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CA-5.5.8

Derivative positions may also generate counterparty risk exposure related to the counterparty in the trade, in addition to position risk requirements (specific and general) related to the underlying instrument, e.g. counterparty risk related to OTC trades through margin payments, fees payable or settlement exposures. The credit risk capital requirements will apply to such counterparty risk exposure.

Summary of treatment of equity derivatives

Instrument Specific risk charge* General market risk charge
Exchange-traded or OTC futures    
- Individual equity Yes Yes, as underlying
- Index Yes (see Section CA 5.5) Yes, as underlying
Options
•   Individual equity
•   Index
Yes

Yes 		Either (a) or (b) as below (Chapter CA-8 for a detailed description):
(a) Carve out together with the associated hedging positions, and use:
•   simplified approach; or
•   scenario analysis; or
•   internal models (Chapter CA-9).
(b) General market risk charge according to the delta-plus method (gamma and vega should receive separate capital charges).
* This is the specific risk charge relating to the issuer of the instrument. Under the credit risk rules, there remains a separate capital charge for the counterparty risk.
October 07