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

    • CA-9.8.1

      Conventional bank licensees 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.

      January 2015

    • 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 must, in such cases, move in close alignment. No offsetting is 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.

      January 2015