In respect of interest rate risk, a capital charge for Specific Risk is designed to protect against an adverse movement in the price of an individual Security owing to factors related to the individual Issuer.
PRU A6.2.13 PRU A6.2.13(1) An Authorised Person must calculate its Specific Risk as 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 Person must not offset between different issues.(3) An Authorised Person must 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 Exposure to any debt Security issued by—(i) the central government or monetary authority; or(ii) other central governments with a Credit Quality Grade of 3 or better as set out in Chapter 4,which is denominated in the domestic currency and funded in the same currency must be assigned a 0% Specific Risk charge.The Regulator may, at its discretion, assign a higher risk charge other than the above to Securities issued by certain governments, especially in cases where the Securities are 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 Security that is issued by an MDB;(b) any Security (including one issued by a PSE) which has a Credit Quality Grade of 3 or better as set out in Chapter 4; and(c) any unrated Security issued by a PSE which belongs to a country with a Credit Quality Grade of 1 as set out in 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 Regulator will require the Authorised Person:(a) to apply a higher Specific Risk charge to such instruments; or(b) to disallow offsetting for the purpose of defining the extent of General Market Risk between such instruments and any other debt instruments.
4 Any 8% or such other percentage as the Regulator may direct. 5 or 6 Any 12% or such other percentage as the Regulator may direct. Unrated Any 8% or such other percentage as the Regulator may direct.
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 Risk requirement as a private-sector borrower under the CRCOM, 8%. However, since this may, in certain cases, considerably underestimate the Specific Risk for debt Securities which have a high yield to redemption relative to government debt Securities, the Regulator has the right to apply to such Securities a Specific Risk percentage higher than 8%.