Treatment is to be consistent with AASB 139 ‘Financial Instruments: Recognition and Measurement’.

Where the transferee of the security effectively receives a lender’s rate of return, or a return that does not correlate with ownership of the securities (i.e. the risks and rewards of ownership of the underlying securities is not effectively transferred), these transactions are to be accounted for as collateralised borrowing or lending activities.

Under this method of accounting for transactions that satisfy the above, do not adjust (i.e. increase or decrease) the physical Investment security holdings/portfolios (interest rate and equity investments) for the securities that are subject to these agreements. For the required prudential treatment for securities meeting the above conditions, refer to treatment as noted in the instructions for GRF 300.0 Statement of Financial Position.

Securities Transacted not Settled (i.e. trade date accounting)

For the purposes of the APRA forms include market related securities that are recorded on a trade date basis and transacted in accordance with accepted financial market settlements periods. Such securities are to be included in the respective investments forms. These do not constitute forward asset purchases for the purposes of GRF 130.0 Off Balance Sheet Business – Credit Substitutes Provided and Risk Charge.

Securities Listed on a Recognised Exchange

It will generally be appropriate to treat an exchange organisation as ‘recognised’ where it meets the following criteria:

• it is subject to authorisation, licensing or other means of recognition by a government or other competent authority;
• it has rules, issued or approved, by the government or other competent authority defining the conditions:
  • for the operation of the exchange;
  • for access to the exchange; and
  • that must be satisfied by a contract before it can be dealt on the exchange;
• it has a clearing mechanism that provides for contracts dealt through the exchange;
• it functions regularly;
• the exchange has a prudent and frequent margining system where relevant;
• the exchange requirements settlement on a particular day as applicable;
• members of the exchange are themselves subject to supervision by the exchange or a competent authority; and
• the operations of the exchange in turn are supervised by government or other competent authority.

Subordinated Debt

Subordinated debt has the same meaning as in GPS 114. Subordinated debt is any debt instrument issued by a company (whether Australian or foreign) that constitutes debt subordination within the meaning of subsection 563C(2) of the Corporations Act but with the references in the subjection to “Company” to be read as including foreign corporations. This definition does not apply to debt instruments issued by an SPV set up for the purpose of securitising an asset or a pool of assets. Any debt instruments issued by such an SPV are to be treated as ordinary debt instruments with the Investment Risk Capital Charge applied according to the issue-specific counterparty rating.