CA-9.2.12
Past version: Effective from 01 Apr 2008 to 31 Mar 2011
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Full allowance will be recognised when the values of two legs (i.e. long and short) always move in the opposite direction and broadly to the same extent. This would be the case in the following situations:
(a) the two legs consist of completely identical instruments, or
(b) a long cash position is hedged by a total rate of return swap (or vice versa) and there is an exact match between the reference obligation and the underlying exposure (i.e. the cash position).66
In these cases, no specific risk capital requirement applies to both sides of the position.
65 Equivalent means the debt security has a one-year PD equal to or less than the one year PD implied by the long-run average one-year PD of a security rated investment grade or better by a qualifying rating agency.
66 The maturity of the swap itself may be different from that of the underlying exposure.
Apr 08