Purpose: To present a flow statement explaining variations in the RWA for market risk determined under the IMM approach.
Scope of application: The template is mandatory for AIs incorporated in Hong Kong that use the IMM approach for calculating their market risk capital requirements.
Content: RWA for market risk. Changes in RWA in the current reporting period for each of the key drivers should be based on an AI’s reasonable estimation of the figure.
Frequency: Quarterly.
Format: Fixed format. The columns and rows 1 and 8 are fixed. An AI may add additional rows between rows 7 and 8 to disclose additional elements that contribute to RWA variations.
Accompanying narrative:
An AI should supplement the template with a narrative commentary to explain any material movements in the current reporting period and the key drivers of such movements.
Corresponding BDR
1 RWA at previous quarter end 2 Movement in risk levels 3 Model updates/changes 4 Methodology and policy 5 Acquisitions and disposals 6 Foreign exchange movements 7 Other
8 RWA at end of reporting period
Explanatory Note Columns
(a) VaR: the movements of RWA that are attributed to VaR. The bottom-line RWA figure of this column is derived from multiplying the capital requirements reflecting the regulatory VaR (10 days 99%) plus any imposition of a factor due to back-testing exceptions and an additional plus factor assigned by the MA to the multiplication factor (mc) in accordance with section 319(1) of the BCR), by 12.5.
(b) Stressed VaR: the movements of RWA that are attributed to stressed VaR. The bottom-line RWA figure of this column is derived from multiplying the capital requirements reflecting the regulatory stressed VaR (10 days 99%) plus any imposition of a factor due to back-testing exceptions and an additional plus factor assigned by the MA to
Part VI – MR2 89
Explanatory Note
the multiplication factor (ms) in accordance with section 319(4) of the BCR), by 12.5.
(c) IRC: the movements of RWA that are attributed to IRC. The bottom-line RWA figure of this column is derived from multiplying the capital requirements as used for computing the IRC plus any additional capital charge due to the MA’s discretion (i.e. the imposition of a scaling factor (Sc) of higher than 1 by the MA by virtue of Division 11, Part 8 of the BCR), by 12.5.
(d) CRC: the movements of RWA that are attributed to CRC. The bottom-line RWA figure of this column is derived from multiplying the capital requirements as used for computing the CRC plus any additional capital charge due to the MA’s discretion (i.e. the supplemental capital charge referred to in Division 11, Part 8 of the BCR in respect of specific risk interest rate exposures that fall within a correlation trading portfolio), by 12.5.
(e) Other: this column captures any changes that could not be reflected in columns (a) to (d).
(f) Total RWA: the sum of values in columns (a) to (e) where the value in [MR2: 8/f] is also equal to the value in [OV1:
18/a]. The bottom-line RWA figure of this column is derived from multiplying the total capital charge for market risk on the basis of the IMM approach by 12.5.
Rows
1 RWA at previous quarter end: this row equals row 8 of this template of the last reporting period; moreover, the value in [MR2:1/f] is equal to the value in [OV1: 18/b].
If values in this row are calculated on the basis of average figures of the last 60 trading days before the period end, two additional reconciling rows may be added between rows 1 and 2 (namely rows 1a and 1b) so that the starting values of the flow statement could be reconciled from the basis of average figures to the basis of period-end figure, as shown below:
1 RWA at previous quarter end To report 60-day average value
1a Regulatory adjustment To report Δ between 60-day average value and period-end value
1b RWA at day-end of previous quarter To report period-end value
The two additional reconciling rows 1a and 1b are not necessary if the starting RWA values (which could be tied with the value in [OV1:18/b]) are already calculated on the basis of period-end figure.
2 Movement in risk levels: the changes due to position changes, e.g. arising from purchase, acquisition or disposal of underlying securities subject to the market risk capital framework (except for those arising from acquisition or disposal of business / product lines or entities which should be reported in row 5 of the template).
3 Model updates/changes: the change in RWA arising from any significant updates to the model to reflect recent experience (e.g. recalibration), as well as significant changes in model scope; if more than one model update has taken place, the AI may insert additional rows (to be named 3a, 3b and so on) for disclosure purpose.
4 Methodology and policy: the change in RWA arising from any methodological changes in calculations driven by regulatory policy changes, such as new regulations, in respect of the use of the IMM approach.
5 Acquisitions and disposals: the change in RWA arising from changes in book sizes due to acquisition or disposal of
Part VI – MR2 90
Explanatory Note
business/product lines or entities.
6 Foreign exchange movements: the changes in RWA driven by foreign exchange rate movements.
7 Other: this category should be used to capture changes in RWA that cannot be attributed to any other category above. An AI should add additional rows between rows 6 and 7 (to be named 6a, 6b and so on) to disclose any other material drivers of RWA movements in the current reporting period.
8 RWA as at end of reporting period: this row equals the sum of values in rows 1 to 7; moreover, the total sum reported in [MR2:8/f] is equal to the value in [OV1:18/a].
If values in this row are calculated on the basis of average figures of the last 60 trading days before the period end, two additional reconciling rows may be added between rows 7 and 8 (namely rows 7a and 7b) so that the ending values of the flow statement could be reconciled from the basis of period-end figure to the basis of average figures, as shown below:
7a RWA at day-end of previous quarter To report period-end value
7b Regulatory adjustment To report Δ between period-end value and 60-day average value
8 RWA at end of reporting period To report 60-day average value
The two additional reconciling rows 7a and 7b are not necessary if the ending RWA values (which could be tied with the value in [OV1:18/a]) are already calculated on the basis of period-end figure.
Part VI – MR3 91 Template MR3: IMM approach values for trading portfolios
Purpose: To disclose the values (maximum, minimum, average and period ending for the reporting period) resulting from the different types of models used for computing the regulatory market risk capital requirement at the group-wide level, before any additional capital charge is applied by the MA.
Scope of application: The template is mandatory for AIs incorporated in Hong Kong that use the IMM approach for calculating their market risk capital requirements.
Content: Outputs of internal models for computing market risk capital charge at the group-wide level according to the regulatory scope of consolidation.
Frequency: Semi-annual.
Format: Fixed.
Accompanying narrative:
An AI should supplement the template with a narrative commentary to explain any material movements in the current reporting period and the key drivers of such movements.
Corresponding BDR
Part VI – MR3 92
Explanatory Note Rows
1-4 VaR: the regulatory VaR used to compute the capital charge. The amounts reported in this row do not include the additional capital charge as a result of imposition of a plus factor due to back-testing exceptions, or an additional plus factor to the multiplication factor (mc) assigned by the MA according to Division 11, Part 8 of the BCR.
5-8 Stressed VaR: the regulatory stressed VaR used to compute the capital charge. The amounts reported in this row do not include the additional capital charge as a result of imposition of a plus factor due to back-testing exceptions, or an additional plus factor to the multiplication factor (ms) assigned by the MA according to Division 11, Part 8 of the BCR.
9-12 Incremental risk charge: the incremental risk charge as used for computing the capital charge. The amounts reported in this row do not include the additional capital charge as a result of imposition of a scaling factor (Sc) of higher than 1 by the MA according to Division 11, Part 8 of the BCR.
13-16 Comprehensive risk charge: the amounts reported in these rows should be un-floored figures.
17 Floor: the 8% of the market risk capital charge for specific risk calculated under the STM approach in accordance with Part 8 of the BCR.