For the guidance of the banks, and without being exhaustive, the following list includes financial instruments in the trading book to which interest rate risk capital requirements will apply, irrespective of whether or not the instruments carry coupons:
(a) Bonds/loan stocks, debentures etc.;
(b) Non-convertible preference shares;
(c) Convertible securities such as preference shares and bonds, which are treated as debt instruments63;
(d) Mortgage backed securities and other securitised assets64;
(e) Certificates of Deposit;
(f) Treasury bills, local authority bills, banker's acceptances;
(g) Commercial paper;
(h) Euronotes, medium term notes, etc.;
(i) Floating rate notes, FRCDs etc.;
(j) Foreign exchange forward positions;
(k) Derivatives based on the above instruments and interest rates; and
(l) Interest rate exposure embedded in other financial instruments.
63See Section CA-10.1 for an explanation of the circumstances in which convertible securities should be treated as equity instruments. In other circumstances, they should be treated as debt instruments.
64Traded mortgage securities and mortgage derivative products possess unique characteristics because of the risk of pre-payment. It is possible that including such products within the standardised methodology as if they were similar to other securitised assets may not capture all the risks of holding positions in them. Banks which have traded mortgage securities and mortgage derivative products should discuss their proposed treatment with the CBB and obtain the CBB's prior written approval for it.
Amended: January 2012
Amended: April 2011
Apr 08
