Financial Markets Act, 2012 (Act No. 19 of 2012)RegulationsFinancial Markets Act RegulationsChapter VI : Central Counterparties30. Specific capital calculation requirements for market risk |
| (1) | A central counterparty— |
| (a) | must, at all times hedge out all open market risk13 due to trading with its clearing members, and if any market risk remains, it must be covered by matching or moving the trades to another clearing member; |
| (b) | may only report14 in terms of this Regulation, capital requirements for market risk, which are not already covered by specific financial resources, that is, risk that originates directly from clearing activities; |
| (c) | must measure and report its exposure to market risk or position risk arising from its activities in respect of— |
| (i) | the current market value of any interest rate related instrument held by the reporting central counterparty; |
| (ii) | any foreign exchange instrument held by the reporting central counterparty; |
| (d) | based on the formula specified below, must calculate the central counterparty’s required capital adequacy ratio to convert the central counterparty’s required amount of capital calculated in accordance with the relevant requirements specified in these Regulations to the required risk-weighted exposure amount. |
RWE = K x 12.5
where:
| RWE = | the required risk-weighted exposure amount |
| K = | the required amount of capital calculated in accordance with the relevant requirements specified in these Regulations. |
| (e) | may not have direct exposures to equity unless approved by the Authority; and |
(f) may not have direct exposures to commodities for its own book.
| (2) | A central counterparty must use the standardised approach specified in Regulation 30.2 for the measurement of a central counterparty’s exposure to market risk (position risk), which standardised approach is based on a building-block method. |
13 Market risk may also arise from other investment or hedging activities and capital should be held according to such method as specified in these Regulations. Capital requirements for market risk are calculated using position risk adjustment factors applied to market values of the positions held by the central counterparty.
14 The reporting returns stipulating the required market risk exposures will be published by the Authority. The content of the relevant returns to be completed for market risk purposes is confidential and not available for inspection by the public.
30.1 Aggregate required amount of capital relating to market risk
30.2 The Standardised Approach