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Banks Act, 1990 (Act No. 94 of 1990)

Regulations

Regulations relating to Banks' Financial Instrument Trading

Chapter 4 : Position Risk

17. Simplified approach

 

When a limited range of purchased options is handled, a bank shall use the simplified approach set out in Table 10, hereunder, for particular trades. A similar methodology applies to options when the underlying instrument is a foreign currency, an interest-rate related instrument or a commodity.

 

Table 10

Simplified approach: capital charges

 

Type of option

Capital charge

Long cash and long put

or

Short cash and long call

The capital charge shall be the market value of the underlying security multiplied by the sum of specific and market risk

Long call

or

Long put

The capital charge shall be the lesser of:
(i) the market value of the underlying security multiplied by the aggregate of specific and Market-risk charges for the underlying instrument; or
(ii) the market value of the option