Corporations (Passport) Rules 2018
Appendix AAppendix A
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Appendix A
(1) For these rules, the maximum potential loss of a derivative or securities lending arrangement is the sum of: (a) the current replacement cost at market value; and (b) for derivatives—the greater of the notional principal amount or the market value of the underlying multiplied by the percentage in the table below subject to subsection (3); and (c) the fair value of any collateral that has been transferred to the counterparty to a derivative or securities lending arrangement but not including where the collateral is held by the passport fund and an encumbrance over it is provided to the counterparty to secure the obligations of the passport fund to the counterparty under the derivative or securities lending arrangement. (2) The market value of the underlying is: (a) if the underlying is an asset—the market value of the asset; or (b) if the underlying is an interest rate or rate of inflation on which an interest rate is based—the notional value of the principal to which that rate is applied; or (c) if the underlying is an index—the market value of the assets represented in the index.
| Item | Residual Term | Interest rate contracts | Currency Exchange rate contracts | Equity derivative contracts | Total return swaps and Credit default swaps | Other contracts |
|---|---|---|---|---|---|---|
| 1 | 1 year or less | 0% | 1% | 6% | 10% | 10% |
| 2 | > 1 year and < 5 years | 0.5% | 5% | 8% | 10% | 12% |
| 3 | > 5 years | 1.5% | 7.5% | 10% | 10% | 15% |
(3) In the case of credit default swaps where the passport fund is entitled to payments unaffected by a credit event of the person liable under the underlying, the relevant percentage is 0% unless the credit default swap contract incorporates a provision on closeout upon insolvency of the counterparty in which case the amount to be added for the purposes of paragraph (1)(b) is 10% of any unpaid amount that may become payable to the passport fund at the time of the calculation that is not covered by collateral at fair value.