CA-4 CA-4 Equity risk
CA-4.1 CA-4.1 Introduction
CA-4.1.1
This Chapter sets out the minimum capital requirements to cover the risk of holding or taking positions in equities in the bank's trading book.
October 07CA-4.1.2
The minimum capital requirement for equities is expressed in terms of two separately calculated charges, one relating to the 'specific risk' of holding a long position in an individual equity, and the other to the 'general market risk' of holding a long position in the market as a whole.
October 07CA-4.1.3
Where the bank has invested in shares/units of equity funds on Mudaraba financing and the bank has direct exposures in the equities which are traded in a recognised stock exchange, the shares/units are considered to be subject to equity risk. The equity position would be considered to be the net asset value as at the reporting date.
October 07CA-4.2 CA-4.2 Specific risk calculation
CA-4.2.1
Specific risk is defined as the bank's gross equity positions (i.e. the sum of all equity positions and is calculated for each country or equity market).
October 07CA-4.2.2
The capital charge for specific risk is 8%, unless the portfolio is both liquid and well-diversified, in which case the capital charge will be 4%. To qualify for the reduced 4% capital charge, the following requirements need to be met:
(a) The portfolio should be listed on a recognised stock exchange;(b) No individual equity position shall comprise more than 10% of the gross value of the country portfolio; and(c) The total value of the equity positions which individually comprise between 5% and 10% of the gross value of the country portfolio, shall not exceed 50% of the gross value of the country portfolio.October 07CA-4.2.3
To qualify for reduced 4% capital charge on equity funds, the bank should acquire prior written approval from the Central Bank.
October 07CA-4.3 CA-4.3 General risk calculation
CA-4.3.1
The general market risk is the difference between the sum of the long positions and the sum of the short positions (i.e. the overall net position) in each national equity market. In other words, to calculate the general market risk, the bank should sum the market value of its individual net positions for each national market, taking into account whether the positions are long or short.
October 07CA-4.3.2
The general market equity risk measure is 8% of the overall net position in each national market.
October 07
