CA-6.1 CA-6.1 Introduction
CA-6.1.1
This Section sets out the minimum capital requirements to cover the risk of holding or taking positions in commodities, including precious metals, but excluding gold (which is treated as a foreign currency according to the methodology explained in Chapter CA-5).
October 07CA-6.1.2
The commodities position risk and the capital charges are calculated with reference to the entire business of a bank (i.e. the banking and trading books combined).
October 07CA-6.1.3
The price risk in commodities is often more complex and volatile than that associated with currencies. Banks need to guard against the risk that arises when a liability (i.e. in a Parallel Salam transaction) position falls due before the asset position (i.e. a failure associated with or delay in the Salam contract). Owing to a shortage of liquidity in some markets, it might be difficult to close the Parallel Salam position and the bank might be 'squeezed by the market'. All these commodity market characteristics can result in price transparency and the effective management of risk.
October 07CA-6.1.4
All contracts (salam, musharaka or mudaraba) involving commodities as defined in Section CA-1.3 are subject to commodities risk and a capital charge as per the provisions outlined in Sections CA-6.2 to CA-6.4 should be computed.
October 07CA-6.1.5
Banks should adopt either the simplified approach to calculate their commodities risk and the resultant capital charges or the maturity ladder approach. Where banks have Salam and Parallel Salam contracts, the maturity ladder approach must be used.
October 07
