Commonwealth legislation

ASIC Market Integrity Rules (Capital) 2021

In ForceCTH

Jurisdiction

Commonwealth

Collection

legislative instrument

Plain English Summary

6/10 complexity

This instrument sets how market participants must measure foreign‑exchange position risk under the basic capital method. It requires FX derivatives (options, futures, forwards, CFDs and gold exposures) to be converted into foreign‑exchange equivalents, valued mark‑to‑market, and assigned a position‑risk amount (with different rules for purchased versus written options and caps or reductions based on exercise value).

It affects Market Participants, who must aggregate net open positions by currency, convert them to Australian dollars (spot or matched forward rate), and follow prescribed valuation choices and netting rules. Compliance affects capital measurement and reporting.

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Current sections

Direct links to the current provisions in ASIC Market Integrity Rules (Capital) 2021.

Part A3.20

Basic method—Foreign Exchange position risk

Part A3.20 Basic method—Foreign Exchange position risk

A3.20.1 Application

(1) Foreign Exchange Derivative positions which are purchased (long) or written (short) Options must be included in the basic method if not calculated under the standard method set out in Part A3.19.

(2) Foreign Exchange Derivative positions which are written Options must be included in the basic method.

A3.20.2 Method

(1) The position risk amount for a purchased Option is the lesser of:

(a) the mark-to-market value of the underlying Foreign Exchange position multiplied by the standard method Position Risk Factor for the underlying position specified in Table A5.1.7 in Annexure 5 to Schedule 1A; and
(b) the mark-to-market value of the Option,
where the market value of the Option should be calculated as the current price of the Option multiplied by the underlying Foreign Exchange position.

(2) The position risk amount for a written Option is the mark-to-market value of the underlying Foreign Exchange position multiplied by the standard method Position Risk Factor for the underlying position specified in Table A5.1.7 in Annexure 5 to Schedule 1A reduced by:

(a) any excess of the exercise value over the current market value of the underlying position in the case of a call Option, but limited to nil if it would otherwise be negative; or
(b) any excess of the current market value of the underlying position over the exercise value in the case of a put Option, but limited to nil if it would otherwise be negative.

Part A3.21

Calculation of Foreign Exchange Equivalent positions—Foreign Exchange position risk

Part A3.21 Calculation of Foreign Exchange Equivalent positions—Foreign Exchange position risk

A3.21.1 Options

The Foreign Exchange Equivalent for an Option is:

(a) for purchased call Options and written put Options, a long position at the notional face value of the underlying contract; and
(b) for purchased put Options and written call Options, a short position at the notional face value of the underlying contract.

A3.21.2 Futures

The Foreign Exchange Equivalent for a Future over a Foreign Exchange is the notional face value of the underlying contract.

A3.21.3 Forward contracts

The Foreign Exchange Equivalent for a forward contract including a future exchange associated with a cross currency Swap is at the discretion of the Market Participant either the:

(a) face value of the contract; or

  (b) net present value of the contract.

A3.21.4 Other positions—Exchange traded CFDs

The Foreign Exchange Equivalent for an exchange traded CFD over an exchange rate or Foreign Exchange is the notional face value of the underlying contract.

Part A3.22 Calculation of Foreign Exchange net open positions—Foreign Exchange position risk

A3.22.1 Calculation of foreign currency net open position

(1) To calculate a net open position in a foreign currency, a Market Participant must aggregate in each currency all:

(a) Financial Instruments;
(b) Commodities; and
(c) other assets and liabilities,

other than Excluded Assets and foreign exchange contracts hedging Excluded Assets.

(2) To convert a net open position in a foreign currency to an equivalent Australian dollar amount a Market Participant must use:

(a) the Market Spot Exchange Rate; or
(b) in the case where a foreign currency asset or liability is specifically matched or hedged by a forward currency contract, the rate of exchange stated in the forward currency contract.

A3.22.2 Calculation of gold net open position

(1) To calculate a net open position in gold and gold derivatives, each open position in gold must first be expressed in terms of the standard unit of measurement (kilos, ounces etc). The net position in gold and gold derivative must then be converted at the current rates into Australian dollars.

(2) When calculating the gold net open positions, the long and short positions in a gold contract or gold derivative may be offset.

(3) Where the interbank market price for gold is denominated in a foreign currency, a Market Participant with an open position in gold and gold derivative:

(a) must calculate an Australian dollar equivalent amount of:
  (i) exposure to the gold price; and
  (ii) its exposure to a foreign currency; and
(b) may net the exposure to a foreign currency against exposures to the same foreign currencies arising from the Market Participant’s other activities.

Source text

Sourced from the Federal Register of Legislation (legislation.gov.au), CC BY 4.0.