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PIB A4.3.22

In calculating the haircuts using internal estimates of volatilities, an Authorised Firm must:

(a) use a 99th percentile, one-tailed confidence interval;
(b) use the minimum holding period and remargining or revaluation conditions according to the type of transaction as set out in Rules PIB A4.3.24 to PIB A4.3.26. Where the minimum holding period, remargining or revaluation conditions used by an Authorised Firm differ from those set out above, it must adjust the haircuts using the formulae in Rules PIB A4.3.25 to PIB A4.3.26;
(c) use a historical observation period (i.e. sample period) of at least one year. Where the Authorised Firm uses a weighting scheme or other methods for the historical observation period, the "effective" observation period must be at least one year (i.e. the weighted average time lag of the individual observations must not be less than six months);
(d) update its data sets at least once every three months and recalculate haircuts at least once every three months. The DFSA may require more frequent updates whenever there is an increase in volatility in market prices of the Collateral; and
(e) use the estimated volatility data in the day-to-day risk management process of the Authorised Firm and if the Authorised Firm is using a longer holding period for risk management compared to the ones prescribed in Rules PIB A4.3.24 to PIB A4.3.26., then the longer holding period must also be applied for the calculation of haircuts.
Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]