Minimum Capital Requirements for Market Risk

For aggregating delta equity risk positions within a bucket, the correlation parameter ρ kl between two sensitivities WS k and WS l within the same bucket is set at as follows (1) The correlation parameter ρ kl is set at 99.90%, where: (a) one is a sensitivity to an equity spot price and the other a sensitivity to an equity repo rates; and (b) both are related to the same equity issuer name. (2) The correlation parameter ρ kl is set out in (a) to (d) below, where both sensitivities are to equity spot price, and where: (a) 15% between two sensitivities within the same bucket that fall under large market cap, emerging market economy (bucket number 1, 2, 3 or 4). (b) 25% between two sensitivities within the same bucket that fall under large market cap, advanced economy (bucket number 5, 6, 7 or 8). (c) 7.5% between two sensitivities within the same bucket that fall under small market cap, emerging market economy (bucket number 9). (d) 12.5% between two sensitivities within the same bucket that fall under small market cap, advanced economy (bucket number 10). (e) 80% between two sensitivities within the same bucket that fall under either index bucket (bucket number 12 or 13) (3) The same correlation parameter ρ kl as set out in above (2)(a) to (d) apply, where both sensitivities are to equity repo rates. (4) The correlation parameter ρ kl is set as each parameter specified in above (2)(a) to (d) multiplied by 99.90%, where: (a) One is a sensitivity to an equity spot price and the other a sensitivity to an equity repo rate; and (b) Each sensitivity is related to a different equity issuer name. 7.79 The correlations set out above do not apply to the other sector bucket (ie bucket 11). (1) The aggregation of equity risk positions within the other sector bucket capital requirement would be equal to the simple sum of the absolute values of the net weighted sensitivities allocated to this bucket. The same method applies to the aggregation of vega risk positions. (2) The aggregation of curvature equity risk positions within the other sector bucket (ie bucket 11) would be calculated by the formula: 7.80 For aggregating delta equity risk positions across buckets 1 to 13, the correlation parameter γ bc is set at: (1) 15% if bucket b and bucket c fall within bucket numbers 1 to 10; (2) 0% if either of bucket b and bucket c is bucket 11; (3) 75% if bucket b and bucket c are bucket numbers 12 and 13 (i.e. one is bucket 12, one is bucket 13); and (4) 45% otherwise. Commodity risk buckets, risk weights and correlations 7.81 For delta commodity risk, 11 buckets that group commodities by common characteristics are set out in Table 11.