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For the purpose of calculating the credit spread risk capital requirement under the sensitivities based method and the DRC requirement, the correlation trading portfolio is defined as the set of instruments that meet the requirements of (1) or (2) below.
(1)
The instrument is a securitisation position that meets the following requirements:
(a)
The instrument is not a re-securitisation position, nor a derivative of securitisation exposures that does not provide a pro rata share in the proceeds of a securitisation tranche, where the definition of securitisation positon is identical to that used in the credit risk framework.
(b)
All reference entities are single-name products, including single-name credit derivatives, for which a liquid two-way market exists10, including traded indices on these reference entities.
(c)
The instrument does not reference an underlying that is treated as a retail exposure, a residential mortgage exposure, or a commercial mortgage exposure under the standardised approach to credit risk.
(d)
The instrument does not reference a claim on a special purpose entity.
(2)
The instrument is a non-securitisation hedge to a position described above.
10 A two-way market is deemed to exist where there are independent bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid-ask quotes can be determined within one day and the transaction settled at such price within a relatively short time frame in conformity with trade custom.
