Section 2 - ASIC Market Integrity Rules (Securities Markets – Capital) 2017 - For positions not broken down into constituent Equities, otherwise the single Equity percentages apply.

2 For positions not broken down into constituent Equities, otherwise the single Equity percentages apply.

A5.1.1A Reduction of specific risk Position Risk Factor

The specific risk Position Risk Factor for a single Equity in a Recognised Market Index can be reduced from 4% to 2% if:

(a) all Equity Net Positions in that country are less than or equal to 10% of the aggregate of the absolute values of all Equity Net Positions in that country portfolio; and

(b) the aggregate of the absolute values of all Equity Net Positions in that country that are individually more than 5% and up to and including 10% of the aggregate of the absolute values of all Equity Net Positions in that country portfolio is less than or equal to 50% of that aggregate.

Table A5.1.2: Debt Position Risk Factors (see also Table A5.1.3 below)

Time Band Position Risk Factors—%
Coupons Standard Method Building Block Method (General Risk)
 3%  3% (or Duration Method) Gov’t Qualifying Other Zone Maturity Method Duration Method (assumed yield change)
0–1 mth 0–1 mth 0.00 0.25 8.00 1 0.00 1.00
1–3 mths > 1–3 mths 0.20 0.45 8.20 0.20 1.00
3–6 mths > 3–6 mths 0.40 0.65 8.40 0.40 1.00
6–12 mths > 6–12 mths 0.70 1.70 8.70 0.70 1.00
1 - 2 yrs > 1–1.9 yrs 1.25 2.25 9.25 2 1.25 0.90
2–3 yrs > 1.9–2.8 yrs 1.75 3.35 9.75 1.75 0.80
3–4 yrs > 2.8–3.6 yrs 2.25 3.85 10.25 2.25 0.75
4–5 yrs > 3.6–4.3 yrs 2.75 4.35 10.75 3 2.75 0.75
5–7 yrs > 4.3–5.7 yrs 3.25 4.85 11.25 3.25 0.70
7–10 yrs > 5.7–7.3 yrs 3.75 5.35 11.75 3.75 0.65
10–15 yrs > 7.3–9.3 yrs 4.50 6.10 12.50 4.50 0.60
15–20 yrs > 9.3–10.6 yrs 5.25 6.85 13.25 5.25 0.60
20+ yrs > 10.6–12 yrs 6.00 7.60 14.00 6.00 0.60
12–20 yrs 8.00 9.60 16.00 8.00 0.60
20+ yrs 12.50 14.10 20.50 12.50 0.60
Option implied volatility— All debt positions 25%

1 In using Table A5.1.2 for any Debt Derivative, a Market Participant must use the Position Risk Factors specified in the ‘government’ column unless the value of the Debt Derivative is derived from:

(a) a Qualifying Debt Instrument, in which case the Market Participant must use the Position Risk Factors specified in the ‘qualifying’ column; or

(b) a non-Government Debt Instrument, in which case the Market Participant must use the Position Risk Factors specified in the ‘other’ column.

2 For calculation purposes, where a time band refers to the period ‘1.9 years’ for example, this may be interpreted as being equal to 1.9 x 365 days.

A5.1.2A Position Risk Factors: Hybrid ETFs that are classified as Debt Instruments

The Position Risk Factors to be applied to a principal position in units in Hybrid ETFs classified as Debt Instruments are:

(a) as specified in Table A5.1.2 where the assets underlying the Hybrid ETF can be specifically identified, up to a maximum of 16% (standard method) or 8% for general risk and 8% for specific risk (building block method—maturity method). The Position Risk Factor is to be selected from Table A5.1.2 based on the following:

(i) the time bands for coupon < 3% must be used;

(ii) the time band chosen should be based on the average investment term and if it can be identified that more than 80% of the assets underlying the Hybrid ETF by value fall in a particular time band, the Position Risk Factor for that time band may be applied to the entire position;

(iii) subject to subparagraph (iv), the standard method ‘other’ column (or the ‘other’ column in Table A5.1.3 for specific risk if the building block method is used) should generally be used; and

(iv) if the Market Participant can identify that any assets underlying the Hybrid ETF satisfy the definition of Qualifying Debt Instrument, the ‘qualifying’ column can be used for that portion of the fund on a proportional basis to the individual holding and the ‘other’ column must be used for the remainder of the position; and

(b) in all other instances, where the assets underlying the Hybrid ETF cannot be specifically identified, 16% (standard method) or 8% for general risk and 8% for specific risk (building block method—maturity method).

A5.1.2B Position Risk Factors: Other Managed Funds that are classified as Debt Instruments

The Position Risk Factors to be applied to a principal position in units in Other Managed Funds classified as Debt Instruments are:

(a) as specified in Table A5.1.2 where the assets underlying the Other Managed Funds can be specifically identified, up to a maximum of 16% (standard method) or 8% for general risk and 8% for specific risk (building block method—maturity method). The Position Risk Factor is to be selected from Table A5.1.2 based on the following:

(i) the time bands for coupon < 3% must be used;

(ii) the time band chosen should be based on the average investment term. If it can be identified that more than 80% of the assets underlying the Other Managed Fund by value fall in a particular time band, the Position Risk Factor for that time band may be applied to the entire position;

(iv) if the Market Participant can identify that any assets underlying the Other Managed Fund satisfy the definition of Qualifying Debt Instrument, the ‘qualifying’ column can be used for that portion of the fund on a proportional basis to the individual holding and the ‘other’ column must be used for the remainder of the position; and

(b) in all other instances, where the assets underlying the Other Managed Fund cannot be specifically identified, 16% (standard method) or 8% for general risk and 8% for specific risk (building block method—maturity method).

Table A5.1.3: Debt Building Block Method—Specific Risk Position Risk Factors

Government Qualifying Other
0–12 mths over 12 mths 0–6 mths 6–24 mths over 24 mths
0.00% 0.00% 0.25% 1.00% 1.60% 8.00%

Table A5.1.4: Debt Building Block Method—General Risk Time Band Matching Factors (TBMF)

Matching Factor
Maturity Method Duration Method
Same time band (TBMF) 10% 5%
Zone 1 (ZMF) 40% 40%
Zone 2 (ZMF) 30% 30%
Zone 3 (ZMF) 30% 30%
Positions in adjacent zones (AZMF) 40% 40%
Positions spanning Zone 1 and Zone 3 (NAZMF) 100% 100%

Table A5.1.5: Rated Investment Grades

Minimum Ratings
Securities Money Market Obligations
For all issuers
Moody’s Investor Services Baa3 P3
Standard & Poors Corporation BBB- A3
Fitch IBCA Ltd BBB- F-3
For all banks, building societies and subsidiaries of banks (not otherwise eligible as Qualifying Debt Instruments)
Thomson Financial Bank Watch BBB- TBW-3
For Canadian issuers
Canadian Bond Rating Service B++low A-3
Dominion Bond Rating Service BBB low R-2
For Japanese issuers
Japan Credit Rating Agency Ltd BBB- J-2
Nippon Investor Services Inc BBB- a-3
The Japan Bond Research Institute BBB- A-2
Mikuni & Co BBB M-3
Fitch Investors Services Inc BBB- F-3
For United States issuers
Duff & Phelps Inc BBB- 3
Fitch Investors Services Inc BBB- F-3

Table A5.1.6: Recognised Market Indexes

Table A5.1.7: Foreign Exchange Position Risk Factors

Part A5.2 Counterparty Risk

Table A5.2.1: Risk Weightings

| Counterparty | Counterparty Risk Weighting | | Central banks in countries that are members of the OECD | 0% | | Central and state governments in countries that are members of the OECD where the central or state government Counterparty is guaranteed by the government or receives appropriations from government revenue | 10% | | Banks Local governments in countries that are members of the OECD Approved Deposit Taking Institutions (other than banks) Participants of the ASX Market that comply with the Risk-Based Capital Requirements ASX Clear Participants that comply with the equivalent requirements under the ASX Clear Operating Rules | 20% | | Approved Institutions Participants of the ASX Market that comply with the NTA Requirements ASX Clear Participants that comply with the equivalent requirements under the ASX Clear Operating Rules | 50% | | Other, including:  central banks, central, state and local governments in countries that are not members of the OECD  all public trading enterprises in Australia which have corporate status, operate on a commercial basis or operate on a not-for-profit basis | 100% |

Table A5.2.2: Potential Credit Exposure Factors

| Remaining Time to Maturity | Equity | Debt | Foreign Exchange | | One year or less | 6.0% | 0.0% | 1.0% | | Over one year to 5 years | 8.0% | 0.5% | 5.0% | | Over 5 years | 10.0% | 1.5% | 7.5% |

Part A5.3 Other

Table A5.3.1: Recognised Non European Regulator

Table A5.3.2: Recognised European Regulator

2For positions not broken down into constituent Equities, otherwise the single Equity percentages apply.

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