Sch 1B

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Schedule 1B

Note: There is no Schedule 1B.

Annexure 1 to Schedule 1A: Counterparty Risk Requirement

Part A1.1 Counterparty Risk Requirement

A1.1.1 Nature of counterparty risk amount

(1) For each type of counterparty risk that gives rise to a Positive Credit Exposure, a counterparty risk amount:

(a) must be calculated in accordance with the methods set out in this Annexure 1; and

(b) may be reduced by a counterparty risk weighting in accordance with Part A1.8.

(2) For the purposes of subrule A1.2.2(1), a Positive Credit Exposure exists on a Client Balance regardless of whether the Client Balance is positive or negative.

A1.1.1A Treatment: Classical ETFs

(1) Subject to subrule (2), a Market Participant is not required to calculate a counterparty risk amount under this Annexure in relation to a subscription for or redemption of a unit in a Classical ETF.

(2) In the event of default in the settlement of a primary market transaction in Classical ETFs:

(a) in the case of a subscription for Classical ETF units, where the Market Participant transfers underlying securities and does not receive the corresponding Classical ETF units or some other cash consideration; or

(b) in the case of a redemption, where the Market Participant transfers Classical ETF units and does not receive the corresponding underlying securities, or some other cash consideration,

a counterparty risk amount must be calculated under the Free Delivery method from the time those assets or cash were due to be settled.

(3) A Market Participant is required to calculate a counterparty risk amount under this Annexure for all secondary market transactions in Classical ETF units.

A1.1.1B Treatment: Hybrid ETFs

(1) Subject to subrule (2), a Market Participant is not required to calculate a counterparty risk amount under this Annexure in relation to a subscription for or redemption of a unit in a Hybrid ETF.

(2) In the event of a default in the settlement of a primary market transaction in Hybrid ETFs:

(a) in the case of a subscription for Hybrid ETF units, where the Market Participant transfers cash and does not receive the corresponding Hybrid ETF units; or

(b) in the case of a redemption, where the Market Participant transfers Hybrid ETF units and does not receive the corresponding cash,

a counterparty risk amount must be calculated under the Free Delivery Method from the time those assets or cash were due to be settled.

(3) A Market Participant is required to calculate a counterparty risk amount under this Annexure for all secondary market transactions in Hybrid ETF units.

“Individual Issue” Equity Product “Individual Issue” Detail
Ordinary shares Ordinary shares Ordinary shares on issue, as published by an information source.
Exchange traded Options (ETOs) The ordinary shares underlying the ETO, as published by an information source.
Exchange traded warrants The ordinary shares underlying the exchange traded warrant, as published by an information source.
Exchange traded convertible notes that are treated as an Equity position for the purposes of the position risk calculation Ordinary shares on issue, as published by an information source.
Classical ETF (which is broken down into its constituent positions) Ordinary shares on issue for each company in the stock index on which the classical ETF is based, as published by an information source.
Futures or forward contracts over ordinary shares The ordinary shares underlying the Futures or forward contracts, as published by an information source.
Ordinary shares or Preference shares (depends on underlying) Over the counter (OTC) Options over physical shares The ordinary shares or Preference Shares (as applicable) underlying the OTC Option, as published by an information source.
Equity Swap The ordinary shares or Preference Shares (as applicable) underlying the Equity Swap, as published by an information source.
Preference shares Preference Shares Preference Shares on issue, as published by an information source.Where a company has issued more than one series of Preference Shares, each series should be considered to be a separate “individual issue” (for example, ABC 7% Preference Shares and ABC 7.1% Preference Shares need to be considered separately).
Company issued option series Company issued Options Company issued Option “series”, as published by an information source.Each company Option “series” will have different terms and conditions (for example, if ABC has issued company Options expiring on 31/1/05 with a strike of $1 as well as company Options expiring on 31/3/05 with a strike of $1, these are two different “series” and need to be considered separately).

Nature of Positions	Standard Method	Building Block Method	Contingent Loss Matrix Method	Margin Method	Basic Method
Physical (not equity derivative)	Yes.	Yes.	Yes, in conjunction with positions in options.	No.	No.
Non-option equity derivatives	No.	Yes, if converted to equity equivalent positions.	Yes, in conjunction with positions in options.	Yes, if exchange traded and margined and not calculated under any other method.	No.
Debt Options	No.	Yes, if satisfy relevant criteria and not permitted to use contingent loss matrix method.	Yes. Pricing model must be approved by ASIC.	Yes, if exchange traded and margined and not calculated under any other method.	Yes, if not permitted to use contingent loss matrix method.