(1) In the case where there is a currency mismatch between the credit protection and the underlying Exposure
, an Authorised Firm
must reduce the amount of the Exposure
deemed to be protected by applying a haircut, as follows:
Protected portion GA = G (1 - HFX)
(a) G = notional amount of the credit protection; and
(b) HFX = haircut appropriate for currency mismatch between the credit protection and underlying obligation Exposure based on a ten-business day holding period, assuming daily mark-to-market.
(2) An Authorised Firm
must determine HFX in the following manner:
(a) if the Authorised Firm uses standard supervisory haircuts, HFX is 8%; and
(b) if the Authorised Firm uses own-estimate haircuts, it must estimate HFX according to Rules
[PIB A4.3.6] to [PIB A4.3.26] in [PIB App4] based on a ten-business day holding period, assuming daily mark-to-market.
(3) If the credit protection is not marked-to-market daily, HFX must be scaled in accordance with
[PIB Rule A4.3.25].