Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 85

Calculation of risk-weighted amount of OTC derivative transactions

An authorized institution shall calculate the risk-weighted amount of each of
its off-balance sheet exposures which is an OTC derivative transaction by—

   (a)  multiplying the principal amount of the transaction by the applicable
        CCF to ascertain the potential exposure of the institution in respect
        of the transaction and adding the current exposure of the institution
        in respect of the transaction to derive the credit equivalent  amount
        of the transaction;

   (b)  dividing the credit equivalent amount of the transaction, net of
        specific provisions, into—

        (i)    the credit protection covered portion; and

        (ii)   the credit protection uncovered portion.

   (c)  multiplying the credit equivalent amount of the credit 
        protection covered portion by the risk-weight attributable to the
        recognized collateral and multiplying the credit equivalent amount of
        the credit protection uncovered portion by the risk-weight
        attributable to the exposure; and

   (d)  adding together the 2 products derived from the application of
        paragraph (c).