11 FEBRUARY 2005

NEW ZEALAND GAZETTE, No. 35

971

(6) A Registered Bank may exclude the value of options and, instead, use its own methodology to determine the Interest Rate Exposure in any currency arising from options and add the amount so derived to the total Interest Rate Exposure in that currency.

4. Netting Criteria—A Registered Bank may exclude the value of Financial Instruments in respect of which it has matched positions which meet any one of the following criteria:

(a) the matched position comprises the same Financial 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:

(A) are for the same product;

(B) have the same value or notional value;

(C) are 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:

(A) are for the same product;

(B) have the same value or notional value;

(C) are 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:

or

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

(A) are for the same product;

(B) have the same value or notional value;

(C) are denominated in the same currency; and

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