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Financial Sector (Collection of Data) (reporting standard) determination No. 72 of 2008 - GRS 160.0 (2008) - Derivative Activity and Risk Charge
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Turn the raw legal text into a practical explanation grounded in Financial Sector (Collection of Data) (reporting standard) determination No. 72 of 2008 - GRS 160.0 (2008) - Derivative Activity and Risk Charge.
Record the aggregate mark to market value of the derivative exposure/position separated into net long or net short positions, for each of the items listed. Amount is to be rounded to thousands of Australian dollars.
Mark to market value (or replacement cost) represents the difference between:
Potential exposure add-on factors %
The potential exposure add-on factors as specified in GPS 114 are:
| Residual Maturity | Interest Rate Contracts | Foreign Exchange & Gold Contracts | Equity Contracts | Precious Metal Contracts (except gold) | Other Contracts |
|---|---|---|---|---|---|
| Less than 1 yr | Nil | 1.0% | 6.0% | 7.0% | 10.0% |
| 1 year to less than 5 yrs | 0.5% | 5.0% | 8.0% | 7.0% | 12.0% |
| More than 5 yrs | 1.5% | 7.5% | 10.0% | 8.0% | 15.0% |
Asset equivalent
Do not enter a value in this column. The form automatically calculates the asset equivalent value of the derivative exposure. This is calculated based on the Prescribed Method set out in GPS 114, and is the sum of the:
Current mark-to-market value of the derivative position
The current mark-to-market value of a derivative is only applicable where the position has a positive replacement value to the insurer. If the current mark-to-market value of the position is negative or zero, the value is not included in the calculation, as the calculation of the asset equivalent amount is trying to capture the credit risk value of the derivative position to the insurer.
A potential exposure add-on
The potential exposure add-on for a derivative position is determined by multiplying the notional principal amount of the derivative contract by the appropriate credit conversion factors outlined in the table above. This component of the calculation is required for all derivatives regardless of whether the derivative contract has a positive, zero or negative mark-to-market value.
Investment Capital Factor %
The investment capital factors are specified in GPS 114. These are based on the rating of the counterparty to the derivative contract.
Investment risk capital charge
Do not enter a value in this column. This column automatically calculates the appropriate Investment Capital Charge based on the information entered. The capital charge is calculated by multiplying the asset equivalent value by the investment capital factor applicable for each counterparty grade.
Risk Charge Per Derivative Contract Type
Do not enter a value in this field as this is automatically calculated. This is the total capital charge calculated for each contract type (i.e. Interest Rate Contracts, Equity Contracts).
Total Derivative Risk Charge
Do not enter a value in this field as this is automatically calculated. This is the total capital charge calculated for all contract types, based on the aggregate value of all derivative financial instruments other than exchange traded derivatives.