Capital Adequacy Requirements.docx

Capital Adequacy Requirements ============================= Capital Adequacy Requirements of Trading members ------------------------------------------------ ### Calculation of own funds The JSE hereby determines, that a trading member's own funds must be calculated as set out in Schedule 1 below...

Capital Adequacy Requirements ============================= Capital Adequacy Requirements of Trading members ------------------------------------------------ ### Calculation of own funds The JSE hereby determines, that a trading member's own funds must be calculated as set out in Schedule 1 below and that those trading members not exempted must include a declaration of their own funds in the return in the manner and form set out in Schedule 1. **Schedule 1 -- Own Funds** **Part A** -------------------------------------------------------------------------------------------------------------------------- ---- Ordinary share capital A1 Preference share capital A2 Share premium account A3 Reserves excluding revaluation reserves A4 Audited retained earnings (accumulated loss) A5 Unaudited profits (losses) A6 Total A **Part B** Intangible assets B1 Fixed assets, net of related secured loans B2 Investments in unlisted shares B3 Any guarantees given B4 Amounts paid to cover risks in any other market B5 Tax provisions B6 Total B **Part C** Guarantees received C1 Shareholders subordinated loan accounts C2 Other long term subordinated loans C3 Excess of market value over book value of investments in securities C4 Total C **Part D** Shareholding of more than ten percent of share capital as calculated in part 1 in banks or other financial institutions. D Own Funds E **Notes:** A The total A is the sum of A1 through to A6 B The total B is the sum of B1 through to B6 C The total C is the sum of C1 through to C4 E Own funds are calculated as E = A-B+C-D ### Calculation of thirteen weeks operating costs The JSE hereby determines that the operating costs of a trading member must be calculated as follows and that those trading members not exempted must include a declaration of thirteen weeks of their operating costs in the return in accordance with this directive. The annual operating costs of a trading member must be the total revenue of the trading member plus any loss before taxation as per the trading member's last audited financial statements less the aggregate of the following items -- - Profit before taxation - Bonuses paid out of relevant year\'s profits and not guaranteed - Profit shares and other appropriations of profit except for a fair (market related) or guaranteed remuneration which is payable even if the trading member makes a loss for the year - Commissions paid other than to employees or appointed representatives of the trading member - Fees, brokerage, and other charges paid to clearing houses, clearing firms, exchanges, and intermediate brokers for the purpose of executing, registering, or clearing transactions excluding charges not related to the continuation of trading - Interest payable to counterparties which is trade related (such as that applicable to repurchase agreements and carries) - Interest payable on borrowings to finance the long-term investment business of the trading member - Abnormal or extraordinary items with the prior approval of the JSE - Losses arising on the conversion of foreign currency balances. If a trading member does not have audited financial statements yet it may - - where it has only just commenced trading or has not been a trading member long enough to have submitted audited financial statements, calculate its relevant expenditure on budgeted or other accounts which have been submitted with its application; or - where its accounts do not represent a 12-month period, calculate its relevant expenditure on a proportionate basis approved by the JSE. The JSE may adjust the relevant annual expenditure where- - there has been a significant change in the circumstances or activities of the trading member; or - the trading member has a material proportion of its expenditure incurred on its behalf by a third party and such expenditure is not fully recharged to the trading member. ### Position Risk Requirement The JSE hereby determines that a trading member's position risk requirement, must be calculated in accordance with the 3 methods outlined below and that those trading members not exempted must include a declaration of position risks in accordance with this resolution. 1. **Calculation of position risk requirement in terms of simplest method** Total position risk requirement is the aggregate of all the individual risk capital required figures calculated as set out in the table below. +-----------------------------------+-----------------------------------+ | **Item** | **Risk Capital Required** | +===================================+===================================+ | **A Bonds (see note 1)** | | +-----------------------------------+-----------------------------------+ | Government or government | | | guaranteed | | +-----------------------------------+-----------------------------------+ | Less than 1 year to maturity | 2% of MV *(see note 2)* | +-----------------------------------+-----------------------------------+ | Less than 3 years to maturity | 5% of MV | +-----------------------------------+-----------------------------------+ | More than 3 years to maturity | 10% of MV | +-----------------------------------+-----------------------------------+ | Issued or accepted by a bank | | +-----------------------------------+-----------------------------------+ | Less than 90 days to maturity | 2% of MV | +-----------------------------------+-----------------------------------+ | Others which are marketable | | | securities (excluding floating | | | rate notes) | | +-----------------------------------+-----------------------------------+ | Less than 1 year to maturity | 10% of MV | +-----------------------------------+-----------------------------------+ | Less than 3 years to maturity | 20% of MV | +-----------------------------------+-----------------------------------+ | More than 3 years to maturity | 30% of MV | +-----------------------------------+-----------------------------------+ | Floating Rate Notes | | +-----------------------------------+-----------------------------------+ | Less than 20 years to maturity | 5% of MV | +-----------------------------------+-----------------------------------+ | 20 years and more to maturity | 10% of MV | +-----------------------------------+-----------------------------------+ | **B Securities *(see note 1)*** | | +-----------------------------------+-----------------------------------+ | Listed on an exchange Mining | 40% of MV | | | | | Other | 30% of MV | +-----------------------------------+-----------------------------------+ | Traded on an external exchange | 35% of MV | | designated by the JSE | | +-----------------------------------+-----------------------------------+ | Other | 100% of MV | +-----------------------------------+-----------------------------------+ | **C Commodities** | 30% of Realisable value | +-----------------------------------+-----------------------------------+ | **Stock positions** in physical | | | commodities associated with a | | | trading member\'s investment | | | business *(see note 3)* | | +-----------------------------------+-----------------------------------+ | **D Futures, options, swaps, FRAs | | | and contracts for difference** | | +-----------------------------------+-----------------------------------+ | Exchange traded futures, options, | 2 x initial margin requirement | | swaps or FRAs | | +-----------------------------------+-----------------------------------+ | Unlisted forward contracts or | The appropriate percentage shown | | written options | in A, B and C above should be | | | applied to the market value of | | | the underlying position | +-----------------------------------+-----------------------------------+ | Unlisted purchased options | As for off exchange written | | | options but limited to the | | | current value of the option | +-----------------------------------+-----------------------------------+ | Contracts for difference | 20% of the market value of the | | | contract | +-----------------------------------+-----------------------------------+ **E JSE authorised investments** **Risk Capital Required** -------------------------------------------------------- ----------------------------------------- Units in a registered unit trust scheme 25 % of Realisable value *(see note 4)* Krugerrands 10% of Realisable value An interest in an unregistered futures or options fund 50% of Realisable value Any other investments 100% of amount of asset **Notes:** 1. The long or short position in a particular security is the net of any long or short positions held in that security (i.e., a long position in XYZ shares can be offset on a share for share basis against a short position in XYZ shares). 2. Market value (MV) means the market value of the sum of the long and the short positions in the category. The positions are thus added to each other. 3. Definition of stock position a. A stock position in physical commodities includes the following: i. Commodities where the full contract price has been paid. ii. Work in progress and finished goods which result from the processing of commodities. iii. Raw materials which will be combined with commodities to produce a finished processed commodity. b. A stock position is regarded as being associated with a trading member\'s investment business if the contract was made for investment rather than commercial purposes. Indications of this are - i. it is traded on a recognised or designated exchange; or i. the performance of it is ensured by such an exchange or by a licensed clearing house; or ii. there are arrangements for the payment or provision of margin. c. Some indications that a contract is made for commercial purposes are - ii. the terms specify delivery within 7 days iii. either or each of the parties is a producer of the commodity or uses it in its business or the purchaser takes or intends to take delivery of the commodity 4. Realisable value means a fair estimate of the value at which the position could be closed without unduly affecting the market in the security. 2. **Calculation of position risk requirement in terms of building block method** **Bonds** A trading member must classify its net positions according to the currency in which they are denominated and must calculate the capital requirement for general and specific risk in each individual currency separately (see notes 1 to 4 below). **Specific risk** A trading member must assign its net positions, as calculated in accordance with note 1 below, to the appropriate categories in Table 1 below on the basis of their residual maturities and then multiply them by the weightings shown. It must sum its weighted positions (regardless of whether they are long or short) in order to calculate its capital requirement against specific risk. **Table 1** --------------------------------------- ------------------------------- ------------------ -------------- ------- Central Government Items (see note 5) Qualifying items (see note 6) Other times \< 6 months \> 6 ≤ 24 months \> 24 months 0.25% 1.00% 1.60% 8.00% **General Risk** *Maturity-based method of calculating bonds position risk requirements (matched weighted method)* The trading member must calculate the totals of the unmatched weighted long positions for the bands included in each of the zones of Table 2 below in order to derive the unmatched weighted long position for each zone. Similarly, the sum of the unmatched weighted short positions for each band in a particular zone must be aggregated to calculate the unmatched weighted short position for that zone. That part of the unmatched weighted long position for a given zone that is matched by the unmatched weighted short position for the same zone must be the matched weighted position for that zone. That part of the unmatched weighted long or unmatched weighted short position for a zone that cannot be thus matched must be the unmatched weighted position for that zone. **Table 2** - The amount of the unmatched weighted long or short position in zone one which is matched by the unmatched weighted short or long position in zone two must then be calculated. The same calculation must then be undertaken with regard to that part of the unmatched weighted position in zone two which is left over and the unmatched weighted position in zone three in order to calculate the matched weighted position between zones two and three. - A trading member may, if it wishes, reverse the order so as to calculate the matched weighted position between zones two and three before calculating that between zones one and two. - The remainder of the unmatched weighted position in zone one must then be matched with what remains of that for zone three - after the latter\'s matching with zone two, in order to derive the matched weighted position between zones one and three. - The residual positions, following the three separate matching calculations must be aggregated. - A trading member\'s capital requirement must be calculated as the sum of: - 10% of the sum of the matched weighted positions in all maturity bands; - 40% of the matched weighted position in zone one; - 30% of the matched weighted position in zone two; - 30% of the matched weighted position in zone three; - 40% of the matched weighted position between zones one and two and between zones two and three; - 150% of the matched weighted position between zones one and three; - 100% of the residual unmatched weighted positions. *Alternative method: Duration-based method of calculating bonds position risk requirements* - In terms of the duration-based system the trading member must ascertain the market yield to maturity of each fixed-rate bonds, using the value implied by a loan-stock\'s all-in market value where trading is by price rather than yield. In the case of floating-rate bonds, the trading member must take the market value of each instrument and then calculate its yield on the assumption that the principal is due when the interest rate can next be changed. - The trading member must then calculate the modified duration of each debt instrument on the basis of the following formula:  **Note 1 Netting notices** The excess of a trading member\'s long or short positions over its short or long positions in the same security, bonds, futures, or options, is its net position in each of those different instruments. In calculating the net position, positions in derivative instruments are to be treated as positions in the underlying (or notional) securities. A trading member\'s holdings of its own bonds must be disregarded in calculating specific risk. No netting will be allowed between a convertible and an offsetting position in the instrument underlying it unless the likelihood of a particular convertible instrument being converted is taken into account or have a capital requirement to cover any loss which a conversion might entail. **Note 2 Particular instruments** a. Interest-rate futures, forward-rate agreements (FRAs) and forward commitments to buy or sell bonds must be treated as combinations of long and short positions. b. Options on interest rates, securities, indices, futures, swaps, and foreign currencies must be treated as if they were positions equal in value to the amount of the underlying instrument to which the option refers, multiplied by its delta. The latter positions may be netted off against any offsetting positions in the identical underlying securities or derivatives. The delta used must be that of the exchange concerned, that calculated by the JSE or, where that is not available or for OTC options, that calculated by the trading member itself, subject to the JSE being satisfied that the model used by the trading member is reasonable. c. Swaps must be treated for interest-rate risk purposes on the same basis as on-balance-sheet instruments. Thus, an interest-rate swap under which an institution receives floating-rate interest and pays fixed-rate interest must be treated as equivalent to a long position in a floating-rate instrument of maturity equivalent to the period until the next interest rate fixing and a short position in a fixed rate instrument with the same maturity as the swap itself. d. The transferor of securities or guaranteed rights relating to title to securities in a repurchase agreement and the lender of securities in a securities lending agreement must include these securities in the calculation of its capital requirement under this section. **Note 3 Specific and general risks** The position risk on traded bonds or securities (or derivatives thereon) must be divided into two components in order to calculate the capital requirement. The first must be its specific-risk component - that is the risk of a price change in the instrument concerned due to factors related to its issuer or, in the case of a derivative, the issuer of the underlying instrument. The second component must cover its general risk - that is the risk of a price change in the instrument due (in the case of a traded bonds instrument or bonds derivative) to a change in the level of interest rates or (in the case of a security or security derivative) to a broad market movement unrelated to any specific attributes of individual securities. **Note 4 Definition of stock position** a. A stock position in physical commodities includes the following: i. Commodities where the full contract price has been paid. ii. Work in progress and finished goods which result from the processing of commodities. iii. Raw materials will be combined with commodities to produce a finished processed commodity. b. A stock position must be regarded as being associated with a trading member\'s investment business if the contract was made for investment rather than commercial purposes. Indications of this are -- i. it is traded on a recognised or designated exchange; or ii. the performance of it is ensured by such an exchange or by a clearing house; or iii. there are arrangements for secured payment or the provision of margin. c. Some indications that a contract is made for commercial purposes are - i. the terms specify delivery within 7 days ii. either or each of the parties is a producer of the commodity or uses it in its business iii. the purchaser takes or intends to take delivery of the commodity. **Note 5 All bonds issued by the Central Government or guaranteed by the Central Government.** Note 6 All bonds listed on the JSE, the Bond Exchange of South Africa or any other exchange listing bonds and granted FSB recognition. 3. **Calculation of position risk requirement in terms of in-house model** A trading member will be entitled to calculate its position risk requirement according to its in-house "value-at-risk" model and submit the result of its calculation to the JSE as part of its capital adequacy return: Provided that the model meets the following standards to the satisfaction of the Director: Market Regulation: **Value-at-Risk ("VaR") Models** The qualitative standards will include, as a minimum: - The model must be conceptually sound, implemented with integrity, and form part of the day-to-day risk management process of the trading member. - Senior management must be actively involved in the risk control process. Daily reports must be reviewed by a level of management with sufficient seniority and authority to enforce the closure of positions to reduce the risk exposure of the trading member. - The trading member must have sufficient numbers of staff in front, middle and back-office functions equipped with the necessary skills and expertise to discharge their responsibilities effectively. - The model must be shown to be reliable in its assessment of losses when compared with the actual daily performance of the trading member's portfolio. - The trading member must conduct a routine and rigorous programme of stress testing. The quantitative standards are not yet finalised and may be subject to change. Nevertheless, it is likely that they will take the following form: - The value-at-risk must be computed daily, using a 99th percentile, one tailed confidence interval, a minimum holding period of ten trading days, and a historical observation period of at least one year. **Calculation of Position Risk Requirement ("PRR")** The numbers produced by the value-at-risk model will be permitted to form the basis of the computation of PRR. Although some points of detail may be subject to change, the mechanics of the calculation are likely to be as follows: - A trading member must calculate a "benchmark PRR" on its portfolio on a date specified by the JSE using the standard rules. The date must be chosen at random, and the trading member will be informed the following day. - On any subsequent day the benchmark PRR must be scaled by a factor which reflects the change in profile or riskiness of the firm's portfolio. This factor must be the ratio of the PRR produced by the value-at-risk model on the current portfolio to the PRR produced by the value-at-risk model on the benchmark portfolio. The PRR used to determine capital adequacy must be the highest of - the benchmark PRR - the benchmark PRR \* (the VaR of the current portfolio) / (the VaR of the benchmark portfolio) - a multiple of the VaR of the current portfolio The JSE may, at its discretion, require a trading member to repeat the benchmarking exercise on any subsequent date. ### Counterparty Risk Requirement The JSE hereby determines that a trading member's counterparty risk requirement must be calculated as follows and that those trading members not exempted must include a declaration of their counterparty risk in accordance with this directive. **Calculation of Counterparty Risk Requirement** The counterparty risk requirement is the aggregate of the capital required against the individual items as detailed in the table below. +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | 1. Cash against documents | | | transactions | | | | | | - 0-7 days after settlement | | | date | | | | | | - 8-15 days after | | | settlement date | | | | | | - over 15 days after | | | settlement date | | +-----------------------------------+-----------------------------------+ | 2. Settle on balance of | | | transactions | | | | | | 1. Central clearing house | | | system with approved | | | guarantees | | | | | | - debit item outstanding more | | | than 15 days since settlement | | | day | | | | | | - undelivered securities within | | | 15 days of settlement day | | +-----------------------------------+-----------------------------------+ | 3. Free deliveries (see note 3) | | | | | | 1. Free delivery amount | | | | | | - Nonpayment against | | | securities delivered | | | | | | - | | | | | | | | | | | | 2. Guaranteed transaction | | | | | | - 0-15 days since | | | delivery/payment | | | | | | - after 15 days | | | | | | 3. Guaranteed transaction | | | | | | - 0-3 days since | | | delivery/payment | | | | | | - | | +-----------------------------------+-----------------------------------+ | 2. **Options purchased for | | | counterparty (see note 1)** | | | | | | - Nonpayment of purchase | | | price after 3 days | | | | | | - Option premium paid to | | | writer | | +-----------------------------------+-----------------------------------+ | 3. **Exchange traded margined | | | transactions (includes | | | initial margin and variation | | | margin) (see note 1)** | | | | | | - 0-3 days since shortfall | | | | | | - 4 days and over since | | | shortfall | | +-----------------------------------+-----------------------------------+ | 4. **Repurchase or reverse | | | repurchase agreements | | | (including lending and | | | borrowing and sale and buy | | | back agreements)** | | | | | | - qualifying debt | | | instruments | | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | - other securities | | +-----------------------------------+-----------------------------------+ | 5. **Swaps, forward contracts, | | | OTC options, contracts for | | | differences and off exchange | | | futures (credit equivalent | | | amount)** | | | | | | 1. Interest rate swaps | | | single currency | | | | | | - qualifying debt | | | instruments | | | | | | - | | | | | | 2. Cross currency swaps | | | | | | - under 1 year to | | | maturity | | | | | | - | | | | | | 3. - under 1 year to | | | maturity | | | | | | - | | | | | | 4. - under 14 days to | | | maturity | | | | | | - 14 days to 1 year to | | | maturity | | | | | | - | | | | | | | | | | | | 4. Counterparty risk | | | requirement = credit | | | equivalent amount | | | multiplied by: | | | | | | - state or authorised | | | counterparty | | | | | | - banking institution | | | | | | - | | +-----------------------------------+-----------------------------------+ | 6. **Loans to counterparties** | | | | | | - where the loan exceeds | | | the value of securities | | | and is not properly | | | secured | | +-----------------------------------+-----------------------------------+ | 7. **Sub underwriting | | | agreements** | | | | | | - Any management or other | | | fees owed and are | | | outstanding for more than | | | 30 days | | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ A trading member must hold sufficient capital to meet the counterparty risk requirement: Provided that -- - if a trading member has made a specific provision against a counterparty balance it may reduce the counterparty exposure on which the requirement is calculated up to the extent of such provision; and - the fact that any amount may be due to or from a connected company to a trading member does not affect the requirement to calculate the counterparty risk requirement. For the purposes of the IRC Directive above, "connected company\" means in relation to a trading member- - a corporate body which is controlled by the trading member; - a corporate body which is has an interest in a trading member; or - the trading member and the corporate body are fellow group companies ### Large Exposure Requirement The JSE hereby determines that a trading member's large exposure requirement, must be calculated as follows and that those trading members not exempted must include a declaration of their large exposure risk in accordance with this resolution. **Large exposures** Exposure means the amount at risk before applying the appropriate position risk requirement ("PRR") or counterparty risk requirement ("CRR") percentage in relation to -- - the excess, where positive, of the market value of a trading member\'s long positions over its short positions in all the securities issued by the third party; - in the case of underwriting commitments, the market value of the trading member\'s net exposure; - counterparty exposures arising from unsettled securities transactions, repurchase, reverse repurchase, securities lending and borrowing transactions and JSE authorised investments, calculated in accordance with the PRR resolution; and - all other assets and off-balance sheet items constituting claims on third parties (e.g. commissions and fees receivable). **Exempt exposures** A trading member may exclude the following from its large exposure requirement calculations: - exposures to or guarantees by the government of the Republic of South Africa or the South African Reserve Bank; - exposures secured by securities issued by the government of the Republic of South Africa or the South African Reserve Bank; - exposures secured by cash deposited with the trading member, its connected credit institutions or JSE Trustees; - exposures with a maturity of less than one year to regulated South African financial and banking institutions, licensed clearing houses and exchanges, not constituting their capital requirements. **Connected parties** Groups of connected third parties means two or more entities or natural persons which are interconnected to the extent that the financial performance or soundness of one would be materially affected by the financial performance or soundness of the other or others. Such interconnectivity would be evidenced, inter alia, where one company derives more than 20% of its earnings from another or where counterparties are linked by cross-guarantees. **Calculations** Where the sum of the exposures to a third party or a group of connected third parties exceeds 25% of a trading member's adjusted liquid capital, a trading member must calculate a large exposure requirement for each such exposure in accordance to list below - - calculate the excess of the exposure over 25% of adjusted liquid capital; - rank the exposures on the basis of specific risk requirement in the case of positions and the requirement in the case of counterparty exposures, in descending order; - add the constituent exposures, starting with the exposure attracting the highest risk requirement, until the sum equals the excess in IRC Directive above; - the large exposure requirement sum must be 200% of the specific risk requirements and counterparty risk requirements applicable to those exposures forming the excess. However, the large exposure requirement must be limited to such amount as, together with the PRR\'s or CRR\'s on the exposures making up such excess, equals 100% of any exposure forming the excess. - a trading member which determines its PRR using the simplified method must treat the consolidated PRR applicable to that method as the specific risk requirement for purposes of calculating its large exposure requirement. ### Foreign Exchange Risk Requirement The JSE hereby determines that a trading member's foreign exchange risk requirement, must be calculated as follows and that those trading members not exempted must include a declaration of their foreign exchange risk in accordance with this resolution. **Types of exposures to be included in foreign exchange requirement** A trading member must calculate a foreign exchange requirement for the following positions, identifying each currency separately, including the currency of its books of account -- - the net spot position of all asset items less all liability items including accrued interest in the currency in question; - any currency future at the nominal value of the contract; - any forward contract for the purchase or sale, at the contract value, including any future exchange of principal associated with cross-currency swaps; - any currency option; - irrevocable guarantees, and similar instruments, which are certain to be called; - with the prior written consent of the JSE any future income or expense which is - known but not yet accrued; and - fully hedged by forward foreign exchange transactions; - with the prior written consent of the JSE any non-trading, structural position deliberately entered into in order to hedge adverse exchange rate movements on the value of the firm's financial resources; - with the prior written consent of the JSE, any position already fully deducted from the firm\'s financial resources; - any other balance sheet asset or liability; and - any other off balance sheet commitment to purchase or sell an asset denominated in that currency. **Treatment of foreign exchange options** **Risk assessment models** A trading member may use, with the JSE\'s prior written approval, a risk assessment model in respect of its foreign exchange options to estimate its notional forward foreign exchange positions, provided the model forms part of the day-to-day management supervision of the trading member\'s options business. Options at least 8% in the money A trading member must include currency positions arising from foreign exchange options in the foreign exchange requirement method if the option is at least 8% in the money, in which case the resulting currency positions must be based on the nominal amount of the contract valued at current spot rates. Options less than 8% in the money - A trading member must calculate, in respect of a foreign exchange option which is less than 8% in the money, its currency positions based on the nominal amount of the contract valued at current spot rates. - Where a currency position would increase the net open position in that currency, the position must be included in the foreign exchange requirement method. - Where a currency position will decrease the net open position in that currency, the position must not be included in the foreign exchange requirement method. **Calculation of \"in the money\"** For the purposes of this rule, a trading member must determine the extent to which the option contract is \"in the money\" by reference to the difference between the exercise price and the current forward rate for the final date on which the option may be exercised as a percentage of the forward rate. **Method of Calculation of Foreign Exchange Requirement** - Calculation of net open position - A trading member must calculate a net open position for all currencies including the currency of the trading member\'s books of account and must translate them to the Rand using the prevailing spot rates. - A trading member must use Method 1 unless it has the written approval of the JSE to use Method 2. *Method 1* A trading member must calculate the foreign exchange requirement as 8% of the higher of - the aggregate of the net open long positions in each currency; or - the aggregate of the net open short positions in each currency. *Method 2* - With the prior written approval of the JSE, a trading member may use simulation techniques to calculate the foreign exchange requirement in respect of all, or some, of the currencies to which it is exposed. - The foreign exchange requirement for the currencies concerned must be calculated in order that -- - it exceeds the losses which would have occurred in at least 95% of the rolling ten working-day periods over the preceding five years; and - it exceeds 2% of the higher of -- - the aggregate of the net open long positions in each currency; or - the aggregate of the net open short positions in each currency.