To:
The Board of Directors of Conventional Commercial Banks, At your location.

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY OF THE REPUBLIC OF INDONESIA

NUMBER 23 /SEOJK.03/2022

CONCERNING

CALCULATION OF RISK-WEIGHTED ASSETS
FOR MARKET RISK FOR COMMERCIAL BANKS

In light of the implementation of the Financial Services Authority Regulation Number 11/POJK.03/2016 concerning Minimum Capital Requirements for Commercial Banks (State Gazette of the Republic of Indonesia Year 2016 Number 25, Supplement to the State Gazette of the Republic of Indonesia Number 5848) as amended by the Financial Services Authority Regulation Number 34/POJK.03/2016 concerning Amendments to the Financial Services Authority Regulation Number 11/POJK.03/2016 concerning Minimum Capital Requirements for Commercial Banks (State Gazette of the Republic of Indonesia Year 2016 Number 188, Supplement to the State Gazette of the Republic of Indonesia Number 5929), hereinafter referred to as POJK KPMM, Banks calculate Risk-Weighted Assets (RWA) for Market Risk in the calculation of the Minimum Capital Requirement (KPMM) ratio. Furthermore, with the emergence of new international standards in the document Basel III: Finalising post-crisis reforms which changes the method of calculating RWA for Market Risk, previously regulated in the Financial Services Authority Circular Letter Number 38/SEOJK.03/2016 concerning Guidelines for the Use of the Standardized Method in Calculating Minimum Capital Requirements for Commercial Banks by Considering Market Risk, it is necessary to regulate implementation provisions regarding the calculation of RWA for Market Risk in this Financial Services Authority Circular Letter as follows:

I. GENERAL PROVISIONS

In accordance with POJK KPMM, Banks calculate RWA for Market Risk in the calculation of the Minimum Capital Requirement (KPMM).
Market Risk is the risk of loss due to market value movements. Risks included in the scope of Market Risk include at least:
a. default risk, interest rate risk, credit spread risk, equity risk, exchange rate risk, and commodity risk, for Trading Book instruments; and b. exchange rate risk and commodity risk for Banking Book instruments.
Banks conduct Market Risk calculations as referred to in item 2 individually and on a consolidated basis.
Banks use one of two types of approaches in calculating RWA for Market Risk, namely:
a. the standardized approach; or b. the simplified standardized approach.
Banks may only use the simplified standardized approach if they meet the following requirements:
a. Banks that are not systemically important as referred to in the Financial Services Authority Regulation concerning the designation of systemic banks and capital surcharge; b. Banks do not have correlation trading positions exposure; and
c. approved by the Financial Services Authority.
The Financial Services Authority has the authority to designate Banks with relatively complex risks or certain sufficiently large risks to apply the standardized approach, even if the Bank meets the requirements as per letters a and b.
Banks that have used the simplified standardized approach in performing capital calculations for Market Risk must submit information to the Financial Services Authority in the event of a change in approach to using the standardized approach.
Banks that have used the standardized approach are not permitted to switch to using the simplified standardized approach.
Banks must use the standardized approach in performing capital calculations for Market Risk if the Bank has a portfolio consisting of:
a. securitization exposures; and/or b. equity investments in funds.
The method for calculating capital charges for Market Risk refers to Appendix A of this Financial Services Authority Circular Letter.

II. CALCULATION OF RWA FOR MARKET RISK FOR BANKS WITH SHARIA BUSINESS UNITS AND/OR RWA FOR MARKET RISK ON A CONSOLIDATED BASIS FOR BANKS WITH SUBSIDIARIES

The calculation of RWA for Market Risk for Banks individually for Banks that have a Sharia Business Unit (UUS) is done by combining the UUS exposure in the calculation of RWA for Market Risk for the Bank as a whole in accordance with this Financial Services Authority Circular Letter.
The calculation of RWA for Market Risk on a consolidated basis for Banks that have Subsidiaries is conducted as follows:
a. In the event that all of the Bank's Subsidiaries operate conventionally, the consolidated calculation of RWA for Market Risk is based on consolidated financial statements, namely the sum of:
1. RWA for Market Risk for the Bank individually; and
2. RWA for Market Risk for Subsidiaries conducting conventional business activities, implemented in accordance with this Financial Services Authority Circular Letter,
  after eliminating (set-off) transactions between entities within the consolidated business group.
b. In the event that some of the Bank's Subsidiaries conduct business activities based on Sharia principles, the consolidated Market Risk RWA calculation is the sum of:
1. RWA for Market Risk for the Bank individually, implemented in accordance with this Financial Services Authority Circular Letter;
2. RWA for Market Risk for Subsidiaries conducting conventional business activities, implemented in accordance with this Financial Services Authority Circular Letter; and
3. RWA for Market Risk for Subsidiaries conducting business activities based on Sharia principles, implemented in accordance with the Financial Services Authority Circular Letter regarding the calculation of risk-weighted assets for market risk using the standardized method for Sharia commercial banks,
  after eliminating (set-off) transactions between entities within the consolidated business group.

III. REPORTING

In order to calculate RWA for Market Risk, Banks submit reports both individually and on a consolidated basis as follows:

Market Risk Management Implementation Report
a. Banks submit the Market Risk Management Implementation Report to the Financial Services Authority as part of the self-assessment results of the Bank's health level. b. The Market Risk Management Implementation Report is submitted to the Financial Services Authority online through the Financial Services Authority reporting system.
c. The format and guidelines for filling out the Market Risk Management Implementation Report are in accordance with Appendix B, which is an integral part of this Financial Services Authority Circular Letter.
d. The method of submitting the Market Risk Management Implementation Report refers to the method of submitting self-assessment results of the Bank's health level in accordance with the Financial Services Authority Regulation concerning the reporting of commercial banks through the Financial Services Authority reporting system. e. The time limit and administrative sanctions for the submission of the Market Risk Management Implementation Report are implemented in accordance with the Financial Services Authority Regulation concerning the assessment of the health level of commercial banks. f. The Market Risk Management Implementation Report is first submitted for the end of December 2023 position.
RWA Calculation Report for Market Risk
a. Banks compile the RWA Calculation Report for Market Risk consisting of one of the following details:
1. details of RWA calculation for Market Risk using the standardized approach; or
2. details of RWA calculation for Market Risk using the simplified standardized approach.
  The report to be submitted by the Bank is adjusted to the criteria for applying the RWA for Market Risk capital calculation approach as regulated in Part I of this Financial Services Authority Circular Letter. b. Banks compile the RWA Calculation Report for Market Risk:
3. monthly, for Banks individually, submitted for the end of the month position; and
4. quarterly, for Banks on a consolidated basis, submitted for the end of the month positions in March, June, September, and December, for Banks that have Subsidiaries.
  c. The RWA Calculation Report for Market Risk is submitted to the Financial Services Authority online through the Financial Services Authority reporting system as part of the submission of structured reports of the Minimum Capital Requirement and Risk-Weighted Assets Report.
  d. In the event that the Financial Services Authority Reporting System for the structured report as referred to in letter c is not yet available, reporting is conducted in accordance with the submission of unstructured reports in accordance with the Financial Services Authority Regulation concerning the reporting of commercial banks through the Financial Services Authority reporting system. e. The method of online reporting through the Financial Services Authority reporting system as referred to in letters c and d, as well as administrative sanctions, are implemented in accordance with the Financial Services Authority Regulation concerning the reporting of commercial banks through the Financial Services Authority reporting system. f. Banks submit a trial of the RWA Calculation Report for Market Risk for the end of June 2023, September 2023, and December 2023 positions. g. The trial report as referred to in letter f is submitted online through the Financial Services Authority reporting system. h. The RWA Calculation Report for Market Risk is submitted for the first time:
5. for Banks individually, for the end of January 2024 position; and
6. for Banks on a consolidated basis, for the end of March 2024 position.
  i. The format and guidelines for filling out the RWA Calculation Report for Market Risk are in accordance with Appendix C and Appendix D, which are an integral part of this Financial Services Authority Circular Letter.

IV. PUBLICATION

Banks announce the Exposure and Capital Publication Report for Market Risk RWA.
The announcement of the Exposure and Capital Publication Report for Market Risk RWA is first conducted for the end of June 2024 position.
Banks announce the Exposure and Capital Publication Report for Market Risk RWA in accordance with the method regulated by the Financial Services Authority Regulation concerning transparency and publication of bank reports.
The format and publication period for the Exposure and Capital Publication Report for Market Risk RWA are in accordance with Appendix E, which is an integral part of this Financial Services Authority Circular Letter.

V. TRANSITIONAL PROVISIONS

RWA for Market Risk in this Financial Services Authority Circular Letter is first calculated in the KPMM ratio for the January 2024 position.
Until the December 2023 position, Banks remain:
a. calculating RWA for Market Risk in the KPMM ratio in accordance with the Financial Services Authority Circular Letter Number 38/SEOJK.03/2016 concerning Guidelines for the Use of the Standardized Method in Calculating Minimum Capital Requirements for Commercial Banks by Considering Market Risk; b. submitting the RWA Calculation Report for Market Risk in accordance with the Financial Services Authority Circular Letter Number 26/SEOJK.03/2020 concerning Reporting of Conventional Commercial Banks through the Financial Services Authority Reporting System; and
c. announcing the Exposure and Capital Publication Report for Market Risk RWA in accordance with the Financial Services Authority Circular Letter Number 9/SEOJK.03/2020 concerning Transparency and Publication of Conventional Commercial Bank Reports.

VI. CLOSING

At the time this Financial Services Authority Circular Letter comes into force:
a. Financial Services Authority Circular Letter Number 38/SEOJK.03/2016 concerning Guidelines for the Use of the Standardized Method in Calculating Minimum Capital Requirements for Commercial Banks by Considering Market Risk; b. Roman numeral II.A.6 and Roman numeral IV.4 in the Financial Services Authority Circular Letter Number 48/SEOJK.03/2017 concerning Guidelines for the Calculation of Net Receivables from Derivative Transactions in the Calculation of Risk-Weighted Assets for Credit Risk Using the Standardized Approach;
c. Roman numeral II.HH and Roman numeral II.II in the appendix of the Financial Services Authority Circular Letter Number 9/SEOJK.03/2020 concerning Transparency and Publication of Conventional Commercial Bank Reports; and
d. Roman numeral II.2.a.III in the appendix of the Financial Services Authority Circular Letter Number 26/SEOJK.03/2020 concerning Reporting of Conventional Commercial Banks through the Financial Services Authority Reporting System, are repealed and declared invalid as of January 1, 2024.
The provisions in this Financial Services Authority Circular Letter come into force on the date of determination.

Determined in Jakarta
On December 7, 2022

EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY
OF THE REPUBLIC OF INDONESIA,

signed
DIAN EDIANA RAE

This copy is in accordance with the original
Legal Director 1
Legal Department signed
Mufli Asmawidjaja

APPENDIX
FINANCIAL SERVICES AUTHORITY CIRCULAR LETTER
OF THE REPUBLIC OF INDONESIA
NUMBER 23 /SEOJK.03/2022
CONCERNING
CALCULATION OF RISK-WEIGHTED ASSETS FOR MARKET RISK FOR COMMERCIAL BANKS

GUIDELINES FOR THE CALCULATION OF RISK-WEIGHTED ASSETS FOR MARKET RISK FOR COMMERCIAL BANKS

TABLE OF CONTENTS

APPENDIX A................................................................................................- 14 -
I. General _________________________________________________________ - 14 -
II. Trading Book and Banking Book_________________________________ - 17 -

General Provisions for Grouping Trading Book and Banking Book
___________________________________________________________ - 17 -
Scope of Trading Book______________________________________ - 18 -
Scope of Banking Book _____________________________________ - 24 -
Prohibition of Transfer of Instruments between Regulatory Books___ - 25 -
Treatment of Internal Risk Transfers ________________ - 27 -
III. Definition of Trading Desk ___________________________________________ - 31 -
IV. Standardized Approach ____________________________________________ - 35 -
Overview and Structure ____________________________ - 35 -
Calculation of Capital Charge for Sensitivities Based Method - 37 -
Components of Sensitivities Based Method ______________________ - 46 -
a. GIRR Risk Factor____________________________________ - 46 - b. Non-Securitization CSR Risk Factor_____________________ - 51 -
c. Non-CTP Securitization CSR Risk Factor________________ - 52 -
d. CTP Securitization CSR Risk Factor____________________ - 53 - e. Equity Risk Factor _________________________________ - 54 - f. Commodity Risk Factor ______________________________ - 55 - g. Exchange Rate Risk Factor ______________________________ - 57 - h. Sensitivities ___________________________________________ - 59 -
i. Delta and Correlation Risk Weights_________________________ - 73 -
Calculation of Capital Charge for Default Risk Capital (DRC) - 102 -
a. General Calculation of DRC______________________ - 102 - b. DRC Calculation Requirements ________________________ - 102 -
c. Calculation of Capital Charge for Default Risk for
Non-Securitization Exposures ____________________________ - 105 - d. Calculation of Capital Charge for Default Risk for Non-CTP Securitization Exposures _________________________________ - 113 - e. Calculation of Capital Charge for Default Risk for CTP Securitization _____________________________________ - 117 -
Calculation of Capital Charge for Residual Risk Add On (RRAO)___ -
a. Instruments Included in RRAO_________ - 122 - b. Calculation of RRAO ___________________________________ - 125 -
V. Simplified Standardised Approach _____________________ - 126 -
Overview_________________________________________ - 126 -
Interest Rate Risk _______________________________________ - 127 -
a. General _______________________________________________ - 127 - b. Specific Risk _______________________________________ - 128 -
c. General Risk ________________________________________ - 137 -
d. Interest Rate Derivatives ________________________________ - 146 -
Equity Risk ____________________________________________ - 151 -
a. General _______________________________________________ - 151 - b. Offset _________________________________ - 152 -
c. Calculation of Specific Risk __________________________ - 153 -
d. Calculation of General Risk ___________________________ - 153 - e. Arbitrage Strategy Treatment__________________________ - 154 -
Exchange Rate Risk_________________________________________ - 156 -
a. General _______________________________________________ - 156 - b. Measuring Exposure in Single Currency _____ - 156 -
c. Measuring Exchange Rate Risk in Different Foreign Currencies
and Gold ___________________________________ - 158 -
Commodity Risk _________________________________________ - 158 -
a. General _______________________________________________ - 158 - b. Offset _________________________________ - 160 -
c. Simplified Approach__________ - 160 -
d. Maturity Ladder Approach _ - 161 -
General Guidelines and Calculation of Market Risk for
Option Transactions _________________________________________________ - 163 - a. General _______________________________________________ - 163 - b. Simplified Approach__________ - 164 -
c. Intermediate Approach _____ - 166 -
VI. Credit Valuation Adjustment____________________________________ - 172 -
Overview_________________________________________ - 172 -
Simplified Baseline Approach __________________ - 173 -
Calculation of CVA Capital Charge up to December 2023 Position ___________________________________________ - 176 -

APPENDIX B..............................................................................................- 178 -
I. General ________________________________________________________ - 178 -
II. Report Format _______________________________________________ - 178 -
III. Filling Guidelines ____________________________________________ - 178 -

APPENDIX C..............................................................................................- 180 -
I. General ________________________________________________________ - 180 -
II. Report Format _______________________________________________ - 181 -
III. Filling Guidelines ____________________________________________ - 185 -

APPENDIX D .............................................................................................- 190 -
I. General ________________________________________________________ - 190 -
II. Report Format _______________________________________________ - 192 -
III. Filling Guidelines ____________________________________________ - 204 -

Recapitulation of RWA Calculation for Market Risk _______ - 204 -
Interest Rate Risk _______________________________________ - 204 -
Equity Risk ____________________________________________ - 205 -
Exchange Rate Risk_________________________________________ - 206 -
Commodity Risk _________________________________________ - 206 -
Option Risk __________________________________________ - 207 -
Credit Valuation Adjustment (CVA) _________________________ - 208 -

APPENDIX E..............................................................................................- 209 -
I. General ________________________________________________________ - 209 -
II. Format and Filling Guidelines for Reports _______________________ - 210 -

Qualitative Information Disclosure related to General Market Risk (MRA) _____________________________________________ - 210 -
Disclosure of RWA for Market Risk Using the Standardized Approach (MR1) ________________________________ - 211 -
Disclosure of RWA for Market Risk Using the Simplified Standardised Approach (MR3) __________ - 212 -
Qualitative Information Disclosure related to Credit Valuation Adjustment (CVAA) ________________________________________ - 214 -
Simplified BA-CVA (CVA1) _____________________ - 214 -

APPENDIX A
CALCULATION OF RWA FOR MARKET RISK

I. General

Market Risk is the risk on balance sheet positions and administrative accounts, including derivative transactions, due to overall changes in market conditions, including the risk of changes in option prices.
Instruments mentioned in this Financial Services Authority Circular Letter consist of financial instruments, exchange rate instruments, and commodities. Financial instruments are any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial instruments include non-derivative financial instruments (cash instruments) and derivative financial instruments. Financial assets are any assets in the form of cash, a right to receive cash or another financial asset or commodity, or an equity instrument. Financial liabilities are a contractual obligation to deliver cash or another financial asset or commodity. Commodities also include intangible (non-physical) goods such as electricity.
The notional value of derivative instruments is equal to the product of:
a. the number of units of the underlying variable of the instrument; and b. the market value of each unit of the underlying asset.
All transactions, including forward sale and purchase transactions, are included in the capital charge calculation on the date the transaction is recorded. Banks are expected to be able to manage Market Risk so that the Bank can continuously meet the required capital, including at the end of every working day. The Financial Services Authority may take several actions to ensure that Banks do not apply portfolio window dressing strategies by showing Market Risk positions that are significantly lower on reporting days. Banks are required to maintain strict risk management systems to ensure there is no excessive intraday exposure. If Banks fail to meet the obligation to form minimum capital charges, the Financial Services Authority will ensure that the Bank immediately takes action to rectify the aforementioned condition.
Matching positions in currency risk (matched currency risk position) will protect the Bank from losses due to exchange rate movements, but will not necessarily maintain the Bank's KPMM ratio. If the Bank has capital in Rupiah and has a portfolio of assets and liabilities in foreign currencies that are all matched, the capital ratio will decrease if the Rupiah depreciates. By having a short risk position against the Rupiah, the Bank can maintain the KPMM ratio even though that short risk position can result in losses if the Rupiah currency value appreciates. The Bank can maintain the KPMM ratio in this way and exclude certain exchange rate risk positions from the net open currency risk position calculation, provided that each of the following conditions is met:
a. The risk position in question is taken with the aim of hedging partially or fully against possible exchange rate changes that may have an adverse effect on the KPMM ratio. b. The risk position in question is structural (i.e., not arising from transactions) such as positions arising from:
1. investments in foreign currencies in affiliated entities but not consolidated; or
2. investments in foreign currencies in consolidated subsidiaries or branches.
  c. The exclusion is limited to the amount of risk positions that neutralize the sensitivity of the KPMM ratio to exchange rate movements.
  d. The exclusion from calculation is applied for a minimum period of six months. e. The formation of structural exchange rate positions and any changes to its position must follow management policy

[End of provided text]

bank risk for structural exchange rate positions. This policy must be previously approved by the Financial Services Authority.

f. Exclusions from risk positions must be applied consistently, with exceptions for hedging treatment during the term of the asset or other items.

g. Banks must document the positions and amounts excluded from Market Risk capital requirements and, if required, provide access to the Financial Services Authority.

The calculation of capital charges for exchange rate risk is not required for positions that are factors reducing the Capital Adequacy Ratio (KPMM).
Ownership of capital instruments that reduce capital or receive a risk weight of 1250% (one thousand two hundred fifty percent) is not taken into account in the Market Risk framework, including:

a. ownership of capital instruments that meet the requirements as regulated in the POJK on KPMM; and/or

b. ownership of shares in other entities in the form of Banks, securities companies, and other financial institutions, as well as intangible assets, which meet the requirements and are taken into account as capital reductions as regulated in the POJK on KPMM.

Similar to the calculation of RWA for Credit Risk and Operational Risk, the calculation of capital charges for Market Risk applies on a consolidated basis.

a. The Financial Services Authority may allow Banks and other financial entities within the group that consolidate their Trading Book globally and have globally assessed capital to only take into account net short and net long risk positions without regard to where those positions are booked. Positions from subsidiaries that are not wholly owned will be subject to generally accepted accounting principles in the country where the parent company is supervised.

b. The Financial Services Authority may require individual risk positions to be included in the measurement system without being offset or netted against risk positions for other entities in the group. For example, when there are obstacles to rapidly repatriating profits from foreign subsidiaries or there are legal or procedural difficulties in consolidating risks in a timely manner.

Offsetting is the process of netting exposures by buying (long) and selling (short) risk positions on the same risk factor.

c. The Financial Services Authority has the authority to monitor Market Risk for each individual entity on an unconsolidated basis to ensure that irregularities within the group are not overlooked in supervision.

d. The Financial Services Authority is authorized to ensure that Banks do not cover up risk positions to avoid measuring Market Risk on the reporting day.

II. Trading Book and Banking Book

General Provisions for the Classification of Trading Book and Banking Book

a. Banks must have well-documented policies, procedures, and practices to determine which instruments will be classified into or excluded from the Trading Book for the purpose of calculating the Capital Adequacy Ratio (KPMM), ensuring compliance with the criteria set forth in this section, and considering the Bank's risk management capabilities and practices. The Bank's internal control function must continuously evaluate all instruments to assess whether the instruments held by the Bank have been correctly categorized as trading or non-trading instruments in the context of the Bank's trading activities. Compliance with policies and procedures must be fully documented and audited periodically (at least once every 1 (one) year), and the results must be available for the purposes of Financial Services Authority supervision.

b. The Financial Services Authority may request the Bank to provide evidence that instruments in the Trading Book are held for one of the trading purposes as regulated in this Financial Services Authority Circular. If the Financial Services Authority assesses that the Bank has not provided sufficient evidence or if the Financial Services Authority believes that the instrument is suitable for the Banking Book category, the Financial Services Authority may request the Bank to categorize the instrument into the Banking Book, unless the instrument in question is included in the list categorized as Trading Book instruments.

c. The Financial Services Authority may request the Bank to provide evidence that instruments in the Banking Book are not held for trading purposes. If the Financial Services Authority considers that the Bank has not provided sufficient evidence, or if the Financial Services Authority is convinced that the instrument should be categorized as Trading Book, then the Financial Services Authority may request the Bank to categorize the instrument into the Trading Book, unless the instrument in question is included in the list of instruments categorized as Banking Book.

Scope of Trading Book

a. The Trading Book consists of all instruments that meet the requirements as Trading Book instruments established in this Financial Services Authority Circular. All other instruments must be included in the Banking Book.

b. Banks may only include financial instruments, exchange rate instruments, or commodities in the Trading Book if there are no legal obstacles to selling or fully hedging the instrument in question.

Hedging is a process to suppress risk (counterbalancing) from exposure to long and short risk positions in correlated instruments.

c. Banks must calculate the fair value of Trading Book instruments daily and record any changes in value in the profit and loss account.

d. Instruments reported under the fair value option may be allocated to the Trading Book, but only if they meet all requirements for Trading Book instruments regulated in this section.

e. Any instrument held by the Bank for one or more of the following purposes is designated as a Trading Book instrument when first booked:

short-term trading;
taking advantage of short-term price movements;
locking in arbitrage profits; and/or
hedging risk arising from instruments that meet criteria 1), 2), or 3) above,

unless there are legal obstacles as in letter b or included in instruments categorized as Banking Book.

f. Periodic selling activity alone is not sufficient to meet the requirements for positions held for short-term trading as referred to in letter e.

g. Each of the following instruments, unless there are legal obstacles as referred to in letter b or included in instruments categorized as Banking Book as referred to in item 3, is considered held for at least 1 (one) of the Trading Book purposes listed in letter e and must be categorized in the Trading Book. The instruments are:

Instruments in the correlation trading portfolio. A correlation trading portfolio is a set of instruments that meet requirements a) or b) below:

a) the instrument in question is a securitization position that meets the following requirements:

i. this instrument is not a resecuritization position or not a derivative of securitization exposure, which does not provide a pro-rata share of the securitization tranche results, where the definition of securitization position used is identical to the definition in the Credit Risk framework;

ii. all reference entities are single-name products, including single-name credit derivatives, where there is a liquid two-way market, including indices traded on these reference entities.

A two-way market is considered available when there is a bona fide independent offer to buy and sell so that a fair price related to the last sale price or current competitive and bona fide bid-ask quotation can be determined within one day and the transaction is settled at that price within a relatively short time frame according to trading rules;

iii. the instrument does not refer to an underlying variable that is treated as retail exposure, residential mortgage credit exposure, or commercial real estate credit exposure, based on the Standardized Approach for Credit Risk calculations; and

iv. the instrument does not refer to claims on special purpose entities; or

b) the instrument is a non-securitization hedge for the positions described above.

Instruments that will result in a net short position in credit or equity in the Banking Book.

A Bank will have a net short risk position for Credit Risk or equity risk in the Banking Book if the present value of the Banking Book increases when the credit spread of an issuer or group of debt issuers increases or when the price of an equity decreases.

Instruments resulting from underwriting commitments, where underwriting commitments only refer to the underwriting of securities, and only relate to securities expected to be truly purchased by the Bank on the settlement date.

h. In the event that a credit default swap (CDS) is used to protect credit in the Banking Book but results in a net short credit position, the CDS instrument in question or similar instruments that result in a net short credit or equity position in the Banking Book must be designated in the Trading Book, unless Trading Book treatment is explicitly excluded for certain types of positions. For example, the net short position resulting from such instruments (i.e., the amount that cannot be offset with long positions) must be treated as a Trading Book position and subject to the calculation of capital charges for Market Risk.

i. The following instruments are assumed to be held for trading purposes as in letter e and can therefore be categorized as Trading Book instruments, unless there are legal obstacles as referred to in letter b or included in Banking Book instruments as referred to in item 3.

Instruments held as assets or liabilities treated as trading according to accounting standards.
Instruments arising from market-making activities.
Equity investments in funds that meet the following requirements:

a) The Bank can look through to their individual components and there is information provided to the Bank regarding the composition of the fund that is adequate and periodic and verified by an independent third party; or

b) The Bank obtains daily quotes for the fund and has access to information included in the fund's mandate or in the provisions of laws and regulations governing investment funds.

The look-through approach is an approach where the Bank determines the relevant capital charge calculation for underlying asset positions as if the positions were directly held by the Bank down to their individual components.

Equity listed on an exchange.

Based on the Financial Services Authority's assessment, certain equity listed on an exchange may be excluded from Market Risk calculations. Examples of equity that can be excluded include:

a) equity positions arising from deferred compensation plans;

b) convertible bonds;

c) loan products with interest paid in the form of equity kickers;

d) equity arising from previously agreed debt; and

e) life insurance products held.

A collection of equity listed on an exchange planned to be excluded from the Market Risk framework must be submitted and discussed with the Financial Services Authority, and must be managed by a desk separate from the desk for short-term trading or proprietary trading.

Repo transactions related to trading. Repo transactions related to trading consist of transactions carried out for the purpose of market-making, locking in arbitrage profits, or creating short credit or equity positions.

Repo transactions that:

a) are carried out for liquidity management; and

b) are valued on an accrual basis for accounting purposes are not part of the Trading Book as referred to in this section.

Option rights, including embedded derivatives from instruments issued from the Banking Book and related to Credit Risk or equity risk.

a) Embedded derivatives are components of hybrid contracts that include a non-derivative host (such as liabilities arising from the Banking Book) attached with a derivative component.

b) Liability instruments arising from the Bank's Banking Book containing embedded derivatives need to be separated into 2 (two) components. The first component is the embedded derivative treated as Trading Book, and the second component is the remaining liability treated as Banking Book. There is no need for internal risk transfer for this bifurcation.

Similarly, in the event that such liabilities are cancelled or options attached to the instrument are exercised, both the Trading Book component and the Banking Book component are conceptually cancelled simultaneously and directly derecognized. Thus, transfers between the Trading Book and Banking Book are not required.

c) In the event that a Bank hedges the currency of a Banking Book position using an exchange rate option, the Bank needs to manage the risk of the option in question in the list of instruments assumed to be Trading Book in this section. The Bank may only designate the option in question as Banking Book with the written approval of the Financial Services Authority.

d) Option rights regulated in this section also include floor options on equity-linked bonds. This floor instrument is an option attached to equity as part of the underlying variable. Therefore, this attached option needs to be separated and categorized into the Trading Book.

j. Banks are allowed to group differently from the list of assumed instruments as referred to in letter i according to the process established below:

In the event that the Bank assesses that a deviation from the designation of instruments assumed to be held for trading purposes as referred to in letter i is necessary, the Bank must submit a request to the Financial Services Authority to obtain approval. In the request, the Bank must provide evidence that the instrument is not held for the purposes referred to in letter e.
In the event that the Financial Services Authority does not grant approval, the instrument in question must be categorized as a Trading Book instrument.

The Bank must document the deviation as referred to in item 1) in detail and continuously.

Scope of Banking Book

a. Any instrument that is not held for trading purposes as referred to in item 2 letter e at the time of the initial transaction, or is not included in instruments as referred to in item 2 letter i, must be categorized into the Banking Book.

b. The following instruments are included in the Banking Book:

equity not listed on an exchange;
instruments designated for securitization warehousing;
direct real estate ownership and derivatives over such direct ownership;
retail credit and micro, small, and medium enterprise (MSME) credit, including commitments for retail credit and MSME credit;
hedge funds;
derivative instruments and funds that have the above types of instruments as underlying assets; or
instruments held for the purpose of hedging specific risks in positions of the above types of instruments.

Prohibition of Transfer of Instruments between Regulatory Books

a. Besides for the purpose of Banking Book and Trading Book classification as referred to in item 2 and item 3, there are strict limitations on Banks transferring instruments between the Trading Book and Banking Book based on the Bank's own discretion, as regulated in this section.

b. Transfers of instruments for the purpose of regulatory arbitrage are not allowed. In practice, such transfers rarely occur and will only be allowed by the Financial Services Authority in extraordinary circumstances. Examples of extraordinary circumstances announced to the public include:

Bank restructuring that results in the permanent closure of a trading desk, requiring the cessation of business activities applicable to related instruments or portfolios; or
changes in accounting standards that allow an instrument to be valued at fair value through profit and loss.

Events related to market conditions, changes in the liquidity of financial instruments, or changes in trading purposes alone are not permissible reasons for transferring instruments between the Trading Book and Banking Book. If positions are transferred from one book to another, the Bank must ensure compliance with the scope of Trading Book instruments as referred to in item 2 and the scope of Banking Book instruments as referred to in item 3.

c. Changes in accounting standards as referred to in letter b refer to the accounting standards themselves, not changes in the accounting classification of the instruments in question.

d. Without exception, a reduction in the Bank's capital charge obligation as a result of transferring positions between the Trading Book and Banking Book is not allowed to be calculated in capital. The Bank must determine the capital charge calculation (in the Banking Book and Trading Book) before and immediately after the transfer. If the capital charge obligation decreases as a result of the transfer, the difference measured at the time of transfer will be imposed on the Bank as an additional Pillar 1 capital charge (surcharge). This additional capital charge provision may be run-off when the instruments undergoing transfer between the Trading Book and Banking Book expire or mature, in the manner approved by the Financial Services Authority. For operational simplification, the calculation of the additional capital charge does not need to be recalculated continuously, even though the instruments undergoing transfer between the Trading Book and Banking Book continue to be taken into account continuously for determining the capital charge according to the book where the positions have been transferred.

e. Any reassignment of instruments between the Banking Book and Trading Book must be approved by the Bank's Board of Directors and the Financial Services Authority. Any reallocation of securities between the Trading Book and Banking Book, including transactions at arm's length directly, must be considered a reassignment of securities with the following requirements:

All reassignments must:

a) be approved by the Bank's Board of Directors and fully documented;

b) be determined based on internal review to align with Bank policy;

c) be approved by the Financial Services Authority based on supporting documentation provided by the Bank; and

d) be disclosed to the public.

Each reassignment is irrevocable, except due to changes in the characteristics of a position.
If an instrument is reclassified as a trading asset or liability according to accounting standards, this instrument is assumed to be Trading Book as described in item 2 letter i. In this case, the transfer can be carried out without the approval of the Financial Services Authority.

f. As per the requirements in letter e, in the event that an instrument is reclassified as a trading asset or liability according to accounting standards, the transfer from the Banking Book to the Trading Book can be carried out automatically without the approval of the Financial Services Authority. However, the transfer of instruments from the Trading Book to the Banking Book requires the approval of the Financial Services Authority. Transferring instruments between the Trading Book and Banking Book should rarely occur.

g. Banks must have appropriate policies and update them periodically (at least once every 1 (one) year). The update must refer to an analysis of all extraordinary circumstances identified in the previous year. The policy update and its changes must be submitted to the Financial Services Authority. The policy must include at least:

provisions restricting reclassification as referred to in letters a through f, specifically regarding the restriction on reclassification between Trading Book and Banking Book which is only allowed in extraordinary circumstances, and an explanation of the conditions or criteria for such;
the process for obtaining approval for such transfers from the Board of Directors and the Financial Services Authority;
the process for identifying extraordinary circumstances by the Bank; and
requirements for reclassifying instruments to and from the Trading Book to be disclosed to the public on the nearest reporting date.

Treatment of Internal Risk Transfers

Internal risk transfer is an internal documentation recording risk transfers, in the Banking Book, between the Banking Book and Trading Book, or within the Trading Book (i.e., between different desks).

Internal risk transfers from the Trading Book to the Banking Book are not recognized in the capital charge calculation. Thus, if a Bank carries out an internal risk transfer from the Trading Book to the Banking Book (for example, for economic reasons), this internal risk transfer is not taken into account in determining the capital charge.

For internal risk transfers from the Banking Book to the Trading Book, the following requirements will apply.

a. Internal Risk Transfer for Credit Risk and Equity Risk from Banking Book to Trading Book

When a Bank hedges Credit Risk exposure or equity risk exposure in the Banking Book using a hedging instrument purchased through the Trading Book (i.e., using internal risk transfer):

a) Credit exposure in the Banking Book is considered to have obtained hedging for the purpose of capital charge calculation if:

i. The Trading Book obtains external hedging with the same third-party protection provider as the internal risk transfer in question; and

ii. the external hedging meets the requirements as referred to in the Financial Services Authority's provisions regarding the calculation of risk-weighted assets for market risk for commercial banks.

b) Equity exposure in the Banking Book can be considered to have obtained hedging for the purpose of capital charge calculation if:

i. The Trading Book obtains external hedging with the same third-party protection provider as the internal risk transfer in question; and

ii. External hedges are recognized as hedges of equity exposures in the Banking Book.
c) External hedges for the purposes referred to in letter a) may consist of several transactions with several counterparties, provided that the aggregate external hedge is exactly equal to the internal risk transfer, and the internal risk transfer is exactly equal to the aggregate external hedge.

In the event that the requirements in item 1) are met, the Banking Book exposure is considered hedged by the Banking Book leg of the internal risk transfer for the purpose of calculating capital charges in the Banking Book. Furthermore, both the Trading Book legs of the internal risk transfer and the external hedge must be included in the capital charge calculation for Market Risk.
In the event that the requirements in item 1) are not met, the Banking Book exposure is not considered hedged by the Banking Book leg of the internal risk transfer for capital purposes in the Banking Book. Furthermore, third-party external hedges must be fully included in the capital charge calculation for Market Risk, and the Trading Book leg of the internal risk transfer must be fully excluded from the capital charge calculation for Market Risk.
Short positions in credit in the Banking Book or short positions in equity in the Banking Book resulting from internal risk transfers are not calculated in the Banking Book capital charge calculation, but are instead calculated in the Market Risk capital charge calculation. For example, a Banking Book instrument that experiences over-hedging due to documented internal risk transfer transactions will result in the emergence of a short risk position within the Banking Book.

b. Internal Risk Transfer for General Interest Rate Risk from the Banking Book to the Trading Book

When a Bank hedges interest rate risk exposures in the Banking Book using internal risk transfers with the Trading Book, the Trading Book leg of the internal risk transfer is treated as a Trading Book instrument within the Market Risk framework if:
a) the internal risk transfer is documented in relation to the hedging of Banking Book interest rate risk and its risk sources; b) the internal risk transfer is conducted with a trading desk that specifically handles internal risk transfers; c) the internal risk transfer must be taken into account in the capital charge calculation for the Trading Book within the Market Risk framework on a stand-alone basis for the desk that specifically conducts internal risk transfers, separate from general interest rate risk or other Market Risks resulting from activities in the Trading Book.

Stand-alone means that the risk positions are recorded in a separate Trading Book portfolio and are not diversified, so that the risks associated with the aforementioned risk positions cannot:
(1) diversify, hedge, or offset opposite positions; or (2) be diversified, hedged, or offset with opposite positions.

In the event that the requirements in item 1) are met, the Banking Book leg of the internal risk transfer must be included in the calculation of interest rate risk exposures in the Banking Book for capital adequacy purposes.
Desks handling internal risk transfers may purchase hedging instruments from the market (external parties to the Bank). Alternatively, the desk handling internal risk transfers may obtain hedging instruments from the market through a separate trading desk not involved in internal risk transfers as an agent, provided that the internal risk transfer is exactly matching (matching) with the external hedging conducted with market parties. In such conditions, each leg of the internal risk transfer for general interest rate risk is included in the calculation of the desk handling internal risk transfers and the desk not handling internal risk transfers.

c. Internal Risk Transfer within the Scope of Applying Capital Charge Calculation for Market Risk

Internal risk transfers between trading desks within the scope of applying capital charge calculation for Market Risk (including exchange rate risk and commodity risk within the Banking Book) will generally be recognized in the capital calculation.
Internal risk transfers between the desk handling internal risk transfers and other trading desks will only be recognized in the capital calculation if the limitations in letter b are met.
The Trading Book leg of the internal risk transfer must meet the same requirements as in Section II as instruments in the Trading Book transacted with external counterparties.

III. Definition of Trading Desk

A trading desk is a group of traders or trading accounts that implement a well-defined business strategy and operate within a clear risk management structure. Trading strategies on the trading desk are established with the aim of generating revenue or maintaining market positions by taking and managing risk.
Trading desks are determined by the Bank considering the following:
a. The Bank establishes the trading desk structure in accordance with its respective organizational structure; and b. The Bank prepares policy documents for each trading desk it determines, and documents how the Bank meets the main elements in this section.
The Bank may form operational sub-desks used for internal operational purposes.
Key elements of a trading desk are as follows:
a. A trading desk is a clearly established group of traders or trading accounts.

A trading account is an unambiguous observation unit in the context of accountability for trading activities.
A trading desk has one head trader and may have up to two head traders as long as their roles, responsibilities, and authorities can be clearly separated or one head trader has supervision over the other head trader.
a) The head trader has direct supervision over the group of traders or trading accounts. b) Each trader or trading account within the trading desk has a clear specialization.
Each trading account is placed within one trading desk. The aforementioned trading desk has a clear scope of risk consistent with previously established objectives. The scope includes specifications of the trading desk's risk class as a whole and allowed risk factors.
Generally, each trader (as well as head trader) is allocated to only one trading desk. The Bank may apply different approaches and assign individual traders to work in several trading desks based on good management, business, and/or resource allocation considerations.
A trading desk has a clear reporting line to the Bank's Board of Directors and has clear and formal compensation policies related to the established objectives of the trading desk.

b. A trading desk has a clear and well-documented business strategy, considering the following:

There is a clear description of the economic concept in the business strategy for the trading desk, its main activities, and trading or hedging strategies.
a) The economic concept behind the established strategy, for example:
(1) whether trading is based on interest rate curve shapes; (2) how much activity is customer-driven; and (3) whether it includes origination and structuring service activities, or execution services, or both. b) Main activities, including a list of allowed instruments and the most frequently traded instruments. c) Trading or hedging strategies, including among others how instruments are hedged, estimated mismatches of the aforementioned hedges, and expected holding periods for such positions.
The management team in the trading desk (starting from the head trader) has a clear annual plan for budgeting and staffing in the trading desk.
The documented business strategy of the trading desk includes regular management information reports, which among others include revenue, costs, and risk-weighted assets for the trading desk.

c. A trading desk has a clear risk management structure, considering the following:

As a form of risk management responsibility, the Bank identifies key groups and personnel responsible for overseeing risk-taking activities in the trading desk.
A trading desk clearly defines trading limits based on the business strategy of the trading desk, and such limits are reviewed at least once (1) a year by the Bank's Board of Directors. In setting limits, the trading desk has:
a) trading limits determined adequately at the trading desk level based on appropriate Market Risk metrics (e.g., sensitivity to credit spread risk and/or jump to default (JTD) for credit trading desks), or at least having an overall notional limit; and b) well-defined trader mandates.
A trading desk produces at least weekly risk management reports, and includes at least:
a) a profit and loss report to be reviewed periodically, validated, and adjusted (if necessary) by an independent part (e.g., Product Control); and b) a risk measurement report for internal purposes and for supervisory purposes.

d. The Bank compiles and evaluates data on all trading desks, and if necessary, provides access to the Financial Services Authority (OJK). The aforementioned data includes among others:

aging reports of financial instruments;
daily limits including exposures, limit breaches, and follow-up actions;
intraday limits and utilization as well as limit breaches for Banks with active intraday trading; and
market liquidity assessments.

e. Certain traders, for example, the head of the trading desk or head of the treasury department, are allowed to hold ownership and responsibility for both the Trading Book and Banking Book portfolios.

IV. Standard Approach

Overview and Structure

a. RWA for Market Risk based on the standard approach is determined by multiplying the capital charge calculation as regulated in this Financial Services Authority Circular by a multiplier factor of 12.5 (twelve point five).

b. In addition to being done when submitting the RWA Report for Market Risk, the Bank performs the RWA capital charge calculation for Market Risk using the standard approach upon request by the Financial Services Authority.

c. The capital calculation for the standard approach is the sum of 3 (three) components, namely the capital charge calculation with the sensitivities-based method, the capital charge calculation for default risk (DRC), and the residual risk add-on (RRAO).

The capital charge calculation with the sensitivities-based method must be performed by combining 3 (three) types of risk measurements, namely delta, vega, and curvature. Sensitivity is the Bank's estimate of the change in instrument value due to changes in one of the risk factors of the underlying asset.
a) Delta risk is a measure of risk based on the sensitivity of the instrument to the established delta risk factor. Delta risk is a linear estimate of the change in the value of a financial instrument due to movements in the value of the risk factor. b) Vega risk is a measure of risk based on sensitivity to the established vega risk factor. Vega risk is the potential loss resulting from changes in the value of derivatives due to changes in the implied volatility of the underlying asset. c) Curvature risk is a measure of risk based on additional risk not covered by delta risk measures for price changes in an option right. Curvature risk is based on 2 (two) stress scenarios involving upward shock and downward shock for each established risk factor. d) The 3 (three) risk measurements in letter a), letter b), and letter c) are calculated using risk weights to be applied when calculating risk factor sensitivities. To perform the overall capital charge calculation, risk-weighted sensitivities are aggregated considering specific correlation parameters, so as to take into account the benefits of diversification of various risk factors.

Diversification causes a reduction in risk at the portfolio level because the Bank has risk positions in different instruments that are not perfectly correlated with each other. To address the risk of possible increases or decreases in correlation during financial stress periods, the Bank needs to perform capital charge calculations for the sensitivities-based method using 3 (three) different scenarios as regulated in this Financial Services Authority Circular.

The capital charge calculation for DRC is intended to calculate JTD risk for instruments with Credit Risk as regulated in this Financial Services Authority Circular. The DRC capital charge calculation is calibrated based on the Banking Book Credit Risk approach to reduce potential differences in capital calculations for similar risk exposures. Hedges can be recognized for similar types of exposures (corporate, central government, and local government).
The RRAO calculation is intended to ensure adequate coverage of Market Risk for instruments with exotic underlyings and instruments with other residual risks, given that not all Market Risks can be fully covered in the standard approach.

Capital Charge Calculation for the Sensitivities-Based Method

a. Sensitivities of financial instruments to risk factors are used to calculate capital charges for delta risk, vega risk, and curvature risk. The aforementioned sensitivities are multiplied by risk weights and then summed, first by risk bucket (risk factors with similar characteristics) and then between buckets in the same risk class as established in this section. The following terminology is used in the sensitivities-based method:

A risk class is a type of risk used in calculating RWA for Market Risk. The aforementioned risk classes are as follows:
a) general interest rate risk, hereinafter abbreviated as GIRR; b) non-securitized credit spread risk, hereinafter called non-securitized CSR; c) non-correlation trading portfolio securitized credit spread risk, hereinafter called non-CTP CSR; d) correlation trading portfolio securitized credit spread risk, hereinafter called CTP CSR; e) equity risk; f) commodity risk; and g) exchange rate risk.
A risk factor is a variable (e.g., equity price or maturity of the interest rate curve) that affects the value of the instrument.
A bucket is a group of risk factors grouped based on similar characteristics (e.g., all tenors of the interest rate curve for the same currency).
A risk position is the risk portion of an instrument related to a risk factor.
a) For delta and vega risks, the risk position is the sensitivity to the risk factor. b) For curvature risk, the risk position is based on the loss from 2 (two) stress scenarios.
Capital charge is the amount of capital that must be held by the Bank as a consequence of risk exposure, with the calculation being the aggregation of risk positions at the bucket level, and then between buckets in 1 (one) same risk class as regulated in this Financial Services Authority Circular.

b. In applying the sensitivities-based method, all instruments held on trading desks as regulated in Section III and within the scope of the sensitivities-based method (excluding instruments whose value at any time is solely influenced by exotic underlying variables) are subject to capital charge calculation for delta risk. Furthermore, the following Trading Book instruments are also subject to capital charge calculation for vega and curvature risk:

Instruments with optionality.
For example, any instrument that is an option right or has an option right (e.g., embedded option rights such as prepayment depending on convertibility or interest rates, and those included in the scope of capital charge provisions for Market Risk). Examples of instruments with optionality are call, put, cap, floor, swaption, barrier option, and exotic option.
Any instrument with an embedded prepayment option right.
This instrument is considered an instrument with optionality as mentioned in item 1). Embedded option rights are subject to capital charges for vega risk and curvature risk related to the interest rate risk class and CSR risk class (non-securitized and securitized). When the prepayment option right is a behavioral option right, the instrument may also be subject to RRAO. The Bank's pricing model must reflect the relevant behavioral pattern. For securitization tranches, instruments in the securitization portfolio may be prepayment option rights. In this case, the securitization tranche may be subject to RRAO. An instrument with a prepayment option right is a debt instrument that gives the debtor the right to pay part or all of the loan principal before the contractual maturity date without having to compensate for potential lost interest. The debtor can exercise this option right to obtain financial benefit by obtaining financing for the remaining maturity of the instrument at a lower interest rate in the market.
Instruments whose cash flows do not reflect a linear function of the notional of the underlying variable.
For example, the cash flows generated by plain-vanilla option rights cannot be reflected as a linear function because they are the maximum value of spot and strike. Therefore, all option rights are subject to capital charge calculation for vega risk and curvature risk. Instruments whose cash flows reflect a linear function of the notional of the underlying variable are instruments without optionality (e.g., cash flows generated from bonds with coupons) and are not within the scope of capital charge calculation based on vega risk or curvature risk.
Curvature risk can be calculated for all instruments that have delta risk, not limited to instruments that have vega risk as determined in items 1) to 3). For example, if the Bank manages the risk of non-linear instruments with optionality and other instruments holistically, the Bank may choose to include non-optionality instruments in the curvature risk calculation. This treatment is allowed provided that:
a) the use of this approach must be applied consistently; and b) curvature risk must be calculated for all instruments regulated based on the sensitivities-based method.

c. Process of Capital Charge Calculation based on the Sensitivities-Based Method

Capital Charge Calculation for Delta Risk and Vega Risk in Each Risk Class
For each risk class, the Bank must determine the sensitivity of its instruments to the established risk factors, multiply the aforementioned sensitivities by risk weights, and sum the risk-weighted sensitivities separately for delta and vega risk using the following steps:

a) Calculation of sensitivities for each risk factor. b) Sensitivities to the same risk factor must be netted to produce net sensitivity sk for all instruments in the portfolio for each risk factor k. In calculating net sensitivity, all sensitivities to the same risk factor (e.g., all sensitivities to the 1 (one) year tenor point of the three-month Euribor swap curve) from instruments with opposite positions must be offset, regardless of the instrument's origin. For example, if the Bank's portfolio consists of 2 (two) interest rate swaps on three-month Euribor with fixed rates and the same notional but with opposite positions, the GIRR in that portfolio will be zero.

c) Risk-weighted sensitivity WSk is the product of net sensitivity sk and risk weight RWk.

WSk = RWk * sk

d) Aggregation in bucket: The risk position for delta (or vega) of a bucket b (Kb) must be determined by summing the risk-weighted sensitivities to risk factors in the same bucket using the correlation (𝜌kl) established in the following formula, with the maximum value of the calculation result in the square root function established with a lower bound of zero:

Kb = √max(0, ∑k WSk² + ∑k≠l ∑l ρkl WSk WSl)

e) Aggregation between buckets: The capital charge calculation for delta or vega risk is calculated by summing the risk positions across all delta or vega buckets in each risk class using the correlation (𝛾bc) as established in the following formula:

Delta or Vega = √∑b Kb² + ∑b ∑c≠b γbc Sb Sc

where:
(1) Sb = ∑k WSk for all risk factors in bucket b, and Sc = ∑k WSk in bucket c.
(2) If the values of Sb and Sc as in item (1) result in a negative number for the total sum of ∑b Kb + ∑b ∑c≠b γbc Sb Sc, the Bank will perform the capital charge calculation for delta or vega risk using an alternative specification where:
(a) Sb = max[min(∑k WSk, Kb), −Kb] for all risk factors in bucket b; and (b) Sc = max[min(∑k WSk, Kc), −Kc] for all risk factors in bucket c.

Capital Calculation for Curvature Risk in Each Risk Class
In each risk class, to perform the capital charge calculation for curvature risk, the Bank must apply upward shock and downward shock for

each risk factor determined and calculating additional losses on instruments sensitive to risk factors already accounted for in the delta capital charge calculation, using the following steps:
a) For each instrument sensitive to curvature risk factor k, an upward shock and a downward shock must be applied to k. The size of the shock, i.e., the risk weight, is set forth in this Otoritas Jasa Keuangan Circular. (1) As an example for GIRR, all tenors of all risk-free interest rate curves in a specific currency (e.g., three month Euribor, six month Euribor, one year Euribor, and others for the euro currency) must use an upward shock scenario by applying the risk weight in this Otoritas Jasa Keuangan Circular. The potential loss resulting for each instrument, after subtracting delta risk positions, is the result of the upward scenario. The same approach must be followed for the downward scenario. (2) If the price of an instrument depends on several risk factors, curvature risk must be determined separately for each risk factor. b) The capital charge for net curvature risk, determined by the values of CVRk+ and CVRk− for the Bank's portfolio with risk factor k as described in letter a), is calculated using the formula below. The following formula calculates the aggregate additional loss beyond the delta capital charge calculation for the specified shocks:
CVRk+ = −∑{Vi (xkRW(Kurvatur)+) − Vi(xk) − RWkKurvatur x sik} i CVRk− = −∑{Vi(xkRW(Kurvatur)−) − Vi(xk) + RWkKurvatur x sik} i

where:
(1) i is an instrument subject to curvature risk related to risk factor k; (2) xk is the current level of risk factor k; (3) Vi(xk) is the price of instrument i at the current level of risk factor k; (4) Vi (xk(RW(Kurvatur)+)) and Vi (xk(RW(Kurvatur)−)) indicate the price of instrument i after applying upward and downward scenarios on xk; (5) RWk(curvature) is the risk weight for curvature risk factor k for instrument i; and (6) sik is the delta sensitivity of instrument i with respect to the delta risk factor corresponding to curvature risk factor k, where:
(a) for risk classes of exchange rates and equities, sik is the delta sensitivity of instrument i; and (b) for risk classes of GIRR, CSR, and commodity risk, sik is the sum of delta sensitivities for all tenors of instrument i's relevant curve with respect to curvature risk factor k. c) Aggregation in buckets: curvature risk exposure must be summed in each bucket using correlation 𝜌kl as established in the following formula:
Kb = max (Kb+, Kb−), where:
Kb+ = √max(0,∑max(CVRk+, 0)k + ∑∑ρklCVRk+CVRl+Ψ(CVRk+, CVRl+)l≠k k Kb− = √max(0,∑max(CVRk−, 0)k + ∑∑ρklCVRk−CVRl−Ψ(CVRk−, CVRl−)l≠k k with the following explanation:
(1) The bucket-level capital charge (Kb) is determined as the maximum capital charge between the capital charge based on the upward scenario (Kb+) and the downward scenario (Kb−). The selection of the upward and downward scenarios does not have to be the same for all high, medium, and low correlation scenarios specified in this Otoritas Jasa Keuangan Circular. (a) If Kb = Kb+, the Bank chooses the upward scenario. (b) If Kb = Kb−, the Bank chooses the downward scenario. (c) In the special case where Kb+ = Kb−, if ∑ CVRk+k > ∑ CVRk−k, it is established that the upward scenario is chosen. Otherwise, the downward scenario is chosen. (2) Ψ(CVRk, CVRl) is set at 0 if both CVRk and CVRl have negative signs, and 1 if otherwise. d) Aggregation between buckets, i.e., curvature risk positions, must then be summed for all buckets in each risk class using correlation 𝛾bc determined by the following formula:
Curvature Risk = √max(0,∑Kb2 + ∑∑γbcSbScΨ(Sb,Sc)b c≠b b where:
(1) Sb = ∑ CVRk+k for all risk factors in a bucket b, when the upward scenario has been chosen for bucket b as per letter c) number (1). If not, then Sb = ∑ CVRk−k; and (2) Ψ(Sb,Sc) is set at 0 if both Sb and Sc have negative signs, and 1 if otherwise. e) The delta used for the capital calculation for curvature risk must be the same as that used to calculate delta risk. The assumptions used for delta calculation (i.e., sticky delta for normal or log normal volatility) must also be used to calculate the price of instruments evaluated with small (shifted) or large (shocked) movements. f) Banks must determine each delta sensitivity, vega sensitivity, and curvature scenario based on the instrument price or pricing model used by the Bank's independent risk control unit to report Market Risk or actual profit and loss to the Board of Directors. Banks must use zero rate sensitivities or market interest rates consistently with the aforementioned pricing model.
3) Capital Charge Calculation with the Aggregated Sensitivities Based Method
a) To account for the risk that correlations increase or decrease during financial stress periods, the aggregation of capital charge calculations at the bucket level and the capital calculation at the risk class level for each delta, vega, and curvature risk as determined in numbers 1) and 2) must be repeated, according to 3 (three) different scenarios on the values determined for the correlation parameters 𝜌kl (correlation between risk factors within one bucket) and 𝛾bc (correlation between buckets within a risk class). (1) In the "medium correlation" scenario, the correlation parameters 𝜌kl and 𝛾bc as determined in this Otoritas Jasa Keuangan Circular. (2) In the "high correlation" scenario, the correlation parameters 𝜌kl and 𝛾bc determined in this Otoritas Jasa Keuangan Circular are uniformly multiplied by 1.25 (one point two five), where 𝜌kl and 𝛾bc are subject to an upper limit of 100% (one hundred percent). (3) In the "low correlation" scenario, the correlation parameters 𝜌kl and 𝛾bc determined in this Otoritas Jasa Keuangan Circular are replaced by:
ρkl_low = max(2 x ρkl − 100%; 75% x ρkl); and
γbc_low = max(2 x γbc − 100%; 75% x γbc) b) The total capital charge calculation based on the sensitivities based method is summed as follows:
(1) In each of the 3 (three) correlation scenarios, the Bank must sum the results of the capital charge calculations for delta, vega, and curvature calculated separately for all risk classes to determine the overall capital requirement for the specified scenario. (2) The capital charge for the sensitivities based method is the largest value among the capital calculations of the three specified scenarios.
3. Components of the Sensitivities Based Method
a. GIRR Risk Factor

GIRR Delta
a) GIRR delta risk factors are established based on 2 (two) dimensions, namely:
(1) the risk-free yield curve in each currency in which instruments sensitive to interest rates are denominated; and (2) based on tenors as follows: 0.25 (zero point two five) years, 0.5 (zero point five) years, 1 (one) year, 2 (two) years, 3 (three) years, 5 (five) years, 10 (ten) years, 15 (fifteen) years, 20 (twenty) years, 30 (thirty) years, where delta risk factors are established. The establishment of risk factors for specific tenors must be done using linear interpolation or the method most consistent with the pricing function used by the Bank's independent risk control function, in order to report Market Risk or profit and loss movements to the Board of Directors. (1) The risk-free yield curve per currency must be constructed using money market instruments held in the Trading Book that have the lowest Credit Risk, such as overnight index swaps (OIS). Alternatively, the risk-free yield curve must be based on 1 (one) or more market implied swap curves used by the Bank to assess positions at fair market value. For example, the interbank offered rate (BOR) swap curve. (2) In the event that data on the market implied swap curve as described in number (1) is insufficient, the risk-free yield curve may be derived from the most appropriate government bond curve for a specific currency. In such conditions, sensitivities related to government bonds are not excluded from the capital charge calculation for the CSR risk class. When the Bank cannot perform the decomposition y=r+cs, sensitivities against y are allocated to the GIRR and CSR risk classes according to the definition of risk factors and sensitivities based on the standard approach. The application of swap curves to sensitivities derived from bonds for GIRR will not change the requirements to account for basis risk between the bond curve and the CDS curve in the CSR risk class. This treatment also applies to vega risk factors and curvature risk in GIRR risk factors. (3) For the purpose of constructing the risk-free yield curve per currency, the OIS curve (e.g., Eonia) and the BOR swap curve (e.g., three month Euribor) must be considered as 2 (two) different curves. In the event there are 2 (two) BOR curves with different maturities (e.g., three month Euribor and six month Euribor), they must be considered as 2 (two) different curves. Onshore and offshore currency curves (e.g., Indian Rupee onshore and Indian Rupee offshore) must be considered as 2 (two) different curves. b) The capital charge calculation for the GIRR delta risk factor also includes the flat curve of the market implied inflation rate in each currency, but without considering the term structure. (1) Sensitivities to inflation rates from exposures on implied coupons in inflation instruments result in specific capital charges. All inflation risks for a currency must be summed. (2) This risk factor is only relevant for instruments whose cash flows functionally depend on inflation levels (e.g., notional amounts or interest
payments depend on consumer price indices). For such instruments, GIRR risk factors other than inflation risk still apply. (3) Inflation rate risk is considered an addition to interest rate sensitivities of the same instrument, which according to the GIRR framework must be allocated to the term structure of the relevant risk-free yield curve in the same currency. c) The capital charge calculation for the GIRR delta risk factor also includes 1 (one) of 2 (two) possible cross currency basis risk factors for each currency (i.e., each GIRR bucket), but without considering the term structure (both cross currency basis curves are flat). (1) Two cross currency-based risk factors are the basis of each currency against USD or the basis of each currency against EUR. For example, a Bank denominated in AUD trading cross currency basis swaps in JPY/USD will have sensitivities against the JPY/USD basis but not against the JPY/EUR basis. (2) Cross currency bases not related to the basis against USD or the basis against EUR must be calculated either based on the basis against USD or the basis against EUR, but not both. For such instruments, GIRR risk factors other than cross currency-based risk still apply. (3) Cross currency-based risk is considered an addition to interest rate sensitivities of the same instrument, which according to the GIRR framework must be allocated to the term structure of the relevant risk-free yield curve in the same currency. Cross currency basis is the basis added to the interest rate curve to evaluate swaps where both legs are paid in 2 (two) different currencies. Cross currency basis is used specifically by market participants to price cross currency interest rate swaps by paying fixed or floating interest rates on one currency on one leg, and receiving fixed or floating interest rates on the second currency, and including the exchange of notional amounts in 2 (two) currencies on the transaction date and the swap maturity date.
GIRR Vega
For each currency, the GIRR vega risk factor is the implied volatilities of option rights referring to underlying variables that are sensitive to GIRR, measured based on 2 (two) dimensions as follows:
a) option maturity, namely the implied volatility of option rights mapped to the following maturity tenors: 0.5 (zero point five) years, 1 (one) year, 3 (three) years, 5 (five) years, and 10 (ten) years; and b) the remaining maturity of the underlying variable of the option rights on the expiry date of the option rights: the implied volatility of the option rights is mapped to the following residual maturity tenors: 0.5 (zero point five) years, 1 (one) year, 3 (three) years, 5 (five) years, and 10 (ten) years. For example, option rights with a forward starting cap, valid for up to 12 (twelve) months ahead, consist of 4 (four) consecutive caplets on three month Euribor in USD currency. There are 4 (four) separate option rights, with expiry dates in 12 (twelve), 15 (fifteen), 18 (eighteen), and 21 (twenty one) months. All these option rights have the same underlying variable, namely three month Euribor in USD currency, and the underlying variable will always mature 3 (three) months after the expiry date of the option rights (residual maturity 3 (three) months). Thus, the implied volatility for a regular forward starting cap, which will only start in 1 (one) year and valid for 12 (twelve) months, must be categorized into 2 (two) dimensions, namely:
a) the maturity of individual option components (caplets), i.e., 12 (twelve), 15 (fifteen), 18 (eighteen), and 21 (twenty one) months; and b) the remaining maturity of the underlying variable of the option rights, i.e., 3 (three) months. Inflation and cross currency basis must also be included in the capital charge calculation for the vega risk factor. Due to the absence of a maturity dimension determined for capital calculation on inflation and cross currency basis risks (i.e., possible underlying variables of option rights), vega risk for inflation and cross currency basis only needs to be calculated for one dimension, namely the maturity of the option rights.
GIRR Curvature
a) GIRR curvature risk factors are established based on only one dimension, namely the risk-free yield curve constructed per currency without term structure decomposition. For example, the Euro, Eonia, three month Euribor, and six month Euribor curves must be shifted simultaneously in the capital charge calculation for curvature risk on the relevant risk-free yield curve for the Euro. For sensitivity calculations, all tenors (as established for GIRR delta) must be calculated in parallel. b) There is no curvature risk charge for inflation and cross currency-based risk. b. Non-Securitization CSR Risk Factor
Non-Securitization CSR Delta
Non-securitization CSR delta risk factors are established based on 2 (two) dimensions as follows:
a) the relevant issuer credit spread curve (bonds and CDS); and b) the following tenors: 0.5 (zero point five) years, 1 (one) year, 3 (three) years, 5 (five) years, and 10 (ten) years.
Non-Securitization CSR Vega
Vega risk factors are the implied volatilities of option rights referring to relevant issuer credit names as underlying variables such as bonds and CDS, established in 1 (one) dimension, namely option maturity. This is established as the implied volatility of option rights mapped to one or more maturity tenors as follows: 0.5 (zero point five) years, 1 (one) year, 3 (three) years, 5 (five) years, and 10 (ten) years.
Non-Securitization CSR Curvature
Non-securitization CSR curvature risk factors are established in 1 (one) dimension, namely the relevant issuer credit spread curve such as bonds and CDS. For example, the bond inferred spread curve issued by issuer x and the CDS inferred spread curve issued by issuer x are considered as a single spread curve. In sensitivity calculations, all tenors (as established for CSR) move in parallel.
c. Non-CTP Securitization CSR Risk Factor
For securitization instruments that do not meet the CTP definition, delta risk factor sensitivities (i.e., CS01) must be calculated based on the tranche spread rather than the spread of the underlying variable.
Non-CTP Securitization CSR Delta
Non-CTP securitization CSR delta risk factors are established based on 2 (two) dimensions, namely:
a) the tranche credit spread curve; and b) the following tenors: 0.5 (zero point five) years, 1 (one) year, 3 (three) years, 5 (five) years, and 10 (ten) years where delta risk factors are allocated.
Non-CTP Securitization CSR Vega
Vega risk factors are the implied volatilities of option rights referring to non-CTP credit spread as underlying variables such as bonds and CDS, which are subsequently established based on 1 (one) dimension, namely option maturity. This is the implied volatility of option rights mapped to 1 (one) or several maturity tenors, i.e., 0.5 (zero point five) years, 1 (one) year, 3 (three) years, 5 (five) years, and 10 (ten) years.
Non-CTP Securitization CSR Curvature
Non-CTP securitization CSR curvature risk factors are established based on 1 (one) dimension, namely the relevant tranche credit spread curve (bonds and CDS). For example, the bond inferred spread curve of a specific tranche of Spanish residential mortgage-backed security (RMBS) and the CDS inferred spread curve of the same tranche of Spanish RMBS can be considered as 1 (one) spread curve. In sensitivity calculations, all tenors move in parallel. d. CTP Securitization CSR Risk Factor For securitization instruments that meet the CTP definition, delta risk factor sensitivities (i.e., CS01) must be calculated based on the underlying securitization name or nth-to-default instrument.
CTP Securitization CSR Delta
CTP securitization CSR delta risk factors are established based on 2 (two) dimensions:
a) the credit spread curve over relevant underlying variables (bonds and CDS); and b) tenors 0.5 (zero point five) years, 1 (one) year, 3 (three) years, 5 (five) years, and 10 (ten) years, where delta risk factors are allocated.
CTP Securitization CSR Vega
Vega risk factors are the implied volatilities of option rights referring to CTP credit spread as underlying variables (bonds and CDS), which are subsequently established based on 1 (one) dimension, namely option maturity. Vega risk factors are the implied volatility of option rights mapped to one or several maturity tenors, i.e., 0.5 (zero point five) years, 1 (one) year, 3 (three) years, 5 (five) years, and 10 (ten) years.
CTP Securitization CSR Curvature
CTP securitization CSR curvature risk factors are established based on 1 (one) dimension, namely the credit spread curve over relevant underlying variables (bonds and CDS). For example, the bond inferred spread curve of a name in a specific iTraxx series and the CDS inferred spread curve of the same underlying variable can be considered as 1 (one) spread curve. In sensitivity calculations, all tenors move in parallel. e. Equity Risk Factor
Equity Delta
Equity delta risk factors are:
a) all equity spot prices; and b) all equity repurchase agreement rates (equity repo rates).
Equity Vega
a) Equity vega risk factors are the implied volatilities of option rights referencing equity spot prices as underlying variables, established based on 1 (one) dimension, namely option maturity. This is the implied volatility of option rights mapped to 1 (one) or several maturity tenors, i.e., 0.5 (zero point five) years, 1 (one) year, 3 (three) years, 5 (five) years, and 10 (ten) years. b) There is no capital charge calculation for vega risk on equity repo rates.
Equity Curvature:
a) Equity curvature risk factors are all equity spot prices. b) There is no capital charge calculation for curvature risk on equity repo rates.
In the sensitivities based method, repos are established only as risk factors in the context of equities and not for fixed income funding instruments (provided such instruments are included in the definition of Trading Book as trading-related repo style transactions). The repo rate risk factor for fixed income funding instruments is accounted for in the capital charge calculation for the GIRR risk class. Relevant repo curves must be accounted for based on currency type. f. Commodity Risk Factor
Commodity Delta
Commodity delta risk factors are all commodity spot prices. However, for certain commodities such as electricity commodities included in bucket 3 (energy – electricity and carbon trading) as regulated in this Otoritas Jasa Keuangan Circular, the relevant risk factors may be spot or forward prices, as commodity transactions such as electricity are more frequently traded referencing forward prices rather than spot prices. Commodity delta risk factors are established based on 2 (two) dimensions, namely:
a) Contracts with respect to the delivery location of the commodity.
For example, contracts deliverable to five ports can be considered to have the same delivery location as other contracts if they can be delivered to the same 5 (five) ports. However, such contracts cannot be considered to have the same delivery location as other contracts that can only be delivered to

4 (four) (or less) of the 5 (five) ports. b) The time to maturity of instruments traded at tenors of 0 (zero) years, 0.25 (zero point two five) years, 0.5 (zero point five) years, 1 (one) year, 2 (two) years, 3 (three) years, 5 (five) years, 10 (ten) years, 15 (fifteen) years, 20 (twenty) years, and 30 (thirty) years. In calculating the commodity delta risk factor, the Bank uses the latest price. Commodity delta must be allocated to the relevant tenor based on the tenor of futures and forwards, and the spot commodity price position must be placed in the first tenor (0 (zero) years).

Commodity Vega
Commodity vega risk factor is the implied volatilities of option rights referring to the spot price of commodities as the underlying variable. No distinction is required between spot commodity prices based on the maturity of the underlying variable or delivery location. Commodity vega risk factors are established based on 1 (one) dimension, namely the maturity of the option rights. This is the implied volatility of option rights mapped to one or more maturity tenors, namely 0.5 (zero point five) years, 1 (one) year, 3 (three) years, 5 (five) years, and 10 (ten) years.
Commodity Curvature
Commodity curvature risk factors are established based on 1 (one) dimension, namely the curve constructed (there is no term structure decomposition) based on the spot price of commodities. All tenors (as established for commodity delta) move in parallel.

g. Exchange Rate Risk Factors

Exchange Rate Delta
a) Exchange rate delta risk factors are all exchange rates between the currency in which an instrument is denominated and the reporting currency. For transactions referring to the exchange rate between a pair of currencies that are not the reporting currency, the exchange rate delta risk factor is all exchange rates between:
(1) the reporting currency; and
(2) the currency in which an instrument is denominated and another currency referenced by the instrument.
For example, for an FX forward with USD/JPY reference, the relevant risk factors for a Bank with IDR reporting currency are the USD/IDR and JPY/IDR exchange rates. If a Bank with IDR reporting currency calculates exchange rate risk relative to the base currency USD, the Bank will consider separate deltas for JPY/USD exchange rate risk and IDR/USD translation exchange rate risk, then translate the capital charge calculation results to IDR based on the USD/IDR spot exchange rate. b) With the approval of the Financial Services Authority (OJK), as an alternative, exchange rate risk can be calculated relative to the base currency. In this case, the Bank must consider:
(1) exchange rate risk against the base currency; and (2) exchange rate risk between the reporting currency and the base currency (i.e., translation risk). c) Exchange rate risk calculated relative to the base currency as regulated in letter b) is converted into a capital charge calculation in the reporting currency using the spot exchange rate for reporting/base exchange rate that reflects the exchange rate risk between the base currency and the reporting currency. d) The requirement to use the base currency approach to calculate exchange rate risk is only permitted under the following conditions:
(1) A Bank may only use a single currency as its base currency; and (2) The Bank must demonstrate to the Financial Services Authority that the exchange rate risk calculation on the proposed base currency represents the appropriate risk for the Bank's portfolio (for example, by demonstrating that it does not result in an unreasonable decrease in capital charge calculation compared to not using the base currency approach) and has considered the translation risk between the base currency and the reporting currency.
Exchange Rate Vega
Exchange rate vega risk factor is the implied volatility of option rights referring to the exchange rate between a pair of currencies established in one dimension, namely the maturity of the option rights. This is the implied volatility of option rights mapped to one or more maturity tenors, namely 0.5 (zero point five) years, 1 (one) year, 3 (three) years, 5 (five) years, and 10 (ten) years.
Exchange Rate Curvature
a) Exchange rate curvature risk factors are all exchange rates between the currency in which an instrument is denominated and the reporting currency. For transactions referring to the exchange rate between a pair of currencies that are not the reporting currency, the exchange rate risk factor is all exchange rates between:
(1) the reporting currency; and
(2) the currency in which an instrument is denominated and another currency referenced by the instrument. b) In the event that the Financial Services Authority approves the use of the base currency approach for delta risk, exchange rate curvature risk must also be calculated against the base currency, then converted into a capital charge calculation in the reporting currency using the spot exchange rate for reporting/base exchange rate. No separation is required between onshore and offshore currency variants for all exchange rate delta, vega, and curvature risk factors. This also applies to the deliverable/non-deliverable variation of a currency.

h. Sensitivity

Sensitivity for Each Risk Class Expressed in the Bank's Reporting Currency.
For each risk factor described in letters a through g, sensitivity is calculated as the change in the market value of the instrument as a result of the established change for each risk factor, assuming all other relevant risk factors are maintained at their latest values.
Instrument Price or Pricing Model Requirements for Sensitivity Calculation
In performing capital charge calculations based on risk using the sensitivity-based method, the Bank must determine each delta and vega sensitivity and curvature scenario based on the instrument price or pricing model used by the Bank's risk control unit operating independently to report Market Risk or actual profit and loss to the Board of Directors. The Bank may use alternative sensitivity formulations based on pricing models. In this case, the Bank must demonstrate to the Financial Services Authority that the alternative sensitivity formulation yields results very close to the established formulation. A pricing model is a model used to determine the value of an instrument (mark to market or mark to model) as a function of pricing parameters or to determine the change in instrument value as a function of risk factors. The pricing model may be a combination of several calculations, for example, first-principles valuation techniques to calculate price, followed by valuation adjustments to calculate risks not included in the first valuation. The main assumption of the standard approach for Market Risk is that the pricing model used in actual profit and loss reporting provides an appropriate basis for determining capital calculations for all Market Risks. To ensure adequacy, the Bank must at least establish a framework for valuation practices that meet prudent principles, including requirements as regulated in POJK KPMM.
Sensitivity for Delta Risk
a) GIRR Delta
Sensitivity is established as PV01. PV01 is measured by changing the interest rate r at tenor t (rt) of the risk-free yield curve in a specific currency by 1 (one) basis point (i.e., 0.0001 in absolute terms) and dividing the resulting change in the market value of the instrument (Vi) by 0.0001 (0.01%) as follows:

S k,rt = (Vi(rt+0.0001, cst) - Vi(rt, cst)) / 0.0001

where:
(1) rt is the risk-free yield curve at tenor t; (2) cst is the credit spread curve at tenor t; and (3) Vi is the market value of instrument i as a function of the risk-free yield curve and the credit spread curve.

b) Non-Securitization CSR, Non-CTP Securitization CSR, and CTP Securitization CSR Delta Sensitivity is established as CS01. The CS01 sensitivity of instrument i is measured by changing the credit spread cs at tenor t (cst) by 1 (one) basis point (i.e., 0.0001 in absolute terms) and dividing the resulting change in the market value of the instrument (Vi) by 0.0001 (i.e., 0.01%) as follows.

S k,cst = (Vi(rt, cst+0.0001) - Vi(rt, cst)) / 0.0001

In the event that the Bank does not have a money market curve for a specific counterparty, the Bank may use PV01 as a proxy for CS01 for that money market instrument.

c) Spot Equity Delta
Sensitivity is measured by changing the spot equity price by 1% (one percent) (0.01 in relative terms) and dividing the resulting change in the market value of the instrument (Vi) by 0.01 (1% (one percent)) as follows:

Sk = (Vi(1.01EQk) - Vi(EQk)) / 0.01

where:
(1) k is the specified equity;
(2) EQk is the market value of equity k; and
(3) Vi is the market value of instrument i as a function of the value of equity k.

d) Equity Delta from Repo Rates
Sensitivity is measured by applying a parallel shift to the equity repo term structure by 1 (one) basis point (0.0001 in absolute terms) and dividing the resulting change in the market value of instrument Vi by 0.0001 (0.01% (zero point zero one percent)) as follows:

Sk = (Vi(RTSk + 0.0001) - Vi(RTSk)) / 0.0001

where:
(1) k is the specified equity;
(2) RTSk is the repo term structure of equity k; and (3) Vi is the market value of instrument i as a function of the repo term structure of equity k.

e) Commodity Delta
Sensitivity is measured by changing the spot price of the commodity by 1% (one percent) (0.01 in relative terms) and dividing the resulting change in the market value of instrument Vi by 0.01 (1% (one percent)) as follows:

Sk = (Vi(1.01CTYk) - Vi(CTYk)) / 0.01

where:
(1) k is the specified commodity;
(2) CTYk is the market value of commodity k; and (3) Vi is the market value of instrument i as a function of the spot value of commodity k.

f) Exchange Rate Delta
Sensitivity is measured by changing the exchange rate by 1% (one percent) (0.01) and dividing the resulting change in the market value of instrument Vi by 0.01 (1% (one percent)), as follows:

Sk = (Vi(1.01FXk) - Vi(FXk)) / 0.01

where:
(1) k is the specified currency;
(2) FXk is the exchange rate between a certain currency and the reporting currency or base currency, where the exchange rate FX is the current market price of 1 (one) unit of another currency expressed in units of the reporting currency or base currency; and (3) Vi is the market value of instrument i as a function of the value of exchange rate k:

Sensitivity for Vega Risk
a) The sensitivity of vega risk of option rights to a specific risk factor is measured by multiplying vega by the implied volatility of the option rights as follows, where:
(1) vega (∂Vi/∂σi) is established as the change in the market value of the option rights Vi as a result of a small change in implied volatility σi; and (2) the vega of the instrument and the implied volatility used in the vega sensitivity calculation must be sourced from the pricing model used by the Bank's independent risk control unit.

sk = vega x implied volatility

As explained in the vega risk factor in letters a through g, the implied volatility of option rights must be mapped to 1 (one) or more maturity tenors.

b) The following are methods to obtain vega risk sensitivity in specific cases:
(1) Option rights that do not have a maturity date are mapped to the longest maturity tenor, and these option rights are also allocated to the RRAO.
(2) Option rights that do not have a strike price or barrier, and option rights that have multiple strikes or barriers, are mapped to multiple strikes and maturities used internally to price the option rights, and these option rights are also allocated to the RRAO. (3) CTP securitization tranches that do not have implied volatility are not regulated in the capital charge calculation for vega risk. However, these instruments are still considered in the capital charge calculation for delta and curvature risk. In cases where option rights do not have a specific maturity date (e.g., cancellable swaps), the Bank must map these option rights to the longest maturity tenor specified for vega risk sensitivity and also assign these option rights to the RRAO. In the event that the Bank views the option feature of a cancellable swap as a swaption, the Bank must map the swaption to the longest maturity tenor specified for vega risk sensitivity (because it does not have a specific maturity date) and assign the remaining maturity of the underlying option rights.

Requirements on Sensitivity Calculation
a) When calculating first-order sensitivity for instruments with optionality, the Bank must assume that the implied volatility:
(1) remains constant, consistent with the sticky strike approach; or (2) follows the sticky delta approach, such that implied volatility does not vary at a given delta level.

b) For vega sensitivity calculations, distribution assumptions (i.e., log-normal assumption or normal assumption) for the pricing model are applied as follows:
(1) For GIRR or CSR vega sensitivity calculations, the Bank may use log-normal or normal assumptions.
(2) For equity, commodity, or exchange rate vega sensitivity calculations, the Bank must use log-normal assumptions.
Because vega (∂Vi/∂σi) of an instrument is multiplied by implied volatility (σi), the vega risk sensitivity for that instrument will be the same under log-normal and normal assumptions. Consequently, the Bank may use log-normal or normal assumptions for GIRR and CSR (to acknowledge the trade-off between limited specification and computational burden for the standard approach). For other risk classes, the Bank may only use log-normal assumptions (this is consistent with common practices across jurisdictions). To calculate GIRR vega, the Bank may choose a mix of log-normal and normal assumptions for different currencies.

c) If the Bank calculates vega sensitivity for internal risk management purposes using a definition different from the definition established in this standard, the Bank may transform the sensitivity calculated for internal risk management purposes to obtain the sensitivity to be used for vega risk size calculations.

d) All vega sensitivities must be calculated by ignoring the impact of Credit Valuation Adjustments (CVA).

Treatment of Index Instruments and Multi-Underlying Option Rights
a) In the Context of Delta and Curvature Risk
For index instruments and multi-underlying option rights, a look-through approach must be used. However, the Bank may choose not to apply this approach for instruments referring to equity indices or credit indices that are listed and widely recognized, where:
(1) it is possible to look through the index (in this case, the constituents of the index and their respective weights are known); (2) the index consists of at least 20 (twenty) constituents; (3) no single constituent included in the index represents more than 25% (twenty-five percent) of the total index; (4) 10% (ten percent) of the total constituents represent less than 60% (sixty percent) of the total index. The constituents referred to are those with the largest share in the index; and (5) the total market capitalization of all constituents of the index is not less than Rp600,000,000,000,000.00 (six hundred trillion rupiah).

b) For regulated instruments, regardless of whether the look-through approach is adopted or not, the sensitivity inputs used for delta and curvature risk calculations must be consistent.

c) If the Bank chooses not to apply the look-through approach as per letter a), a single sensitivity must be calculated for each widely recognized and accepted index referenced by the instrument. Sensitivity to the index must be allocated to the delta risk bucket as follows:
(1) If more than 75% (seventy-five percent) of the constituents in the index (considering the weight in the index) are mapped to a specific bucket, namely bucket 1 to bucket 11 for equity risk, or bucket 1 to bucket 16 for CSR risk, then sensitivity to the index must be mapped to that specific sector bucket and treated like other single-name sensitivities in that bucket. (2) In other cases, sensitivity may be mapped to the index bucket, namely bucket 12 or bucket 13 for equity risk, or bucket 17 or bucket 18 for CSR. The same principle as in item (1) applies when the Bank allocates sensitivity to specific index buckets. (a) For equity risk, equity indices must be mapped to large market cap and the index bucket of advanced economies (i.e., bucket 12) if at least 75% (seventy-five percent) of the constituents in the index (considering the index weight) are large-cap equities and advanced economies. If not, they are mapped to other equity index buckets, namely bucket 13. (b) For CSR risk, credit indices must be mapped to the investment grade index bucket, namely bucket 17, if at least 75% (seventy-five percent) of the constituents in the index (considering the index weight) are investment grade. If not, they must be mapped to the high-yield curve index bucket, namely bucket 18.

d) The look-through approach must be used for indices that do not meet the criteria as established in letter a) items (2) through (5), and for multi-underlying instruments referring to a specific set of equity or credit positions (bespoke). (1) If the look-through approach is adopted for index instruments and multi-underlying options other than CTP, sensitivity to risk factors from the constituent instruments or option rights may be calculated netted against single-name instrument sensitivities. (2) CTP index instruments cannot be decomposed into their constituents (i.e., CTP indices must be considered as a risk factor as a whole), and netting calculations as mentioned above at the issuer level cannot be performed. (3) When the look-through approach is applied, the approach must be applied consistently, and must be used for all identical instruments referring to the same index. In other words, a Bank is allowed not to apply the look-through approach initially, and then decide to apply the look-through approach. However, after the approach is applied (for a certain type of instrument referring to a certain index), the Bank requires approval from the Financial Services Authority if it wishes to return to the original approach.

Treatment of Equity Investments in Funds
a) For equity investments in funds that can be looked through (down to individual components and there is information provided to the Bank periodically regarding the composition of the fund that is adequate and verified by an independent third party), the Bank treats positions in the underlying fund as if the positions were directly owned by the Bank (considering the Bank's ownership share in the fund's equity, and the presence of leverage in the fund's structure), except for funds that meet the following conditions:
(1) For funds with index instruments that meet the criteria established as referred to in item 6) letter a), the Bank must still apply the look-through approach and treat positions in the underlying fund as if directly owned by the Bank, but the Bank may choose not to apply the look-through approach for the fund's index ownership as referred to in item 6) letter c). (2) For funds following a benchmark index, the Bank may choose not to apply the look-through approach and choose to measure risk with the assumption that the fund is a position in the followed index with the following requirements:
(a) the fund has an absolute tracking difference (ignoring costs and commissions) of less than 1% (one percent); and (b) the tracking difference is examined at least 1 (one) time per year and established as the annual return difference between the fund and the followed benchmark over the last 12 (twelve) months of available data (or a shorter period if the last 12 (twelve) months of data are not available).

b) For equity investments in funds where the look-through approach cannot be applied, but the Bank has access to daily price quotes and has information regarding the mandate for the fund as referred to in Roman numeral II.2.i.3).b), the Bank may perform capital calculations for the fund through one of the following 3 (three) methods:
(1) If the fund follows a benchmark index and meets the requirements as established in letter a). (1) and (2), the Bank may assume that the fund is a position in the followed index, and may apply sensitivity to the fund for the relevant specific sector bucket or index bucket as regulated in item 6) letter c). (2) With the approval of the Financial Services Authority, the Bank may consider the fund in a hypothetical calculation where the fund is invested up to the maximum limit possible based on the fund mandate in assets receiving the highest capital charge using the sensitivity-based method, then progressively in other assets receiving lower capital charges. If more than 1 (one) risk weight can be applied to exposures in the sensitivity-based method, the maximum applicable risk weight must be used. This hypothetical calculation must meet the following requirements:

(a) the aforementioned portfolio is subject to capital requirements for Market Risk on a stand-alone basis for all positions in the said fund, separate from other positions; (b) Counterparty Credit Risk for derivatives from the portfolio is calculated using the standard approach as regulated in the regulations of the Financial Services Authority regarding guidelines for calculating netting transaction charges in the calculation of risk-weighted assets for credit risk using the standard approach, with the following adjustments:
i. In the event that the replacement cost (RC) is unknown, the exposure measure for counterparty risk will be calculated using the notional amount of derivatives within the netting set as a proxy for RC, and the multiplier used in the calculation of potential future exposure (PFE) will be equal to 1 (one).
ii. In the event that PFE is unknown, PFE will be calculated as 15% (fifteen percent) of the notional amount within the netting set. As an example, if RC is unknown, the counterparty risk exposure will be calculated as follows:
1.4 x (notional amount within the netting set + (15% x notional amount within the netting set)).
iii. In the event that the aforementioned derivatives are covered by CVA, the Bank must first multiply the aforementioned netting charge by 1.5 (one point five) before multiplying it by the counterparty's risk weight. Thus, the Bank no longer calculates the CVA capital charge for the aforementioned derivative exposure.
(3) Banks may treat equity investments in funds as unrated equity exposures to be allocated to the "other sectors" bucket (bucket 11). In applying this treatment, the Bank must also consider whether, based on the mandate of the said fund:
(a) the risk weight in the capital charge calculation for DRC determined for the said fund is adequate or not (as referred to in item 4.b.7)), and (b) RRAO must be applied or not (as referred to in item 5.a.5)). c) Net long equity positions in specific funds where the Bank cannot meet the requirements as explained in item 2.i.3) are not permitted to be held. Net short equity positions in specific funds where the Bank cannot meet the requirements as explained in item 2.i.3) must be excluded from the capital charge calculation for the Trading Book and subject to a capital charge calculation of 100% (one hundred percent).
8) Vega Risk Treatment for Multi-underlying Instruments
a) Multi-underlying options (including index options) are generally priced based on the implied volatility of the options rather than the implied volatility of the constituents of the underlying variables. In this case, the look-through approach may not be applied, regardless of the approach applied in the calculation of delta and curvature risk as referred to in item 6). As determined in the definition of vega risk factors, the implied volatility of an option must be mapped to one (1) or more maturity time buckets. b) For indices, vega risk related to the implied volatility of multi-underlying options is calculated using specific buckets for certain sectors or index buckets as follows:
(1) If more than 75% (seventy-five percent) of the constituents in the index (considering the weight of the said index) are mapped to a specific sector bucket, namely bucket 1 to bucket 11 for equity risk, or bucket 1 to bucket 16 for CSR risk. The sensitivity to the said index must be mapped to the said specific sector bucket and treated like other single-name sensitivities in that bucket. (2) In other cases, sensitivity may be mapped to index buckets, namely bucket 12 or bucket 13 for equity risk, or bucket 17 or bucket 18 for CSR risk.
i. Delta and correlation risk weights
1) Bucket, risk weight, and correlation for Delta GIRR
a) Each currency is a separate delta GIRR bucket, so that all risk factors in the risk-free yield curve for the same currency, where interest rate-sensitive instruments are denominated, will be grouped into the same bucket. b) To calculate weighted sensitivity, the risk weight for each tenor in the risk-free yield curve is set in Table 1 as follows:
Table 1
Bucket and Risk Weights for Delta GIRR
Tenor (in years) 0.25 0.5 1 2 3
Risk Weight 1.7% 1.7% 1.6% 1.3% 1.2%
Tenor (in years) 5 10 15 20 30
Risk Weight 1.1% 1.1% 1.1% 1.1% 1.1%
Notes:
(1) Risk weights for inflation risk factors and cross-currency basis risk factors are set at 1.6% (one point six percent) respectively.
(2) For certain currencies, namely EUR, USD, GBP, AUD, JPY, SEK, CAD, and IDR, the aforementioned risk weights may be divided by the square root of 2 (two). c) To sum GIRR risk positions in a bucket, the correlation parameter 𝜌𝑘𝑙 between weighted sensitivities WSk and WSl is determined as follows:
(1) The correlation 𝜌𝑘𝑙 between weighted sensitivities WSk and WSl in the same bucket (i.e., the same currency), same tenor, but different curves is set at 99.90% (ninety-nine point nine zero percent). In summing delta risk positions for cross-currency basis risk for onshore and offshore curves, which must be considered as 2 (two) different curves as referred to in letter a), the Bank may choose to sum all cross-currency basis risks for a currency (e.g., currency X/USD or currency X/EUR) for both onshore and offshore curves with a simple summation of weighted sensitivities. (2) The delta risk correlation 𝜌𝑘𝑙 between weighted sensitivities WSk and WSl in the same bucket with different tenors and the same curve is regulated in Table 2 below.
Table 2
Delta GIRR Correlation (𝜌𝑘𝑙) in the Same Bucket With Different Tenors and the Same Curve Notes:
Delta GIRR correlation (𝜌𝑘𝑙) as in Table 2 is calculated with:
max [𝑒^(−𝜃(𝑇𝑘−𝑇𝑙)/min(𝑇𝑘;𝑇𝑙))], 40%].
Where Tk (and Ti) are the tenors related to WSk (and WSl) and θ is set at 3% (three percent). For example, the correlation between sensitivity to the one-year tenor of the Eonia swap curve and sensitivity to the five-year tenor of the Eonia swap curve in the same currency is max [𝑒^(−3% (1−5)/min(1;5))], 40%] = 88.69%. (3) Between 2 (two) weighted sensitivities WSk and WSl in the same bucket with different tenors and different curves, the correlation 𝜌𝑘𝑙 is equal to the correlation parameter determined in Table 2 multiplied by 99.90% (ninety-nine point nine zero percent). As an example, the correlation between sensitivity to the one-year tenor of the Eonia swap curve and the five-year tenor of the three-month Euribor swap curve in the same currency is (88.69%) x (0.999) = 88.60%.
0.25 years 0.5 years 1 year 2 years 3 years 5 years 10 years 15 years 20 years 30 years
0.25 years 100% 97.0% 91.4% 81.1% 71.9% 56.6% 40.0% 40.0% 40.0% 40.0%
0.5 years 97.0% 100% 97.0% 91.4% 86.1% 76.3% 56.6% 41.9% 40.0% 40.0%
1 year 91.4% 97.0% 100% 97.0% 94.2% 88.7% 76.3% 65.7% 56.6% 41.9% 2 years 81.1% 91.4% 97.0% 100% 98.5% 95.6% 88.7% 82.3% 76.3% 65.7% 3 years 71.9% 86.1% 94.2% 98.5% 100% 98.0% 93.2% 88.7% 84.4% 76.3% 5 years 56.6% 76.3% 88.7% 95.6% 98.0% 100% 97.0% 94.2% 91.4% 86.1% 10 years 40.0% 56.6% 76.3% 88.7% 93.2% 97.0% 100% 98.5% 97.0% 94.2% 15 years 40.0% 41.9% 65.7% 82.3% 88.7% 94.2% 98.5% 100% 99.0% 97.0% 20 years 40.0% 40.0% 56.6% 76.3% 84.4% 91.4% 97.0% 99.0% 100% 98.5% 30 years 40.0% 40.0% 41.9% 65.7% 76.3% 86.1% 94.2% 97.0% 98.5% 100%

Correlation 99.90% (ninety-nine point nine zero percent) also applies to different inflation curves in the same currency (e.g., German and French inflation curves in Euro).
(4) The delta risk correlation 𝜌𝑘𝑙 between weighted sensitivity WSk to the inflation curve and weighted sensitivity WSl to a specific tenor of the relevant interest rate curve is 40% (forty percent). (5) The delta risk correlation 𝜌𝑘𝑙 between weighted sensitivity WSk to a cross-currency basis curve and weighted sensitivity WSl to each of the following curves is 0% (zero percent):
(a) a specific tenor of the relevant interest rate curve; (b) the inflation curve; or (c) another cross-currency basis curve (if relevant). d) To sum GIRR risk positions across different buckets (i.e., different currencies), the parameter 𝛾𝑏𝑐 is set at 50% (fifty percent).
2) Bucket, risk weight, and correlation for non-securitization Delta CSR
a) For non-securitization Delta CSR, buckets are determined based on 2 (two) dimensions, namely credit quality and sector, as listed in Table 3. Non-securitization CSR sensitivity or risk exposure must first be allocated to the determined bucket before calculating weighted sensitivity by applying risk weights.
Table 3
Buckets for Non-Securitization Delta CSR
Bucket Asset Quality Sector
Investment grade (IG) (1)
1 Government including Central Bank and Multilateral Development Banks 2 Regional Governments, non-financial companies including State-Owned Enterprises (BUMN), education and public administration 3 Financial companies (including State-Owned Financial Companies) 4 Basic materials, energy, industry, agriculture, manufacturing, mining, and extraction companies 5 Consumer goods, transportation and warehousing, administrative activities and supporting services 6 Technology and telecommunications 7 Health companies, utilities, as well as professional and technical services/activities 8 Covered bonds(2) High yield (HY) & nonrated (NR) 9 Government including Central Bank and Multilateral Development Banks 10 Regional Governments, non-financial companies including State-Owned Enterprises (BUMN), education and public administration 11 Financial companies (including State-Owned Financial Companies) 12 Basic materials, energy, industry, agriculture, manufacturing, mining, and extraction companies 13 Consumer goods, transportation and warehousing, administrative activities and supporting services 14 Technology and telecommunications 15 Health companies, utilities, as well as professional and technical services/activities 16 Other sectors(3) 17 IG Index 18 HY Index Notes:
(1) In the event of having 2 (two) ratings and each providing different risk weights, the Bank uses the rating that results in the highest risk weight. In the event of having 3 (three) or more ratings and providing different risk weights, the Bank uses the rating that results in the second lowest risk weight. (2) Covered bonds must meet the definition as regulated in the regulations of the Financial Services Authority regarding maximum credit limits and large fund provision for general banks. (3) Asset quality is not a distinguishing consideration for this bucket. b) To determine risk exposure to a sector, the Bank must rely on the general classification used in the financial market to group issuers by industrial sector. The Bank must classify each issuer into one of the sectors in the buckets in Table 3 above. Risk positions from issuers that cannot be classified by the Bank into a sector must be classified into other sectors (bucket 16). c) To calculate weighted sensitivity, the risk weight for buckets 1 to 18 is regulated in Table 4. Risk weights for all tenors in each bucket are the same and refer to the following table.
Table 4
Risk Weights for Non-Securitization Delta CSR Buckets Bucket Risk Weight 1 0.50% 2 1.00% 3 5.00% 4 3.00% 5 3.00% 6 2.00% 7 1.50% 8 2.50%1) 9 2.00% 10 4.00% 11 12.00% 12 7.00% 13 8.50% 14 5.50% 15 5.00% 16 12.00% 17 1.50% 18 5.00% Notes:
1) For covered bonds with a rating of AA- or higher, the applicable risk weight may be 1.5% (one point five percent).
d) To sum non-securitization delta CSR risk positions in 1 (one) bucket, between 2 (two) sensitivities WSk and WSl in the same bucket, the correlation parameter 𝜌𝑘𝑙 is calculated as follows:
(1) in buckets 1 to 15
𝜌𝑘𝑙 = 𝜌𝑘𝑙^(name) . 𝜌𝑘𝑙^(tenor) . 𝜌𝑘𝑙^(basis) where:
𝜌𝑘𝑙^(name): equal to 1 (one) if 2 (two) names of sensitivities k and l are identical, and equal to 35% (thirty-five percent) if not identical.
𝜌𝑘𝑙^(tenor): equal to 1 (one) if 2 (two) tenors of sensitivities k and l are identical, and equal to 65% (sixty-five percent) if not identical.
𝜌𝑘𝑙^(basis): equal to 1 (one) if 2 (two) sensitivities are related to the same curve, and 99.90% (ninety-nine point nine zero percent) if not related to the same curve.
As an example, sensitivity to the five-year Apple bond curve and sensitivity to the ten-year Google CDS curve is 35%⋅65% ⋅99.90% = 22.73%.
(2) in buckets 17 to 18
𝜌𝑘𝑙 = 𝜌𝑘𝑙^(name) . 𝜌𝑘𝑙^(tenor) . 𝜌𝑘𝑙^(basis) where:
𝜌𝑘𝑙^(name): equal to 1 (one) if 2 (two) names of sensitivities k and l are identical, and equal to 80% (eighty percent) if not identical.
𝜌𝑘𝑙^(tenor): equal to 1 (one) if 2 (two) tenors of sensitivities k and l are identical, and equal to 65% (sixty-five percent) if not identical.
𝜌𝑘𝑙^(basis): equal to 1 (one) if 2 (two) sensitivities are related to the same curve, and 99.90% (ninety-nine point nine zero percent) if not related to the same curve.
(3) in other buckets (bucket 16) (a) Aggregation of non-securitization delta CSR risk positions in the other sector bucket is equal to the simple summation of the absolute values of weighted net sensitivities allocated to this bucket. The same method is used for aggregating vega risk positions with the following calculation. Kb (other bucket) = ∑|𝑊𝑆𝑘| (b) Aggregation of non-securitization CSR curvature risk positions in the other sector bucket is calculated with the following formula. Kb (other bucket) = max (∑max(𝐶𝑉𝑅𝑘⁺, 0), ∑max(𝐶𝑉𝑅𝑘⁻, 0)) e) To sum non-securitization delta CSR risk positions across buckets 1 to 18, the correlation parameter 𝛾𝑏𝑐 is set as follows. 𝛾𝑏𝑐 = 𝛾𝑏𝑐^(rating) . 𝛾𝑏𝑐^(sector) where:
𝛾𝑏𝑐^(rating): 50% (fifty percent) if 2 (two) buckets b and c are in buckets 1 to 15 and have different rating categories (IG or HY/NR), if this condition is not met, it is set to 1 (one). 𝛾𝑏𝑐^(sector): 1 (one) if 2 (two) buckets belong to the same sector, and will be determined as in Table 5 if they do not belong to the same sector.
Table 5
Value of 𝜸𝒃𝒄^(sector) if Buckets Do Not Belong to the Same Sector Bucket 1/9 2/10 3/11 4/12 5/13 6/14 7/15 8 16 17 18 1/9 75% 10% 20% 25% 20% 15% 10% 0% 45% 45% 2/10 5% 15% 20% 15% 10% 10% 0% 45% 45% 3/11 5% 15% 20% 5% 20% 0% 45% 45% 4/12 20% 25% 5% 5% 0% 45% 45% 5/13 25% 5% 15% 0% 45% 45% 6/14 5% 20% 0% 45% 45% 7/15 5% 0% 45% 45% 8 45% 45% 16 0% 0% 17 75%
3) Bucket, risk weight, and correlation for CTP Securitization Delta CSR
a) Sensitivity to CSR arising from CTP and its hedges are treated as a separate risk category. Buckets, risk weights, and correlations for CTP securitization delta CSR are regulated as follows:
(1) The bucket structure and correlation structure are the same as the non-securitization CSR framework as explained in item 2), applicable to the CTP securitization CSR framework with the exception of buckets related to indices (bucket 17 and bucket 18). (2) Risk weights and correlation parameters for non-securitization delta CSR are modified to reflect longer liquidity horizons and greater basis risk as explained in this Financial Services Authority Circular. Liquidity horizon is the assumed time required to hedge risk positions without materially affecting market prices under stress conditions. Basis risk is the risk where the prices of financial instruments in the hedge strategy are not perfectly correlated, thereby reducing the effectiveness of the hedge strategy. To calculate weighted sensitivity, the risk weight for buckets 1 to 16 refers to Table 6. Risk weights are set the same for all tenors in each bucket.
Table 6
Risk Weights for CTP Securitization CSR Sensitivity Bucket Risk Weight 1 4.00% 2 4.00% 3 8.00% 4 5.00% 5 4.00% 6 3.00% 7 2.00% 8 6.00% 9 13.00% 10 13.00% 11 16.00% 12 10.00% 13 12.00% 14 12.00% 15 12.00% 16 13.00% b) To sum CTP securitization delta CSR risk positions in a bucket, the correlation 𝜌𝑘𝑙 is generated with the following formula. (1) in buckets 1 to 15 𝜌𝑘𝑙 = 𝜌𝑘𝑙^(name) . 𝜌𝑘𝑙^(tenor) . 𝜌𝑘𝑙^(basis) where:
𝜌𝑘𝑙^(name): equal to 1 (one) if 2 (two) names of sensitivities k and l are identical, and equal to 35% (thirty-five percent) if not identical.
𝜌𝑘𝑙^(tenor): equal to 1 (one) if 2 (two) tenors of sensitivities k and l are identical, and equal to 65% (sixty-five percent) if not identical.
𝜌𝑘𝑙^(basis): equal to 1 (one) if 2 (two) sensitivities are related to the same curve, and 99.00% (ninety-nine percent) if not related to the same curve.
(2) in buckets 17 to 18
𝜌𝑘𝑙 = 𝜌𝑘𝑙^(name) . 𝜌𝑘𝑙^(tenor) . 𝜌𝑘𝑙^(basis) where:
𝜌𝑘𝑙^(name): equal to 1 (one) if 2 (two) names of sensitivities k and l are identical, and equal to 80% (eighty percent) if not identical.
𝜌𝑘𝑙^(tenor): equal to 1 (one) if 2 (two) tenors of sensitivities k and l are identical, and equal to 65% (sixty-five percent) if not identical.
𝜌𝑘𝑙^(basis): equal to 1 (one) if 2 (two) sensitivities are related to the same curve, and 99.00% (ninety-nine percent) if not related to the same curve. c) To sum CTP securitization delta CSR risk positions across buckets 1 to 16, the correlation parameter 𝛾𝑏𝑐 is set as follows. 𝛾𝑏𝑐 = 𝛾𝑏𝑐^(rating) . 𝛾𝑏𝑐^(sector) where:
𝛾𝑏𝑐^(rating): 50% (fifty percent) if 2 (two) buckets b and c are in buckets 1 to 15 and have different rating categories (IG or HY/NR), if this condition is not met, it is set to 1 (one). 𝛾𝑏𝑐^(sector): 1 (one) if 2 (two) buckets belong to the same sector, and will be determined as in Table 5 if they do not belong to the same sector.
4) Bucket, risk weight, and correlation for non-CTP Securitization Delta CSR
a) For non-CTP securitization Delta CSR, buckets are determined based on 2 (two) dimensions, namely credit quality and sector, as listed in Table 7. Non-CTP securitization delta CSR sensitivity or risk exposure must first be allocated to the bucket before calculating weighted sensitivity by applying risk weights.
Table 7
Buckets for Non-CTP Securitization Delta CSR
Bucket Asset Quality Sector
Senior Investment grade (IG)
1 RMBS – Prime
2 RMBS – Mid-Prime
3 RMBS – Sub-Prime
4 CMBS (Commercial Mortgage Backed Securities) 5 ABS (Asset Backed Securities) – Student loans 6 ABS – Credit cards 7 ABS – Motor vehicle loans 8 CLO (Collateralized Loan Obligation) non-CTP Non-Senior Investment grade (IG) 9 RMBS – Prime 10 RMBS – Mid-Prime 11 RMBS – Sub-Prime 12 CMBS 13 ABS – Student loans 14 ABS – Credit cards 15 ABS – Motor vehicle loans 16 CLO non-CTP High yield (HY) & nonrated (NR) 17 RMBS – Prime 18 RMBS – Mid-Prime 19 RMBS – Sub-Prime 20 CMBS 21 ABS – Student loans 22 ABS – Credit cards 23 ABS – Motor vehicle loans 24 CLO non-CTP 25 Other sectors 1) Notes:
1) This bucket is not distinguished by asset quality.
b) To classify risk exposure to a sector, the Bank must classify tranches by type according to the classification generally used in the market.
(1) The Bank must map each tranche to one of the sector buckets according to Table 7 above.
(2) Risk positions from each tranche that cannot be classified by the Bank into one of the sectors must be classified into other sectors, namely bucket 25. c) To calculate weighted sensitivity, the risk weight for buckets 1 to 8 (Senior Investment Grade) is set in Table 8.
Table 8
Risk Weights for Buckets 1 to 8 for Non-CTP Securitization Delta CSR Bucket Risk Weight 1 0.90% 2 1.50% 3 2.00% 4 2.00% 5 0.80% 6 1.20% 7 1.20% 8 1.4% Notes:
- Risk weights for buckets 9 to 16 (Non-Senior Investment grade) are the same as the corresponding risk weights for buckets 1 to 8 multiplied by a multiplier of 1.25 (one point two five). For example, the risk weight for bucket 9 is 1.25 × 0.90% = 1.125%.
- Risk weights for buckets 17 to 24 (high yield and nonrated) are the same as the corresponding risk weights for buckets 1 to 8 multiplied by a multiplier of 1.75 (one point seven five). For example, the risk weight for bucket 17 is 1.75 × 0.9% = 1.575%.
- Risk weights for bucket 25 are set at 3.5%.
d) To sum non-CTP securitization delta CSR risk positions in a bucket, the correlation parameter 𝜌𝑘𝑙 between 2 (two) sensitivities WSk and WSl in the same bucket is set as follows:
𝜌𝑘𝑙 = 𝜌𝑘𝑙^(tranche) . 𝜌𝑘𝑙^(tenor) . 𝜌𝑘𝑙^(basis) where:
𝜌𝑘𝑙^(tranche): equal to 1 (one) if 2 (two) names of sensitivities k and l are in the same bucket and related to the same securitization tranche (overlapping by more than 80% (eighty percent) based on notional value), and equal to 40% (forty percent) if the aforementioned condition is not met. In the event that 2 (two) tranches have the same issuer, the same tenor, and the same basis, but different tranches (e.g., different credit quality), the correlation must be 40% (forty percent). 𝜌𝑘𝑙^(tenor): equal to 1 (one) if 2 (two) tenors of sensitivities k and l are identical, and equal to 80% (eighty percent) if not identical. 𝜌𝑘𝑙^(basis): equal to 1 (one) if 2 (two) sensitivities are related to the same curve, and 99.90% (ninety-nine point nine zero percent) if not related to the same curve. e) Summing non-CTP securitization delta CSR risk positions in bucket 25 (other sectors) is done by simple summation of the absolute values of weighted net sensitivities allocated to this bucket. The same approach applies to aggregating vega risk positions Kb (other bucket) = ∑|𝑊𝑆𝑘| Aggregation of CSR curvature risk positions in the other sector bucket (bucket 16) is calculated with the following formula:
Kb (other bucket) = max (∑max(𝐶𝑉𝑅𝑘⁺, 0), ∑max(𝐶𝑉𝑅𝑘⁻, 0)) f) To aggregate non-CTP securitization delta CSR risk positions in buckets 1 to 24, the correlation parameter 𝛾𝑏𝑐 is set at 0% (zero percent).

To combine delta risk positions for non-CTP securitization CSR across other sector buckets (bucket 25) and buckets 1 through 24, the correlation parameter 𝛾𝑏𝑐 is set to 1 (one). The capital charge calculation at the bucket level will be summed simply to obtain the capital charge calculation at the overall risk level, without recognizing the effect of diversification or hedging for each bucket.

Buckets, risk weights, and correlations for equity

a) For equity delta risk, buckets are established based on 3 (three) dimensions, namely market capitalization, economy, and sector as shown in Table 9. Equity risk sensitivity or exposure must first be categorized into buckets before calculating weighted sensitivity by applying risk weights.

Table 9
Buckets for Equity Delta

Bucket	Market Capitalization	Economy	Sector
1	Large	Emerging market economy	Consumer goods, transportation and warehousing, administrative activities and support services, healthcare, and utilities
2			Telecommunications and industry
3			Basic materials, energy, agriculture, manufacturing, mining, and extraction
4			Financial companies (including state-owned financial companies), real estate, technology
5
6	Advanced economy	Consumer goods, transportation and warehousing, administrative activities and support services, healthcare, and utilities
7			Telecommunications and industry
8			Basic materials, energy, agriculture, manufacturing, mining, and extraction
9			Financial companies (including state-owned financial companies), real estate, technology
10	Small	Emerging market economy	All sectors found in buckets 1, 2, 3, and 4
11		Advanced economy	All sectors found in buckets 5, 6, 7, and 8
12			Other sectors(1)
13			Index on large market cap and advanced economy (non-specific sector)
14			Other indices

Note:
(1) Market capitalization (market cap) or economy (i.e., advanced market or emerging market) is not a distinguishing factor for this bucket.

Market capitalization (market cap) is the sum of market capitalization based on the market value of total outstanding shares issued by the same legal entity or group of legal entities and listed on all stock markets globally, where total outstanding shares issued by the group of legal entities refers to the condition where the listed entity is the parent company of the group of legal entities. Under no circumstances should the market capitalization amount of several related listed entities be used to determine whether a listed entity belongs to large market cap or small market cap.

Large market cap is market capitalization ≥ USD 2 billion, and small market cap is market capitalization < USD 2 billion.

Advanced economies are Canada, the United States, Mexico, the United Kingdom, Norway, Sweden, Denmark, Switzerland, Japan, Australia, New Zealand, Singapore, Hong Kong, and European countries.

b) To classify risk exposure into a sector, the Bank must rely on classifications commonly used in the market to group issuers by industry sector.

(1) The Bank must classify each issuer into one of the buckets in Table 9 and must classify all issuers from the same industry into the same sector.
(2) Risk positions from issuers that cannot be classified by the Bank into a sector must be classified into the other sector, i.e., bucket 11.
(3) For issuers of equity instruments that are multinational and multi-sector, allocation to a specific bucket must be done according to the most material area and sector where the issuer operates.

c) To calculate weighted sensitivity, the risk weights for sensitivity on each equity spot price and equity repo rate for buckets 1 through 13 are established in Table 10 below.

Table 10
Risk Weights for Buckets 1 through 13 for Sensitivity to Equity Risk

Bucket	Risk Weight for Equity Spot Price	Risk Weight for Equity Repo Rate
1	55%	0.55%
2	60%	0.60%
3	45%	0.45%
4	55%	0.55%
5	30%	0.30%
6	35%	0.35%
7	40%	0.40%
8	50%	0.50%
9	70%	0.70%
10	50%	0.50%
11	70%	0.70%
12	15%	0.15%
13	25%	0.25%

d) To sum equity delta risk positions within a bucket, the correlation parameter 𝜌𝑘𝑙 between 2 (two) sensitivities WSk and WSl in the same bucket is established as follows:

(1) The correlation parameter 𝜌𝑘𝑙 is set at 99.90% (ninety-nine point nine zero percent), where:
(a) one is sensitivity to equity spot price and the other is sensitivity to equity repo rate; and (b) both are related to the same equity issuer name.

(2) In the event that both sensitivities are equity spot prices, the correlation parameter 𝜌𝑘𝑙 is as follows:
(a) 15% (fifteen percent) between 2 (two) sensitivities in the same bucket that are classified as large market cap, emerging market economy, i.e., bucket 1, bucket 2, bucket 3, or bucket 4.
(b) 25% (twenty-five percent) between 2 (two) sensitivities in the same bucket that are classified as large market cap, advanced economy, i.e., bucket 5, bucket 6, bucket 7, or bucket 8.
(c) 7.5% (seven point five percent) between 2 (two) sensitivities in the same bucket that are classified as small market cap, emerging market economy, i.e., bucket 9.
(d) 12.5% (twelve point five percent) between 2 (two) sensitivities in the same bucket that are classified as small market cap, advanced economy, i.e., bucket 10.
(e) 80% (eighty percent) between 2 (two) sensitivities in the same bucket that are classified in one of the buckets consisting of indices, i.e., bucket 12 or bucket 13.

(3) In the event that both sensitivities are equity repo rates. The correlation parameter 𝜌𝑘𝑙 is established as referred to in item (2) letters (a) through (e).

(4) The correlation parameter 𝜌𝑘𝑙 as referred to in item (2) letters (a) through (e) is multiplied by a multiplier factor of 99.90% (ninety-nine point nine zero percent), in the event:
(a) one is sensitivity to equity spot price and the other is sensitivity to equity repo rate; and (b) each sensitivity is related to the name of a different equity instrument issuer.

e) The above correlations do not apply to the other sector bucket, i.e., bucket 11.

(1) Combining equity risk positions in the capital charge calculation for the other sector bucket is equivalent to the simple sum of the absolute values of the net weighted sensitivities allocated to this bucket. The same approach applies to the aggregation of vega risk positions. Kb (other bucket) = ∑|𝑊𝑆𝑘| 𝑘

(2) Aggregation of equity curvature risk positions in the other sector bucket, i.e., bucket 11, is calculated with the following formula:
Kb (other bucket) = max (∑max(𝐶𝑉𝑅𝑘⁺, 0) , ∑max(𝐶𝑉𝑅𝑘⁻, 0)) 𝑘 𝑘

f) To combine equity risk positions in buckets 1 through 13, the correlation parameter 𝛾𝑏𝑐 is established as follows:

(1) 15% (fifteen percent) if bucket b and bucket c are buckets 1 through 10; (2) 0% (zero percent) if either bucket b or bucket c is bucket 11; (3) 75% (seventy-five percent) if bucket b and bucket c are bucket 12 and bucket 13 (one is bucket 12 and the other is bucket 13); and (4) 45% (forty-five percent) other than items (1) through (3).

Risk buckets, risk weights, and correlations for commodities

a) For commodity delta risk, there are 11 buckets that categorize commodities based on their characteristics and are weighted as shown in Table 11.
To calculate weighted sensitivity, the risk weights for each bucket as shown in Table 11.

Table 11
Delta Bucket and Commodity Risk Weights

Bucket	Commodity Bucket	Examples of Commodities Allocated to Each Bucket	Risk Weight
1	Energy - Solid combustibles	Coal, charcoal, wood pellets, nuclear fuel (such as uranium)	30%
2	Energy - Liquid combustibles	Crude oil (such as Light sweet, heavy, WTI and Brent), biofuels (such as bioethanol and biodiesel), petrochemicals (such as propane, ethane, gasoline, methanol and butane), fine fuels (such as jet fuel, kerosene, gasoil, fuel oil, naphtha, heating oil and diesel)	35%
3	Energy - Electricity and carbon trading	Electricity (such as spot, day ahead, peak and off peak), carbon emissions trading (such as certified emissions reductions, indelivery month EUA, RGGI CO2 allowance and renewable energy certificates)	60%
4	Freight	Dry bulk route (such as capesize, panamex, handysize and supramax), liquid-bulk/gas shipping route (such as suezmax, aframax and very large crude carriers)	80%
5	Metals – other than precious metals	Base metals (such as aluminum, copper, lead, nickel, tin and zinc), steel raw materials (such as steel billet, steel wire, steel coil, steel scrap and steel frame, iron ore, tungsten, vanadium, titanium and tantalum), minor metals (such as cobalt, manganese, molybdenum)	40%
6	Gaseous combustibles	Natural gas, liquefied natural gas	45%
7	Precious metals (including gold)	Gold, silver, platinum, palladium	20%
8	Grains & oilseeds	Corn, wheat, soybeans (such as soybean seeds, soybean oil and soybean meal), wheat, palm oil, canola, barley, rapeseed (such as rapeseed seeds, rapeseed oil, and rapeseed meal), red beans, sorghum, coconut oil, peanut oil, sunflower oil, rice.	35%
9	Livestock & dairy	Cattle, pigs, poultry, sheep, fish, shrimp, dairy (such as milk, whey, eggs, butter and cheese)	25%
10	Softs and other agricultural products	Cocoa beans, coffee (such as robusta), tea, citrus and orange juice, potatoes, sugar, cotton, wool, wood and pulp, rubber	35%
11	Other commodities	Industrial minerals (such as potash, fertilizers and phosphate rocks), rare earths, terephthalic acid, flat glass.	50%

b) For the purpose of summing commodity risk positions within a bucket using correlation parameters, the correlation parameter 𝜌𝑘𝑙 between 2 (two) sensitivities WSk and WSl in the same bucket is established as follows, where:
𝜌𝑘𝑙 = 𝜌𝑘𝑙(𝑐𝑡𝑦) . 𝜌𝑘𝑙(𝑡𝑒𝑛𝑜𝑟) . 𝜌𝑘𝑙(𝑏𝑎𝑠𝑖𝑠)

where:
𝜌𝑘𝑙(cty): equal to 1 (one) if 2 (two) commodities from sensitivities k and l are identical. If this condition is not met, intra-bucket correlation from Table 12 is used where 2 (two) commodities are considered different commodities (2 (two) contracts are considered different when the underlying commodities are different). For example, WTI and Brent in bucket 2 (energy - liquid combustibles) are treated as different commodities. 𝜌𝑘𝑙(tenor): equal to 1 (one) if 2 (two) tenors of sensitivities k and l are identical and equal to 99.00% (ninety-nine percent) if not identical. 𝜌𝑘𝑙(basis): equal to 1 (one) if 2 (two) sensitivities are identical in the commodity delivery location, and 99.90% (ninety-nine point nine zero percent) if not identical.

Table 12
Commodity Intra-Bucket Correlation Correlation (𝝆𝒌𝒍)

Bucket	Commodity Bucket	Correlation (𝝆𝒌𝒍)
1	Energy - Solid combustibles	55%
2	Energy - Liquid combustibles	95%
3	Energy - Electricity and carbon trading	40%
4	Freight	80%
5	Metals – other than precious metals	60%
6	Gaseous combustibles	65%
7	Precious metals (including gold)	55%
8	Grains & oilseeds	45%
9	Livestock & dairy	15%
10	Softs and other agricultural products	40%
11	Other commodities	15%

Note:
For example, the correlation between sensitivity to Brent, tenor 1 (one) year, for delivery at Le Havre and sensitivity to WTI, tenor 5 (five) years, for delivery at Oklahoma is 95% x 99.00% x 99.90% = 93.96%.

Instruments based on spreads are considered sensitive to different risk factors. For example, if there is a swap on the spread between WTI and Brent, the swap will be sensitive to both (WTI and Brent), each requiring a capital charge at the risk factor level (i.e., delta WTI and delta Brent).

c) To determine whether the commodity correlation parameter (𝜌𝑘𝑙(cty)) as listed in Table 12 applies, the following are examples of different commodities:

(1) For bucket 3 (Energy - Electricity and carbon trading):
(a) Each time interval
i. where electricity can be delivered; and
ii. listed in contracts made in the financial market,
is considered a different electricity commodity (such as peak and off peak).
(b) Electricity generated in various regions such as Electricity NE, Electricity SE, Electricity North must also be considered as different electricity commodities.

(2) For bucket 4 (freight):
(a) Each combination of freight type is considered a different commodity.
(b) Each week where goods must be delivered is considered a different commodity.

d) To sum commodity delta risk positions, the correlation parameter 𝛾𝑏𝑐 is established as follows:

(1) 20% (twenty percent) if bucket b and bucket c are included in buckets 1 through 10; and (2) 0% (zero percent) if either bucket (bucket b or bucket c) is bucket 11.

Risk buckets, risk weights, and correlations for foreign exchange

Foreign exchange risk buckets are established for each exchange rate between the currency in which the instrument is denominated and the reporting currency.

A relative risk weight of 15% (fifteen percent) applies to all foreign exchange sensitivities.

For special currency pairs (USD/EUR, USD/JPY, USD/GBP, USD/AUD, USD/CAD, USD/CHF, USD/MXN, USD/CNY, USD/NZD, USD/RUB, USD/HKD, USD/SGD, USD/TRY, USD/KRW, USD/SEK, USD/ZAR, USD/INR, USD/NOK, and USD/BRL) and for currency pairs that form first order crosses between these special currency pairs (for example, EUR/AUD is not a special currency pair, but is a form of first order crosses of USD/EUR and USD/AUD), the risk weight may be divided by the square root of two at the Bank's discretion.

For summing foreign exchange delta risk positions, the correlation parameter 𝛾𝑏𝑐 is established at 60% (sixty percent).

Risk buckets, risk weights, and correlations for vega risk

The definition of the same bucket for each risk category is used for vega risk and delta risk.

a) To calculate weighted sensitivity for vega risk, Market Risk illiquidity is included in the determination of vega risk, by establishing different liquidity horizons for each risk category as listed in Table 13. The risk weight for each risk category is also regulated in Table 13.

Table 13
Regulatory Liquidity Horizon and Risk Weight

Risk Class	Risk Class LH	Risk Weight
GIRR	60	100%
Non-securitization CSR	120	100%
CTP Securitization CSR	120	100%
Non-CTP Securitization CSR	120	100%
Equity (large cap and indices)	20	77.78%
Equity (small cap and other sectors)	60	100%
Commodities	120	100%
Foreign Exchange	40	100%

The risk weight for a specific vega risk factor k (RWk) is calculated using the formula:
RWk = min [RWσ. √LH_risk_class / √10 ; 100%]

where RWσ is set at 55% (fifty-five percent) and is established for each risk category in Table 13.

Regarding the risk class of equity, a liquidity horizon of 20 (twenty) days applies to vega risk factors to be allocated to the large market capitalization group, i.e., buckets 1 through 8, or to the index group, i.e., buckets 12 and 13, as regulated in Table 9. A liquidity horizon of 60 (sixty) days applies to vega risk factors to be allocated to the small market capitalization group, i.e., buckets 9 and 10, or to the other sector group, i.e., bucket 11, as regulated in Table 9.

b) For combining vega risk positions for GIRR in the same bucket, the correlation parameter ρkl is established as follows:
ρkl = min[𝜌kl(option maturity) . 𝜌kl(underlying maturity) ; 1]

where:
𝜌kl(option maturity) has the same value as 𝑒^−𝛼. ⌈Tk−Tl⌉ / min{Tk;Tl} where:
α : 1% (one percent);
Tk : (including for Tl) is the maturity of the option right from vega sensitivity VRk (VRl), in years; and 𝜌kl(underlying maturity) has the same value as 𝑒^−𝛼. ⌈Tk^u−Tl^u⌉ / min{Tk^u;Tl^u} where:
α : 1% (one percent);
Tk^u : (including for Tl^u) is the maturity of the underlying of the option right from vega sensitivity VRk (VRl), in years after the maturity of the option right.

c) For the calculation of aggregate vega risk positions in other risk category buckets (i.e., non-GIRR), the correlation parameter ρkl is established as follows:
ρkl = min[𝜌kl(DELTA) . 𝜌kl(option maturity) ; 1]

where:
𝜌kl(DELTA): the correlation applicable between the delta risk factor corresponding to vega risk factor k and l. For example, if k is the vega risk factor of equity option X and l is the vega risk factor of equity option Y then 𝜌kl(DELTA) is the delta correlation applicable between X and Y; and 𝜌kl(option maturity): as regulated in letter b).

d) For CSR and commodity risk, if the vega risk factor has fewer dimensions than the delta risk factor, only the dimensions present in:
(1) the vega risk factor dimension; and
(2) the delta risk factor dimension, for the relevant risk class only need to be considered as correlation based on delta risk factor (𝜌kl(DELTA)) in the vega risk calculation. In this case, the following dimensions must be considered:
(1) for non-securitization CSR risk: option maturity (𝜌kl(option maturity)) and underlying name (𝜌kl(name)); (2) for CTP securitization CSR risk: option maturity (𝜌kl(option maturity)) and underlying name (𝜌kl(name)); (3) for non-CTP securitization CSR risk: option maturity (𝜌kl(option maturity)) and securitization tranche (𝜌kl(tranche)); and (4) for commodity risk: option maturity (𝜌kl(option maturity)) and commodity (𝜌kl(cty)).

e) For combining vega risk positions in different buckets within a risk category (GIRR and non-GIRR), the same correlation parameter for 𝛾𝑏𝑐, as established for delta correlation for each risk category, must be used in combining vega risk (for example, 𝛾𝑏𝑐 = 50% is used for combining vega risk sensitivities in different GIRR buckets).

Buckets, risk weights, and correlations for curvature risk

a) Delta buckets are replicated for curvature risk capital charge calculations, unless otherwise determined in this Otoritas Jasa Keuangan Circular.

b) To calculate the net curvature risk capital charge CVRk for risk factor k on the foreign exchange risk class and equity risk, the curvature risk weight, which is a measure of shock to a specific risk factor, is the same relative shift as the delta risk weight of each. For foreign exchange curvature, for options that do not reference the Bank's reporting currency (or base currency as referred to in this Otoritas Jasa Keuangan Circular) as the underlying variable, the net curvature risk charge (CVRk⁺ and CVRk⁻) may be divided by 1.5 (one point five). As an alternative, with the approval of Otoritas Jasa Keuangan, the Bank may apply division by the scalar 1.5 (one point five) consistently for all foreign exchange instruments as long as curvature sensitivity is calculated for all currencies, including sensitivity determined by performing a shock against the reporting currency (or base currency used) relative to all other currencies.

c) To perform the net curvature risk capital charge CVRk calculation for curvature risk factor k on the GIRR, CSR, and commodity risk categories, the curvature risk weight is a parallel shift of the entire term for each curve based on the highest delta risk weight determined for each risk category. For example, for GIRR, the risk weight established at the 0.25 (zero point two five) year term (i.e., the highest term risk weight) is applied to all terms simultaneously for each risk-free yield curve, consistent with translation risk calculation, or parallel shift.

d) To calculate curvature risk positions in a bucket in aggregate, curvature risk correlation ρkl is determined by squaring the corresponding delta correlation parameter ρkl. In the event that the curvature risk factor differs from the risk factor in delta for some risk classes (non-securitization CSR, CTP securitization CSR, non-CTP securitization CSR, and commodities) as referred to in item 3 letter b, letter c, letter d, and letter f, the Bank does not need to consider the dimension of the risk factor in delta risk. For non-securitization CSR and CTP securitization CSR, consistent with the risk factors as referred to in item 3 letter b and letter d which define buckets based on 1 (one) dimension (i.e., the relevant credit spread curve), the correlation parameter ρkl as explained in letter i item 2) letter d) does not apply to the capital charge calculation for curvature risk. Thus, the correlation parameter is determined by whether 2 (two) names of weighted sensitivities are the same. In the formula as explained in letter i item 2) letter d), the correlation parameters 𝜌kl(basis) and 𝜌kl(tenor) do not need to be applied and only the correlation parameter 𝜌kl(name) applies between 2 (two) weighted sensitivities in the same bucket. This correlation parameter must be squared. In applying the high and low correlation scenarios established in item 2.c.3).a), the net curvature risk capital charge calculation is calculated by applying the curvature risk correlation parameter ρkl determined in this section.

e) To combine curvature risk positions across all buckets, curvature risk correlation is determined by squaring the related delta correlation parameter 𝛾bc. For example, when calculating CVREUR and CVRUSD in aggregate for GIRR, the correlation is 50%² = 25%. In applying the high and low correlation scenarios as referred to in item 2.c.3).a), the capital charge calculation for curvature risk is calculated by applying the curvature risk correlation parameter 𝛾bc, which is the square of the corresponding delta correlation parameter.

Capital Charge Calculation for Default Risk Capital (DRC)

a. General DRC Calculation

The capital calculation for DRC is intended to measure JTD risk, which is the default risk that arises immediately. JTD risk cannot be measured by credit spread shock based on the sensitivities-based method.

The DRC calculation recognizes the application of limited hedging. In this section, offsetting refers to the netting of exposure by the same obligor (where short exposure can be fully subtracted from long exposure) and hedging refers to the application of partial hedging benefits from short exposure (where long and short exposures on different obligors are not fully offset due to basis risk or correlation risk).

DRC requirements must be calculated for instruments with default risk:

non-securitization portfolios;
non-CTP securitization portfolios; and
CTP securitization.

b. DRC Calculation Requirements

The following step-by-step approach must be followed for each risk category related to default risk, namely:

a) Gross Jump-to-Default (JTD) risk for each exposure is calculated separately. b) For the same obligor, the JTD value of long and short exposures is offset (where permitted) to produce the net long and/or short exposure amount for each obligor. c) Net JTD risk positions are then allocated to buckets. d) Within a bucket, the Hedge Benefit Ratio (HBR) is calculated using the net long and/or short JTD risk positions. This calculation serves as a discount factor reducing the amount of net short positions to be netted against net long positions within a bucket. The weighted net positions are then aggregated. e) The DRC calculation at the bucket level is aggregated by simple summation across all buckets to obtain the overall DRC capital charge calculation.

Diversification benefits are not recognized in the DRC capital charge calculation between:
a) non-securitization; b) non-CTP securitization; and c) CTP securitization.
For traded credit derivatives and non-securitized equity derivatives, the JTD risk position of the issuing legal entity for individual constituent names must be determined by applying the look-through approach.
When decomposing instruments with multiple underlying positions from a security or product (e.g., an index on option rights), JTD is defined as the difference between:
a) the value of the security or product assuming that each referenced name within it defaults separately from one another without recovery; and b) the value of the security or product assuming that no referenced name within it defaults.
For CTP, the capital charge calculation includes default risk for non-securitized hedges. Such hedges must be excluded from the default risk calculation on non-securitized exposures.
Claims on the Indonesian government and multilateral development banks are subject to a 0 (zero) default risk weight.
For claims on equity investments in funds treated as other sector equity (having no rating), equity investments in such funds are treated as unranked equity instruments. If the fund's mandate allows investment in high-yield or distressed name instruments, the Bank must apply the maximum risk weight as per Table 15 achievable based on the fund's mandate (for example, by calculating the effective average risk weight of the fund assuming the fund first invests to the maximum extent permitted by its mandate in defaulted instruments, then in names with CCC rating to the maximum extent, then with B rating, and then with BB rating). Offsetting or diversification between such resulting exposures and other exposures is not permitted.
In calculating JTD, the LGD of equity investments in funds for the purpose of calculating capital charges using the sensitivities-based method must be 100% (one hundred percent), which is consistent with the above requirement to treat equity investments in funds as a position in unranked equity.

c. Capital Charge Calculation for Default Risk for Non-Securitization Exposures

Gross JTD Risk Positions
a) Gross JTD risk is calculated for each exposure. For example, if a Bank has a long position in Apple bonds and a short position in other Apple bonds, the Bank must calculate 2 (two) separate JTD exposures. b) For the purpose of DRC calculation, determining the long or short direction of a position must be based on the loss or gain that would occur if a credit exposure defaults. (1) Specifically, a long exposure is a credit exposure that causes a loss if a default occurs. (2) For derivative contracts, the long or short direction is also determined by the loss that could arise if a default occurs on that contract (long or short positions are not determined by the sale or purchase of option rights or CDS). Thus, for the purpose of DRC calculation, selling put option rights on bonds is a credit exposure with a long position because if a default occurs, it will cause a loss to the seller of the option rights. c) Gross JTD is a function of LGD, notional amount, and cumulative realized profit/loss on a position, calculated as follows:
JTD (long) = max (LGD x notional + profit/loss; 0) JTD (short) = min (LGD x notional + profit/loss; 0) where:
(1) notional is the notional value of the bond of a position; (2) profit/loss is the cumulative mark-to-market profit or loss that has occurred on the exposure. More specifically, profit/loss is the market value minus the notional value, where market value is the current market value of the position; d) LGD calculation is set as follows:
(1) Equity instruments and non-senior debt instruments are subject to an LGD of 100% (one hundred percent).
(2) Senior debt instruments are subject to an LGD of 75% (seventy-five percent).
(3) Covered bonds are subject to an LGD of 25% (twenty-five percent).
(4) If the instrument's price is not related to the recovery rate of the defaulting party (e.g., FX credit hybrid option where existing cash flows are an exchange between long EUR coupon cash flows and short USD coupon cash flows with a knockout feature that terminates cash flows upon default of a specific obligor), then there is no multiplication of notional by LGD. e) The notional value of an instrument causing a long or short exposure is recorded as a positive or negative value, while losses or gains are recorded as negative or positive values. If the contractual agreement of a derivative allows for unwinding of the instrument without exposure to default risk, then JTD is set to 0 (zero). f) The notional amount is used to determine principal loss under default conditions, and mark-to-market losses are used to determine net losses to avoid double-counting mark-to-market losses already recorded in the market value of the position.

(1) For all instruments, the notional value is the notional value of the instrument where principal loss will be determined, for example as follows:
(a) for bonds, the notional value is the face value; (b) for credit derivatives, the notional value of a CDS contract or put option rights on bonds is the notional value of the derivative contract; and (c) for call option rights on bonds, the notional value to be used in the calculation is 0 (zero) because if a default occurs, the call option rights will not be exercised. In such cases, JTD will eliminate the value of the call option rights, and this loss will be accommodated through mark-to-market profit/loss in the JTD calculation. (2) Table 14 provides examples of how components used in JTD calculation for various credit instruments are calculated, where:
(a) bond-equivalent market value is taken as an intermediate step in determining profit/loss for derivative instruments; and (b) the strike value on bond option rights is expressed in bond prices (not in yield percentages).

Table 14
Example Components for Long Credit Positions in JTD Calculation Instrument Notional Bond-Equivalent Market Value Profit/Loss Bonds Face value of bonds Market value of bonds Market value – face value CDS Notional value of CDS Notional value of CDS + MtM value of CDS MtM value of CDS Sale of put option rights on bonds Notional value of option rights Strike value – |MtM value of option rights| (Strike value – |MtM value of option rights|) – Notional value Purchase of call option rights on bonds 0 MtM value of option rights MtM value of option rights Profit/Loss = Bond-Equivalent Market Value - Notional. With this representation of Profit/Loss for the sale of put option rights, a lower strike value results in a lower JTD loss.

g) To account for default within a 1 (one) year capital horizon, gross JTD for all exposures with a maturity of less than 1 (one) year and their hedges will be scaled by the fraction of 1 (one) year. No scaling is applied to JTD for exposures with a maturity of 1 (one) year or more (in this case, scaling refers to gross JTD). For example, JTD for a position with a 6 (six) month maturity is given a weight of 0.5 (zero point five), while JTD for a position with a 1 (one) year maturity has no scaling applied to JTD. h) Cash equity positions (i.e., shares) are subject to a maturity of 3 (three) months or more up to 1 (one) year at the Bank's discretion. For example, futures on an equity index with a 1 (one) month maturity and a negative market value of 10 million EUR are hedged with a position in an instrument with underlying equity having a positive market value of 10 million EUR. Both positions in this example can be calculated using a 3 (three) month maturity. Furthermore, considering maturity scaling calculated as an annual fraction of the instrument and hedge positions, JTD for the above trading portfolio is calculated as ¼ x 10 – ¼ x 10 = 0. i) For derivative exposures, the contract maturity of the derivative is a consideration in determining offsetting criteria, not the maturity of the underlying instrument. j) The maturity weight applied to JTD for each type of product with a maturity of less than 3 (three) months (such as short-term loans) has a lower bound weighting of 0.25 (zero point two five), or equivalent to 3 (three) months. In other words, positions with a remaining maturity of less than 3 (three) months will be considered to have a remaining maturity of 3 (three) months for the purpose of DRC calculation. k) In cases where a Total Return Swap (TRS) with a 1 (one) month maturity is hedged with equity instruments, the Bank may calculate JTD as 0 (zero) if there is sufficient legal basis in the TRS agreement causing no settlement risk at the swap maturity. JTD for positions with this maturity mismatch is 0 (zero) if the TRS contract:
(1) allows unwinding of both leg positions at the expiration of the earlier maturity leg; and (2) has no default risk exposure to credit as the underlying variable through the expiration point.

Net JTD Risk Positions
a) The total exposure to the same obligor can be offset as follows:

(1) Gross JTD risk positions of long and short exposures to the same obligor can be offset if the short exposure has the same or lower seniority compared to the long exposure. For example, short exposure in equity can be offset with long exposure in bonds, but short exposure in bonds cannot offset long exposure in equity. (2) To determine whether a guaranteed bond is an exposure to the underlying obligor or an exposure to the guarantor, credit risk mitigation requirements regulated by the Financial Services Authority regarding risk-weighted asset calculation for credit risk using the standard approach for universal banks apply. (3) Exposures with different maturities meeting the offset criteria can be offset as follows:
(a) Exposures with a maturity longer than the capital horizon (1 (one) year) can be fully offset.
(b) Exposures to an obligor consisting of a mix of long and short exposures with a maturity less than the capital horizon (1 (one) year) must be weighted by the ratio of the exposure maturity relative to the capital horizon. For example, there is a 3 (three) month short exposure, with a 1 (one) year capital horizon, which will be weighted so that its benefit to offset long exposures with a maturity of more than 1 (one) year will be reduced to one-quarter of the exposure amount.

b) In cases of offsetting long and short exposures where both have a maturity of less than 1 (one) year, scaling can be applied to both long and short position exposures. c) Such offsetting may result in net long JTD risk positions and net short JTD risk positions. Net long JTD risk positions and net short JTD risk positions are combined separately as illustrated below.

Capital Charge Calculation for Default Risk for Non-Securitization
a) For the purpose of calculating default risk for non-securitization, buckets will be categorized into corporate buckets, central government buckets, and local government buckets. b) To recognize hedging between net long and net short positions within a bucket, HBR is calculated as follows:
HBR =
∑ Net JTD_long
∑ Net JTD_long + ∑|Net JTD_short|

(1) Simple summation of net long JTD risk positions (before weighting) must be calculated, where the summation is performed across credit rating categories (rating bands). The summation value is used in the numerator and denominator of the HBR value. (2) Simple summation of net short JTD risk positions (unweighted) must be calculated, where the summation is performed across credit rating categories (rating bands). The summation value is used in the denominator of the HBR value. (3) HBR is the ratio of net long JTD risk positions to the sum of net long JTD risk positions and the absolute value of net short JTD risk positions.

c) For the calculation of weighted net JTD, default risk weights are set based on credit rating categories (rating bands) for the three buckets (regardless of counterparty type) as per Table 15 below:

Table 15
Default Risk Weight for Non-Securitization Based on Credit Rating Category Credit Rating Category Default Risk Weight AAA 0.5% AA 2% A 3% BBB 6% BB 15% B 30% CCC 50% Unrated 15% Defaulted 100%

Note:
In cases where there are 2 (two) or more ratings, the Bank may refer to the notes in Table 3.

d) The capital charge calculation for each bucket is calculated as a combination of the summation of net long JTD already multiplied by risk weight, HBR, and the summation of net short JTD already multiplied by risk weight, where the summation for each net long JTD and net short JTD is across credit rating categories (rating bands). In the following formula, DRC refers to DRC provisions and i refers to instruments classified into bucket b:
DRC_b = max ⌊(∑ RW_i . Net JTD_i i ∈ long ) − HBR. (∑ RW_i . |Net JTD_i| i ∈ short ) ; 0⌋

e) No hedging is calculated across different buckets. Total DRC for non-securitization is calculated through summation of capital calculations at each bucket level.

d. Capital Charge Calculation for Default Risk for Non-CTP Securitization Exposures

Gross JTD Risk Positions
a) For the calculation of gross JTD on securitization, the same approach must be followed as for non-securitization default risk. However, the LGD ratio is not applied to exposures, as it is already included in the default risk weight for securitization applied to securitization exposures. To avoid double-counting LGD, JTD for securitization is the market value of the securitization exposure (JTD for tranche positions is the market value of that tranche). b) For the purpose of offsetting and hedging for non-CTP securitization, underlying variable name positions or non-tranche index positions can be decomposed proportionally into equivalent replication tranches covering the entire tranche structure. If underlying variable names are treated in this manner, those names must be excluded from non-securitization default risk treatment.
Net JTD Risk Positions
a) For non-CTP securitization default risk, offsetting is limited to specific securitization exposures (i.e., tranches with underlying on the same asset pool). This means:
(1) offsetting must not be performed between securitization exposures with different underlying securitization portfolios (different underlying asset pools), even if they have the same attachment and detachment points; and (2) offsetting must not be performed between securitization exposures arising from different tranches of the same securitized portfolio. b) Identical securitization exposures, even with different maturities, can be offset. The offsetting rules for non-CTP securitization are the same as the offsetting rules for non-securitization. Offsetting in specific securitization exposures is permitted as follows:
(1) Securitization exposures that can be perfectly replicated through decomposition can be offset. Specifically, if a set of long securitization exposures can be replicated by a set of short securitization exposures, securitization exposures can be offset. (2) Furthermore, if long securitization exposures can be replicated by a set of short securitization exposures from different securitized portfolios, securitization exposures with mixed securitized portfolios can be offset by a combination of replicating securitization exposures. (3) After decomposition, offsetting requirements will apply as in other cases. In the case of non-securitization default risk, long and short securitization exposures must be determined based on the perspective of long and short positions on the underlying credit, for example, the Bank will incur losses on long securitization exposures if the securitized portfolio defaults.
Capital Charge Calculation for Default Risk for Non-CTP Securitization
a) For non-CTP securitization default risk, buckets are set as follows:
(1) Corporate (excluding micro, small, and medium enterprises). This bucket considers all regions.
(2) Other buckets are determined based on asset category and region.
(a) There are 11 (eleven) asset categories as follows:
i. asset backed commercial paper (ABCP);
ii. motor vehicle credit or leasing;
iii. RMBS;
iv. credit cards;
v. commercial mortgage backed securities;
vi. CLO;
vii. collateralised debt obligation (CDO) squared;
viii. micro, small, and medium enterprises;
ix. student loans;
x. other retail; and
xi. other wholesale.
(b) Regions, there are 4 (four) regions as follows:
i. Asia;
ii. Europe;
iii. North America; and
iv. others.
b) To assign securitization exposures to a bucket, the Bank must rely on classifications commonly used in the market to group securitization exposures by type and region of the underlying variable.

(1) The Bank must assign each securitization exposure to 1 (one) of the above buckets and must assign all securitization with the same type and region to the same bucket.
(2) Any securitization exposure that cannot be assigned by the Bank based on the type or region of the underlying must be included in the 'others' bucket. c) The capital charge calculation for default risk of non-CTP securitization is determined using the same approach as for non-securitization. DRC requirements in a bucket are calculated as follows:
(1) HBR discount is applied to net short securitization exposures in that bucket.
(2) Capital charge calculation is calculated like the capital charge calculation for non-securitization default risk. d) For the calculation of weighted net JTD, the risk weight of securitization exposures is calculated based on tranche and not based on credit rating. Risk weights for non-CTP securitization are applied as follows:
(1) Default risk weights for securitization exposures are based on the appropriate risk weights for the Banking Book, as regulated by the Financial Services Authority regarding prudential principles in asset securitization activities for universal banks, but with adjustments, namely setting the maturity component in the Banking Book framework to 0 (zero). This means maturity is assumed to be equal to 1 (one) year. This is done to avoid double-counting risks when adjusting maturity in the Banking Book approach given that migration risk in the Trading Book is accommodated in the credit spread capital charge calculation. (2) Following the appropriate treatment in the Banking Book, the hierarchy of approaches in determining risk weights must be applied at the level of the underlying pool (tranche). (3) Capital charge calculation based on the standard approach for individual securitization positions can be capped at the transaction fair value. e) No hedging is calculated across different buckets. Total DRC requirements for non-CTP securitization are calculated through summation of capital calculations at each bucket level.

e. Capital Charge Calculation for Default Risk for CTP Securitization

Gross JTD Risk Positions
a) For the calculation of gross JTD on CTP securitization, the same approach must be followed as for non-CTP securitization default risk. b) The definition of JTD for non-securitized exposures contained in CTP (single name and index hedges) is the market value of the position. c) nth-to-default products must be treated as products having tranches with attachment and detachment points set as follows, where total names is the number of names in the underlying pool. (1) attachment point = (N - 1) / total names (2) detachment point = N / total names
Net JTD Risk Positions
a) Identical exposures can be offset. The identical criteria do not include the maturity. The same concept for long and short positions from the perspective of loss or gain if

defaults occur and offsetting rules for non-securitization exposures, including position scaling rules for positions less than 1 (one) year for non-CTP securitization exposures, also apply to CTP securitization exposures.

(1) For index products, for index families that are exactly the same (e.g., CDX.NA.IG), series (e.g., series 18), and tranches (e.g., 0-3%), securitization exposures may be offset across maturities (in accordance with the offsetting rules explained above).

(2) Long and short exposures that are perfect replications through decomposition may be offset.

If offsetting involves decomposition of single-name equivalent exposures, decomposition using valuation models is permitted in certain cases as follows. Such decomposition represents the sensitivity of the value of securities to default on the underlying variable, namely the single-name obligor.

Regarding valuation model decomposition, the single-name equivalent constituents of securitization (e.g., tranche positions) are the difference between the value of the securitization and the value of conditional securitization assuming the single name defaults, with a recovery rate of 0 (zero), where the value is determined by the valuation model.

In such cases, the decomposition of the single-name equivalent exposure must account for the impact of marginal default of the single name in the securitization, where the sum of the decomposed single names must be consistent with the value of the non-decomposed securitization.

Furthermore, such decomposition is limited to vanilla securitization (e.g., vanilla CDO or index tranches), while decomposition of securitization that is exotic (e.g., CDO squared) is prohibited.

(3) Furthermore, for:
(a) long and short positions in index tranches; and (b) non-tranched indices, if the exposure is a series of the same index, then offsetting is permitted with replication and decomposition. For example, long securitization exposure on tranche 10% (ten percent) to 15% (fifteen percent) combined with short securitization on tranche 10% (ten percent) to 12% (twelve percent) and 12% (twelve percent) to 15% (fifteen percent) in the same index may offset each other.

Likewise, long securitization exposure in various tranches that, when combined perfectly, replicate positions in a non-tranched index series may be offset by short securitization exposure in the index series if all positions are on the same index and series (e.g., CDX.NA.IG series 18).

Long and short positions in indices and single-name constituents in indices may also be offset through decomposition. For example, long single-name securitization exposure replicating an index may be offset by short securitization exposure in that index.

If perfect replication is not possible, offsetting is not permitted unless the long and short securitization exposures are declared equivalent (except for the residual component), the net value must show residual exposure. For example, long securitization exposure on an index with 125 names, and short securitization exposure from the corresponding replication value on 124 of those names, will result in net long securitization exposure on the 125th name of the unrelicated index.

(4) Offsetting may not be performed on:
(a) different tranches of the same index or series; (b) different series of the same index; and (c) different index groups.

Calculation of Credit Default Risk Charge for CTP Securitization
a) For CTP securitization default risk, each index is designated as a separate index bucket. The list of indices includes: CDX North America IG, iTraxx Europe IG, CDX HY, iTraxx XO, LCDX (credit index), iTraxx LevX (credit index), Asia Corp, Latin America Corp, Other Regions Corp, Major Sovereign (G7 and Western Europe), and other sovereigns.

b) Bespoke securitization must be allocated to the index bucket where the bespoke tranche is located. For example, a bespoke tranche of 5% (five percent) to 8% (eight percent) from a specific index must be allocated to the bucket of that index.

c) The credit risk weight for securitization exposure is based on the appropriate risk weight for the Banking Book, as regulated in the Financial Services Authority Regulation regarding prudential principles in asset securitization activities for universal banks, but with adjustments, specifically the setting of the maturity component in the Banking Book securitization framework to 0 (zero). This means maturity is assumed to be 1 (one) year. This is done to avoid double counting of risks when adjusting maturity in the Banking Book approach, given that migration risk in the Trading Book is accommodated in the credit spread risk charge calculation.

d) For non-tranched products, the risk weight magnitude refers to Table 15. For products with tranches, banks must determine the risk weight using Banking Book treatment as in securitization exposures.

e) In a bucket (for each index) at the index level, the credit default risk charge calculation for CTP securitization is determined using the same approach as the non-securitization approach.

(1) HBR, as established for non-securitization exposures, is modified and applied to net short positions in that bucket as in the formula below.

DRC𝑏 = ⌊(∑ RW𝑖 . JTD bersih𝑖 𝑖 ∈ 𝑙𝑜𝑛𝑔 ) − HBR𝑐𝑡𝑝 . (∑ RW𝑖 . |JTD bersih𝑖 | 𝑖 ∈ 𝑠ℎ𝑜𝑟𝑡 )⌋

where the CTP symbol in HBRctp indicates that HBR is determined using a combination of short and long positions across all indices in CTP (not just long and short positions from that specific bucket). The summation of risk-weighted values in the formula applies to all exposures related to the index (i.e., index tranche, bespoke, non-tranched index, or single name).

(2) The difference from the approach used for non-securitization is that there is no lower limit of 0 (zero) applied at the bucket level, and consequently, the DRC requirement at the index level (𝐷𝑅𝐶𝑏) can be negative.

f) The DRC requirement for CTP securitization is calculated by combining capital values at the bucket level with the following calculation format.

DRCCTP = 𝑚𝑎𝑥 ⌊∑(max[DRCb; 0]𝑏 + 0,5 . min[DRCb; 0]); 0⌋

For example, if the DRC calculation for CDX North America IG is +100 and the DRC calculation for the Major Sovereign (G7 and Western Europe) index is -100, then the total DRC for CTP is 100 - 0,5 x 100 = 50.

The procedure for calculating DRCb and DRCctp accounts for basis risk in cross-index hedging, because the HBR of short positions in cross-index is discounted 2 (two) times, first with HBR on DRCb, and subsequently with a multiplier of 0.5 (zero point five) in the DRCctp equation.

Calculation of Capital Charge for Residual Risk Add-On (RRAO)
Residual risk add-on (RRAO) must be calculated for all instruments with residual risk separately as an addition to other components of the capital charge calculation based on the standard approach.

a. Instruments Included in RRAO

Instruments with exotic underlying variables and instruments with other residual risks will include RRAO.
Instruments with exotic underlying variables are Trading Book instruments with exposure to underlying variables that are not regulated based on delta, vega, or curvature risk in each risk category using the sensitivities-based method or DRC in the standard approach. One underlying variable that is exotic can be seen from future realized volatility.

Examples of exposures with exotic underlying variables include longevity risk, weather risk, natural disaster risk, future volatility (as an underlying exposure for a swap).

Instruments with other residual risks are instruments that meet the following criteria:
a) Instruments regulated based on capital charge calculations for vega risk or curvature risk in the Trading Book and with payoffs that cannot be reflected or perfectly replicated as a limited linear combination of vanilla option rights with underlying single equity price, commodity price, exchange rate, bond price, CDS price, or interest rate swap; or b) Instruments included in the definition of CTP, except for instruments recognized as CTP hedging instruments.
The list of residual risk types and other instruments listed in the criteria set in number 3) includes at least:
a) Gap risk, i.e., the risk of significant changes in vega parameters of option rights due to small changes in the underlying variable resulting in hedge slippage. Instruments with gap risk include all path-dependent options such as barrier options, Asian options, and all digital options. b) Correlation risk, i.e., the risk of changes in correlation parameters required to determine the value of an instrument with multiple underlying variables. Instruments with correlation risk include all basket options, best-of options, spread options, basis options, Bermudan options, and quanto options. c) Behavioral risk, i.e., the risk of changes in option exercise/repayment execution as arises in mortgage-backed credit products with fixed interest rates where retail customers can make decisions based on factors outside financial profit, such as demographic and/or other social factors. Callable bonds can only have behavioral risk possibilities if the right to execute the call is with the retail customer.
When an instrument has 1 (one) or more of the following risk types, the instrument is not automatically included in the capital charge calculation for RRAO:
a) Risk from the cheapest-to-deliver option. b) Smile risk (smile risk) arising from changes in implied volatility parameters required to determine the value of an instrument with optionality relative to the implied volatility of other optionality instruments with the same underlying and maturity, but with different moneyness levels. c) Correlation risk arising from multi-underlying European plain vanilla options or multi-underlying American plain vanilla options, and from any option rights that can be reflected as a linear combination of such option rights. This exception applies specifically to relevant index option rights. d) Dividend risk arising from derivative instruments where the underlying consists not only of dividend payments. e) Index instruments and multi-underlying options that account for delta, vega, or curvature risk. These instruments are included in RRAO if they meet the criteria for instruments that must be included in RRAO. For funds treated as unrated (other equity sector), banks must assume that such funds have exotic underlying exposures and other residual risks to the maximum extent possible within the mandate of the relevant fund.
In the event of an exact match with a third-party transaction (i.e., back-to-back transactions), instruments used in both transactions must be excluded from the capital charge calculation for RRAO.

Regarding instruments listed and/or eligible for trading through central clearing:
a) for instruments with exotic underlying, they must be included in the capital charge calculation for RRAO; and b) for instruments with other residual risks, the capital charge calculation for RRAO is not required.

Hedging may be excluded from RRAO if the hedging instrument exactly matches the traded instrument, for example, through back-to-back transactions.

Total return swaps (TRS) on underlying products may be excluded from RRAO if there is an exactly matching opposite transaction in the same TRS. If no such matching transaction exists, the entire notional amount of the TRS will be included in the capital charge calculation for RRAO.

b. RRAO Calculation

RRAO must be calculated as an addition to other capital charge calculations in the standard approach. RRAO is accounted for as follows:

The scope of instruments regulated based on RRAO must not affect the increase or decrease in the scope of risk factors regulated based on delta, vega, curvature, or DRC risk treatment in the standard approach.
RRAO is the simple sum of the gross notional values of instruments with residual risk multiplied by the risk weight.

Risk weights are established as follows:
a) Risk weight for instruments with exotic underlying variables is 1.0% (one percent). b) Risk weight for instruments with other residual risks is 0.1% (zero point one percent).

In the event that the Financial Services Authority determines that the RRAO calculation results in inadequate capital charge, the Financial Services Authority may establish additional conservative capital charges for potential capital shortfalls regarding the risks faced by banks.

V. Simplified Standard Approach

Overview
a. Banks that individually and/or collectively do not calculate Market Risk using the standard approach must calculate Market Risk using the simplified standard approach. b. Market Risk using the simplified standard approach includes interest rate risk, exchange rate risk, equity risk, and commodity risk.
c. Banks individually and/or collectively with Subsidiaries calculate interest rate risk and/or exchange rate risk.
d. Banks collectively, in addition to calculating risks as described in letter c, also calculate:

equity risk, if the Bank has Subsidiaries exposed to equity risk; and/or
commodity risk, if the Bank has Subsidiaries exposed to commodity risk.
e. Risk-weighted assets for Market Risk based on the simplified standard approach are determined by multiplying the capital charge of all risks calculated as regulated in this chapter by a multiplier of 12.5 (twelve point five). f. The capital charge calculation arising from the simplified standard approach is the sum of capital charges calibrated for each risk category, as explained in the following formula:

Capital Charge Calculation = (CRIRR x SFIRR) + (CREQ x SFEQ) + (CRFX x SFFX) + (CRCOMM x SFCOMM)

where:

CRIRR is the capital charge calculation for interest rate risk plus capital charge for debt instrument option rights risk;
CREQ is the capital charge calculation for equity risk plus capital charge for equity instrument option rights risk;
CRFX is the capital charge calculation for exchange rate risk plus capital charge for exchange rate instrument option rights risk;
CRCOMM is the capital charge calculation for commodity risk plus capital charge for commodity instrument option rights risk;
SFIRR is a scaling factor of 1.30 (one point three zero);
SFEQ is a scaling factor of 3.50 (three point five zero);
SFCOMM is a scaling factor of 1.90 (one point nine zero); and
SFFX is a scaling factor of 1.20 (one point two zero).

Interest Rate Risk
a. General

Interest rate risk calculations are performed on financial instruments in the Trading Book exposed to interest rate risk, including:
a) all fixed-interest or floating-interest debt securities; and b) other instruments with characteristics similar to letter a), including:
(1) non-convertible preferred shares; and
(2) convertible bonds, i.e., the issuance of debt securities or preferred shares that can be converted into common shares of the issuer at a certain price, will be calculated as debt securities if the bonds are traded like debt securities (but will be calculated as equity if the bonds are traded like equity).
The capital charge calculation for interest rate risk includes specific risk and general risk, where long and short positions in securities or different instruments may offset each other.

b. Specific Risk

The capital charge calculation for specific risk is designed to protect banks from the risk of losses due to price changes of each financial instrument held due to factors related to the issuer of the financial instrument.
Offset Process
a) Full Offset

In specific risk calculations, banks may perform an offset process between long and short positions.

Banks may perform full offset (full offset) for positions hedged by credit derivatives when long and short positions always move in opposite directions with the same value. Such positions will undergo full offset and are not included in the specific risk capital charge calculation as long as:

(1) both legs consist of identical instruments, i.e., there is similarity in issuer, coupon interest rate, currency type, maturity, call features, and others; or (2) long cash positions or credit derivatives are hedged by total rate of return swaps (or vice versa) and there is correspondence between the reference obligation and the underlying exposure (the maturity of the total rate of return swap may differ from the maturity of the long cash position).

b) 80% Offset (Eighty Percent)

Banks may perform partial offsetting (by 80% (eighty percent)) when the value of 2 (two) legs (i.e., long and short) always moves in opposite directions in unequal amounts. This may be done as long as:

(1) long positions of reference financial instruments or credit derivative instruments are hedged by credit default swaps (CDS) or credit-linked notes (or vice versa); (2) there is correspondence regarding maturity and currency type of the reference obligation and credit derivatives; and (3) the main features of the credit derivative contract (e.g., definition of credit event and settlement mechanism) do not cause the price movement of the credit derivative to differ materially from the movement of the instrument position.

Partial offsetting (by 80% (eighty percent)) is applied by accounting for specific risk capital charge only by 20% (twenty percent) for the reference financial instrument position or credit derivative instrument position that results in the largest specific risk capital charge calculation, while other positions are not accounted for as capital charge.

c) Partial Offset

Banks may perform partial offsetting (other than 80% (eighty percent)) when the value of both legs (i.e., long and short) moves in opposite directions. This partial offsetting may be done as long as:

(1) long positions of reference financial assets are hedged by short positions of credit derivative contracts (or vice versa), where there is a mismatch between the reference financial asset and the reference obligation but meets the requirements:
(a) the reference obligation is pari passu with the reference financial asset or is junior to the reference financial asset; and (b) the reference entity is the same as the obligor of the reference financial asset and there is a clause in the credit derivative contract regarding cross reference, i.e., cross default or cross acceleration according to International Swaps and Derivatives Association Credit Derivatives Definitions that apply; (2) Reference financial asset positions are identical to reference obligation positions, or long positions of reference financial assets are hedged by short positions of credit derivative contracts (or vice versa) but there is a mismatch in currency type; or (3) Long positions of reference financial assets are hedged by short positions of credit derivative contracts (or vice versa) where there is a mismatch, i.e., reference financial assets are similar but not identical to reference obligations, but the reference financial assets are included in one of the reference obligations in the credit derivative contract fulfilled in the credit derivative documentation.

Offsetting in letters a) through c) is applied by accounting for specific risk capital charge for 1 (one) position, i.e., the reference financial asset position or credit derivative instrument position that results in the largest specific risk capital charge calculation, while capital charges for other positions are not accounted for.

In the event that offsetting cannot be performed, specific risk capital charge is accounted for on each position (long and short).

Specific risk charging is divided into weighting categories as in Table 16 below.

Table 16
Weighting Categories for Specific Risk

Issuer Weight

Indonesian Government 0.00%
Foreign Governments
a. Rating AAA to AA- 0.00% b. Rating A+ to BBBi. remaining maturity to maturity less than or equal to 6 (six) months 0.25%
ii. remaining maturity to maturity more than 6 (six) months to 24 (twenty-four) months 1.00%
iii. remaining maturity to maturity more than 24 (twenty-four) months 1.60%
c. Rating BB+ to B- 8.00%
d. Rating less than B- 12.00% e. Unrated 8.00%
Qualifying
a. remaining maturity to maturity less than or equal to 6 (six) months 0.25% b. remaining maturity to maturity more than 6 (six) months to 24 (twenty-four) months 1.00%
c. remaining maturity to maturity more than 24 (twenty-four) months 1.60%
Others
a. Rating BB+ to BB- 8.00% b. Rating less than BB- 12.00%
c. Unrated 8.00%

Government categories include:
a) Indonesian Government

Instruments included in the Indonesian Government category are all instruments issued, guaranteed, or guaranteed by effects issued by:
(1) the central government of the Republic of Indonesia; (2) Bank Indonesia; (3) Deposit Insurance Agency; (4) Indonesian government bodies and institutions whose entire operational funding comes from the State Budget (APBN) of the Republic of Indonesia; (5) financial institutions meeting certain requirements, namely:
(a) owned by the central government of the Republic of Indonesia; (b) their business activities provide national export financing; and (c) established by Law with sovereign status, such as the Indonesia Export Financing Agency; or (6) central government investment management institutions wholly owned by the Indonesian Government established by Law, such as the Investment Management Agency.

b) Foreign Governments

Instruments included in the Foreign Government category are all instruments issued, guaranteed,

or guaranteed by securities issued by the central government or the central bank of another country.

Qualifying Category
The qualifying category includes securities issued, guaranteed, or backed by securities issued by entities considered to have investment grade (IG), which includes:
a) Securities issued, guaranteed, or backed by securities issued by:
(1) Regional Governments as regulated in legislation concerning regional government; (2) Bodies or government institutions of the Republic of Indonesia that do not meet the criteria as the Indonesian government; (3) State-Owned Enterprises (BUMN) as regulated in legislation concerning BUMN, which are not classified as Banks; (4) Multilateral development banks, namely the World Bank Group consisting of the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and International Development Association (IDA), as well as the Asian Development Bank (ADB), African Development Bank (AfDB), European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank (IADB), European Investment Bank (EIB), European Investment Fund (EIF), Nordic Investment Bank (NIB), Caribbean Development Bank (CDB), Islamic Development Bank (IDB), Council of Europe Development Bank (CEDB), International Finance Facility for Immunization (IFFIm), and Asian Infrastructure Investment Bank (AIIB); or

(5) International institutions namely the Bank for International Settlements, International Monetary Fund (IMF), European Union, European Central Bank, European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF), which have an investment grade rating from 1 (one) rating agency as regulated in the Financial Services Authority regulations concerning rating agencies and ratings recognized by the Financial Services Authority, or b) securities issued by parties other than those referred to in letter a) that have an investment grade rating from at least 2 (two) rating agencies as regulated in the Financial Services Authority regulations concerning rating agencies and ratings recognized by the Financial Services Authority. c) In cases where letters a) and b) above are insufficient to reflect Market Risk, for example when the yield of a debt security is relatively high compared to government securities, the Financial Services Authority has the discretion to:
(1) apply a higher capital charge for specific risk; and/or (2) prohibit offsetting in the calculation of capital charges for general Market Risk.

Others
The category of Others includes all securities issued, guaranteed, or backed by securities that do not fall into the categories explained in the points above.
The terms corporation, Bank, public sector entity, multilateral development bank, and international institution refer to parties included in claims on corporations, claims on Banks, claims on public sector entities, and claims on multilateral development banks and international institutions as referred to in the Financial Services Authority regulations concerning risk-weighted asset calculation for credit risk using the standardized approach.
The calculation of specific risk capital charges for securitization positions held in the Trading Book is calculated according to the calculation method for such positions in the Banking Book as regulated in the Financial Services Authority Regulation concerning prudential principles in asset securitization activities for commercial banks, with the risk weight divided by 12.5 (twelve point five). Banks will calculate the capital charge for specific risk applicable to each net securitization position.
Banks may limit the capital charge for each credit derivative position or securitization position to the maximum possible loss. For short risk positions, the limit is calculated based on the change in value if the underlying asset becomes default risk-free. For long risk positions, the maximum possible loss is the change in value when all underlying assets experience failure with zero recoveries. The maximum loss referred to must be calculated for each individual position.
Derivative receivable accounts arising from interest rate instruments (debt securities) will be subject to ATMR calculation in accordance with Financial Services Authority regulations concerning guidelines for calculating net exposure of derivative transactions in the calculation of risk-weighted assets for credit risk using the standardized approach.
Credit derivatives with nth-to-default features are contracts where repayment is based on default on the n-th asset in a set of reference underlying assets. When default on the n-th asset referred to occurs, the transaction ends and is settled.
a) First-to-default

The specific risk capital charge calculation for first-to-default credit derivatives is the smaller value between:
(1) the sum of capital charges for specific risk on each reference financial instrument in the asset set; or (2) the maximum payment amount according to the contract when a credit event occurs. If a Bank has a risk position on one of the reference financial instruments underlying the first-to-default credit derivative and the derivative hedges the Bank's risk position, the Bank may perform offsetting of specific risk capital charges on the reference credit instrument and the related credit derivative with the reference credit instrument. If a Bank has multiple risk positions in credit reference instruments that are the underlying of first-to-default credit derivatives, this offsetting is only permitted for the underlying credit reference instrument with the lowest specific risk weight. In the event a Bank performs offsetting, the Bank must document the entire offsetting process adequately. b) Nth-to-default with n greater than 1 (one) The specific risk capital charge for nth-to-default credit derivatives with n greater than 1 (one) is the smallest value between:
(1) the sum of capital charges for specific risk on each reference credit instrument in the asset set but not considering the n-1 obligations with the lowest specific risk capital charge; and (2) the maximum payment amount according to the contract when a credit event occurs.

For the calculation of specific risk capital charges, offsetting with underlying reference instruments of nth-to-default credit derivatives (n greater than 1 (one)) is not permitted.
If other nth-to-default credit derivatives are externally rated, the protection buyer must calculate the capital charge for specific risk using the rating of the referred credit derivative and apply the appropriate securitization risk weight as in point 7) above. Capital charges for specific risk are imposed for each net position of nth-to-default credit derivatives, regardless of whether the Bank has a long position or a short position.
c. General Risk

The calculation of capital charges for general risk is designed to protect Banks from the risk of losses due to changes in market interest rates.
General risk is imposed on securities positions and derivative instruments related to interest rate risk recorded in the Trading Book.
Calculation methods that can be used for general risk calculation are using the maturity method or the duration method. Banks may choose between these 2 (two) methods as long as they are done consistently and accurately.
The calculation of capital charges for general risk is the sum of four components as follows:
a) weighted net short or net long positions across the entire Trading Book; b) the smallest proportion of matched positions in each time band (vertical disallowance); c) the largest proportion of matched positions across the entire time band (horizontal disallowance); and d) Net charge for option positions, if any.
Long and short positions of all positions for each currency are mapped into a maturity ladder separately, and capital charge calculations must also be calculated separately for each currency. Then, the capital charge for each currency is summed without offsetting between opposite positions.
The term maturity ladder refers to a table arranged based on the grouping of the remaining maturity or duration until the next interest rate setting of a security or derivative instrument.
If there is a currency whose amount is assessed as insignificant, a separate maturity ladder is not required. In the event of an insignificant currency, the Bank may create one maturity ladder and allocate net long or net short positions for each referred currency into the appropriate time band. Net positions individually must be summed in each time band, regardless of long or short positions, to produce a gross position figure.
Maturity Method
a) In the maturity method, long or short positions of securities and derivative instruments are mapped into a maturity ladder consisting of 13 (thirteen) or 15 (fifteen) time bands as in Table 17.

Table 17
Time Band and Weight in Maturity Method
Coupon ≥ 3%
Coupon < 3%
Risk Weight
Assumed Yield Change
≤ 1 month ≤ 1 month 0.00% 1.00
1-3 months 1-3 months 0.20% 1.00
3-6 months 3-6 months 0.40% 1.00
6-12 months 6-12 months 0.70% 1.00
1-2 years 1.0-1.9 years 1.25% 0.90

2-3 years 1.9-2.8 years 1.75% 0.80
3-4 years 2.8-3.6 years 2.25% 0.75
4-5 years 3.6-4.3 years 2.75% 0.75
5-7 years 4.3-5.7 years 3.25% 0.70
7-10 years 5.7-7.3 years 3.75% 0.65
10-15 years 7.3-9.3 years 4.50% 0.60
15-20 years 9.3-10.6 years 5.25% 0.60

20 years 10.6-12 years 6.00% 0.60
12-20 years 8.00% 0.60
20 years 12.50% 0.60
Fixed rate instruments (fixed) are allocated according to remaining maturity, while variable/floating rate instruments are allocated according to the duration until the next repricing date.
Opposite positions with the same amount and the same issuing instrument, whether actual or notional value, are not included in the general risk capital charge calculation with the maturity method, as are the following derivative instruments that meet the requirements set in section d.5) namely swaps, forwards, futures, and forward rate agreements (FRA). b) The process of calculating capital charges with the maturity method is carried out as follows:
(1) The first step in the maturity method calculation is to weight positions in each time band. The weight for each time band is set in Table 17. Zero-coupon bonds and deep discount bonds (determined as bonds with coupons less than 3% (three percent)) must be placed in the time band set in the second column of Table 17. (2) The next step is to apply vertical disallowance, where the calculation of matched positions in each time band is multiplied by the capital charge weight, which is 10% (ten percent). The calculation of matched positions is done by matching (matching) short positions and long positions in each time band (time band), and the 10% weight is imposed on the smallest position of the matched position in each time band. The difference from the matching process is the residual position (unmatched position), either long or short positions. (3) The next step is to divide the maturity ladder into 3 (three) zones (zone 1, zone 2, and zone 3) before applying horizontal disallowance, which consists of:
(a) Capital charge for matching positions within the same zone The calculation of matched positions in each zone is multiplied by the capital charge weight, which is 40% (forty percent) for zone 1, 30% (thirty percent) for zone 2, and 30% (thirty percent) for zone 3 according to Table 18. The calculation of matched positions is done by matching (matching) long residual positions (unmatched position) and short residual positions (unmatched position) from all time bands, where the smallest position is the matched position of that zone. The difference from the matching process is the residual position (unmatched position), either long or short positions of that zone.

(b) Capital charge between Zones (zone 1 and zone 2, zone 2 and zone 3, and zone 1 and zone 3) The calculation of matched positions between zones is multiplied by the capital charge weight, which is 40% (forty percent) for zone 1 and zone 2, 40% (forty percent) for zone 2 and zone 3, and 100% (one hundred percent) for zone 1 and zone 3 as in Table 18. The calculation of matched positions between zones can be explained as follows:
Between Zone 1 and Zone 2
The calculation of matched positions is done by matching (matching) long residual positions (unmatched position) and short residual positions (unmatched position) from zone 1 and zone 2, where the smallest position is the matched position between zone 1 and zone 2. The difference from the matching process is the remaining unmatched position in zone 1 and zone 2, either long or short positions. Between Zone 2 and Zone 3 The calculation of matched positions is done by matching (matching) long positions and short positions from the remaining unmatched positions from zone 2 with the residual positions (unmatched position) from zone 3, where the smallest position is the matched position between zone 2 and zone 3. The difference from the matching process is the remaining unmatched position in zone 3, either long or short positions.

Between Zone 1 and Zone 3
The calculation of matched positions is done by matching (matching) long remaining unmatched positions and short remaining unmatched positions from zone 1 and zone 3, where the smallest position is the matched position between zone 1 and zone 3. The difference from the matching process between zone 1 and zone 3 is the remaining unmatched position from the entire inter-zone matching process.

Table 18
Horizontal Disallowance
Zone 1 Time Band 1
In Zone
Nearest Inter-Zone
Zone 1 and 3
Zone 1
0-1 month
40%
40% 100%
1-3 months
3-6 months
6-12 months
Zone 2
1-2 years
2-3 years 30%
3-4 years
Zone 3
4-5 years
30%
5-7 years
7-10 years
10-15 years
15-20 years

20 years
Note:
1 Zone for coupons less than 3% (three percent) is 0 (zero) to 1 (one) year for zone 1, 1 (one) to 3.6 (three point six) years for zone 2, and more than 3.6 (three point six) years for zone 3.

(4) Overall Residual Net Position
The calculation of remaining unmatched positions (remaining unmatched position) either long or short from the entire inter-zone matching process according to the description in point (3).(b) is multiplied by the capital charge weight of 100% (one hundred percent). Thus, the capital requirement calculation for general risk is the sum of:

Vertical Disallowance
Matched position between long and short positions in each time band X 10%
Horizontal Disallowance
Matched position between long and short positions in zone 1 X 40% Matched position between long and short positions in zone 2 X 30% Matched position between long and short positions in zone 3 X 30% Matched position between long and short positions from zone 1 residual positions and long and short positions from zone 2 residual positions X 40% Matched position between long and short positions from remaining zone 2 residual positions and long and short positions from zone 3 residual positions X 40% Matched position between long and short positions from remaining zone 1 residual positions and long and short positions from remaining zone 3 residual positions X 100%
Overall Residual Net Position
Net
Sum of net weights of long positions or short positions X 100%

Duration Method
a) For Banks using the duration method, they must ensure that the Bank has the capacity to apply this method by considering prudential principles. b) Banks must notify the Financial Services Authority in writing if the Bank will use the duration method in the calculation of capital charges for general risk. c) In the written notification as referred to in letter b), it must be accompanied by documents and information including:
(1) policies and procedures for implementing the duration method; (2) instruments calculated with the duration method; (3) systems supporting the implementation of calculation procedures; (4) processes and procedures for controlling the calculation method; and (5) internal validation by an independent party regarding the Market Risk calculation method used. d) The Financial Services Authority may conduct examinations of the duration method used by Banks to ensure the correctness of documents and information as referred to in letter c). e) Steps in this method are as follows:
(1) The first step, long and short positions of all securities and derivative instrument positions are mapped into a duration ladder consisting of 15 (fifteen) time bands (time band) as listed in Table 19. The term duration ladder refers to a table arranged based on the grouping of the duration of a security or derivative instrument. (2) Calculations are done by considering modified duration and price movement estimates of each position and mapping each position into maturity zones (maturity zones) appropriate to Table 19. (3) The process of calculating capital charges with the duration method is in principle the same as the maturity method, except for the imposition of capital charge weights for vertical disallowance, which is 5% (five percent) of the matched position in each time band.

Table 19
Duration Method
Time Band and Assumed Yield Change
Time Band
Assumed Yield Change (%)
Zone 1
< 1 month 1.00

1 – 3 months 1.00
3 – 6 months 1.00
6 – 12 months 1.00
Zone 2
1 – 1.9 years 0.90
1.9 – 2.8 years 0.80
2.8 – 3.6 years 0.75
Zone 3
3.6 – 4.3 years 0.75

4.3 – 5.7 years 0.70
5.7 – 7.3 years 0.65
7.3 – 9.3 years 0.60
9.3 – 10.6 years 0.60
10.6 –12 years 0.60
12 – 20 years 0.60
20 years 0.60

For currencies that are insignificant and grouped into one, gross positions in each time band are subject to the risk weights set in point 6) if positions are reported using the maturity method, or subject to assumed yield changes as set in point 7) if positions are reported using the duration method, without further offsetting.
d. Interest Rate Derivatives
Capital charge calculations include all interest rate derivatives and off-balance sheet instruments in the Trading Book that are affected by changes in interest rates (e.g., FRA, other forward contracts, bond futures, interest rate swaps, cross-currency swaps, and forward foreign exchange positions).
Derivatives must be converted into relevant underlying positions and subject to capital charges for general risk and specific risk.
The reported amount is the market value of the underlying principal amount or the underlying notional value resulting from valuation based on prudential principles regulated in the Financial Services Authority Regulation concerning minimum capital requirements. In the event that the notional value of the instrument differs from the effective notional value, the Bank must use the effective notional value.
Derivative instruments in the Trading Book are reported with a two-legged approach. Example:

a) Purchase (long position) of a Forward Rate Agreement (FRA) conducted at the end of April and maturing at the end of June with a 3 (three) month Sertifikat Bank Indonesia (SBI) interest rate must be reported as a long position with a 5 (five) month duration and a short position with a 2 (two) month duration. b) An interest rate swap transaction conducted by the Bank receiving floating interest rates and paying fixed interest rates must be reported as a long position for floating interest rate instruments according to the duration until the next interest rate adjustment and as a short position for fixed interest rate instruments according to the remaining maturity of the swap transaction.

Matched positions on futures or forwards and the underlying assets can be fully offset and thus excluded from the calculation, but the leg representing the maturity of the future must be reported.
When a future or forward instrument consists of various deliverable instruments, offsetting against positions in the future or forward contract and the underlying assets is only permitted if there is an underlying security that is easily identifiable and most advantageous for the trader with the short position to deliver. The price of this security, usually called the "cheapest-to-deliver", and the price of the future or forward contract, in such conditions, must move in the same direction. Offsetting between positions in different currencies is not permitted. Separate legs from cross-currency swaps or forward FX transactions will be treated as notional positions in the relevant instrument and included in the appropriate calculation for each currency.
Opposing positions in the same category of instruments may be considered identical and allowed to be fully offset.
To meet the condition of identity, positions must have the same underlying instrument, the same nominal value, and be denominated in the same currency. In addition:
a) for futures, the notional value or the underlying asset of the futures contract must be identical and the maximum difference in maturity is 7 (seven) days; b) for swaps and FRAs, the reference interest rate (for floating rate positions) must also be identical and the maximum coupon difference is 15 (fifteen) basis points; and c) for swaps, FRAs, and forwards, the next interest rate fixing date, or for instruments with fixed interest rates or forward transactions, the remaining maturity must correspond within the following limits:
(1) if the remaining time to maturity of one of the derivative transaction positions is up to 1 (one) month, then the offset process can only be carried out if there is no difference in the remaining time to maturity between the two positions; (2) if the remaining time to maturity of one of the derivative transaction positions is more than 1 (one) month up to 1 (one) year, then the offset process can only be carried out if the difference in the remaining time to maturity of each of those positions is not more than 7 (seven) days; or (3) if the remaining time to maturity of one of the derivative transaction positions is more than 1 (one) year, then the offset process can only be carried out if the difference in the remaining time to maturity of the two positions is not more than 30 (thirty) days.
Banks with a large volume of swaps may use an alternative formula to calculate positions to be included in the maturity ladder or duration ladder.
One method is to first convert the required payments from the swap into present value.
For this purpose, each payment must be discounted using the yield on zero coupon bonds, and 1 (one) net figure for the present value of the cash flow is included in the time band in accordance with the procedures applicable to zero coupon bonds (or low coupon bonds). These figures must be included in the general Market Risk framework as explained above. An alternative method is to calculate the net present value sensitivity related to or resulting from changes in the yield used in the maturity method or duration method and allocate this sensitivity into time bands.
Other methods that produce similar results may also be used. However, the alternative treatment mentioned is only permitted if:
a) the Financial Services Authority believes in the accuracy of the system used; b) the calculated positions fully reflect the sensitivity of cash flows to interest rate changes and are included in the appropriate time band; and c) the positions mentioned are denominated in the same currency.
Interest rate swaps and currency swaps, FRAs, FX forward contracts, and interest rate futures are not subject to capital charges for specific risk. This exception also applies to futures on interest rate indices (e.g., Euribor). However, in the case of futures contracts where the underlying asset is a debt security, or an index representing a group of debt securities, the capital charge for specific risk will be applied in accordance with the Credit Risk of the issuer.
General risk applies to positions on all derivative products with the same treatment as that applicable to cash positions, with the exception only for positions that are fully matched or closely matched on identical instruments as explained in paragraph 5).
The following table presents a summary of treatment for interest rate derivatives in calculating capital charges for Market Risk.

Table 20
Summary of Treatment for Interest Rate Derivatives Instrument | Specific Risk Capital Charge 1 | General Risk Capital Charge --- | --- | --- Exchanged-traded future Government debt security | Yes 2 | Yes, as two positions Corporate debt security | Yes | Yes, as two positions Interest rate index (e.g., Euribor) | No | Yes, as two positions Over-the-counter (OTC) forward Government debt security | Yes 2 | Yes, as two positions Corporate debt security | Yes | Yes, as two positions Interest rate index | No | Yes, as two positions FRA, Swap | No | Yes, as two positions Forward FX | No | Yes, as one position per currency Option Rights Government debt security | Yes 2 | One of the following:
(a) charged concurrently with the related hedging position: simplified approach, scenario analysis Corporate debt security | Yes | (b) Market Risk capital charge based on delta-plus method (gamma and vega must receive separate capital charge calculations) Interest rate index | No | FRA, Swap | No |

Notes:
1 Represents the specific risk capital charge related to the issuer of the instrument. Insofar as relevant, Banks must also consider counterparty risk in accordance with the Financial Services Authority regulations regarding guidelines for calculating net exposure of derivative transactions in the risk-weighted asset calculation for credit risk using the standard approach. 2 Specific risk capital charge only applies to government debt securities of other countries with a rating below AA-.

Equity Risk
a. General

The equity risk calculation for Banks on a consolidated basis is the minimum capital calculation for the risk from ownership positions (both long and short) in instruments (including derivatives and administrative account instruments) in the Trading Book whose market value is affected by changes in equity prices. Against identical long and short positions, they may be reported on a net basis.
Equity instruments include:
a) common stocks with or without voting rights, securities convertible into stocks (convertible securities), or other financial instruments that have stock-like characteristics but do not include shareholdings in Subsidiaries treated as capital deductions in the Bank's capital calculation, as well as nonconvertible preference shares; and b) equity-based derivative contracts which are future, forward, swap, option rights, or other similar derivative contracts where the value of the contract is influenced by the underlying stock or stock index.
In the equity risk calculation, positions of equity-based derivative contracts must be converted into notional equity positions underlying the derivative, namely:
a) futures and forward contracts related to individual stocks are reported based on the fair value of the stock; b) futures contracts related to stock indices are reported based on the fair value of the stock portfolio underlying the futures contract; and c) stock swap contracts are treated based on a two-legged approach, i.e., as 2 (two) notional positions. For example, a stock swap is reported as a long position on the amount received by the Bank based on the value change of a certain stock or index and a short position on the amount paid by the Bank based on the value change of another stock or index.
The capital charge calculation for equity risk includes:
a) specific risk, which is the sum of the absolute values of all net positions, regardless of whether this is a net long or net short position, in each equity risk issued by an issuer in a stock market. The calculation of long or short positions is done for each stock market where the Bank has equity exposure (market by market basis). In the event that financial instruments exposed to equity risk are traded on more than one stock market, the financial instrument is treated as a position in the financial market where the financial instrument is primarily traded (primary listing); and b) general risk, which is the difference between the sum of long positions and the sum of short positions (overall net position) in all equity positions in a stock market (market by market basis). b. Offset In the equity risk calculation, Banks may carry out an offset process in the capital charge calculation for specific risk and general risk. Offset can be carried out between long and short positions if the positions are identical, resulting in a net long equity position or a net short equity position. Identical positions mean that there is a similarity in the issuer and the stock market. Example:
A Subsidiary buys shares of PT X on the Indonesia Stock Exchange (IDX) and sells a forward contract for PT X shares on IDX. The positions arising from these two transactions can be offset because they meet the identity requirements.
c. Specific Risk Calculation
The capital charge calculation for specific risk is designed to protect Banks from the risk of loss due to price changes of any financial instrument exposed to equity risk due to factors related to the issuer. The risk related to the counterparty in such transactions is calculated separately in the counterparty credit risk calculation.
The capital charge calculation for specific risk is 8% (eight percent).
In the event that the Bank has positions in a well-diversified index (not a sectoral index), the capital charge for specific risk is 2% (two percent).
d. General Risk Calculation
The charge calculation for general risk is intended to protect Banks from the risk of loss due to changes in market factors.
The capital charge calculation for general risk is 8% (eight percent) of the overall net equity position.
Example:
Company | Quantity | Stock Position | Market Price/Stock | Market Price --- | --- | --- | --- | --- A | 10,000 | Long | Rp100 | Rp1,000,000 A | 2,000 | Short | Rp100 | Rp200,000 B | 15,000 | Short | Rp200 | Rp3,000,000 C | 5,000 | Short | Rp400 | Rp2,000,000 D | 10,000 | Short | Rp100 | Rp1,000,000 E | 20,000 | Long | Rp200 | Rp4,000,000

Offset between long and short positions in Company A
= (10,000 x Rp100) – (2,000 x Rp100)
= Rp800,000 (Long)
Total long positions
= Rp800,000 + Rp4,000,000
= Rp4,800,000
Total short positions
= Rp3,000,000 + Rp2,000,000 + Rp1,000,000
= Rp6,000,000
Specific Risk
= (Rp4,800,000 + Rp6,000,000) x 8%
= Rp864,000
General Risk
= |(Rp4,800,000 – Rp6,000,000)| x 8%
= Rp96,000
Equity Risk
= Rp864,000 + Rp96,000
= Rp960,000
From the calculation above, the capital charge for equity risk is Rp960,000.00 (nine hundred sixty thousand rupiah). e. Arbitrage Strategy Treatment

For diversified index futures contracts (not sectoral indices), the capital charge for specific risk is 2% (two percent) charged for net long or net short positions. This specific risk capital charge is applied to only one index with opposing positions excluded from the capital charge calculation. The arbitrage strategy mentioned is:
a) when the Bank takes opposing positions in the same index on different dates or on different markets; or b) when the Bank has opposing positions in contracts on the same date in different but similar indices, with the approval of the Financial Services Authority, if both indices contain adequate common components to be offset.
If the Bank is involved in a deliberate arbitrage strategy, where futures contracts on a matched general index correspond to a group of stocks, then it is permitted to exclude both positions from the simplified standard approach provided that:
a) the trading is deliberately conducted and controlled separately; and b) the composition of the group of stocks represents at least 90% of the index when broken down into notional components. In the event that the criteria mentioned are met, the specific risk capital charge becomes 2% (two percent) of the gross position value for each side (long and short). This applies even if all stocks comprising the index are held in identical proportions. The excess value of stocks in a basket over the value of the futures contract or the excess value of the futures contract over the excess value of the basket must be subject to specific risk capital charge calculation as in other arbitrage strategies, namely 8% (eight percent). Example:
A Bank on a consolidated basis has a long position in a basket of stocks included in the LQ45 index worth Rp 1.1 billion with a stock composition representing 90% (ninety percent) of the LQ45 index according to notional components. On the other hand, the Bank on a consolidated basis has a short position worth Rp 1 billion in the LQ45 index. This deliberate trading (arbitrage strategy) is conducted and controlled separately. There is an unmatched position worth Rp 100 Million, so the equity risk calculation is as follows:
= [(2% x Rp 1.1B) + (2% x Rp 1B)] + [(8% x Rp 100 Million) + (8% x Rp 100 Million)] = [Rp 42 Million] + [Rp 16 Million] = Rp 58 Million

Exchange Rate Risk
a. General

Exchange rate risk calculation is carried out against foreign currency positions in the Trading Book and Banking Book exposed to exchange rate risk, including gold. Positions against gold are calculated the same as foreign currencies with the consideration that gold price movements are almost the same as foreign exchange rate movements and the Bank treats gold transactions the same as foreign currency transactions.
There are 2 (two) processes to calculate capital requirements for exchange rate risk, namely:
a) a process to measure exposure in single currency positions; and b) a process to measure the risk inherent in long and short positions held by the Bank in different currencies. b. Measurement of Exposure in Single Currency
The Bank's net foreign exchange position in each currency must be calculated by summing:
a) net spot position (all asset items minus all liability items in the said currency, including accrued interest); b) net forward position (all amounts to be received minus all amounts to be paid in forward exchange transactions, including currency futures and principal on currency swaps not included in the spot position); c) collateral (and similar instruments) that will definitely be executed (called) and are likely irrecoverable; d) future net income or expenses that have not been accrued but are fully hedged; e) other items reflecting profit or loss in foreign currency; and f) net value of delta calculations (delta equivalent) on the total book value of foreign currency option rights, which applies to Banks applying the delta-plus method where the capital charge calculation for gamma and vega is calculated separately.
Positions in each currency are reported separately and reported consistently.
Accrued interest income (generated but not yet received) must be included as a position, including for accrued expenses. Future income that has not been recognized but will be received and future expenses can be excluded from the position calculation except in the event that the amount is certain and the Bank has hedged it.
In the event that the Bank recognizes and calculates future income or expenses, this must be done consistently. The Bank is not allowed to choose expected future cash flows that only reduce the Bank's position (cherry picking).
Forward currency and gold positions are generally valued based on the latest market spot exchange rate. The use of forward exchange rates is inappropriate because it will result in measured positions reflecting interest rate differentials to some extent. However, Banks that base management accounting on net present value are expected to use the net present value of each position, discounted using the latest interest rate and valued based on the latest spot value, to measure their forward currency and gold positions.
c. Measurement of Exchange Rate Risk in Different Foreign Currencies and Gold
To measure exchange rate risk in a portfolio of foreign currency and gold positions, the Bank must use the shorthand method in calculating the net foreign exchange position.
In the capital charge calculation for exchange rate risk, the overall net foreign exchange position is measured using the shorthand method by summing:
a) the absolute value of the larger position between the net short position or the net long position; and b) the absolute value of the net gold position (short or long).
The capital charge calculation is set at 8% (eight percent) of the sum above.
The capital charge calculation using the shorthand method is exemplified in the table below.

Table 21
Example of Shorthand Method for Exchange Rate Risk JPY | EUR | GBP | CAD | USD | Gold --- | --- | --- | --- | --- | --- Net position per currency | 50 | 100 | 150 | -20 | -180 | -35 Net foreign exchange position | 300 | -200 | 35 |

From the example above, the capital charge calculation for exchange rate risk becomes:
= 8% x [max(|300|, |-200|) + |-35|]
= 8% x [300 + 35]
= 8% x 335
= 26.8

Commodity Risk
a. General

Commodity risk calculation for Banks on a consolidated basis is carried out against financial instruments in the Trading Book and Banking Book exposed to commodity risk, which among others include commodity-based derivative contracts such as future contracts, option rights, or other similar derivative contracts where the value of the contract is influenced by the underlying commodity or commodity index. Commodities include tradable physical products such as agricultural products, minerals (including oil), and precious metals, but do not include gold.
In the commodity risk calculation, both for commodity positions and commodity-based derivative contracts, the Bank converts:
a) positions from the sum of long and short positions for each commodity (measured in barrels, kilograms, or other units of measurement used for commodities) into currency units based on the latest market price of each commodity; and b) positions of commodity-based derivative contracts into notional commodity positions underlying the derivative based on the latest market price of each commodity and in accordance with the maturity of the derivative contract, especially if the Bank uses the maturity ladder approach, namely:
(1) futures and forward contracts related to a commodity are reported at the notional amount in units of measurement (e.g., barrels or kilograms) multiplied by the spot price of the commodity, and based on the maturity of the derivative contract; and (2) commodity swap contracts are treated based on a two-legged approach, i.e., as 2 (two) notional positions where one leg is a fixed price and the other leg is the latest market price. Each position is reported at the notional amount and mapped to the appropriate maturity ladder. The Bank reports a long position if it makes fixed payments and receives floating payments, and a short position if it receives fixed payments and makes floating payments.
Commodity risks that must be calculated include:
a) directional risk, which is the risk arising from changes in spot prices of net open commodity positions, especially for commodity positions from spot trade or physical trade transactions; b) basis risk, which is the risk arising from changes in the relationship between similar but not identical commodity prices, which can be caused among others by differences in commodity quality; c) interest rate risk, which is the risk arising from changes in the cost of carry for forward and option positions; and d) forward gap risk, which is the risk arising from changes in forward prices caused by factors other than interest rate changes.
Commodity risk can be measured using one of the following approaches:
a) simplified approach; or b) maturity ladder approach. b. Offset In the commodity risk calculation, Banks may carry out an offset process between long and short positions if they are identical, namely:
the underlying commodity is the same; or
the underlying commodities are different but fall into the same group.
c. Simplified Approach
The capital charge for commodity risk is the sum of the following calculations:
15% (fifteen percent) of the net position, either long or short, of each commodity position to anticipate directional risk; and
3% (three percent) of the gross position (sum of the absolute values of long and short positions) of each commodity position to anticipate basis risk, forward gap risk, and interest rate risk.
d. Maturity Ladder Approach
In order to capture forward gap risk and interest rate risk in a maturity ladder, capital charges apply to matched long and short positions in each maturity ladder. Positions in each type of commodity must be reported based on separate maturity ladders according to the following table.

Time Scale	Spread Rate
< 1 month	1.5%

1 – 3 months | 1.5%
3 – 6 months | 1.5%
6 – 12 months | 1.5%
1 – 2 years | 1.5%
2 – 3 years | 1.5%
3 years | 1.5%

Spot commodity positions must be mapped to a time scale ≤1 (one) month. Commodity-based derivative contract positions are mapped based on the maturity of the derivative contract.
2) The capital charge for commodity risk is the sum of the following calculations:
a) 1.5% (one point five percent) (spread rate) of the sum of long and short positions matched in each time scale multiplied by the spot price; b) 0.6% (zero point six percent) of the residual (unmatched position) from each time scale multiplied by the number of scales between the previous time scale and the next time scale; and c) 15% (fifteen percent) of the remaining unmatched position. Example:
A Subsidiary agrees on futures contracts to buy and sell sugar commodities with maturity and prices as follows:

Contract | Maturity | Price (in Thousands of Rupiah) --- | --- | --- Buy | 4 months | 800 Sell | 5 months | 1,000 Buy | 2.5 years | 600 Sell | 7 years | 600

Time Scale | Position (in Thousands of Rupiah) | Capital Charge Calculation --- | --- | --- < 1 month | |

1 – 3 months | |
3 – 6 months | Long 800 | [800 (Long) + 800 (Short) (matched position)] x 1.5%
| Short 1,000 | 200 (Short) (remaining residual position) calculated into the next 3 time scales, namely the time scale > 2-3 years |
| --- | --- |
| | 200 x 3 x 0.6% = 3.6 |

...

6 – 12 months
1 – 2 years
2 – 3 years Long 600 [200 (Long) + 200 (Short
(matched position)] x 1.5%
400 (Long) (residual position remaining) which is calculated in the next time scale, namely time scale > 3 years 2.4 400 x 1 x 0.6%
3 years Short 600 [400 (Long) + 400 (Short)
(matched position) x 1.5%
200 (residual position remaining) x 15% 30
Total Capital Charge 78

In the event that forward, future, or option rights contracts are not only commodity-based but also interest rate-based or exchange rate-based, the Bank must also calculate the capital charge for interest rate risk or exchange rate risk.

General Guidelines and Calculation of Market Risk for Option Rights Transactions

a. General

Banks conducting option rights transactions for trading or hedging purposes must report the option rights position along with the underlying financial instruments and calculate the capital charge for Market Risk for such option rights positions.
The calculation of capital charge for Market Risk against option rights positions is conducted using the following approaches:
a) simplified approach; or b) intermediate approach.

b. Simplified Approach

The simplified approach is essentially used only by Banks conducting option rights purchase transactions and/or Banks conducting option rights sales transactions that are perfectly matched by a long position in the same option, so that for such positions, the Bank does not need to calculate the capital charge.
The result of the capital charge calculation in the Simplified Approach for options will be added to the capital charge calculation for the same risk category as the underlying instrument, such as interest rate risk, equity risk, exchange rate risk, or commodity risk.
The calculation of capital charge for options based on the simplified approach is detailed in the table below:

Position	Treatment
Long spot and<br>Long put<br>or<br>Short spot and<br>Long call	The capital charge is the fair value of the underlying instrument of the option rights multiplied by the sum of specific risk weight and general risk weight of the underlying instrument, minus the value of the option rights in the in-the-money condition (if any) with a lower limit of zero.<br><br>For option rights with a remaining maturity of more than 6 (six) months, the strike price must be compared with the forward price. Banks that cannot perform this comparison use the value of the in-the-money option rights as zero.
Long call or<br>Long put	The capital charge is the smallest value between:<br>(i) the fair value of the underlying instrument of the option rights multiplied by the sum of specific risk weight and general risk weight of the underlying instrument; and<br>(ii) the fair value of the option rights.<br><br>For option rights positions that are not in the Trading Book (such as options on specific currency or commodity positions), the Bank may use the book value.

Position

Treatment

Long spot and Long put or Short spot and Long call

The capital charge is the fair value of the underlying instrument of the option rights multiplied by the sum of specific risk weight and general risk weight of the underlying instrument, minus the value of the option rights in the in-the-money condition (if any) with a lower limit of zero. For option rights with a remaining maturity of more than 6 (six) months, the strike price must be compared with the forward price. Banks that cannot perform this comparison use the value of the in-the-money option rights as zero.

Long call or Long put

The capital charge is the smallest value between: (i) the fair value of the underlying instrument of the option rights multiplied by the sum of specific risk weight and general risk weight of the underlying instrument; and (ii) the fair value of the option rights. For option rights positions that are not in the Trading Book (such as options on specific currency or commodity positions), the Bank may use the book value.

Example:
PT A (a Subsidiary Company of the Bank) holds 100 (one hundred) shares of PT X for trading activities. The market value of 1 (one) share is IDR 1,000,000.00. In addition, PT A also holds a put option for such shares with a strike price of IDR 1,100,000.00. The calculation of the capital charge for the position is as follows:

IDR 16,000,000.00 1)
– IDR 10,000,000.00 2)
= IDR 6,000,000.00

Explanation:

IDR 16,000,000.00 is the multiplication between the Share Value (100 shares x IDR 1,000,000.00 = IDR 100,000,000.00) with the capital charge weight for equity risk (8% for specific risk + 8% for general risk = 16%).
IDR 10,000,000.00 is the difference in option rights value in the in-the-money position [(IDR 1,100,000.00 – IDR 1,000,000.00) x 100 shares]. A similar calculation methodology also applies to option rights with financial instruments exposed to exchange rate risk, interest rate risk, or commodity risk.
For foreign currency option rights transactions, the underlying instrument is the asset to be received if the option rights are exercised. In the event that the fair value of a certain underlying instrument is 0 (zero) (e.g., caps and floors, swaptions), the Bank must use the notional value in the Market Risk calculation.

c. Intermediate Approach

General
Banks conducting option rights sales transactions must apply the intermediate approach, namely the delta-plus approach or the scenario approach.
Delta-Plus Approach
a) This approach uses equivalent delta value and sensitivity parameters or “Greek letters” related to option rights to measure Market Risk. The equivalent delta value must be reported as the fair value of the underlying instrument multiplied by the delta value. b) Option rights positions calculated using the option rights delta value include all option rights positions of the Bank, namely option rights positions issued by the Bank (Bank as writer) and option rights positions purchased by the Bank (Bank as holder). c) Long or short positions arising from several option rights transactions (call and put option sales and call and put option purchases) can offset each other as long as they are identical, meaning they have similarities in the underlying instrument, exercise date, strike price, type of option rights, and type of currency. d) The capital charge for general risk is calculated based on the equivalent delta value of each option rights. However, because the delta value is not sufficient to cover all risks related to option rights positions, the Bank must also measure gamma sensitivity (measuring the rate of change of delta) and vega (measuring the sensitivity of option rights price to changes in volatility of the underlying instrument of the option rights). e) Banks using the delta-plus approach are required to calculate delta risk, gamma risk, and vega risk for each option rights position (including hedging positions). The measurement of capital charge is as follows:

(1) Delta Risk Calculation
(a) The capital charge for delta risk for interest rate risk is calculated based on the equivalent delta value with securities or interest rates as the underlying instrument according to the interest rate time scale, namely using the two-legged approach in the same manner as the reporting of other derivative transactions, namely the position at the time the contract is effective and the position at the time the underlying instrument matures. Example:
In April, the Bank bought a 2 (two) month call option with a 3 (three) month Future interest rate as the underlying. At the end of April, the Bank reported long and short positions each with a term of 5 (five) months and 2 (two) months according to the equivalent delta value.

(b) The capital charge for option rights on exchange rate and gold positions is valued based on the equivalent delta value referring to exchange rate risk calculations.

(c) The capital charge for equity option rights is valued based on the equivalent delta value referring to equity risk calculations. For the purpose of this calculation, financial markets in each country will be treated as different underlyings.

(d) The capital charge for commodity option rights is valued based on the equivalent delta value referring to commodity risk calculations.

(2) Gamma Risk Calculation
(a) The calculation of gamma risk for each option rights position is:
Gamma impact = ½ x Gamma x VU² where VU is the change or variation of the underlying instrument of the option rights.

(b) VU is calculated as follows:
i. interest rate option rights, if the underlying instrument is securities, the fair value of the instrument is multiplied by the risk weight according to Table 17;
ii. foreign currency and gold option rights, the fair value of the underlying instrument is multiplied by 8% (eight percent);
iii. stock and stock index option rights, the fair value of the underlying instrument is multiplied by 8% (eight percent); or
iv. commodity option rights, the fair value of the underlying instrument is multiplied by 15% (fifteen percent).

(c) For the purpose of this calculation, the following positions must be treated as option rights with the same underlying:
i. interest rates, namely each time band;
ii. foreign currencies and gold, namely each type of foreign currency and gold;
iii. stocks and stock indices, namely each financial market;
iv. commodities, namely each type of commodity.

(d) Each option rights with the same underlying will result in a gamma risk calculation that is positive or negative. The gamma risk calculation results in each underlying are summed to produce a net gamma risk number for each underlying, whether positive or negative. Subsequently, only the net gamma risk numbers that are negative from each risk category are subject to capital charge calculation.

(e) The total capital charge for gamma risk is the sum of the absolute values of the negative net gamma risk numbers.

(3) Vega Risk Calculation
(a) In the vega risk calculation, the Bank must calculate the capital charge by multiplying the vega amount of each option rights by the proportional shift of the actual option volatility by ±25% (twenty-five percent). The result of that multiplication is then summed for each underlying.

(b) The total capital charge for vega risk is the sum of the absolute values of the vega numbers obtained from the calculation for each option rights.

Example:
Volatility of the underlying is 20% (twenty percent) while the vega calculation result is 1.68 (one point six eight). With a proportional shift of 25% (twenty-five percent), the capital charge calculation for vega risk is:

x 1.68 = 8.4

Explanation:

There is an increase in volatility of 5%, namely from 20% to 25%.
Scenario Approach
a) More complex Banks can calculate the Market Risk capital charge for option rights portfolios and their hedging positions based on matrix scenario analysis. This is done by setting a range of changes in the portfolio's risk factors for option rights and calculating the change in the option rights portfolio value at various points along the specified grid. For the purpose of capital charge calculation, the Bank will revalue the option rights portfolio using a matrix to see simultaneous changes in the underlying rate or price of the option rights as well as the volatility of the rate or price. Different matrices will be used for each underlying individually as explained in the gamma risk calculation above.

b) Related option rights and hedging positions will be evaluated within a certain range above and below the current underlying value. This is the first dimension of the matrix. The specified range of values is:
(1) consistent with the yield change assumptions as in Table 17 for interest rates.
(2) ± 8% (eight percent) for equity.
(3) ± 8% (eight percent) for exchange rates and gold, and (4) ± 15% (fifteen percent) for commodities.
For all risk categories, at least 7 (seven) types of observations (including the current observation) are used to divide the range into equal intervals.

c) The second dimension of the matrix involves changes to the volatility of the price or rate of the underlying. Each change in the volatility of the price or rate of the underlying is equal to a volatility shift of ± 25% (twenty-five percent).

d) After the matrix calculation, each cell contains information regarding the net profit or loss of the option rights and its underlying hedging instrument. The capital charge for each underlying is calculated based on the largest loss present in the matrix.

e) The application of scenario analysis by a Bank refers to the approval of the Financial Services Authority (OJK), particularly regarding the accuracy of the process in compiling such analysis. The use of scenario analysis by Banks as part of the simplified standard approach also refers to validation by the Financial Services Authority (OJK).

f) In addition to the option rights risks mentioned above, Banks with significant option rights activities are expected to monitor other risks such as rho (rate of change of option rights value against interest rates) and theta (rate of change of option rights value against time).

VI. Credit Valuation Adjustment

General Overview
a. Credit valuation adjustment (CVA) is set at the counterparty level. CVA reflects the adjustment of the default risk-free price of derivative instruments and securities financing transactions (SFT) due to the potential default of the counterparty. b. The CVA referred to in this Financial Services Authority Circular is regulatory CVA. Regulatory CVA may differ from CVA used for accounting purposes, as follows:

regulatory CVA excludes the Bank's potential default; and
the application of certain adjustments in accounting CVA for regulatory CVA calculation.
c. CVA Risk is the risk of loss arising from changes in CVA value due to changes in the counterparty's credit spread and Market Risk factors affecting the price of derivative transactions and securities financing transactions (SFT).
d. ATMR CVA is determined by multiplying the capital charge calculated as regulated in this chapter with a multiplier factor of 12.5 (twelve point five). e. CVA calculation includes:
all derivative transactions except those transacted directly with a qualified central counterparty (QCCP), or derivative transactions not transacted directly with a QCCP but the Bank is a clearing member customer or a lower-tier client in a multi-level client structure; and
all SFT (including repo and reverse repo) that are valued at fair value by the Bank for accounting purposes.
f. Banks may perform CVA capital charge calculation according to 2 (two) alternative calculations as follows:
Banks with a notional amount of CVA-exposed exposure not exceeding IDR 1,500,000,000,000,000.00 (one thousand five hundred trillion rupiah) may set ATMR CVA at 100% (one hundred percent) of the ATMR Credit Risk calculation for counterparty failure risk in accordance with Financial Services Authority regulations regarding guidelines for calculating net exposure of derivative transactions in the calculation of risk-weighted assets for credit risk using the standard approach (100% of ATMR SACCR).
Banks may use the Basic Approach for CVA – reduced version (BA-CVA). This approach does not recognize hedging.

Simplified Basic Approach
a. The calculation of capital charge for CVA risk with the simplified basic approach (K_reduced) is calculated and summed for all counterparties included in the CVA calculation scope, with the following formula:
DS x K_reduced where discount scalar (DS) is 0.65 (zero point six five) and K_reduced is calculated with the following formula:
K_reduced = √(ρ . ∑SCVAc_c) + (1 − ρ²) . ∑SCVAc_c where:
SCVAc : CVA capital charge requirement on counterparty c calculated on a stand-alone basis (referred to as “stand alone CVA capital”).
ρ : set at 50%.
The value of ρ² is 25%, reflecting the correlation between the credit spreads of 2 (two) counterparties. In the formula above, the function of ρ is to account for the fact that CVA risk at the Bank is always smaller than the sum of all CVA risks for each counterparty, given that counterparty credit spreads usually do not correlate perfectly with each other.

One of the basic assumptions of the basic approach is that systematic credit spread risk is influenced by a single factor. Based on this assumption, ρ can be interpreted as the correlation between the credit spread of the counterparty and the single credit spread systematic factor. The first part in the square root in the formula above is to combine the systematic component of CVA risk, while the second part is to combine the idiosyncratic component of CVA risk.

b. Stand alone CVA for counterparty c used in the formula in letter a above (SCVAc) is calculated with the following formula (the summation includes all netting sets with the counterparty):
SCVAc = α . RWc . ∑MNS. EADNS.DFNS_NS where:
RWc : risk weight for counterparty c reflecting the volatility of the counterparty's credit spread. This risk weight is based on a combination of the counterparty's business sector and credit quality as determined in Table 23. Credit quality is set as investment grade (IG), high yield (HY), or no rating (NR). In the event that there is no external rating or the external rating is not recognized, the risk weight is set according to the NR category. MNS : effective maturity for the netting set. MNS is the effective maturity reflecting the weighted average of the remaining notional term of transactions with the counterparty. EADNS : exposure at default of the netting set with calculation referring to Financial Services Authority regulations regarding guidelines for calculating net exposure of derivative transactions in the calculation of risk-weighted assets for counterparty credit risk using the standard approach. DFNS : supervisory discount factor averaged over time between now and the effective maturity date of the netting set. The interest rate used for this discount is set at 5% (five percent), indicated by the number 0.05 (zero point zero five) in the formula. DF is calculated with the following formula:
DFNS = (1 − e^(-0.05MNS)) / (0.05 . MNS)
α : α is set at 1.4 (one point four).
This is a multiplier factor used to convert effective expected positive exposure (EEPE) into EAD in the SACCR calculation. Therefore, its function in this calculation is to convert the EAD of the netting set (EADNS) back into EEPE.

Table 23
Determination of RWC

Counterparty Sector	Credit Quality of Counterparty
	IG	HY and NR
Central government including central banks and multilateral development banks	0.5%	2.0%
Local governments, non-financial companies including State-Owned Enterprises (BUMN), education, and public administration	1.0%	4.0%
Financial companies (including State-Owned Financial Companies)	5.0%	12.0%
Basic materials, energy, industrial, agricultural, manufacturing, mining, and extraction companies	3.0%	7.0%
Consumer goods, transportation and warehousing, administrative activities, and support services	3.0%	8.5%
Technology and telecommunications	2.0%	5.5%
Health companies, utilities, and professional/technical services/activities	1.5%	5.0%
Other Sectors	5.0%	12.0%

The product of EAD and effective maturity in the BA-CVA calculation is a proxy for the discounted expected exposure (EE) profile of the specified netting set. The effective maturity of the netting set is set as the average of actual trading terms. This definition does not have a discount factor, so the supervisory discount factor is added to compensate for this.

Calculation of CVA Capital Charge up to the Position of December 2023
Before the January 2024 position, Banks performed CVA capital charge calculation with the following formula:

Beban Modal CVA = (2.33 . √h . √[∑ 0.5 . wi . (Mi . EADi / EADtotal_i)])² + ∑ 0.75 . wi . (Mi . EADi / EADtotal_i)

where:
h : term in years, h = 1. wi : weight of counterparty i set according to rating with reference to Table 24.
EADtotal : total net exposure of derivative transactions for counterparty i as per net exposure according to Financial Services Authority regulations regarding guidelines for calculating net exposure of derivative transactions in the calculation of risk-weighted assets for counterparty credit risk using the standard approach. Mi : notional weighted average maturity of derivative transactions for counterparty i.

Table 24
Determination of Weights for Counterparties in CVA Calculation

Rating	Weight
AAA	0.7%
AA	0.7%
A	0.8%
BBB	1.0%
BB	2.0%
B	3.0%
CCC	10.0%
No Rating	1.0% or more according to supervisor approval

Explanation: Rating illustration uses rating notation issued by Standard and Poor’s rating agency.

APPENDIX B
REPORT ON THE APPLICATION OF RISK MANAGEMENT FOR MARKET RISK

I. General
The Bank submits the Report on the Application of Risk Management for Market Risk to the Financial Services Authority (OJK) as part of the results of the Bank's self-assessment of its health level. The procedure and time limit for submitting the Report on the Application of Risk Management for Market Risk are in accordance with the procedure and time limit for submitting the results of the Bank's self-assessment of its health level as regulated in Financial Services Authority regulations regarding the assessment of the health level of commercial banks.

II. Report Format
The report format is not regulated.

III. Filling Guidelines
The Bank explains regarding the purpose and risk management policies for Market Risk, specifically regarding:

Strategies and processes carried out by the Bank at least covering:
a. The Bank's strategic objectives in conducting trading activities, as well as processes applied to identify, measure, monitor, and control the Bank's Market Risk, including policies for hedging risk and strategies or processes to monitor the effectiveness of continuous hedging; b. Policies for determining:

a position is designated as trading, including the definition of inactive positions and risk management policies to monitor such positions;
conditions under which instruments are placed in the Trading Book or Banking Book contrary to the general assumption, market, and gross fair value of the said conditions; and
conditions under which instruments have been transferred from 1 (one) regulatory book to another regulatory book since the last reporting period, including the gross fair value of such conditions and the reasons for the transfer.

Structure and organization of the Market Risk management function, including an explanation of the Market Risk governance structure formed to implement the Bank's strategies and processes discussed in letter a above.
Scope and nature of risk reporting and/or measurement systems.

APPENDIX C
MARKET RISK RISK-WEIGHTED ASSET (RWA) CALCULATION REPORT USING THE STANDARDIZED APPROACH

I. General Provisions

Banks shall prepare the Market Risk RWA Calculation Report consisting of:
a. Market Risk RWA recapitulation; b. Capital charge calculation using the sensitivity-based method;
c. Capital charge calculation for Default Risk Capital (DRC);
d. Capital charge calculation for Residual Risk Add-On (RRAO); and e. Capital charge calculation for Credit Valuation Adjustment (CVA).
The Market Risk RWA Calculation Report shall be submitted online through the Financial Services Authority (OJK) reporting system with the following periodicity:
a. Monthly, for banks on an individual basis, submitted for the end-of-month position; and b. Quarterly, for banks on a consolidated basis, submitted for the end-of-month position in March, June, September, and December, for banks that have Subsidiary Companies.
For banks incorporated under Indonesian law, the capital charge for Market Risk covers the head office and all branches located both within and outside Indonesia.
All form entries shall be expressed in millions of Indonesian Rupiah. In the event that a bank has no positions or exposures to be reported, data in the provided cells shall be filled with the number 0 (zero).
Form entries shall cover all positions on the balance sheet (on-balance sheet) as well as derivative transaction positions (off-balance sheet).
The information used as the basis for filling out the forms must be identical to the information used to prepare other routine reports submitted to the Financial Services Authority for the same month's position.

II. Report Format

Table 3A(1): Market Risk RWA Recapitulation
Table 3A(2): Capital Charge Calculation Using the Sensitivity-Based Method

Medium Correlation High Correlation Low Correlation SBM Capital Charge a. Capital charge based on sensitivity-based method - - - -

GIRR Risk Class - - -
CSR Risk Class (non-securitization) - - -
CSR Risk Class (securitization: non-CTP) - - -
CSR Risk Class (securitization: CTP) - - -
Equity Risk Class - - -
Commodity Risk Class - - -
Foreign Exchange Risk Class - - -
b. Default Risk Capital (DRC) capital charge -
c. Residual Risk Add-On (RRAO) -
Market Risk Capital Charge -
Additional Pillar 1 RWA
Credit Valuation Adjustment (CVA) -
Total Market Risk RWA -
Category: In Millions of Indonesian Rupiah

a. General Interest Rate Risk (GIRR) Capital Charge Calculation Capital Charge Calculation Medium Correlation High Correlation Low Correlation
i. Delta risk capital charge
ii. Vega risk capital charge
iii. Curvature risk capital charge
iv. General Interest Rate Risk (GIRR) risk class capital charge - - -

Detailed Capital Charge Calculation for Delta, Vega, and Curvature Risk
Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation 1 Indonesian Rupiah (IDR) 2 US Dollar (USD) 3 Euro (EUR) 4 Australian Dollar (AUD) 5 Canadian Dollar (CAD) 6 Danish Krone (DKK) 7 Hong Kong Dollar (HKD) 8 Malaysian Ringgit (MYR) 9 New Zealand Dollar (NZD) 10 Norwegian Krone (NOK) 11 British Pound (GBP) 12 Singapore Dollar (SGD) 13 Swedish Krona (SEK) 14 Swiss Franc (CHF) 15 Japanese Yen (JPY) 16 Indian Rupee (INR) 17 Kuwaiti Dinar (KWD) 18 Pakistani Rupee (PKR) 19 Philippine Peso (PHP) 20 Saudi Riyal (SAR) 21 Sri Lankan Rupee (LKR) 22 Thai Baht (THB) 23 Brunei Dollar (BND) 24 ….. 25 ….. 26 ….. 27 ….. 28 ….. 29 ….. 30 ….. 31 ….. 32 ….. 33 ….. 34 ….. 35 ….. 36 ….. 37 ….. 38 ….. 39 ….. 40 ….. 41 ….. 42 ….. 43 ….. 44 ….. 45 ….. 46 ….. 47 ….. 48 ….. 49 ….. 50 Other currencies … Kb ∑CVR Bucket + Delta Risk Vega Risk Curvature Risk Currency ∑CVR- Kb Net Weighted Sensitivity (∑Ws)

b. Credit Spread Risk (CSR) Non-Securitization Capital Charge Calculation Capital Charge Calculation Medium Correlation High Correlation Low Correlation
i. Delta risk capital charge
ii. Vega risk capital charge
iii. Curvature risk capital charge
iv. Credit Spread Risk (CSR) Non-Securitization risk class capital charge - - -

Detailed Capital Charge Calculation for Delta, Vega, and Curvature Risk
Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation Local governments, non-financial companies including State-Owned Enterprises (BUMN), education, and public administration Central government including central banks and multilateral development banks HY Indices IG Indices Other sectors Healthcare companies, utilities, and professional/technical services Technology and telecommunications Consumer goods, transportation and warehousing, administrative activities, and support services Basic materials, energy, industrial, agricultural, manufacturing, mining, and extraction companies Financial companies (including State-Owned Enterprise financial companies) Central government including central banks and multilateral development banks Covered bonds Healthcare companies, utilities, and professional/technical services Technology and telecommunications Consumer goods, transportation and warehousing, administrative activities, and support services Basic materials, energy, industrial, agricultural, manufacturing, mining, and extraction companies Financial companies (including State-Owned Enterprise financial companies) Local governments, non-financial companies including State-Owned Enterprises (BUMN), education, and public administration ∑CVR Investment grade (IG) High yield (HY) & nonrated (NR) Bucket Rating (Rating) Delta Risk Vega Risk Curvature Risk Kb Net Weighted Sensitivity (∑Ws) Kb ∑CVR Sector +

c. Credit Spread Risk (CSR) Securitization Non-CTP Capital Charge Calculation 1
Capital Charge Calculation Medium Correlation High Correlation Low Correlation
i. Delta risk capital charge
ii. Vega risk capital charge
iii. Curvature risk capital charge
iv. Credit Spread Risk (CSR) Securitization Non-CTP risk class capital charge - - -

Detailed Capital Charge Calculation for Delta, Vega, and Curvature Risk
Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation 123456789 RMBS - Sub-Prime RMBS - Mid-Prime RMBS - Prime Other Sector CLO non-CTP ABS - Motor Vehicle Loans ABS - Credit Card ABS (Asset Backed Securities) - Loans to CMBS ABS (Asset Backed Securities) - Student Loans CMBS (Commercial Mortgage Backed Securities) RMBS - Sub-Prime RMBS - Mid-Prime RMBS - Prime RMBS - Mid-Prime RMBS - Prime CLO (Collateralized Loan Obligation) non-CTP ABS - Motor Vehicle Loans ABS - Credit Card Bucket Rating (Rating) Delta Risk Vega Risk Curvature Risk Kb Net Weighted Sensitivity (∑Ws) Kb ∑CVR+ ∑CVR Sector - Senior Investment grade (IG) Non-Senior Investment grade (IG) High yield (HY) & nonrated (NR) CLO non-CTP ABS - Motor Vehicle Loans ABS - Credit Card ABS (Asset Backed Securities) - Loans to CMBS RMBS - Sub-Prime

d. Credit Spread Risk (CSR) Securitization CTP Capital Charge Calculation 1 Capital Charge Calculation Medium Correlation High Correlation Low Correlation
i. Delta risk capital charge
ii. Vega risk capital charge
iii. Curvature risk capital charge
iv. Credit Spread Risk (CSR) Securitization CTP risk class capital charge - - -

Detailed Capital Charge Calculation for Delta, Vega, and Curvature Risk
Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation 123456789 16 Other Sector Financial companies (including State-Owned Enterprise financial companies) Basic materials, energy, industrial, agricultural, manufacturing, mining, and extraction companies Consumer goods, transportation and warehousing, administrative activities, and support services Technology and telecommunications Healthcare companies, utilities, and professional/technical services Central government including central banks and multilateral development banks Curvature Risk Kb Net Weighted Sensitivity (∑Ws) Kb ∑CVR+ ∑CVR Delta Risk Vega Risk Bucket Rating (Rating) Local governments, non-financial companies including State-Owned Enterprises (BUMN), education, and public administration Financial companies (including State-Owned Enterprise financial companies) Basic materials, energy, industrial, agricultural, manufacturing, mining, and extraction companies Consumer goods, transportation and warehousing, administrative activities, and support services Technology and telecommunications Healthcare companies, utilities, and professional/technical services Covered bonds Central government including central banks and multilateral development banks Local governments, non-financial companies including State-Owned Enterprises (BUMN), education, and public administration Sector Investment grade (IG) High yield (HY) & nonrated (NR)

e. Equity Risk Capital Charge Calculation 1
Capital Charge Calculation Medium Correlation High Correlation Low Correlation
i. Delta risk capital charge
ii. Vega risk capital charge
iii. Curvature risk capital charge
iv. Equity risk class capital charge - - -

Detailed Capital Charge Calculation for Delta, Vega, and Curvature Risk
Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation Consumer goods, transportation and warehousing, administrative activities and support services, healthcare, and utilities Telecommunications and manufacturing Basic materials, energy, agriculture, manufacturing, mining, and extraction Financial companies (including State-Owned Enterprise financial companies), real estate, technology Consumer goods, transportation and warehousing, administrative activities and support services, healthcare, and utilities Telecommunications and manufacturing Basic materials, energy, agriculture, manufacturing, mining, and extraction Financial companies (including State-Owned Enterprise financial companies), real estate, technology 9 Emerging market economy All sectors contained in buckets 1, 2, 3, and 4 10 Advanced economy All sectors contained in buckets 5, 6, 7, and 8 13 Other indices Indices in large market cap and advanced economy Other sectors Small Bucket Market Capitalization Economy Large Emerging market economy Advanced economy Delta Risk Vega Risk Curvature Risk ∑CVR - ∑CVR+ Net Weighted Sensitivity (∑Ws) Net Weighted Sensitivity (∑Ws) Sector Kb

f. Commodity Risk Capital Charge Calculation 1 Capital Charge Calculation Medium Correlation High Correlation Low Correlation
i. Delta risk capital charge
ii. Vega risk capital charge
iii. Curvature risk capital charge
iv. Commodity risk class capital charge - - -

Detailed Capital Charge Calculation for Delta, Vega, and Curvature Risk
Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation Medium Correlation High Correlation Low Correlation 123456789 11 Other Commodities Softs and other agricultural products Livestock & dairy Grains & oilseeds Precious metals (including gold) Gaseous combustibles Metals – other than precious metals Freight Energy - Electricity and carbon trading Energy - Liquid combustibles Energy - Solid combustibles Commodity Delta Risk Vega Risk Curvature Risk Capital charge at bucket level (Kb) Net Weighted Sensitivity (∑Ws) Kb ∑CVR+ ∑CVR Bucket -

g. Foreign Exchange Risk Capital Charge Calculation 1 Capital Charge Calculation Medium Correlation High Correlation Low Correlation
i. Delta risk capital charge
ii. Vega risk capital charge
iii. Curvature risk capital charge
iv. Foreign Exchange risk class capital charge - - -

Detailed Capital Charge Calculation for Delta and Curvature Risk
Structural Position
Net Weighted
Sensitivity (∑Ws)
Kb ∑CVR+ ∑CVR-
1 US Dollar (USD)
2 Euro (EUR)
3 Australian Dollar (AUD)
4 Canadian Dollar (CAD)
5 Danish Krone (DKK)
6 Hong Kong Dollar (HKD)
7 Malaysian Ringgit (MYR)
8 New Zealand Dollar (NZD)
9 Norwegian Krone (NOK)
10 British Pound (GBP)
11 Singapore Dollar (SGD)
12 Swedish Krona (SEK)
13 Swiss Franc (CHF)
14 Japanese Yen (JPY)
15 Indian Rupee (INR)
16 Kuwaiti Dinar (KWD)
17 Pakistani Rupee (PKR)
18 Philippine Peso (PHP)
19 Saudi Riyal (SAR)
20 Sri Lankan Rupee (LKR)
21 Thai Baht (THB)
22 Brunei Dollar (BND)
23 …..
24 …..
25 …..
26 …..
27 …..
28 …..
29 …..
30 …..
31 …..
32 …..
33 …..
34 …..
35 …..
36 …..
37 …..
38 …..
39 …..
40 …..
41 …..
42 …..
43 …..
44 …..
45 …..
46 …..
47 …..
48 …..
49 …..
50 Other currencies …
Bucket Currency
Delta Risk Curvature Risk
Detailed Capital Charge Calculation for Vega Risk
Bucket Net Weighted
Sensitivity (∑Ws)
1 …/…
2 …/…
3 …/…
4 …/…
5 …/…
6 …/…
7 …/…
8 …/…
9 …/…
10 …/…
11 …/…
Currency (against Rupiah)
Table 3A(3): DRC Capital Charge Calculation
Table 3A(4): RRAO Capital Charge Calculation
a. DRC Capital Charge Calculation
DRC for Non-Securitization -
DRC for Securitization (non-CTP) -
DRC for Securitization (CTP) -
Total DRC in Standardized Approach (SA) -

b. Non-Securitization
i. Corporations
Hedge Benefit Ratio (HBR) -
Credit Quality Category Default Risk Weight ∑ net JTDlong ∑ net |JTDshort| ∑ RW.net JTDlong ∑ RW.net |JTDshort| AAA 0.50% 0 0 AA 2% 0 0 A 3% 0 0 BBB 6% 0 0 BB 15% 0 0 B 30% 0 0 CCC 50% 0 0 Unrated 15% 0 0 Defaulted 100% 0 0 DRC at bucket level -

(ii) Central Government, Public Sector Entities, and International Institutions Hedge Benefit Ratio (HBR) - Credit Quality Category Default Risk Weight ∑ net JTDlong ∑ net |JTDshort| ∑ RW.net JTDlong ∑ RW.net |JTDshort| AAA 0.50% 0 0 AA 2% 0 0 A 3% 0 0 BBB 6% 0 0 BB 15% 0 0 B 30% 0 0 CCC 50% 0 0 Unrated 15% 0 0 Defaulted 100% 0 0 Instruments where item IV.4.b).6) applies 0% 0 0 Note: Local Governments in this SEOJK are not included in Public Sector Entities but are categorized separately. DRC at bucket level -

iii. Local Governments
Hedge Benefit Ratio (HBR) 0
Credit Quality Category Default Risk Weight ∑ net JTDlong ∑ net |JTDshort| ∑ RW.net JTDlong ∑ RW.net |JTDshort| AAA 0.50% 0 0 AA 2% 0 0 A 3% 0 0 BBB 6% 0 0 BB 15% 0 0 B 30% 0 0 CCC 50% 0 0 Unrated 15% 0 0 Defaulted 100% 0 0 DRC at bucket level 0

c. Securitization (non-CTP)
Region Asset Category ∑ net JTDlong ∑ net |JTDshort| HBR ∑ RW.net JTDlong ∑ RW.net |JTDshort| DRC Capital Charge at bucket level All regions Companies (excluding small businesses) 0 0 Asset-backed commercial paper (ABCP) 0 0 Motor vehicle credit or leasing 0 0 Residential mortgage-backed securities (RMBS) 0 0 Credit Cards 0 0 Commercial mortgage-backed securities 0 0 Collateralised loan obligations 0 0 Collateralised debt obligations (CDO) - squared 0 0 Micro, small, and medium enterprises 0 0 Student loans 0 0 Other retail 0 0 Other wholesale 0 0 Asia Europe North America All other regions

d. Securitization (CTP)
HBRCTP 0
Index ∑ net JTDlong ∑ net |JTDshort| ∑ RW.net JTDlong ∑ RW.net |JTDshort| DRC for Bucket Level Contribution to DRC for Securitization (CTP) Index 1 0 0 Index 2 0 0 Index 3 0 0 Index 4 0 0 Index 5 0 0 Index 6 0 0 Index 7 0 0 Index 8 0 0 Index 9 0 0

RRAO Risk Weight Total Notional RRAO
i. Instruments with exotic underlying 1.0% 0
ii. Instruments containing residual risk 0.1% 0
Total RRAO 0
Instruments Exposed to RRAO

Table CVA: CVA Capital Charge Calculation

III. Filling Guidelines

Guidelines for Filling Table 3A(1): Market Risk RWA Recapitulation
This form is a summary of the capital charge calculations for all Market Risks calculated in other forms. The Additional Pillar 1 RWA row may be filled with, among others:
a. Capital charge calculation gains resulting from the transfer of instruments between regulatory books; b. Net short equity positions in specific funds as explained in Appendix A Roman numeral IV.3.h.7).c), calculated at 100% (one hundred percent) as a capital charge. The bank multiplies this capital charge by 12.5 (twelve point five) first, so it is included as RWA; and/or
c. Market Risk RWA for Subsidiary Companies conducting business based on Sharia principles (if any) in the consolidated Market Risk RWA calculation.
Guidelines for Filling Table 3A(2): Capital Charge Calculation Using the Sensitivity-Based Method
a. General Interest Rate Risk (GIRR) Capital Charge Calculation

Capital Charge Calculation Column:
a) The bank fills in the final results of the capital charge calculations for delta risk, vega risk, and curvature risk. b) The bank sums the three types of risk, namely delta risk, vega risk, and curvature risk, according to 3 (three) correlation scenarios established.

a. Simplified Basic Approach
Sector Counterparty Credit Quality of Counterparty Number of counterparties ∑EADNS ∑SCVAc, ∑(SCVAc2) IG HY and NR IG HY and NR IG HY and NR IG HY and NR IG HY and NR IG HY and NR IG HY and NR IG HY and NR IG HY and NR CVA RWA Calculation - Simplified Basic Approach (i) ∑cSCVAc 0 (ii) SQRT (∑c(SCVAc2)) 0 (iv) Kreduced 0 (v) Capital requirement for CVA risk according to Reduced BA-CVA (0.65× Kreduced) 0 (vi) CVA RWA (BA-CVA) 0

b. CVA RWA Calculation based on SACCR calculation CVA RWA (100% ATMR SACCR) Technology and telecommunications Healthcare companies, utilities, and professional/technical services Other sectors Central government including central banks and multilateral development banks Local governments, non-financial companies including State-Owned Enterprises (BUMN), education, and public administration Financial companies (including State-Owned Enterprise financial companies) Basic materials, energy, industrial, agricultural, manufacturing, mining, and extraction companies Consumer goods, transportation and warehousing, administrative activities, and support services

Detailed Capital Charge Calculation Column for Delta, Vega, and Curvature Risk:
a) Delta Risk and Vega Risk
(1) The bank fills in the net weighted sensitivity (∑Ws) based on the bank's internal calculations.
Summation of sensitivities is performed against all risk factors in 1 (one) identical bucket.
(2) The bank fills in Kb based on the bank's internal calculations in 3 (three) scenarios, namely medium correlation, high correlation, and low correlation. b) Curvature Risk:
(1) The bank fills in the capital charge for net curvature risk (∑CVR + and ∑CVR -) for all risk factors in 1 (one) identical bucket, with calculations based on upward and downward scenarios.
(2) The bank fills in Kb based on the bank's internal calculations in 3 (three) scenarios, namely medium correlation, high correlation, and low correlation. c) Buckets in the GIRR calculation are divided based on currency type. d) In the event that a bank has instruments with currencies other than those available in the table, the bank may report them as part of other buckets. In the event that other currency types held by the bank cause the bank to need to report more than 50 (fifty) types of buckets, the bank may report the remaining other currencies in the last row of the table cumulatively.

b. Credit Spread Risk (CSR) Non-Securitization Capital Charge Calculation

In the Capital Charge Calculation column, the bank fills in as per the procedure in item 2.a.1).
In the Detailed Capital Charge Calculation Column for Delta, Vega, and Curvature Risk, the bank fills in as per the procedure in item 2.a.2).a) and item 2.a.2).b). Buckets in the non-securitization CSR risk calculation are determined based on issuer rating and sector.

c. Credit Spread Risk (CSR) Securitization Non-CTP Capital Charge Calculation

In the Capital Charge Calculation column, the bank fills in as per the procedure in item 2.a.1).
In the Detailed Capital Charge Calculation Column for Delta, Vega, and Curvature Risk, the bank fills in as per the procedure in item 2.a.2).a) and item 2.a.2).b). Buckets in the non-CTP securitization CSR risk calculation are determined based on instrument rating and sector.

d. Credit Spread Risk (CSR) Securitization CTP Capital Charge Calculation

In the Capital Charge Calculation column, the bank fills in as per the procedure in item 2.a.1).
In the Detailed Capital Charge Calculation Column for Delta, Vega, and Curvature Risk, the bank fills in as per the procedure in item 2.a.2).a) and item 2.a.2).b). Buckets in the CTP securitization CSR risk calculation are determined based on instrument rating and sector.

e. Equity Risk Capital Charge Calculation

In the Capital Charge Calculation column, the bank fills in as per the procedure in item 2.a.1).
In the Detailed Capital Charge Calculation Column for Delta, Vega, and Curvature Risk, the bank fills in as per the procedure in item 2.a.2).a) and item 2.a.2).b). Buckets in the equity risk calculation are determined based on market capitalization, economy, and sector.

f. Commodity Risk Capital Charge Calculation

In the Capital Charge Calculation column, the bank fills in as per the procedure in item 2.a.1).
In the Detailed Capital Charge Calculation Column for Delta, Vega, and Curvature Risk, the bank fills in as per the procedure in item 2.a.2).a) and item 2.a.2).b). Buckets in the commodity risk calculation are divided based on commodity type.

g. Foreign Exchange Risk Capital Charge Calculation

In the Capital Charge Calculation column, the bank fills in as per the procedure in item 2.a.1).
In the Detailed Capital Charge Calculation Column for Delta, Vega, and Curvature Risk:
Delta Risk
The bank fills in the structural position and net weighted sensitivity (∑Ws) based on the bank's internal calculations for each bucket categorized by currency.
Vega Risk
The bank fills in the net weighted sensitivity (∑Ws) based on the bank's internal calculations for each bucket categorized by relevant currency pair.
Curvature Risk
The bank fills in Kb based on the capital charge for curvature risk with downward or upward scenarios for each bucket categorized by currency.
In the event that a bank has instruments with currencies other than those available in the table, the bank may report them as part of other buckets. In the event that other currency types held by the bank cause the bank to need to report more than 50 (fifty) types of buckets, the bank may report the remaining other currencies in the last row of the table cumulatively.

Guidelines for Filling Table 3A(3): DRC Capital Charge Calculation
a. In the DRC Capital Charge Calculation column, the bank sums the capital charges for the three types of instruments with default risk, namely the non-securitization portfolio, the non-CTP securitization portfolio, and the CTP securitization portfolio.

b. In the Capital Charge Calculation Column for Non-Securitization Instruments:

Banks fill in ∑ net JTDlong and ∑ net |JTDshort| for each bucket. Banks then fill in ∑ RW.net JTDlong and ∑ RW.net |JTDshort| after multiplying them by risk weights divided according to their credit quality.
Banks fill in DRC at the bucket level by considering the HBR ratio.
Banks fill in the capital charge calculation for 3 (three) buckets, namely corporate, central government, and local government.
c. In the Capital Charge Calculation Column for Non-CTP Securitization Instruments, Banks fill in according to the procedures in item b.1) and item b.2). Banks fill in the capital charge calculation for buckets divided by region and asset category.
d. In the Capital Charge Calculation Column for CTP Securitization Instruments, Banks fill in according to the procedures in item b.1) and item b.2). Banks fill in the capital charge calculation for buckets divided by index. In the event that a Bank has CTP instruments with more than 50 (fifty) indices, the Bank may report the remaining other currencies in the last row of the table cumulatively.

Guidelines for Filling Table 3A(4): RRAO Capital Charge Calculation
a. Banks fill in the notional amount as per instruments exposed to RRAO. b. Banks calculate the RRAO capital charge by multiplying the notional amount by the risk weight.
c. Banks accumulate the RRAO capital charge from each instrument exposed to RRAO.
Guidelines for Filling Table CVA: CVA Capital Charge Calculation
Table CVA is the RWA calculation for CVA. For Banks that calculate CVA using the simplified basic approach, Banks fill in sub-section a and leave sub-section b empty (fill with 0 (zero)). In the event that a Bank calculates CVA at 100% of the SACCR RWA, then the Bank fills in sub-section b and leaves sub-section a empty.

APPENDIX D
RWA CALCULATION REPORT FOR MARKET RISK
WITH THE SIMPLIFIED STANDARDIZED APPROACH

I. General

Banks compile the RWA Calculation Report for Market Risk with the simplified standardized approach consisting of:
No. Name of Report Description a. RWA Recapitulation for Market Risk Individual and Consolidated b. Capital Charge Calculation for Interest Rate Risk Individual and Consolidated
c. Capital Charge Calculation for Equity Risk Consolidated
d. Capital Charge Calculation for Exchange Rate Risk Individual and Consolidated e. Capital Charge Calculation for Commodity Risk Consolidated f. Capital Charge Calculation for Option Rights Individual and Consolidated g. Capital Charge Calculation for CVA Individual and Consolidated
For Banks with Indonesian legal entity status, the capital charge calculation for Market Risk covers the head office and all branches located domestically and abroad.
The filling of all forms is stated in millions of Rupiah. In the event that a Bank does not have positions or exposures that must be reported, data in the provided cells is filled with 0 (zero).
The filling of forms covers all positions on the balance sheet (on balance sheet) as well as derivative transaction positions (off balance sheet).
The information used as a reference in filling the forms must be the same as the information used to compile other routine reports submitted to the Financial Services Authority (OJK) for the same month's position.
The filling of forms uses fair value on the reporting date (current market value). In the event that the notional value used as a reference for a derivative transaction differs from the effective notional value, the Bank uses the effective notional value in calculating fair value.
The RWA Calculation Report for Market Risk is submitted online through the Financial Services Authority (OJK) reporting system with the following periodicity:
a) monthly, for Banks individually, submitted for month-end positions; and b) quarterly, for Banks on a consolidated basis, submitted for month-end positions in March, June, September, and December, for Banks that have Subsidiary Companies.

II. Report Format

Table 3B(1): Recapitulation of RWA Calculation for Market Risk
In Millions of Rupiah a. Capital Charge for Each Risk Specific Risk General Risk Capital Charge for Option Rights Multiplier Factor Total Capital Charge

Interest Rate Risk 0 1.3 0
Equity Risk 0 0 3.5 0
Exchange Rate Risk 0 1.2 0
Commodity Risk 1.9 0
Total 0
b. Other capital charges
Addition of Pillar 1 RWA
Credit valuation adjustment (RWA)
c. Total Market Risk RWA 0

Table 3B(2a): Interest Rate Risk - Specific Risk
In Millions of Rupiah a. Specific risk charge - b. Non-securitization Long Short Long Short

Instruments meeting criteria as Indonesian Government - 0.00% -
Instruments meeting criteria as Other Country Governments -
a) Rating AAA to AA- - 0.00% - b) Rating A+ to BBB- with:
i. Remaining maturity to maturity ≤ 6 months - 0.25% -
ii. 6 months < Remaining maturity to maturity ≤ 24 months - 1.00% -
iii. Remaining maturity to maturity > 24 months - 1.60% -
c) Rating BB+ to B- - 8.00% - d) Rating less than B- - 12.00% - e) No rating - 8.00% -
Instruments meeting criteria as Qualifying with:
a) Remaining maturity to maturity ≤ 6 months - 0.25% - b) 6 months < Remaining maturity to maturity ≤ 24 months - 1.00% - c) Remaining maturity to maturity > 24 months - 1.60% -
Instruments meeting criteria as Others -
a) Rating BB+ to BB- - 8.00% - b) Rating less than BB- 12.00% - c) No rating - 8.00% - Total - 0.25% -
c. Securitization
Long Short Long Short
AAA 0 0 etc... 0 0
Total - 0.25% -
Gross Position Net Position Instrument Rating
Securitization Position
Gross Position Net Position
Net Position After Absolute Value
Specific Risk Weight Capital Charge for
Specific Risk
Net Position After Absolute Value
Specific Risk Weight
(Risk weight in POJK No. 11
/POJK.03/2019 divided by 12.5)
Capital Charge for
Specific Risk

Table 3B(2b-1): Interest Rate Risk - General Risk - Maturity Method
General Risk Charge In Millions of Rupiah
Currency : Rate : Maturity Ladder

Maturity Method Calculation
(1) (2) (3) (4) (5) (6) (7) (10) (11) (12) (15) (17) (18) (19) (20) (21) (22) (23) (24) (25) (26) (27) (28) (29) (30) (31) < 1 month < 1 month 0.00% 0

1 - 3 months > 1 - 3 months 0.20% 0
3 - 6 months > 3 - 6 months 0.40% 0
6 - 12 months > 6 - 12 months 0.70% 0
1 - 2 years > 1 - 1.9 years 1.25% 0
2 - 3 years > 1.9 - 2.8 years 1.75% 0
3 - 4 years > 2.8 - 3.6 years 2.25% 0
4 - 5 years > 3.6 - 4.3 years 2.75% 0
5 - 7 years > 4.3 - 5.7 years 3.25% 0
7 - 10 years > 5.7 - 7.3 years 3.75% 0
10 - 15 years > 7.3 - 9.3 years 4.50% 0
15 - 20 years > 9.3 - 10.6 years 5.25% 0
20 years > 10.6 - 12 years 6.00% 0
12 - 20 years 8.00% 0
20 years 12.50% 0.00

Capital Charge for General Risk
For Vertical Disallowance 0 10% 0
For Horizontal Disallowance within zone 0

Within Zone 1 0 40% 0
Within Zone 2 0 30% 0
Within Zone 3 0 30% 0
For Horizontal Disallowance between Zones 0
Zone 1 and Zone 2 0 40% 0
Zone 2 and Zone 3 0 40% 0
Zone 1 and Zone 3 0 100% 0
For Overall Net Open Position 0 100% 0
TOTAL CAPITAL CHARGE 0
3 0
Matched
Position
Disallowance Factor
Total Capital Charge
(Capital Charge)
0 0
2 0
1 0
Matched
Position
Residual Value Matched
Position
Residual Value
Long Short Long Short Long Short Long Short Long Short Matched Position Residual Value Matched Position Residual Value Long Short Overall Net Open Coupon 3% Position or more Coupon less than 3% Long Short Long Position After Weighting Vertical Disallowance Horizontal Disallowance within zone 1, zone 2, and zone 3 Horizontal Disallowance between zone 1 and zone 2 Horizontal Disallowance between zone 2 and zone 3 Horizontal Disallowance between zone 1 and zone 3 Zon e Time Scale Securities Position, Debt Related Derivatives, and Credit Derivatives Interest Rate Derivatives Position Risk Weight Short Matched Position Residual Value

Table 3B(2b-2): Interest Rate Risk - General Risk - Duration Method
General Risk Charge In Millions of Rupiah
Currency : Rate : Maturity Ladder 1) Duration Method Calculation (1) (2) (3) (4) (5) (6) (9) (10) (11) (12) (13) (16) (18) (19) (20) (21) (22) (23) (24) (25) (26) (27) (28) (29) (30) (31) (32) < 1 month 1.00% 0.0% 0

1 - 3 months 1.00% 0.0% 0
3 - 6 months 1.00% 0.0% 0
6 - 12 months 1.00% 0.0% 0
1 - 1.9 years 0.90% 0.0% 0
1.9 - 2.8 years 0.80% 0.0% 0
2.8 - 3.6 years 0.75% 0.0% 0
3.6 - 4.3 years 0.75% 0.0% 0
4.3 - 5.7 years 0.70% 0.0% 0
5.7 - 7.3 years 0.65% 0.0% 0
7.3 - 9.3 years 0.60% 0.0% 0
9.3 - 10.6 years 0.60% 0.0% 0
10.6 - 12 years 0.60% 0.0% 0
12 - 20 years 0.60% 0.0% 0
20 years 0.60% 0.0% 0

Capital Charge for General Risk
For Vertical Disallowance 0 5% 0.00
For Horizontal Disallowance within zone 0.00

Within Zone 1 0 40% 0.00
Within Zone 2 0 30% 0.00
Within Zone 3 0 30% 0.00
For Horizontal Disallowance between Zones 0.00
Zone 1 and Zone 2 0 40% 0.00
Zone 2 and Zone 3 0 40% 0.00
Zone 1 and Zone 3 0 100% 0.00
For Overall Net Open Position 0 100% 0.00
TOTAL CAPITAL CHARGE 0.00
2 0
3 0
Assumed Changes in Yield
Position After Weighting
Residual Value Matched
Position
Residual Value
Matched
Position
Disallowance Factor
Long
Estimated Price Movement
Long Short Matched
Position
Total Capital Charge
(Capital Charge)
Long Long Short
Overall Net Open
Position
Horizontal Disallowance between zone 1 and zone 3 Long Horizontal Disallowance between zone 2 and zone 3 Matched Position Vertical Disallowance Short Residual Value Short Zon e Securities Position, Debt Related Derivatives, and Credit Time Scale Derivatives Short Residual Value Short Horizontal Disallowance within zone 1, zone 2, and zone 3 Horizontal Disallowance between zone 1 and zone 2 Short Long Interest Rate Derivatives Position Matched Position Residual Value Long Short Matched Long Position Modified Duration

Table 3B(3a): Equity Risk Calculation - Specific Risk
Table 3B(3b): Equity Risk Calculation - General Risk
Total specific risk charge 0 In Millions of Rupiah Long Short Capital Market Stock Index/Qualifying Stock or Other Stock Index Net Position Specific Risk Charge/Additional Risk Charge for Qualifying Stock Index Specific Risk Capital Charge General market risk charge 0 In Millions of Rupiah Capital Market Net Position General Market Risk Charge Capital Requirement
Table 3B(4): Exchange Rate Risk Calculation,
a. Sum of net long positions 0 In Millions of Rupiah b. Sum of net short positions 0
c. Gold position (long/short after absolute value)
d. Exchange rate risk capital charge 0
No
Structural Position
Net Long Position
(Without Considering Structural
Position)
Net Short Position
(Without Considering Structural
Position)
1 US Dollar USD
2 Euro EUR
3 Australian Dollar AUD
4 Canadian Dollar CAD
5 Danish Krone DKK
6 Hong Kong Dollar HKD
7 Malaysian Ringgit MYR
8 New Zealand Dollar NZD
9 Norwegian Krone NOK
10 British Pound Sterling USD
11 Singapore Dollar SGD
12 Swedish Krona SEK
13 Swiss Franc CHF
14 Japanese Yen JPY
15 Indian Rupee INR
16 Kuwaiti Dinar KWD
17 Pakistani Rupee PKR
18 Philippine Peso PHP
19 Saudi Riyal SAR
20 Sri Lankan Rupee LKR
21 Thai Baht THB
22 Brunei Dollar BND
23 …..
24 …..
25 …..
26 …..
27 …..
28 …..
29 …..
30 …..
31 …..
32 …..
33 …..
34 …..
35 …..
36 …..
37 …..
38 …..
39 …..
40 …..
41 …..
42 …..
43 …..
44 …..
45 …..
46 …..
47 …..
48 …..
49 …..
50 Other currencies …………
Currency
Table 3B(5a) Commodity Risk Calculation - Simplified Approach
In Millions of Rupiah
Long Short
1 15% 3% 0
2 15% 3% 0
3 15% 3% 0
4 15% 3% 0
5 15% 3% 0
6 15% 3% 0
7 15% 3% 0
8 15% 3% 0
9 15% 3% 0
Total Capital Charge for Commodity Risk 0
No
Total
Capital
Charge
Risk Weight for Net
Position
Risk Weight for
Gross
Position
Capital Charge for
Gross Position
Commodity Type
Position
Spot Price
Capital
Charge for
Net Position
Table 3B(5b): Commodity Risk Calculation - Maturity Ladder Approach
In Millions of Rupiah a. Total capital charge commodity risk b. Commodity position Commodity Type Long Short Long Short < 1 month 0.00

1 - 3 months 0.00
3 - 6 months 0.00
6 - 12 months 0.00
1 - 2 years 0.00
2 - 3 years 0.00
3 years 0.00
Total 0.00
Capital Charge for
Spread Risk
Capital Charge for Residual Position
Counted Towards
Next Time Scale
Capital Charge for
Overall Net Position Time Scale Position Matched Position Residual Position

Table 3B(6a): Option Risk Calculation - Simplified Approach
(Simplified Approach)
In Millions of Rupiah
Long Put & Long
Outright Position
Long Call
& Short Outright Long Call Long Put a) Specific risk position Long Put & Long Outright, or Long Call & Short Outright Position b) General risk position Long Put & Long Outright, or Long Call & Short Outright Position c) Capital charge for specific risk position Long Put & Long Outright, or Long Call & Short Outright Position after subtracting the amount of options that are in the money (if any) d) Capital charge Long Calls or Long Puts 0 e) Total capital charge for interest rate options 0

Equity option rights
a) Specific risk position Long Put & Long Outright, or Long Call & Short Outright Position b) General risk position Long Put & Long Outright, or Long Call & Short Outright Position c) Capital charge for specific risk position Long Put & Long Outright, or Long Call & Short Outright Position after subtracting the amount of options that are in the money (if any) d) Capital charge Long Calls or Long Puts 0 e) Total capital charge for interest rate options 0 (c) Exchange rate option rights a) Specific risk position Long Put & Long Outright, or Long Call & Short Outright Position b) General risk position Long Put & Long Outright, or Long Call & Short Outright Position c) Capital charge for specific risk position Long Put & Long Outright, or Long Call & Short Outright Position after subtracting the amount of options that are in the money (if any) d) Capital charge Long Calls or Long Puts 0 e) Total capital charge for interest rate options 0 (d) Commodity option rights a) Specific risk position Long Put & Long Outright, or Long Call & Short Outright Position b) General risk position Long Put & Long Outright, or Long Call & Short Outright Position c) Capital charge for specific risk position Long Put & Long Outright, or Long Call & Short Outright Position after subtracting the amount of options that are in the money (if any) d) Capital charge Long Calls or Long Puts 0 e) Total capital charge for interest rate options 0 Position Capital Charge
Interest rate option rights
Total capital charge for option rights
Type of Option Rights

Table 3B(6b): Option Risk Calculation - Delta-Plus Approach
a. Capital charge for Gamma and Vega Risk In Millions of Rupiah Gamma Vega Total Capital Charge for Gamma and Vega

Interest Rate 0
Equity 0
Exchange Rate 0
Commodity 0
b. Capital charge by option type
Option Type
Category
(interest rate risk: by currency, equity risk: by market, exchange rate risk: by currency/gold, and commodity risk: by commodity) Timeband (if no timeband exists, can be left empty) Gamma Vega

Table 3B(6c): Option Risk Calculation - Scenario Approach

Interest Rate In Millions of Rupiah
Capital charge for interest rate option rights -25% Current Volatility +25% Currency Timeband Price Change of Underlying Profit/Loss
Equity
Capital charge for equity option rights
-25% Current Volatility +25%
Country/Jurisdiction Price Change of Underlying Profit/Loss
Exchange Rate
Capital charge for exchange rate option rights -25% Current Volatility +25% Currency or Gold Changes in the rate or price of the Underlying Profit/Loss
Commodity Options
Capital charge for Commodity Options
-25% Current Volatility +25%
Commodity Price Change of Underlying Profit/Loss

CVA: CVA Capital Charge Calculation
Table CVA report format refers to Appendix C roman numeral II.5.

III. Filling Guidelines

Recapitulation of RWA Calculation for Market Risk
Table 3B(1) is a summary of the capital charge calculation for all Market Risks calculated in other forms. The Row Addition of Pillar 1 RWA can be filled with, among others:
a. profit from capital charge calculation due to transfer of instruments between regulatory books; and/or b. RWA for Market Risk in Subsidiary Companies that conduct business activities based on Sharia principles (if any) in the consolidated RWA calculation for Market Risk.
Interest Rate Risk
a. Table 3B(2a): Interest Rate Risk Calculation – Specific Risk

Table 3B(2a) is filled with long positions and short positions of securities and derivative instruments related to securities, such as bond forwards, that fall into the Trading Book category based on the issuer category of the securities.
In the event that a derivative transaction does not contain Credit Risk, such as interest rate swap, currency swap, forward rate agreement (FRA), forward foreign exchange, and interest rate future transactions, the Bank does not need to report such transactions in Table 3B(2a).
Included in long and short positions are commitments to buy and sell securities, such as securities sales transactions with repurchase agreements (repo) and securities purchase transactions with resale agreements (reverse repo) for trading purposes.
Specifically for items 2).b) and item 3 in Table 3B(2a), long and short positions are filled based on the residual maturity time scale of the securities and/or the securities that serve as the reference (underlying securities) in derivative transactions.

b. Table 3B(2b-1): Interest Rate Risk - General Risk - Maturity Method For Banks using the maturity method, Table 3B(2b-1) is filled with long and short positions that fall into the Trading Book category as previously reported in Table 3B(2a), as well as long and short positions arising from derivative transactions related to interest rates, such as interest rate swaps, cross currency swaps, foreign exchange forwards, and forward rate agreements (FRA).

c. Table 3B(2b-2): Interest Rate Risk - General Risk - Duration Method
2) In the event that a Bank uses the Duration Method, the Bank fills in and uses Table 3B(2b-2). If there are several instruments in one time scale, the Bank fills in the Position After Weighting column based on calculations performed separately without filling in the modified duration and estimated price movement columns.
3) The Bank documents calculations related to the use of the Duration Method, including among others the calculation of modified duration and estimated price movements.

Equity Risk
a. Table 3B(3a): Equity Risk Calculation - Specific Risk

Table 3B(3a) is filled with long and short positions of financial instruments and derivative instruments related to equity, such as equity futures and equity options, that fall into the Trading Book category. Positions are reported on a market-by-market basis.
In the event that financial instruments exposed to equity risk are traded in more than 1 (one) financial market, the Bank reports the financial instruments in the financial market where the financial instruments are primarily listed (primary listing).
In the event that a derivative contract is not only equity-based but also interest rate-based, the Bank also reports the relevant instruments in the Form related to interest rate risk reports.
b. Table 3B(3b): Equity Risk Calculation - General Risk
Table 3B(3b) is filled with long and short positions of financial instruments and derivative instruments related to equity, such as equity futures and equity options, that fall into the Trading Book category. Positions are reported on a market-by-market basis.
In the event that financial instruments exposed to equity risk are traded in more than 1 (one) financial market, the Bank reports the financial instruments in the financial market where the financial instruments are primarily listed (primary listing).
In the event that a derivative contract is not only equity-based but also interest rate-based, the Bank also reports the relevant instruments in the Form related to interest rate risk reports.

Exchange Rate Risk
a. Table 3B(4): Exchange Rate Risk Calculation is filled with positions for each foreign currency both recorded on the asset side, liability side, and administrative accounts as regulated in Appendix A. b. The Structural Position column is filled with structural positions that the Bank will exclude from the capital charge calculation.
c. The Bank reports the absolute net positions of gold on the Gold Position row.
d. The asset value calculated is the book value, i.e., the instrument value after considering the impairment loss reserves formed in the same currency.
Commodity Risk
a. Table 3B(5a) Commodity Risk Calculation – Simplified Approach

Table 3B(5a) is filled with long and short positions of financial instruments and derivative instruments related to commodities, such as commodity futures and commodity options, that fall into the Trading Book and/or Banking Book categories.
In the event that a derivative contract is not only commodity-based but also interest rate-based, the Bank also reports the relevant instruments in the Form related to interest rate risk reports.
b. Table 3B(5b): Commodity Risk Calculation - Maturity Ladder Approach
Table 3B(5b) is filled with long and short positions of financial instruments and derivative instruments related to commodities, such as commodity futures and commodity options, that fall into the Trading Book and/or Banking Book categories based on the time scale in the maturity ladder.
In addition, the Bank fills in the Capital Charge for Residual Position Counted Towards Next Time Scale and Capital Charge for Overall Net Position columns.
In the event that a derivative contract is not only commodity-based but also interest rate-based, the Bank also reports the relevant instruments in the form related to interest rate risk reports.

Option Rights Risk
a. Table 3B(6a): Option Rights Risk Calculation - Simplified Approach is intended for Banks that calculate option rights risk using the simplified approach. b. Table 3B(6b): Option Rights Risk Calculation - Delta-Plus Approach is intended for Banks that calculate option rights risk using the delta-plus approach. Gamma risk and vega risk are reported in this table. For delta risk, all long positions and short positions are reported as part of the value in each relevant risk table (separately).

c. Table 3B(6c): Option Rights Risk Calculation - Scenario Approach is intended for Banks that calculate option rights risk using the scenario approach.

Credit Valuation Adjustment (CVA)
Table CVA: CVA Capital Charge Calculation is filled according to the filling guidelines explained in Appendix C roman numeral III.5.

APPENDIX E

PUBLIC DISCLOSURE REPORT OF RISK EXPOSURE AND CAPITAL FOR MARKET RWA

I. General

Banks shall make announcements regarding the Public Disclosure Report of Risk Exposure and Capital for Market RWA, which includes:

No.	Report Name	Type of Information	Semi-Annual Period	Annual Period
1	Qualitative Information Disclosure regarding Market Risk in General (MRA)	Qualitative	December	-
2	Disclosure of RWA for Market Risk Using the Standardized Approach (MR1)	Quantitative and Qualitative	June	December
3	Disclosure of RWA for Market Risk Using the Simplified Standardized Approach (MR3)	Quantitative	June	December
4	Qualitative Information Disclosure regarding CVA (CVAA)	Qualitative	-	December
5	Disclosure of Simplified BA-CVA (CVA1)	Qualitative	June	December

The procedure for announcing the Public Disclosure Report of Risk Exposure and Capital for Market RWA shall be in accordance with the Financial Services Authority Regulation regarding transparency and publication of bank reports.

II. Report Format and Filling Guidelines

1. Qualitative Information Disclosure regarding Market Risk in General (MRA)

The report format is not regulated. Banks shall explain the risk management objectives and policies for Market Risk, specifically regarding:

a. The Bank's strategy and process, which must at least contain an explanation of:

The Bank's strategic objectives in conducting trading activities and the processes applied to identify, measure, monitor, and control Market Risk, including policies for hedging risk and strategies or processes to monitor the effectiveness of continuous hedging;
Policies for determining:
a) A position is designated as trading, including the definition of positions that are not actively traded and risk management policies to monitor such positions; b) Conditions where instruments are placed in the Trading Book or Banking Book contrary to general assumptions, market conditions, and gross fair value of said conditions; and c) Conditions where instruments have been transferred from one regulatory book to another regulatory book since the last reporting period, including the gross fair value of such conditions and the reasons for such transfer as referred to in Appendix A.II.4.e.

b. The structure and organization of the Market Risk management function, including a description of the Market Risk governance structure formed to implement the Bank's strategies and processes explained in letter a above.

c. The scope and nature of risk reporting and/or measurement systems.

2. Disclosure of RWA for Market Risk Using the Standardized Approach (MR1)

a. Report Format

b. Filling Guidelines

"Additional disclosure" is filled with a description explaining any significant changes (if any) during the reporting period and the main causes of such changes. The description must inform about changes, including changes caused by trading desks and transfers between regulatory books.

1) Bank individually

Capital Charge Standardized Approach	Position	Report Date	Capital Charge Standardized Approach	Position	Report Date Previous Year
GIRR Risk
Non-securitization CSR Risk
Non-CTP Securitization CSR Risk
CTP Securitization CSR Risk
Equity Risk
Commodity Risk
Exchange Rate Risk
DRC - Non-securitization
DRC - Non-CTP Securitization
DRC - CTP Securitization
RRAO
Total

2) Bank consolidated with subsidiaries

Capital Charge Standardized Approach	Position	Report Date	Capital Charge Standardized Approach	Position	Report Date Previous Year
GIRR Risk
Non-securitization CSR Risk
Non-CTP Securitization CSR Risk
CTP Securitization CSR Risk
Equity Risk
Commodity Risk
Exchange Rate Risk
DRC - Non-securitization
DRC - Non-CTP Securitization
DRC - CTP Securitization
RRAO
Total

3) Additional disclosure

Risk	Risk

3. Disclosure of RWA for Market Risk Using the Simplified Standardized Approach (MR3)

a. Report Format

1) Bank individually

	Simplified Approach		Delta Plus Approach
	a	b	c	d
Interest Rate Risk
Exchange Rate Risk
Securitization
Total

2) Bank consolidated with subsidiaries

	Simplified Approach		Delta Plus Approach
	a	b	c	d
Interest Rate Risk
Equity Risk
Exchange Rate Risk
Commodity Risk
Securitization
Total

3) Additional disclosure

Non-Option Instruments	Option Instruments	Non-Option Instruments	Option Instruments
Risk		Risk

b. Filling Guidelines

"Non-Option Instruments" refers to positions other than option positions, including the calculation of capital charges explained in Appendix A roman numeral V.2 to V.5 (Interest Rate Risk, Equity Risk, Exchange Rate Risk, and Commodity Risk).
"Option Instruments with Simplified Approach" refers to the calculation of capital charges for option risk regulated in Appendix A roman numeral V.6.b.
"Option Instruments with Delta-Plus Approach" refers to the calculation of capital charges for option risk (non-delta risk) regulated in Appendix A roman numeral V.6.c.2).
"Option Instruments with Scenario Approach" refers to the calculation of capital charges for option risk (non-delta risk) regulated in Appendix A roman numeral V.6.b.3).
"Securitization" refers to the calculation of capital charges regulated in Appendix A roman numeral V.2.
"Additional disclosure" is filled with a description explaining any significant changes (if any) during the reporting period and the main causes of such changes. The description must inform about changes, including changes caused by trading desks and transfers between regulatory books.

4. Qualitative Information Disclosure regarding Credit Valuation Adjustment (CVAA)

The report format is not regulated. Banks shall explain the risk management policies for CVA, specifically regarding:

a) The process implemented by the Bank to identify, measure, monitor, and control CVA risk, including policies related to CVA risk hedging and the process to monitor the effectiveness of such hedging continuously.

b) The methods used in determining the CVA amount. In the event the Bank chooses to set its capital charge at 100% (one hundred percent) of the SACCR RWA, the Bank must disclose compliance with the requirements as regulated in Appendix A chapter VI.

5. Simplified BA-CVA (CVA1)

a. Report Format

b. Filling Guidelines

"Aggregation of systematic CVA risk components" refers to RWA under the perfect correlation assumption ($\sum_c SCVA_c$) as explained in Appendix A chapter VI.2.
"Aggregation of idiosyncratic CVA risk components" refers to RWA under the zero correlation assumption ($\sqrt{(\sum_c SCVA_c)^2}$) as explained in Appendix A chapter VI.2.

1) Bank individually

BA-CVA RWA Components
	a	b
Aggregation of systematic CVA risk components
Aggregation of idiosyncratic CVA risk components
Total

2) Bank consolidated with subsidiaries

BA-CVA RWA Components
	a	b
Aggregation of systematic CVA risk components
Aggregation of idiosyncratic CVA risk components
Total

3) Additional disclosure

This copy is in accordance with the original

Legal Director
Legal Department

ttd
Mufli Asmawidjaja

"Total" refers to $K_{reduced}$ as explained in Appendix A chapter VI.2 multiplied by a multiplier factor of 12.5 (twelve point five).
"Additional Disclosure" is filled with an explanation regarding the types of hedging used by the Bank even though they are not taken into account in the Simplified BA-CVA.

Determined in Jakarta on 7 December 2022

HEAD OF EXECUTIVE SUPERVISOR OF BANKING
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA,

ttd
DIAN EDIANA RAE

Calculation of Risk-Weighted Assets for Market Risk for Conventional Commercial Banks

APPENDIX E

PUBLIC DISCLOSURE REPORT OF RISK EXPOSURE AND CAPITAL FOR MARKET RWA

I. General

II. Report Format and Filling Guidelines

1. Qualitative Information Disclosure regarding Market Risk in General (MRA)

2. Disclosure of RWA for Market Risk Using the Standardized Approach (MR1)

a. Report Format

b. Filling Guidelines

3. Disclosure of RWA for Market Risk Using the Simplified Standardized Approach (MR3)

a. Report Format

b. Filling Guidelines

4. Qualitative Information Disclosure regarding Credit Valuation Adjustment (CVAA)

5. Simplified BA-CVA (CVA1)

a. Report Format

b. Filling Guidelines

Lineage: In force

Timeline