Cap 155L s 22 Exemption from section 17 (Banking (Capital) Rules; BANKING ORDINANCE)

Contents of Section

Chapter:	155L	Title:	Banking (Capital) Rules	Gazette Number:	E.R. 1 of 2012
Section:	22	Heading:	Exemption from section 17	Version Date:	09/02/2012

(1) The Monetary Authority may, by notice in writing given to an authorized institution (other than an authorized institution which uses the IRB approach to calculate its credit risk), exempt the institution from section 17 if the Monetary Authority is satisfied that— (L.N. 137 of 2011)

(a) the institution's market risk positions—

(i) never exceed 5% of its total on-balance sheet and off-balance sheet exposures; or

(ii) only sporadically exceed 5%, and never exceed 6%, of its total on-balance sheet and off-balance sheet exposures; and

(b) the institution's market risk positions—

(i) never exceed $50 million; or

(ii) only sporadically exceed $50 million and never exceed $60 million.

(2) For the purposes of subsection (1)—

(a) the amount of an authorized institution's market risk positions is calculated by aggregating—

(i) the institution's total gross (long plus short) positions in debt securities and debt-related derivative contracts;

(ii) the arithmetic mean of the institution's total long and total short positions in interest rate derivative contracts;

(iii) the institution's total gross (long plus short) positions in equities and equity-related derivative contracts;

(iv) the institution's total net open position in foreign exchange exposures as derived in section 296; and

(v) the institution's total gross (long plus short) positions in commodities and commodity-related derivative contracts; and

(b) an authorized institution's total on-balance sheet and off-balance sheet exposures are derived by—

(i) aggregating the institution's total liabilities, total assets less specific and collective provisions, and the principal amount (within the meaning of section 51(1)) of all of the institution's off-balance sheet exposures; and

(ii) deducting therefrom the institution's paid-up capital, reserves (including current year's profit or loss) and perpetual or term subordinated debt.

(3) The date in relation to which an authorized institution’s market risk positions are assessed for the purposes of subsection (1) is—

(a) subject to paragraphs (b) and (c), the calendar quarter end date of each of the 4 consecutive calendar quarters of the same calendar year;

(b) subject to paragraph (c), the calendar quarter end date of the consecutive calendar quarters, being not more than 4 consecutive calendar quarters, specified by the Monetary Authority by notice in writing given to the institution; or

(4) Where an authorized institution is exempted under this section from section 17, the institution—

(a) shall not, except with the prior consent of the Monetary Authority, include market risk in the calculation of its capital adequacy ratio;

(b) shall give notice in writing to the Monetary Authority of—

(i) an increase in its market risk positions which causes, or could reasonably be construed as potentially causing, whether by itself or in conjunction with any other event, the institution to cease to fall within subsection (1)(a) or (b); or

(ii) an intention to increase its market risk positions which will cause, or could reasonably be construed as potentially causing, whether by itself or in conjunction with any other event, the institution to cease to fall within subsection (1)(a) or (b);

(c) shall apply Part 4, 5 or 7, as the case requires, to calculate the credit risk for the institution's market risk positions except for its total net open position in foreign exchange exposures as derived in section 296.

(5) In this section, the following expressions have the respective meanings assigned to them by section 281—

(a) debt security; and

(b) equity.