Banks Act, 1990 (Act No. 94 of 1990)RegulationsRegulations relating to BanksChapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof23. Credit risk: monthly returnDirectives and interpretations for completion of monthly return concerning credit risk (Form BA 200)Subregulation (18) Calculation of counterparty credit exposure or EAD in terms of the standardised approachSubregulation (18)(b) Further matters relating to the size and sign of an exposure amount or EAD |
| (b) | Further matters relating to the size and sign of an exposure amount or EAD |
In respect of any bank that adopted the standardised method for the measurement of the bank's exposure to counterparty credit risk, the size of a risk position arising from—
| (i) | any instrument other than a debt instrument, which risk position relate to a transaction with a linear risk profile, shall be the effective notional value, that is, the relevant market price multiplied by the relevant quantity, of the relevant underlying financial instrument, which instrument may include a commodity, converted to the bank's domestic currency; |
| (ii) | a debt instrument, and the payment legs of all transactions, shall be the effective notional value of the outstanding gross payments, including the notional amount, converted to the bank's domestic currency, multiplied by the modified duration of the relevant debt instrument or payment leg; |
| (iii) | a credit-default swap, shall be the notional value of the relevant reference debt instrument multiplied by the remaining maturity of the said credit-default swap; |
| (iv) | an OTC derivative instrument with a non-linear risk profile, including options and swaptions, shall be the delta equivalent effective notional value of the relevant financial instrument underlying the transaction provided that the underlying financial instrument is an instrument other than a debt instrument; |
| (v) | an OTC derivative instrument with a non-linear risk profile, including options and swaptions, in respect of which instrument the underlying is a debt instrument or payment leg, shall be the delta equivalent effective notional value of the relevant financial instrument or payment leg multiplied by the modified duration of the relevant debt instrument or payment leg, |
provided that the reporting bank may use the formulae specified below in order to determine the size and sign of a specific risk position.
| (A) | In the case of all instruments other than debt instruments, through the application of the formula specified below: |
The effective notional value or delta equivalent notional value shall be equal to—
where
| Pref | is the relevant price of the underlying instrument, expressed in the reference currency |
| v | is the relevant value of the financial instrument, that is, in the case of an option contract, the option price, and in the case of a transaction with a linear risk profile, the value of the underlying instrument itself |
| p | is the price of the underlying instrument, expressed in the same currency as "v" |
| (B) | In the case of all debt instruments, and the payment legs of all transactions, through the application of the formula specified below: |
Effective notional value multiplied by the modified duration, or
Delta equivalent in notional value multiplied by the modified duration
where:
| v | is the relevant value of the financial instrument, that is, in the case of an option contract, the option price, and in the case of a transaction with a linear risk profile, the value of the underlying instrument itself or of the relevant payment leg |
Provided that when "v" is denominated in a currency other than the reference currency, the bank shall convert the derivative into the reference currency by multiplying the relevant amount with the relevant exchange rate
| r | is the relevant interest level |