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  • CA-9.8 CA-9.8 Netting of Derivative Positions

    • Permissible Offsetting of Fully Matched Positions for Both Specific and General Market Risk

      • CA-9.8.1

        Banks may exclude from the interest rate risk calculation, altogether, the long and short positions (both actual and notional) in identical instruments with exactly the same issuer, coupon, currency and maturity. A matched position in a future or a forward and its corresponding underlying may also be fully offset, albeit the leg representing the time to expiry of the future is included in the calculation.

        Apr 08

      • CA-9.8.2

        When the future or the forward comprises a range of deliverable instruments, offsetting of positions in the futures or forward contract and its underlying is only permitted in cases where there is a readily identifiable underlying security which is most profitable for the trader with a short position to deliver. The price of this security, sometimes called the "cheapest-to-deliver", and the price of the future or forward contract should, in such cases, move in close alignment. No offsetting will be allowed between positions in different currencies. The separate legs of cross-currency swaps or forward foreign exchange contracts are treated as notional positions in the relevant instruments and included in the appropriate calculation for each currency.

        Apr 08

    • Permissible Offsetting of Closely Matched Positions for General Market Risk Only

      • CA-9.8.3

        For the purpose of calculation of the general market risk, in addition to the permissible offsetting of fully matched positions as described in Paragraph CA-9.8.1 above, opposite positions giving rise to interest rate exposure can be offset if they relate to the same underlying instruments, are of the same nominal value and are denominated in the same currency and, in addition, fulfill the following conditions:

        (a) For futures:

        Offsetting positions in the notional or underlying instruments to which the futures contract relates should be for identical products and mature within seven days of each other.
        (b) For swaps and FRAs:

        The reference rate (for floating rate positions) must be identical and the coupons must be within 15 basis points of each other.
        (c) For swaps, FRAs and forwards:

        The next interest fixing date or, for fixed coupon positions or forwards, the residual maturity must correspond within the following limits:
        •   Less than one month:
        		same day;
        •   Between one month and one year:
        		within 7 days;
        •   Over one year:
        		within 30 days.
        Amended: January 2012
        Amended: April 2011
        Apr 08