Part Credit-default swaps - Banking (prudential standard) determination No. 7 of 2024 - Credit-default swaps

Credit-default swaps

If an ADI is a protection buyer in a credit-default swap, it must enter into the maturity ladder a short position in a notional debt instrument, where regular interest or fee cash flows are to be paid, to reflect the general market risk associated with those cash flows. The ADI must also calculate a specific risk capital charge on a short position in the reference entity.
If an ADI is a protection seller in a credit-default swap, it must enter into the maturity ladder a long position in a notional debt instrument, where regular interest or fee cash flows are to be received, to reflect the general market risk associated with those cash flows. The ADI must also calculate a specific risk capital charge on the long position in the reference entity.