Specific Risk Guidance
In respect of interest rate risk, a capital charge for
Specific Riskis designed to protect against an adverse movement in the price of an individual Securityowing to factors related to the individual issuer.
PIB A5.2.13 PIB A5.2.13(1) An
Authorised Firmmust calculate its Specific Riskas the sum of the market values of the individual net positions (whether they are long or short) multiplied by the appropriate risk percentage in (3).(2) An Authorised Firmmust not offset between different issues.(3) An Authorised Firmmust determine the appropriate risk percentage by reference to the following table:
Issuer Credit Quality Grades Residual Term to Maturity Risk Percentage Sovereign Debt
This category includes —(a) all forms of government debt, including bonds, treasury bills and other short-term instruments; and(b) securities issued by PSEs which qualify for a 0% risk weight for
Credit Risk.An Exposureto any debt Securityissued by-(i) the central government or monetary authority; or(ii) other central governments with a Credit Quality Gradeof 3 or better as set out in PIB chapter 4,which is denominated in the domestic currency and funded in the same currency must be assigned a 0% Specific Riskcharge.The DFSAmay, at its discretion, assign a higher risk charge other than the above to Securitiesissued by certain governments, especially in cases where the Securitiesare denominated in a currency other than that of the issuing government. 1 Any 0.00% 2 or 3 6 months or less 0.25% More than 6 and up to 24 months 1.00% More than 24 months 1.60% 4 or 5 Any 8.00% 6 Any 12.00% Unrated Any 8.00% Qualifying Debt
This category includes —(a) any
Securitythat is issued by an MDB;(b) any Security(including one issued by a PSE) which has a Credit Quality Gradeof 3 or better as set out in PIB chapter 4; and(c) any unrated Securityissued by a PSE which belongs to a country with a Credit Quality Gradeof 1 as set out in PIB chapter 4. 6 months or less 0.25% More than 6 and up to 24 months 1.00% More than 24 months 1.60% Other
For securities which have a high yield to redemption relative to government debt securities issued in the same country, the
DFSAwill require the Authorised Firm:(a) to apply a higher Specific Riskcharge to such instruments; or(b) to disallow offsetting for the purpose of defining the extent of General Market Riskbetween such instruments and any other debt instruments. 4 Any 8% or such other percentage as the DFSAmay direct. 5 or 6 Any 12% or such other percentage as the DFSAmay direct. Unrated Any 8% or such other percentage as the DFSAmay direct.
PIB A5.2.13 Guidance1. Offsetting is not permitted since differences in coupon rates, liquidity, and call features, for example, signify that prices may diverge in the short run.2. The "Other" category will receive the same
Specific Riskrequirement as a private-sector borrower under the CRCOM, 8%. However, since this may, in certain cases, considerably underestimate the Specific Riskfor debt Securitieswhich have a high yield to redemption relative to government debt Securities, the DFSAhas the right to apply to such Securitiesa Specific Riskpercentage higher than 8%.
[Not currently in use]