NEW ZEALAND GAZETTE

No. 126

Instruments with the same issuer, coupon, currency and maturity; or

(b) (i) with respect to matched positions comprising futures, the underlying Financial Instruments to which the futures relate must:

(A) be for the same product;

(B) have the same value or notional value;

(C) be denominated in the same currency; and

(D) mature within seven days of each other; or

(ii) with respect to matched positions comprising swaps (including separate legs of different swaps) or FRAs, the underlying Financial Instruments to which the swaps or FRAs relate must:

(A) be for the same product;

(B) have the same value or notional value;

(C) be denominated in the same currency;

(D) have reference rates (for floating rate positions) which are identical;

(E) have coupon rates which are identical or which do not differ by more than 15 basis points; and

(F) have the time to run before the next Interest Rate Repricing Date within the following limits:

Earliest Repricing Date Limits

(iii) with respect to matched positions comprising forwards, the underlying Financial Instruments to which the forwards relate must:

(A) be for the same product;

(B) have the same value or notional value;

(C) be denominated in the same currency; and

(D) have the time to run before the next Interest Rate Repricing Date within the following limits:

Earliest Repricing Date Limits

5. The Amount of Vertical Disallowance in a Single Currency

(1) The amount of vertical disallowance in a single currency is the sum of the vertical disallowances calculated in accordance with clause 5 (2) for each of the time bands specified in Table 1 of this Schedule.

(2) The amount of vertical disallowance in a time band shall be calculated as follows:

(a) derive the risk weighted matched position in the time band (which is the lesser of the sum of the absolute values of the Financial Assets and the sum of the absolute values of the Financial Liabilities in that time band, or, if those sums are equal, that sum, multiplied by the risk weight for that time band);

(b) derive the risk weighted value of the Rate Insensitive Retail Products in that time band (which is the sum of the absolute values of the Rate Insensitive Retail Assets and Rate Insensitive Retail Liabilities in that time band; multiplied by the risk weight for that time band);

(c) if the risk weighted matched position is less than or equal to the risk weighted value of the Rate Insensitive Retail Products in a time band, then the vertical disallowance amount for that time band is the risk weighted matched position multiplied by 20%;

(d) if the risk weighted matched position is greater than the risk weighted value of the Rate Insensitive Retail Products in a time band, then the vertical disallowance amount for that time band is:

(i) the risk weighted value of the Rate Insensitive Retail Products multiplied by 20%; plus

(ii) the difference between the risk weighted matched position and the risk weighted value of the Rate Insensitive Retail Products, multiplied by 5%.

(3) The vertical disallowance in a currency shall have the same sign (positive or negative) as the directional risk calculated for that currency.

6. The Amount of Horizontal Disallowance in a Single Currency

(1) The amount of horizontal disallowance in a single currency shall be calculated in accordance with clauses 6 (2) to 6 (6).

(2) Allocate the time bands specified in Table 1 of this Schedule to the three time zones specified in Table 3:

Table 3: Time zones

(3) Calculate the amount of the intra-zone disallowance in each time zone as follows:

(a) derive the risk weighted net position in each time band (which is the amount of the risk weighted Financial Assets less the amount of the risk weighted Financial Liabilities in that time band). If the risk weighted net position in a time band is positive, this is a risk weighted long position and if it is negative, this is a risk weighted short position;

(b) derive the aggregate risk weighted long position in each time zone (which is the sum of any risk weighted long positions in the time bands in that time zone) and the aggregate risk weighted short position in each time zone (which is the sum of any risk weighted short positions in the time bands in that time zone);

(c) derive the matched position in each time zone (which is either the lesser of the absolute value of the aggregate risk weighted long position and the absolute value of the aggregate risk weighted short position in that time zone, or, if the absolute values of those positions are equal, that absolute value, if any;

(d) the amount of intra-zone disallowance in a time zone is the value of the matched position in that time zone multiplied by the disallowance factor for that time zone specified in Table 4. If there is no matched position in a time zone, the amount of the intra-zone disallowance in that time zone is zero.

Table 4: Intra-zone disallowances

(4) Calculate the amount of the inter-zone disallowances as follows:

(a) inter-zone disallowances are derived in the following order: time zones 1 and 2, 2 and 3, and 1 and 3. The inter-zone disallowance factors which must be used to derive the inter-zone disallowance amounts are specified in Table 5;

Table 5: Inter-zone disallowances