Regulations > Regulations relating to Banks > Chapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof > 28. Market risk > Directives and interpretations for completion of monthly return concerning market risk (Form BA 320) > Subregulation (7) Method 1: standardised approach > Subregulation (7)(b) Matters relating to debt securities and other interest rate related instruments > Subregulation (7)(b)(iii) Matters relating to general risk

(iii)

Matters relating to general risk

(A)	A bank that adopted the standardised approach for the measurement of the bank's exposure to market risk—

(i)	may in order to calculate the bank's general risk requirement, at the discretion of the bank, apply either the maturity method prescribed in item (B) below or duration method prescribed in item (C) below;

(ii)

shall apply a separate maturity ladder in respect of each relevant currency, provided that subject to the approval of and such conditions as may be specified in writing by the Registrar the reporting bank may apply a single maturity ladder in respect of currencies in which the bank's business is insignificant in which case the reporting bank shall within each relevant time band—

(aa)	assign the relevant net long or short position in respect of each relevant currency;

(bb)	in order to calculate the bank's relevant gross position, irrespective whether or not a net position is long or short, aggregate the relevant net long positions and relevant net short positions;

(iii)

shall in respect of each relevant currency separately calculate the bank's relevant required amount of capital and reserve funds;

(iv)

shall, unless specifically otherwise provided in this regulation 28, base its calculation of the required amount of capital and reserve funds on the absolute amount of all relevant calculated positions, that is, unless specifically otherwise provided the reporting bank shall not apply offsetting between calculated positions or requirements of opposite sign, provided that in respect of any debt instrument with a high yield to redemption the Registrar may disallow offsetting of the relevant position against other relevant positions even when provision is otherwise made in terms of these Regulations for the bank to offset the said positions;

(v)	shall in the case of a credit-default swap include any relevant periodic premium or interest payment due as a notional position in a government bond with the relevant fixed or floating rate;

(vi)	shall in the case of a total return swap contract include the relevant interest rate legs of the contract as a notional short or long position, as the case may be;

(vii)

shall in the case of a credit-linked note in terms of which the bank acts as a protection provider include in its measurement system the relevant coupon or interest rate exposure of the said note;

(viii)

shall in accordance with the relevant requirements specified in items (B) or (C) below calculate and maintain a capital requirement in respect of general risk equal to the sum of the specified requirements relating to—

(aa)	the relevant net short or long position in respect of the bank's entire trading book;

(bb)	the relevant portion in respect of the specified offsetting positions within each relevant time-band;

(cc)	the relevant portion in respect of the specified offsetting positions across different time-bands;

(dd)	the relevant net requirement in respect of specified positions in options.

(B)	Maturity method

A bank that adopted the maturity method for the measurement of the bank's exposure to general risk—

(i)

shall assign to the relevant maturity band specified in the maturity ladder specified in table 4 below the relevant actual or notional amount relating to each relevant long or short position in a debt security or other instrument of interest rate exposure held in the reporting bank's trading book, including any relevant derivative instrument, provided that the bank may omit from the said interest rate maturity framework opposite positions of the same amount and in respect of the same issue, but not in respect of different issues by the same issuer.

Table 4

Maturity method: time bands and weights 1, 2

Time zone	Coupon equal to or more than 3%	Coupon less than 3% 3	Risk weight (%)	Assumed change in yield
Time zone	Maturity band		Risk weight (%)	Assumed change in yield
1	0 ≤ 1 month	0 ≤ 1 month	0.00	1.00
	> 1 ≤ 3 months	> 1 ≤ 3 months	0.20	1.00
	> 3 ≤ 6 months	> 3 ≤ 6 months	0.40	1.00
	> 6 ≤ 12 months	> 6 ≤ 12 months	0.70	1.00
2	> 1 ≤ 2 years	> 1.0 ≤ 1.9 years	1.25	0.90
	> 2 ≤ 3 years	> 1.9 ≤ 2.8 years	1.75	0.80
	> 3 ≤ 4 years	> 2.8 ≤ 3.6 years	2.25	0.75
3	> 4 ≤ 5 years	> 3.6 ≤ 4.3 years	2.75	0.75
	> 5 ≤ 7 years	> 4.3 ≤ 5.7 years	3.25	0.70
	> 7 ≤ 10 years	> 5.7 ≤ 7.3 years	3.75	0.65
	> 10 ≤ 15 years	> 7.3 ≤ 9.3 years	4.50	0.60
	> 15 ≤ 20 years	> 9.3 ≤ 10.6 years	5.25	0.60
	> 20 years	> 10.6 ≤ 12.0 years	6.00	0.60
		> 12.0 ≤ 20.0 years	8.00	0.60
		> 20 years	12.50	0.60

1.	Based on the residual term to maturity the bank shall assign to the relevant time band the relevant position arising from any fixed rate instrument.

2.	Based on the residual term to the next repricing date the bank shall assign to the relevant time band the relevant position arising from any floating-rate Instrument.

3.	Including any zero-coupon bond or deep-discount bond.

(ii)	shall, based on the relevant weights specified in table 4 above, which weights reflect the price sensitivity of all relevant positions to assumed changes in interest rates, weight all relevant positions assigned by the bank to the relevant maturity band;

(iii)

shall in order to determine a single short or long position in respect of each specified maturity band offset the weighted long positions and weighted short positions within the said maturity band;

(iv)

shall in respect of the lower aggregate amount of the relevant long or short positions in a particular maturity band calculate a 10 per cent capital requirement in order to reflect basis risk and gap risk since each relevant maturity band will include different instruments and different maturities. For example, when the sum of the weighted long positions in a particular time band is equal to R100 million and the sum of the weighted short positions in the said time band is equal to R90 million, the deemed amount in respect of vertical disallowance for the particular time band shall be equal to 10 per cent of R90 million, that is, R9.0 million;

(v)

shall offset the relevant net positions within each of the relevant three time zones specified in table 4 above, and subsequently offset the relevant calculated net positions between the three different time zones specified in table 4 above, provided that the said offsetting of net positions shall be subject to a scale of disallowances, which disallowance factors are specified in table 5 below and are expressed as a fraction of the relevant calculated matched and unmatched positions, that is, the reporting bank shall offset the weighted long positions and weighted short positions within each of the three specified time zones and subsequently offset the residual net position in each relevant time zone against opposite positions in the other time zones, provided that the said offsetting of positions within and between the relevant time zones shall be subject to the disallowance factors specified in table 5 below, which disallowance factors shall constitute a separate component of the reporting bank's required amount of capital and reserve funds.

Table 5

Horizontal disallowances

Time zone 1	Disallowance factor within the relevant time zone	Disallowance factor within the relevant time zone	Disallowance factor between time zones 1 and 3
1	40%
		40%
2	30%		100%
		40%
3	30%

1. Based on the maturity bands specified in table 4 above.

(vi)

shall maintain a capital requirement equal to 100 per cent of any residual position not subject to any form of offsetting as envisaged in sub-items (iii) to (v) above, provided that subject to such conditions as may be specified in writing by the Registrar, the Registrar may for purposes of calculating a bank's exposure to general risk disallow the said reporting bank to offset certain positions relating to high yield instruments against any other debt instruments;

(vii)

shall in the case of residual currencies as envisaged in item (A)(ii) above apply the risk weights specified in table 4 above in respect of the gross positions calculated in respect of each relevant time band, with no further offsets;

(viii)

shall maintain an aggregate capital requirement in respect of the maturity method equal to the sum of the relevant amounts specified in this item (B).

(C)	Duration method

A bank that wishes to adopt the duration method for the measurement of the bank's exposure to general risk, which method provides a more accurate measure of the bank's exposure to general risk than the maturity method due to the separate measurement of the price sensitivity of each relevant position—

(i)	shall obtain the prior written approval of the Registrar and at all times, in addition to the relevant requirements specified in this paragraph (b), comply with such requirements as may be specified in writing by the Registrar;

(ii)	shall, based on—

(aa)	the maturity of each relevant instrument;

(bb)	the relevant requirements specified in table 6 below; and

(cc)	the relevant requirements specified in this item (C),

separately measure the price sensitivity of each relevant instrument in terms of a change in interest rates of between 0.6 and 1.0 percentage points.

Table 6

Duration method: time bands and assumed changes in yield

Time zone	Duration	Assumed change in yield
1	0 ≤ 1 month	1,00
	> 1 ≤ 3 months	1,00
	> 3 ≤ 6 months	1,00
	> 6 ≤ 12 months	1,00
2	> 1,0 ≤ 1,9 years	0,90
	> 1,9 ≤ 2,8 years	0,80
	> 2,8 ≤ 3,6 years	0,75
3	> 3,6 ≤ 4,3 years	0,75
	> 4,3 ≤ 5,7 years	0,70
	> 5,7 ≤ 7,3 years	0,65
	> 7,3 ≤ 9,3 years	0,60
	> 9,3 ≤ 10,6 years	0,60
	> 10,6 ≤ 12,0 years	0,60
	> 12,0 ≤ 20,0 years	0,60
	> 20 years	0,60

(iii)

shall assign to the relevant time band specified in the duration-based ladder specified in table 6 above the calculated sensitivity measure of the relevant instrument or position;

(iv)

shall in a manner similar to the method specified in item (B)(iv) above, in order to capture basis risk in respect of the relevant long positions and short position within each relevant time band, calculate and maintain a 5 per cent capital requirement, which capital requirement shall constitute the vertical disallowance component;

(v)

shall subsequently carry forward the relevant net position in each relevant time band and offset the said net positions within and between the relevant time zones in accordance with and subject to the relevant requirements and horizontal disallowance factors specified in item (B)(v) and in table 5 above;

(vi)

shall maintain a capital requirement equal to 100 per cent of any residual position not subject to any form of offsetting as envisaged in sub-items (iv) and (v) above, provided that subject to such conditions as may be specified in writing by the Registrar, the Registrar may for purposes of calculating a bank's exposure to general risk disallow the said reporting bank to offset certain positions relating to high yield instruments against any other debt instruments;

(vii)

shall in the case of residual currencies as envisaged in item (A)(ii) above apply the assumed change in yield specified in table 6 above in respect of the gross positions calculated in respect of each relevant time band, with no further offsets.

Banks Act, 1990 (Act No. 94 of 1990)

Regulations

Regulations relating to Banks

Chapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof

28. Market risk

Directives and interpretations for completion of monthly return concerning market risk (Form BA 320)

Subregulation (7) Method 1: standardised approach

Subregulation (7)(b) Matters relating to debt securities and other interest rate related instruments

Subregulation (7)(b)(iii) Matters relating to general risk