be reported in the top line of column 3 for each currency and method combination. This is the sum of the net position and vertical and horizontal disallowances (calculated in accordance with paragraphs 20 to 41 of Attachment B to APS 116 and paragraphs 9 to 15 of APG 116).

Row - Total capital charge across all currencies

Derived field that sums up column 3 Total general market risk charge across all currencies and methods.  This charge will also be captured under item 1.1.2 of the Market risk summary table.

Table 3: Equity position risk

Positions are to be reported on a market‑by‑market basis, with calculations for each national market in which the ADI holds equities to be reported in a separate line.  Equities with listings in more than one market should be reported as positions in the market of their primary listing.

An ‘equity position’ is the net of short and long exposures to an individual company.  Specific risk is assessed as the sum of the net short or long exposure to individual companies irrespective of sign.

Column 1 - Positions attracting 8 % specific risk charge

The capital charge for specific risk is equal to 8 per cent of the gross position (i.e. the sum of the absolute value of all long equity positions and of all short equity positions). The gross value of all positions subject to a 8 per cent specific risk charge is to be reported in column 1 Positions attracting 8% specific risk charge.

Column 2 - Positions attracting 2% specific risk charge

Positions eligible for a 2 per cent specific risk capital charge are set out in paragraphs 50 to 55 of Attachment B to APS 116. The gross value of all positions subject to a 2 per cent specific risk charge is to be reported in column 2 Positions attracting 2% specific risk charge.

Column 3 - Total specific risk charge

Derived field that calculates the total specific risk charge for each market as the sum of 8 per cent of column 1and 2 per cent of column 2.

Column 4 - Net positions for general market risk

Report the net position in each market in column 4.  The net position in each equity market is calculated as the difference between the sum of the long positions and the sum of the short positions.  An overall net short position in a market should be indicated by a negative sign.

Column 5 - General market risk charge

Derived field that calculates the general market risk charge for each market as 8 per cent of the absolute value of the net position reported in column 4.

Column 6 - Total market risk charge

Derived field that calculates the total market risk charge for each market as the sum of the value of column 3 Total specific risk charge and the value of column 5 General market risk charge.

Row – Total capital charge across all countries

Derived field that sums up column 6 Total market risk charge across all markets.  This charge will also be captured under item 1.2.1 of the Market risk summary table.

Table 4: Foreign exchange risk

For each foreign currency in which the ADI has positions, report separately the AUD equivalent of the net open position in that currency.

The net open position in a particular currency is to be calculated in accordance with paragraphs 58 to 62 of Attachment B to APS 116. In calculating the net open position in each currency:

(a)          Include all transactions contracted as at the reporting date (i.e. both traded and non-traded positions) excluding any structural positions; and

(b)          Forward positions should be valued at current spot market exchange rates or using net present values.

1. Higher of aggregate net short/long open positions

Report the larger of the sum of the net long positions or the sum of the net short positions under this item.

2. Gold

Report the Australian dollar equivalent of the net open position in gold (including sign) under this item. This should be calculated in the same way as the net open positions in foreign currencies. Gold positions (in AUD equivalent amounts) may be segmented into a gold exposure and a US dollar (USD) exposure.

3. Capital charge

Derived field calculated as 8 per cent of the sum of the absolute values of item 1 Higher of aggregate net short/long open positions and item 2 Gold. This charge will also be captured under item 1.3.1 of the Market risk summary table.

Tables 5 & 6:  Commodities risk – General guidance

An ADI that uses the simplified approach to calculate the capital charge for commodities risk should complete Table 5. An ADI that uses the maturity ladder approach should complete Table 6.

All commodity positions, both on-balance sheet and off-balance sheet, which are affected by changes in commodity prices, should be included. This includes commodity forwards, commodity futures and commodity swaps. It also includes the delta-equivalent of commodity options (where the delta-plus method for options is used). Commodity derivatives should be converted into notional commodity positions according to the methods set out in paragraph 71 of Attachment B to APS 116.

Each commodity position should first be expressed in terms of the standard unit of measurement (e.g. barrels, kilos, grams) and then converted into Australian dollars using spot rates applying at the close of business on the reporting date (report the AUD figure).  If prior approval has been obtained from APRA, positions in foreign currency denominated commodities may be segmented into a commodity exposure and a foreign currency exposure.

The capital charge must be calculated separately for each commodity. Positions in different commodities may not, as a general rule, be offset (refer to paragraph 68 of Attachment B to APS 116 for details of permissible offsetting).

Table 5: Simplified method

Commodity

List each separate commodity in which the ADI has positions.

Columns 1 & 2 - Total short position & total long position

Report the total short position and the total long position in each commodity.

Column 3 - Capital charge

Derived field calculated for each commodity as 15 per cent of the net open position (the difference between the total short position and the total long position) plus 3 per cent of the gross position (the sum of the absolute values of the total short position and the total long position).

Row – Total capital charge across all commodities

Derived field that sums up column 3 Capital charge for individual commodities under the simplified method. This charge will also be captured under item 1.4.1 of the Market risk summary table.

Table 6: Maturity ladder method

Commodity

List each separate commodity in which the ADI has positions.

Columns 1.1 to 7.2

For each of the maturity bands, report the total long position and the total short position in each commodity. Physical stocks should be allocated to the first time band.  Positions in commodity derivatives should be assigned maturities in accordance with the treatment set out in paragraph 71 of Attachment B to APS 116.

Column 8 - Total capital charge

The capital charge for each commodity is to be calculated in accordance with paragraphs 72 to 75 of Attachment B to APS 116. A separate calculation must be performed for each commodity in which the ADI has a position. Report the total capital charge for each commodity in column 8.

Row – Total capital charge across all commodities

Derived field that sums up column 8 Total capital charge for individual commodities under the maturity ladder method. This charge will also be captured under item 1.4.2 of the Market risk summary table.

Table 7: Options - Simplified method

The simplified method may only be used by those ADIs that handle a limited range of purchased options. The method requires that options and any associated underlying positions be excluded from the asset class calculations detailed in Tables 1 to 6.  Instead a separate capital charge is calculated for each option portfolio.

The method for calculating the capital charge on an options position depends on whether the position is covered or naked. Option positions, which are partially covered, should be separated into a fully covered position and a naked position.

For both covered and naked positions, if positions do not fall within the trading book (for example, options on certain foreign exchange or commodities positions), ADIs may use the book value rather than the market value.

Columns 1, 2, 3 & 4

In the relevant column for each asset class (column 1 Interest rates, column 2 Equities, column 3 Foreign exchange, and column 4 Commodities), report the capital charge (refer to paragraph 79 of Attachment B to APS 116) for the following positions separately:

(a)          covered positions:

(i)            purchased put and long underlying (item 1.1); and

(ii)         purchased call and short underlying (item 1.2).

(b)          naked positions:

(i)            purchased put (item 1.3); and

(ii)         purchased call (item 1.4).

1.5.  Total capital charge

For columns 1 to 4, item 1.5 Total capital charge is a derived field that sums up the capital charges for all positions within each asset class (interest rates, equities, foreign exchange and commodities). The total charges for each asset class will also be captured under items 1.1.3, 1.2.2, 1.3.2 and 1.4.3, respectively, of the Market risk summary table.

Table 8: Options – Delta-plus method

An ADI that has approval from APRA to use the delta-plus method must complete Table 8.

ADIs using this method must first calculate the delta-equivalent position of each option. The delta-equivalent position is calculated by multiplying the market value of the underlying position by the absolute value of the delta calculated on that position.

Interest rates

For options with interest rate instruments as the underlying, the delta-equivalent position must be included in the positions and capital charge calculations entered in Table 1 and Table 2, in accordance with the instructions applicable to interest rate instruments.

Equities