Reporting Standard ARS 226.0
Margining and risk mitigation for non-centrally cleared derivatives
Objectives of this Reporting Standard This Reporting Standard requires an authorised deposit-taking institution to submit information to APRA relating to margining exposures for non-centrally cleared derivatives. It includes Reporting Form ARF 226.0 Margining and risk mitigation for non-centrally cleared derivatives and associated instructions and should be read in conjunction with Prudential Standard CPS 226 Margining and risk mitigation for non-centrally cleared derivatives. |
- This Reporting Standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001.
2. Information collected in Reporting Form ARF 226.0 Margining and risk mitigation for non-centrally cleared derivatives is used by APRA for the purpose of prudential supervision, including assessing compliance with Prudential Standard CPS 226 Margining and risk mitigation for non-centrally cleared derivatives (CPS 226). It may also be used by the Reserve Bank of Australia (RBA) and the Australian Bureau of Statistics (ABS).
3. This Reporting Standard applies to all authorised deposit-taking institutions (ADIs) other than providers of purchased payment facilities and Restricted ADIs. This Reporting Standard also applies to a non-operating holding company (NOHC) of an ADI that meets the requirements of paragraph 6.
4. This Reporting Standard applies for reporting periods ending on or after 30 September 2023.
5. An ADI to which this Reporting Standard applies must submit to APRA the information required by this Reporting Standard designated for an ADI at Level 1, as set out in paragraph 7, 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 submit to APRA the information required by this Reporting Standard designated for an ADI at Level 2, as set out in paragraph 7, 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 this Reporting Standard designated for an ADI at Level 2, as set out in paragraph 7, for each reporting period. In doing so, the immediate parent NOHC must comply with this Reporting Standard (other than paragraph 5) as if it were the relevant ADI.
7. An ADI must complete a separate reporting form for each reporting consolidation level specified for the class of ADI in the table below.
Reporting form | Class of ADI to which reporting form applies | Reporting consolidation |
226 Margining and risk mitigation for non-centrally cleared derivatives | Locally incorporated ADI (other than a provider of purchased payment facilities or a Restricted ADI) | Level 2 or, where not applicable, Level 1 |
8. 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.
9. Subject to paragraphs 10 and 11, an ADI to which this Reporting Standard applies must provide the information required by this Reporting Standard within 35 calendar days after the end of each quarter based on the ADI’s financial year (within the meaning of the Corporations Act 2001).
10. APRA may, by notice in writing, vary 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 RBA or the ABS.
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.
Note: For the avoidance of doubt, if the due date for a particular reporting period falls on a day other than a usual business day, an ADI is nonetheless required to submit the information required no later than the due date.
12. All information submitted by an ADI under this Reporting Standard must be the product of processes and controls that have been reviewed and tested by the external auditor of the ADI. Guidance Statement 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 submitted by an ADI under this Reporting Standard must be subject to systems, processes and controls developed by the ADI for the internal review and authorisation of that information. These systems, processes and controls must assure the completeness and reliability of the information submitted.
14. When an officer or agent of an ADI provides the information required by this Reporting Standard using an electronic format, the officer or agent must digitally sign the relevant information using a digital certificate acceptable to APRA.
Variations
15. APRA may, by written notice to the ADI, vary the reporting requirements of this Reporting Standard in relation to that ADI.
16. 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.
17. In this Reporting Standard the following definitions are applicable:
ADI means an authorised deposit-taking institution within the meaning of the Banking Act.
ADI reporting category has the meaning given in Reporting Standard ARS 701.0 ABS/RBA Definitions for the EFS Collection.
APRA means the Australian Prudential Regulation Authority established under the Australian Prudential Regulation Authority Act 1998.
APS 001 means Prudential Standard APS 001 Definitions.
Authorised NOHC has the meaning given in the Banking Act.
Banking Act means the Banking Act 1959.
Branch of a foreign bank means a foreign ADI as defined in the Banking Act.
Business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays.
Central counterparty (CCP) means a clearing house that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer. A CCP becomes counterparty to trades with market participants through novation, an open offer system, or another legally binding arrangement. For the purposes of the capital framework, a CCP is a financial institution.
Credit conversion factor (CCF) means the percentage value used to convert an off-balance sheet exposure into an on-balance sheet equivalent (i.e. the credit equivalent amount). CCFs are generally pre-defined in the form and correspond to the CCFs detailed in Attachment E of Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk (APS 180) for market-related off-balance sheet exposures. Where CCFs have not been pre-defined in the form, the ADI does not need to report a CCF as more than one CCF may have been used in relation to that exposure type (see the section below for column 5 Credit equivalent amount).
Credit equivalent amount (CEA) means the on-balance sheet equivalent of an off-balance sheet exposure. These include all market-related transactions held in the banking and trading books that give rise to off-balance sheet credit risk and are eligible for the current exposure method. Refer to Attachment E of APS 180 for details of how to calculate CEAs for various types of transactions under the current exposure method.
Credit rating grade has the meaning given in APS 001.
Current exposure means, for each type of market-related off-balance sheet exposure, the sum of the positive mark-to-market value (or replacement cost) of each individual contract within each classification.
Derivative has the meaning given in CPS 226.
Due date means the last day of the 35 calendar days provided for in paragraph 9 or, if applicable, the relevant due date under paragraph 10 or the date on a notice of extension given under paragraph 11.
Eligible bilateral netting agreement has the meaning given in paragraph 9 of Attachment H of Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112).
Exchange traded derivative means a derivative that is transacted directly through an organised, licensed and regulated exchange.
External Credit Assessment Institution (ECAI) has the meaning given in APS 001.
Fair value means the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s-length transaction. The fair value should be able to be determined through observation of similar transactions, quoted market prices, independent valuations or if there is no readily observable market, through the ability to liquidate the investment or through assessing the net present value of future cash flows.
Immediate parent NOHC means an authorised NOHC, or a subsidiary of an authorised NOHC, that is an immediate parent NOHC.
IRB ADI means an ADI with approval from APRA to use an internal ratings-based (IRB) approach to credit risk.
Level 1 has the meaning given in APS 001.
Level 2 has the meaning given in APS 001.
Locally incorporated means incorporated in Australia or in a State or Territory of Australia, by or under a Commonwealth, State or Territory law.
Long settlement transaction means a transaction where a counterparty undertakes to receive or deliver a security, a commodity, or a foreign exchange amount against cash, other financial instruments, or commodities at a contractually specified settlement or delivery date that is more than the lesser of (i) the market standard for the particular instrument, and (ii) five business days after the date on which the parties enter into the transaction.
Netting means the process under a netting agreement of combining all relevant outstanding transactions between two counterparties and reducing them to a single net sum for a party to either pay or receive (refer to Attachment H of APS 112).
Notional principal amount means the face value or gross amount of a given off-balance sheet transaction and not the fair value. Absolute values should be reported.
Non-centrally cleared derivative has the meaning given in CPS 226.
Number of counterparties means the total number (count) of counterparties, each as a separate legal entity, with a non-zero notional principal amount in each credit rating grade.
Off-balance sheet exposures means exposures that need to be converted to a CEA before they can be risk-weighted. Prior to the adoption of International Financial Reporting Standards (IFRS) for reporting periods beginning on or after 1 January 2005, some items, e.g. derivatives for accounting purposes, were treated as off-balance sheet. After the adoption of IFRS some of these items for accounting purposes were brought on-balance sheet. For the purposes of this Reporting Standard, continue to report items that were off-balance sheet before the adoption of IFRS as off-balance sheet.
Over-the-counter (OTC) derivative transaction means a customised, privately negotiated, risk-shifting agreement, the value of which is derived from the value of an underlying asset.
Potential future exposure, for the purposes of ARF 180.1, means the amount calculated to reflect the potential for the credit exposure of a market-related contract to exceed the current credit exposure over time. This is calculated under either the adjusted current exposure method (detailed in Attachment E of APS 180) or the standardised approach to counterparty credit risk (detailed in Attachment D of APS 180). Generally, the potential future exposure amount is a derived field in ARF 180.1. In some cases, however, the amount must be entered by the ADI. Under the current exposure method, the potential future exposure amount for some off-balance sheet exposure types may consist of several discrete exposures, each potentially attracting different CCFs. The ADI must, by reference to Attachment E of APS 180, determine the appropriate CCF(s) to be applied to the exposure(s) to calculate the potential future exposure amount for that off-balance sheet exposure type and report the total as a single potential future exposure amount in ARF 180.1.
Provider of purchased payment facilities means an ADI that is subject to a condition on its authority under section 9 of the Banking Act confining the banking business that the ADI is authorised to carry on to providing purchased payment facilities.
Qualifying CCP (QCCP) means an entity that is licensed to operate as a CCP (including a licence granted by way of confirming an exemption), and is permitted by the CCP’s regulator/supervisor to operate as such with respect to the products offered. The entity must be based and prudentially supervised in a jurisdiction where the relevant regulator/overseer has established, and publicly indicated that it applies to the CCP on an ongoing basis, domestic rules and regulations that are consistent with the Committee on Payment and Settlement Systems and International Organization of Securities Commissions (CPSS-IOSCO) Principles for Financial Market Infrastructures. In order for a CCP to be a QCCP, it must also calculate or make available the necessary data to allow for the calculation of an ADI’s default fund capital charge.
Reporting period means a period mentioned in paragraph 9 or, if applicable, as varied under paragraph 10 or 11.
Restricted ADI means an ADI that holds a Restricted ADI licence.
Restricted ADI licence means authorisation under section 9 of the Banking Act to conduct banking business for a limited period with specific requirements and restrictions.
Securities financing transactions (SFTs) means transactions such as repurchase agreements, reverse repurchase agreements, and securities lending and borrowing transactions where the value of the transactions depends on the market valuation of securities and the transactions are typically subject to margin agreements.
Standardised ADI means an ADI that does not have approval from APRA to use an IRB approach to credit risk.
Subsidiary has the meaning given in the Corporations Act 2001.
Trade exposure means an exposure a clearing member or a client of a clearing member has to a CCP reflecting a measure of the current mark-to-market value (replacement cost) and the potential future exposure arising from OTC derivative transactions, exchange traded derivative transactions, SFTs and long settlement transactions. Trade exposure is calculated on a bilateral basis, and must include the initial margin posted by an ADI, as well as any variation margin due to the ADI from the CCP that has not yet been received.
18. Unless the contrary intention appears, a reference to an Act, Prudential Standard, Reporting Standard, Australian Accounting Standard or Auditing Standard is a reference to the instruments as in force from time to time.
