BOT Notification No 4-2548 draft€¦ · BOT Notification No 4-2548 (draft).rtf Page 1 of 40 Unofficial Translation by the courtesy of The Foreign Banks' Association This translation

BOT Notification No 4-2548 (draft).rtf Page 1 of 40

Unofficial Translation by the courtesy of The Foreign Banks' Association

This translation is for the convenience of those unfamiliar with the Thai language.

Please refer to the Thai text for the official version. ------------------------------------------------------------------------

The Bank of Thailand

19 October 2548

To Manager

All Commercial Banks*

No. BOT. ForNorSor. (21) Wor. 4/2548 Re: Bank of Thailand Notification regarding Permission for Commercial Banks to Undertake Structured Derivative Transactions

To continuously support the development of the new financial instruments and to provide clients with additional tools to hedge risks, the Bank of Thailand (BOT) hereby circulate the BOT notification Re: Permission for Commercial Banks to Undertake Structured Derivative Transactions dated 6 October 2005 issued by virtue of Section 9 bis of the Commercial Banking Act B.E 2505 (1962) and its subsequent amendments. The notification permits commercial banks to undertake structured derivative transactions within the scope of transactions and supervisory policy summarized as follows.

1. Commercial banks are permitted to undertake structured derivative transactions within the framework set out by the aforementioned BOT notification published in the Royal Gazette, General Issue, Volume 122, Special Section 114 Ngor dated 14 October 2005. The notification shall become in effect from 15 October 2005 onwards.

2. With reference to the Notification which states that commercial banks wishing to undertake leveraged transactions are required to obtain the permission from the Bank of Thailand prior to undertaking such transaction. For clarification, the BOT hereby sets out that derivative transaction involving leverage of over two times shall require the approval from the BOT on a case-by-case basis.

As such, leveraged financial derivative transactions are not permitted for derivatives stipulated by the BOT to be carried out with counterparties who have underlying position. (Examples for suitability and adequacy test of underlying position are provided in the Attachments)

3. The application to be submitted to the BOT for the approval to undertake structured derivatives transaction on a case-by-case basis shall be directed to the Director of the Financial Institution Applications and Special Examination Department, Supervision Group of the Bank of Thailand.

4. Commercial banks are required to report data on outstanding positions of structured derivatives as at the end of each month by the end of the subsequent month. The first of such report shall be submitted by the end of November 2005, where the data shall be provided in an Excel file according to the standard format set out by the BOT and

* Excluding international banking facilities and retail banks


the file shall be named using the following format, DDMSbbbyyyymmddSDV.xls, where-:

DDMS is a fixed value (if no data in file, use ZDMS)

bbb shall mean reporting bank code, e.g. Bangkok Bank code: 002

yyyy shall mean year of the reporting data, use the 4-digit Christian year, e.g. 2004

mm shall mean month of the reporting data, values from 01 – 12

dd last business day of the reporting month

SDV.xls is a fixed value

Commercial banks shall submit reports through the same channels used to submit Excel data files to the DMS system (Submit Data file), to the Data Management Department, the Bank of Thailand.

5. Commercial banks undertaking the aforementioned transactions must comply with the regulations set out in the Bank of Thailand Notification Re: Prescription of Ratio of Credits Granted, Investments and Contingent Liabilities by a Commercial Bank to Any Person to its Capital Funds dated 29 April 2003 and its subsequent amendments, according to the subcomponents of the transactions (Examples of credit equivalent amount calculations of the transactions are provided in the Attachments). This shall apply until the amendments to the said Notification are completed for the Large exposure supervision that take into account the structured derivative transactions.

6. Commercial banks undertaking the aforementioned transactions must comply with the regulations Re: Market Risk Supervision Policy of Financial Institutions and Related Reports dated 30 December 2003 and its subsequent amendments, and the BOT Notification Re: Stipulation on Maintenance of Capital Funds by Commercial Banks Registered in Thailand or the BOT Notification Re: Stipulation on Maintenance of Capital Funds by Branches of Foreign Banks dated 21 July 2004 and their subsequent amendments according to the subcomponents of the transactions (Examples of the calculations for the required capital maintenance for the transactions are provided in the Attachments). This shall apply until the amendments to the said Notifications are completed for the Capital adequacy supervision that take into account the structured derivative transactions.

7. Commercial banks undertaking the aforementioned transactions must comply with the policy guidelines Re: Policy Guideline for Maintenance of Foreign Exchange Positions dated 21 January 2003 and its subsequent amendments.

Kindly be advised of these contents for your information and compliance.

Regards,

(Tongurai Limpiti)

Senior Director, Financial Institutions Policy Group

for Governor


Attachments 1. Attachment

2. BOT notification Re: Permission for Commercial Banks to Undertake Structured Derivative Transactions dated 6 October 2005

Risk Supervision Policy Department Tel. 0-2283-5307, 0-2283-5302 Remark: [ X ] The BOT will organize a clarification meeting on 1 November 2005 at 9.30

am at the conference room on the 7th floor of Building 3, the Bank of Thailand.

[ ] No clarification meeting has been organized


Guidelines for the Underlying test and Supervision of Structured Derivatives

Topics Covered I. Suitability and Adequacy of the Underlying

II. Supervision regarding Single Lending Limits III. Capital Funds for Counterparty Risk IV. CapitalFunds for Market Risk

Assumption: In the examples herewith -:

- For buying or selling FX forward, assume the client is an exporter, who would receive USD in six months time;

- For Swap transactions, assume the client has USD debt with the obligations to make interest payments calculated from USD LIBOR, where the aforementioned transactions are viewed from the client’s viewpoint;

- THB/USD Spot rate as at the reporting date is THB 40 /USD. Example 1: Seagull Contract

Components

No. Client Commercial Bank

1 Buy USD Put/THB Call @ 41 Notional Amount 1 M$

Sell USD Put/THB Call @ 41 Notional Amount 1 M$

2 Sell USD Call/THB Put @ 43 Notional Amount 1 M$

Buy USD Call/THB Put @ 43 Notional Amount 1 M$

3 Sell USD Put/THB Call @ 39 Notional Amount 1 M$

Buy USD Put/THB Call @ 39 Notional Amount 1 M$

Attachment


Pay-off Diagram for the Client

Pay-off Diagram for the Commercial Bank

I. Suitability and Adequacy of the Underlying

Scenario Exercise Suitability of the

Underlying Required

Underlying

Spot ≤ 39 - Bank exercises Put @ 39 - Client exercises Put @ 41

Offsetting Netting = 0

39 < Spot < 41 Client exercises Put @ 41 Exporter sells USD � 1 M$

41 ≤ Spot ≤ 43 Option is not exercised N/A N/A

Spot > 43 Bank exercises Call @ 43 Exporter sells USD � 1 M$

- In this case, the client must have a minimum Underlying amount of 1 M$


II. Supervision regarding Single Lending Limits (Original Approach)

For calculations of Single Lending Limits for the aforementioned transaction, the credit equivalent amount of such transaction shall be calculated based on the subcomponents of the transaction, which in this example are as follows.

No. Derivatives Notional Amt. CCF Credit

Equibalent Amount

1 Buy USD Call @ 43 1,000,000 x 40 = 40,000,000 0.02 800,000

2 Buy USD Put @ 39 1,000,000 x 40 = 40,000,000 0.02 800,000

Total Credit Equivalent Amount of the Transaction 1,600,000

III. Capital Maintenance for Counterparty Risk

For calculations of capital maintenance for counterparty risk of the aforementioned transaction, the capital required shall be calculated based on the subcomponents of the transaction, which in this example are as follows.

No. Derivatives Notional Amt. CCF RWA Required

Ratio Capital Funds

1 Buy Call @ 43 1,000,000 x 40 = 40,000,000

0.02 50% 8.5% 34,000

2 Buy Put @ 39 1,000,000 x 40 = 40,000,000

0.02 50% 8.5% 34,000

Total Capital Maintenance for Counterparty Risk 68,000

IV. Capital Maintenance for Market Risk

The commercial bank must maintain capital fund against market risks based on the subcomponents of the transaction, which in this example are as follows.

i. USD Put/THB Call @ 41

ii. USD Call/THB Put @ 43

iii. USD Put/THB Call @ 39


Example 2: Forward Plus Contract

Components













Underlying Required

Underlying

Spot ≤ 41 Client exercises Put @ 41 Exporter sells USD � 1 M$

41 < Spot < 45 Bank exercises Call @ 41 Exporter sells USD � 1 M$

Spot ≥ 45 - Bank exercises Call @ 41 - Bank exercises Call @ 45

- Exporter sells USD � - Exporter sells USD �

1 M$ + 1 M$



For calculations of Single Lending Limits for the aforementioned transaction, the credit equivalent amount shall be calculated based on the subcomponents of the transaction, which in this example are as follows.


Equivalent Amount

1 Buy Call @ 41 1,000,000 x 40 = 40,000,000 0.02 800,000

2 Buy Call @ 45 1,000,000 x 40 = 40,000,000 0.02 800,000





Ratio Capital Funds

1 Buy Call @ 41 1,000,000 x 40 = 40,000,000

0.02 50% 8.5% 34,000

2 Buy Call @ 45 1,000,000 x 40 = 40,000,000

0.02 50% 8.5% 34,000




The commercial bank must maintain capital funds against market risks based on the subcomponents of the transaction, which in this example are as follows.



iii. USD Call/THB Put @ 45 Example 3: Coupon Swap and Call Spread (on Principal)

Assume:

Notional Amount THB 100,000,000

USD 2,500,000

Amortized principal over 10 installments of USD 250,000 per installment

Contract maturity is 5 years

Components


1

Coupon Swap - Receive USD LIBOR interest on USD Notional and - Pay THBFIX interest (Semi-Annually) on THB Notional (Fixed rate @ inception)

Coupon Swap - Pay USD LIBOR interest on USD Notional and - Receive THBFIX interest (Semi-Annually) on THB Notional (Fixed rate @ inception)

2 Buy Series of USD Call/THB Put at Strike 40 �/$ (according to the

repayment schedule : assume 0.25 M$ per instalment)

Sell Series of USD Call/THB Put at Strike 40 �/$ (according to the


3 Sell Series of USD Call/THB Put at Strike 42 �/$ (according to the


Buy Series of USD Call/THB Put at Strike 42 �/$ (according to the




Pay-off Diagram for the Commercial Bank.


Coupon Swap

• Client receives USD LIBOR interest on USD Notional • Client pays THBFIX interest on THB Notional (Semi-Annually)

- The client has an obligation to pay USD LIBOR interest; therefore, it’s suitable for client to enter into such transaction. ��

Call Spread on Principal Amount


Underlying Required

Underlying

Spot < 40 Option is not exercised N/A N/A

40 ≤ Spot < 42 Client exercises Call @ 40 Debtor buys USD � 0.25 M$

Spot ≥ 42 - Client exercises Call @ 40 - Bank exercises Call @ 42

Offsetting Netting = 0

- In this case, the client must have a minimum Underlying amount of 0.25 M$ x Number of Instalments for Principal Repayments (2.5 M$)





Equivalent Amount

1 Coupon Swap THB 100,000,000 0.05 5,000,000

2 Buy Call @ 42, maturity 6 mths 250,000 x 40 = 10,000,000 0.02 200,000

3 Buy Call @ 42, maturity 1 yr 250,000 x 40 = 10,000,000 0.02 200,000

4 Buy Call @ 42, maturity 1.5 yrs 250,000 x 40 = 10,000,000 0.05 500,000

5 Buy Call @ 42, maturity 2 yrs 250,000 x 40 = 10,000,000 0.05 500,000








III. Capital Miantenance for Counterparty Risk



Ratio Capital Funds

1 Coupon Swap THB 100,000,000 0.05 50% 8.5% 212,500

2 Buy Call @ 42, maturity 6 mths

250,000 x 40 = 10,000,000 0.02 50% 8.5% 8,500

3 Buy Call @ 42, maturity 1 yr

250,000 x 40 = 10,000,000 0.02 50% 8.5% 8,500

4 Buy Call @ 42, maturity 1.5 yrs

250,000 x 40 = 10,000,000 0.05 50% 8.5% 21,250

5 Buy Call @ 42, maturity 2 yrs

250,000 x 40 = 10,000,000 0.05 50% 8.5% 21,250


250,000 x 40 = 10,000,000 0.05 50% 8.5% 21,250



Ratio Capital Funds


250,000 x 40 = 10,000,000 0.05 50% 8.5% 21,250


250,000 x 40 = 10,000,000 0.05 50% 8.5% 21,250


250,000 x 40 = 10,000,000 0.05 50% 8.5% 21,250


250,000 x 40 = 10,000,000 0.05 50% 8.5% 21,250


250,000 x 40 = 10,000,000 0.05 50% 8.5% 21,250



The commercial bank must maintain capital funds against market risks based on the subcomponents of the transaction, which in this example are as follows.

i. Coupon Swap

ii. USD Call/THB Put @ 40, 10 contracts (6 mths, 1 yr, 1.5 yrs, 2 yrs, 2.5 yrs, 3 yrs, 3.5 yrs, 4 yrs, 4.5 yrs and 5 yrs maturity)

iii. USD Call/THB Put @ 42, 10 contracts (6 mths 1 yr, 1.5 yrs, 2 yrs, 2.5 yrs, 3 yrs, 3.5 yrs, 4 yrs, 4.5 yrs and 5 yrs maturity)


Example 4:

Components






3 Buy Digital Call @ 43 Payoff 3 �/$

(Premium 1 �/$)

Sell Digital Call @ 43 Payoff 3 �/$

(Premium 1 �/$)




Consideration of the Digital Call Option:

• Use a Call Spread with a Strike difference = 25 Basis Points (Buy USD Call @ 43 and Sell USD Call @ 43.25) for replication of a Digital Call

• To obtain a Payoff of 3 �/$ on a Notional Amount of 1 M$, the

aforementioned USD Call Spread is required on a Notional Amount of 12 M$ (3,000,000 / 0.25)

• Therefore, commercial bank’s selling a Digital Call Option @ 43 with a Payoff of 3 �/$ is comparable to commercial bank’s

� Selling a USD Call @ 42.75 Notional amount 12 M$ � Buying a USD Call @ 43 Notional amount 12 M$


Scenarios Option Exercise Suitability of the

Underlying Required

Underlying

Spot < 41 Client exercises Put Option Exporter sells USD � 1 M$

41 ≤ Spot < 43 Bank exercises Call Option Exporter sells USD � 1 M$

Spot ≥ 43 Bank exercises Call Option Client exercises Digital Call

Offsetting 1 M$1





Equivalent Amount

1 Buy USD Call @ 41

1,000,000 x 40 = 40,000,000 0.02 800,000

2 Buy USD Call @ 43

12,000,000 x 40 = 480,000,000 0.02 9,600,000


1 Offsetting between the Digital Option and other Derivatives may be carried out only in terms of the

suitability of the Underlying, but the Netting shall not be permitted between the Notional Amount of the Digital Option and that of other Derivatives with regards to the Underlying amount required for the client to undertake the transaction.



For calculations of capital maintenance for counterparty risk of the aforementioned transaction, capital required shall be calculated based on the subcomponents of the transaction, which in this example are as follows.


Ratio Capital Funds

1 Buy USD Call @ 41

1,000,000 x 40 = 40,000,000

0.02 50% 8.5% 34,000

2 Buy USD Call @ 43

12,000,000 x 40 = 480,000,000

0.02 50% 8.5% 408,000



The commercial bank must maintain capital fund against market risks based on the subcomponents of the transaction, which in this example are as follows.



iii. Digital Call @ 43 Example 5:

Components

No. Clients Commercial Bank





3 Sell Digital Call @ 43 Payoff 3 �/$

(Premium 1 �/$)

Buy Digital Call @ 43 Payoff 3 �/$

(Premium 1 �/$)




Consideration of the Digital Call Option:

• Use a Call Spread with a Strike difference = 25 Basis Points (Buy USD Call @ 43 and Sell USD Call @ 43.25) for replication of a Digital Call

• To obtain a Payoff of 3 �/$ on a Notional Amount of 1 M$, the

aforementioned USD Call Spread is required on a Notional Amount of 12 M$ (3,000,000 / 0.25)

• Therefore, commercial bank’s buying a Digital Call Option @ 43 with a Payoff of 3 �/$ is comparable to the commercial bank’s

� Buying USD Call @ 43 Notional amount 12 M$ � Selling USD Call @ 43.25 Notional amount 12 M$



Scenarios Option Exercise Suitability of the

Underlying Underlying

Amount

Spot < 41 Client exercises Put Option Exporter sell USD � 1 M$

41 ≤ Spot < 43 Bank exercises Call Option Exporter sell USD � 1 M$

Spot ≥ 43 Bank exercises Call Option Bank exercises Digital Call

Exporter sell USD � Exporter sell USD �

1 M$ + 1 M$





Equivalent Amount

1 Buy USD Call @ 41 1,000,000 x 40 = 40,000,000 0.02 800,000

2 Buy USD Call @ 43 12,000,000 x 40 = 480,000,000 0.02 9,600,000



For calculations of capital maintenance for counterparty risk of the aforementioned transaction, capital required shall be calculated based on the subcomponents of the transaction, which in this example are as follows.


Ratio Capital Funds

1 Buy USD Call @ 41 1,000,000 x 40 =

40,000,000 0.02 50% 8.5% 34,000

2 Buy USD Call @ 43 12,000,000 x 40 =

480,000,000 0.02 50% 8.5% 408,000




The commercial bank must maintain capital fund against market risks based on the subcomponents of the transaction, which in this example are the following three derivatives.



iii. Digital Call @ 43


Bank of Thailand Notification

Re: Permitting Commercial Banks to Undertake Structured Derivative Transactions

1. Rationale of Notification

The Bank of Thailand previously issued a circular No. Thor por tor

For.Sor.Wor. (21) Wor 1300/2548 dated 20 July 2005 permitting commercial banks to

undertake plain vanilla derivatives. However, other derivative transactions, deemed by the

Bank of Thailand as structured derivatives, required approval on a case by case basis. At

the present, it is time to issue the general guideline permitting commercial banks to

undertake some structured derivative transactions in order to continuously support the

development of the financial derivatives, providing additional tools for efficient risk

management. This guideline shall also provide clarity and understanding of the policies

regarding structured derivatives and promote fairness in carrying out financial institution

business. The Bank of Thailand, therefore, issued this Notification to set out the types

and scope of the structured derivative business commercial banks shall be permitted to

undertake.

2. Statutory Power

By virtue of Section 9 bis of the Commercial Banking Act B.E. 2505 (1962)

and its amendments, the Bank of Thailand permits commercial banks to undertake

structured derivative transactions based on the type and scope set out in this Notification.

3. Scope of Application

This Notification shall be applied to all commercial banks under the law

governing commercial banking, except international banking facilities and retail banks.

4. Contents

4.1 Principles

Commercial banks may carry out structured derivative transactions set out in

Section 4.2, where transactions must comply with the following five principles.

(1) Commercial banks must be able to efficiently manage the risks

associated with the transactions.

(2) Commercial banks shall not propose such transactions to clients in

such a way that encourage speculation in foreign exchange, foreign interest rates or

foreign financial indices, which are not beneficial to the economy and may have a

detrimental impact on the stability of the domestic financial systems as well as financial

institutions system.


(3) Commercial banks must prepare sufficient documentation as evidence

of transactions for examination purposes, and summit report regarding the transactions in

the formats set out by the Bank of Thailand.

(4) Commercial banks must clearly explain the characteristics and risks

associated with the transactions to ensure client understanding, and provide the evidence

that the bank has performed the client’s suitability analysis

(5) In cases where transactions are carried out by overseas branches of the

Thai commercial banks, the commercial banks must comply with the business framework

and supervisory guidelines of the country where the branches are located, and must also

comply with BOT regulations set out in sections 4.3, 4.5, 4.6, and 4.8.

4.2 Permitted Financial Derivatives

The Bank of Thailand permit commercial banks to undertake structured

derivatives inwhich the referenced variables are interest rate, exchange rate, or financial

indices1 calculated from interest rates or exchange rates, as follows.

(1) The structured derivatives as listed in the Attachment 1, which the

BOT considered appropriate for commercial banks to undertake and may be classified as

follows.

(a) Packaged Vanilla Derivatives, which are combinations of plain

vanilla derivatives2, for example, Collars.

(b) Barrier Derivatives, which are derivatives that set up the barrier

levels in order to consider the validity of the contract, for example, Knock-In Forwards or

Knock-Out Forwards.

(c) Derivatives which are a combination of plain vanilla derivatives,

Barrier Derivatives, and/ or digital options3, for example, Range Bonus Forwards.

(d) Average Rate Options, contracts to buy or sell an underlying asset

in future, where the profit or loss of the contract would be equal to the difference between

the average underlying asset price over the specified time period and the strike price set in

1 The financial indices, calculated from exchange rate and/ or interest rate parameters, must comply with the following conditions.

(a) Financial indices were developed by trustworthy institutions; (b) Financial indices are widely used in Thailand or international markets; (c) Financial indices have continuous daily quotation through real time information provider; and (d) Financial indices whose calculation methods are clearly set out, detailing data sources of the

variables and the factors applied in the calculations. As such, the variables and factors used must move freely according to the market forces with no single individual being able to influence the movements of the variables, factors, or financial indices.

2 Plain vanilla derivatives include Foreign Exchange Forward Contracts, Currency Futures, Foreign Exchange Swaps, Cross Currency Swaps, Currency Options (Put and Call), Interest Rate Swaps (including Interests Rate Swaps in Arrears), Basis Swaps, Interest Rate Futures, Forward Rate Agreements, and Interest Rate Options (Cap and Floor). 3 Derivative contracts which specify fixed payoffs would be paid if the asset price behave following the conditions set out in the contract.


advance, for example, Average Put Options. Average Strike Options, contracts which

their strike prices were set at the average asset prices over the specified period; for

example, Average Strike Calls.

(2) Structured derivative transactions in section 4.1 (1) which give the

right to the customer or to the commercial bank to cancel the contract prior to maturity or

give them the right to extend the contract beyond its maturity (Cancellable or Extendable

Options).

(3) Plain Vanilla Derivatives which give the right to the customer or to the

commercial bank to cancel the contract prior to maturity or give them the right to extend

the contract beyond its maturity (Cancellable or Extendable Options).

(4) Loans proposed in conjunction with the aforementioned derivatives in

sections 4.2 (1) – (3).

Commercial banks who wish to undertake derivative transactions other

than those set out, or derivative transactions of the type specified in section 4.2 (1)-(4)

with maturities over 10 years, or derivative transactions involving several times

leveraging specified by the BOT, must submit application for the BOT approval on a case

by case basis. Where the BOT does not make any objection to the application within 15

business days upon receiving the application together with the complete and accurate

documents from the commercial bank, it shall be deemed that the commercial bank is

permitted to undertake the requested transactions. However, the Bank of Thailand may

order the commercial bank to cease undertaking the said derivative transactions should it

become apparent that the said transactions are inconsistent with principles and

transactions framework set by the BOT.

Any commercial bank with queries or doubts regarding whether derivative

transactions it wishes to undertake are within the BOT’s permitted framework should

confer with the BOT prior to undertaking such transactions.

4.3 Requirements regarding Risk Management

Commercial banks must have risk management systems, which are efficient,

appropriate, and consistent with the characteristics, quantity, and complexity of

transactions as follows.

(1) Commercial banks’ board of directors or management committee with

relevant authority and responsibility, in case of foreign banks’ branches, must understand

the transactions and associated risks. Sub-committees and high level management

designated to supervise such transaction must be knowledgeable and have in-depth

understanding in the transactions and the associated risks. They must also closely monitor

to ensure that the transactions are carried out in accordance with an approved policy and

place a priority to risk management of these transactions.


.

(2) Commercial banks must clearly specified policies, strategies, and

procedures in conducting the transaction, managing the associated risks, and carrying out

internal control, in a written form.

(3) The aforementioned Policies and risk management must be approved

by the bank’s board of directors or management committee with the relevant authority

and responsibility, in the case of foreign bank branches. Additionally, every policy

change must be approved by the board of directors or the said management committee

while the strategies and procedures for undertaking transactions, managing the associated

risks, and internal controls must be approved by the subcommittee responsible for

overseeing such business transaction.

(4) Commercial banks must have an independent risk management unit to

assess, monitor, control, and supervise their overall risk management. The risk

management reports must be made directly to the board of directors via the risk

management committee on a regular basis. In case of foreign banks’ branches, the risk

management unit may be established at the regional office, but the reports must be made

regularly to a unit designated by the head office.

(5) Commercial banks must allocate sufficient resources to efficiently and

comprehensively accommodate the transaction. The resources must be adequately

knowledgeable, insightful, with appropriate expertise and experience..

(6) Commercial banks must be confident that internal control and risk

management systems are efficient. As such, internal control and risk management

measures must -:

(a) reflect and accommodate all the risks from the transactions. The

focus should be put on the efficiency of management system of interest rate risk, foreign

exchange risk, risks resulting from options transactions (e.g. delta, vega, gamma, theta,

and rho), liquidity risk and credit risk, including also pre-settlement risk and settlement

risk. Commercial banks must have risk measurement system that can clearly, accurately,

and precisely reflect the associated risks and each type of risks.

(b) be implemented to control the risks in practice, and the proper risk

management approaches, for example, Delta/ Gamma/ Vega-hedging, and Dynamic/

Static Replication Portfolios, shall be selected to cope with the risks of the commercial

banks. Additionally, Limits must be established in congruent with their relevant risk

management system, operation procedures, and capital positions.

(c) Commercial banks must set the appropriate and clear guidelines

and procedures for assessment of the fair value (mark to market) which can reflect the

actual market value. The assessment of fair value (marking to market) of the outstanding

balance must be made at the end of every business day.


(d) A test to ensure the efficiency, accuracy, and preciseness of the risk

management system must be carried out within an appropriate timeframe, for example,

back testing and stress testing of the value at risk model (VaR) must be conducted

regularly.

The Bank of Thailand shall grant the exemption regarding risk

management systems requirement under Section 6 (a), (b), and (d) in cases where

commercial banks employ back to back risk management method. The exemption shall

end on 31 December 2008. Additionally, the alleviation regarding the mark-to-market of

structured derivatives under Section 6 (c) are also granted to those employ back-to-back

risk management method but the commercial banks shall perform mark-to-market at least

for every publicly disclosed financial statements. This shall end on 31 December 2007.

During these periods, however, commercial banks should prepare to implement the risk

management systems in accordance with the aforementioned risk management

requirement.

(7) In undertaking Barrier Derivative transactions or the transactions that

comprise barrier derivatives and/or digital options, commercial banks must carry out

back to back risk management method for the barrier derivatives and/or digital options

unless otherwise stipulated by the Bank of Thailand.

(8) Commercial banks must ensure that the internal control system can

support such transactions in an efficient, adequate, and appropriate manner. Clear and

written rules and procedures on internal control as well as proper controlling structure and

segregation of duties must be in place. The internal control system and the practice of

internal control measures shall be monitored regularly. In addition, the bank shall have in

place the information system for risk reporting and the risk reports shall be submitted to

an audit committee or a unit designated from the head office (in case of foreign banks’

branches), whereby such unit may be at the regional office.

4.4 Requirements regarding Prevention of Speculation

(1) Commercial banks are permitted to undertake structured derivative

transactions within the following scope:


Counterparty

FX licensed 4

Institutional Investor 5

Individual Non-

resident6

Domestic reference interest rates (A) (A) (A) (E)

Foreign reference interest rates (A) (B) or (C) or

(D) (B) or (D) (E)

Indices calculated from foreign reference interest rates

(A) (B) or (C) (B) (E)

Foreign exchange rates (A) (B) (B) (E)

Indices calculated from foreign exchange rates

(A) (x) (x) (E)

Where -:

(A) Commercial banks may undertake structured derivative

transactions referenced to the specified variable with the specified counterparty without

required underlying, except in the cases where the counterparty is a natural person where

transactions may be undertaken only to hedge the client’s risks from existing underlying

positions.

(B) Commercial banks may undertake structured derivative

transactions referenced to the specified variable with the specified counterparty only if the

said counterparty has an underlying position which is an obligation to obtain or to deliver

foreign currency of the same currency of which its term is consistent with the conditions

in the derivative contract or obtain permission from the Competent Officer on a case by

case basis.

Derivative transactions referenced to foreign exchange rates must

be settled by physical delivery of the foreign currency stated in the contract.

(C) Commercial banks may undertake structured derivative

transactions referenced to the specified underlying variable with the specified

counterparty only for swap transactions which do not involve an exchange of the

principals and are settled in Thai Baht. However, the commercial bank must ensure that

the counterparty has the investment in debt instrument and the investment will be held

throughout the life of the swap transaction.

4 Refers to permitted legal entities as specified under the Exchange Control Act 5 Refers to institutional investors following Attachment 2. 6 Refers to non-residents as specified under the Exchange Control Act.


(D) Commercial banks may undertake Quanto Interest Rate Swap

transactions referenced to the specified variable with the specified counterparty where the

counterparty must have Thai Baht-denominated debt as the underlying.

(E) Commercial banks may undertake transactions referenced to the

specified variable with the specified counterparty, where the transactions must not violate

the laws and regulations under the Exchange Control Act and BOT’s Measures to prevent

Thai Baht speculation.

(X) Commercial banks may not undertake transactions referenced to

the specified variable with the specified counterparty.

The Bank of Thailand may order the commercial bank to cease its

undertaking of a certain type of the structured derivative, or stipulate additional

conditions, if the BOT consider that the undertaking of the said transaction is not in line

with the Principles.

(2) In undertaking structured derivative transactions, commercial banks

shall comply with the rule on currency denomination of a transaction as follows:

(A) In the case of transactions with residents, settlement must be

carried out only in Thai baht, except for those dealt with authorized juristic person under

the exchange control law, which can be settled either in Baht or foreign currency;

(B) transactions with non-residents must be in foreign currency only,

however, transactions may be carried out in Thai baht only if the transactions are not

inconsistent with BOT’s Measures to prevent Thai Baht speculation.

(3) In carrying out transactions in Section 4.2 concerning exchange rates or

transactions involving settlement in foreign currency which is restricted by the

underlying requirement under Section 4.4 (1), where underlying is defined as obligation

to obtain or to deliver foreign currency, commercial banks may undertake transactions

only to provide hedging7 to the clients. The underlying must be considered according to

the following guidelines.

(a) Carrying out the transactions must result in the client’s hedging

against their risks in every scenario.

(b) Commercial banks must undertake transactions which are not in

excess of clients’ current underlying, considering all possible scenarios which may occur.

(c) In analysing (a) and (b), netting of derivative transactions within

the same scenario is permitted.

(d) The term of the structured derivative contract must be consistent

with that of the client’s underlying position.

7 Hedging against risks, refers to carrying out transactions whose risk profile is the reverse of the existing positions, or transactions which materially reduce or limit the risk of losses from existing positions when the underlying price moves in an adverse direction to the said positions.


To undertake the transactions with counterparties who have the obligation to obtain or

deliver foreign currency, commercial banks must request for the documents from the

clients indicating the underlying obligation to obtain or deliver foreign currency in the

future. The amount of foreign currency and the maturity date of such structured

derivatives transactions shall not exceed the amount and the payment dates specified in

the documents.

(4) Undertaking transactions according to Section 4.2, including the

hedging of the risks arising from those transactions in Section 4.2, must be in compliance

with the Exchange Control Law and the relevant regulations and the BOT’s Measures to

prevent Thai Baht speculation.

4.5 Data Management and Reporting

(1) Commercial banks undertaking transactions under Section 4.2 must

record and keep transactions data, including the reference number, trade date, maturity

date, transaction type, counterparty, reference variables, components of the transaction

and position of each derivative component8, transaction currency, contractual amount, the

Thai baht-equivalent amount, the delta equivalent or fair value of the transaction. Data

shall be stored in computerize form using the report formats set by the Bank of Thailand

(Attachment 3). Commercial banks have to summit such report to the Bank of Thailand

on a monthly basis by the last day of the following month, through channels to be set by

the Bank of Thailand. Additionally, documentary evidence of the transactions shall be

kept at the commercial bank for the Bank of Thailand examinations or for submiting to

the Bank of Thailand upon request.

(2) When offering the transaction under Section 4.2 for the first time, or

changes are made to the components of the transaction, commercial banks must submit

details of such transaction to the Bank of Thailand within 15 business days from the trade

date, reporting the characteristics of the transaction including components of the

transaction, the term sheet, and risk management methodologies. The Bank of Thailand

may order the commercial bank to cease undertaking such transactions if the Bank of

Thailand determines the transaction is inconsistent with the principles and scope set out

by the Bank of Thailand.

4.6 Providing Information to Clients

(1) Prior to undertaking transactions set out in Section 4.2 with the

counterparties that are not commercial banks, the commercial bank have to perform client

suitability analysis according to the guidelines which shall be set out by the Bank of

8 The position of each derivative component refers to the commercial bank’s position with regards to each derivative component as the buyer/ seller, receiver/ payer.


Thailand. Additionally, commercial bank shall keep evidence to prove that the bank has

carried out such analysis.

(2) Commercial banks undertaking transactions set out in Section 4.2 must

clearly explain the nature of the transactions and the associated risks to the clients. The

information to be disclosed to the clients must be in accordance with the requirement to

be set out by the Bank of Thailand.

4.7 Undertaking Transactions by Thai Commercial Banks Abroad

The transactions undertaken by overseas branches of Thai commercial

banks shall be subject to the supervisory regulations of the country where the branches are

located, and must comply with the guidelines specified in Sections 4.3, 4.5, 4.6, and 4.8

of the Notification.

4.8 Other Requirements

(1) Commercial banks that undertake structured derivative transactions

must ensure that the contracts are legally enforceable and must comply with the

supervisory guidelines governing the transactions as prescribed by the Bank of Thailand

(2) Commercial banks that undertake structured derivative transactions

must record the transactions and disclose the information in accordance with the

accounting standard and the international practice.

4.9 Procedures in the Cases where a Commercial Bank has Previously

Gained Permission to Undertake Structured Derivative Transactions on a Case by

Case Basis

Commercial banks which have received permission to undertake

structured derivative transactions on a case by case basis prior to the effective date of this

Notification shall comply with this Notification. With regards to the transactions

previously permitted on a case by case basis, if these transactions are not in-line with the

scope set in this Notification, commercial banks could no longer undertake such

transactions. For the transactions carried out previously, banks are permitted to hold these

transactions until the maturity of the contract, where banks may not extend the maturity

without permission from the Bank of Thailand on a case by case basis.

4.10 Changes of the Scope of Structured Derivative Transactions

Permitted to Commercial Banks

In the future, the Bank of Thailand may have a necessity to review and

amend supervisory guidelines regarding the undertaking of structured derivative


transactions of commercial bank as deem appropriate, under the principle framework in

Section 4.1.

5. Effective Date

This notification shall come into force from the day following the

announcement date in the Government Gazette.

Notified on 6 October B.E. 2548.

(M.R. Pridiyathorn Devakula)

Governor

Bank of Thailand


Attachment 1

Permitted Structured Derivative Transactions

Collar

The transaction created from a combination of a long call option and a short put

option, or a long put option and a short call option on the underlying asset such as on

foreign exchanges, interest rates, and financial indices. The strike rate of the call option

and out option may not be equal. In most cases, Collars are carried out with zero cost,

which no fees will be charged as the fee required for buying the call or put option is offset

by the fee received from selling the put or call option.

Spread

The transaction created from a combination of a long and a short call option, or a

long and a short put option on the underlying asset such as on foreign exchange, interest

rates, and financial indices. The long and the short position, on either call or put options,

have different Strike Rates, and the notional amounts of the long and short position, on

either call or put options, may not be equal.

Seagull

The transaction created from a combination of a Collar and a short call option in

the case of the long call option under Collar, or a combination of a Collar and a short put

option in the case of the long put option under Collar.

Participating Forward/Options

The transaction created from a combination of a long call option and a short put

option, or a long put option and a short call option on the underlying asset, such as on

foreign exchanges, interest rates, and financial indices. The call option and the put option

may have the same Strike Rate ([Participating] Forward) or they may not ([Participating]

Options), however, the notional amounts are unequal resulting in a partial hedge of risks

for the client.

Coupon Swap

A type of Cross Currency Swap, where no principal exchange required;

therefore, such transaction is an agreement between two counterparties to exchange two

streams of interest cash flows calculated from the interest rate of the different currencies.


Average Rate Option / Average Strike Option

The transaction that gives the buyer the right to buy (Call option) or sell (Put

option) an underlying asset such as foreign exchange, interest rates, and financial indices

in future. In case of Average Rate Option, the profit or loss from the contract would be

equal to the difference between the average underlying asset price over a specified time

period and the strike price set in advance. In case of Average Strike Options, its strike

price was set at the average asset price over a specified period.

Par Forward

An agreement to buy or sell series of foreign currency at different point of time in

the future, where the client agrees to buy or sell foreign currency under the agreement, at

one particular forward rate applicable for all cashflow exchanges.

Interest Rate Swaption

The transaction that gives the buyer the right to enter into the interest rate swap

transaction with the seller, according to the terms and conditions set out in the contract at

origination.

Arrears Fixing and Average rate Swap

A Cross Currency Swap or Interest Rate Swap contract where the floating interest

rate is fixed using the interest rate quoted at the end of the interest calculation period

(generally, 2 days before the Interest Payment Date), differing from an ordinary Interest

Rate Swap inwhich the interest rate is fixed using the rate quoted at the beginning of the

interest calculation period. In case of Average Rate Swap, the floating interest rates may

be set as follows.

Average Advance, use the average daily interest rate over a set time interval

specified at the beginning of the period.

Average Arrears, use the average daily interest rate over a set time interval

specified at the end of the period.

Average Fixing, use the average interest rate over each interest calculation period.

Quanto Interest Rate Swap

An Interest Rate Swap for which the floating interest rate and the Notional

principal are in different currencies.


Interest rate-linked FX Forward

An agreement to buy or sell foreign currency in the future, where the client longs

or shorts Interest Rate Options (such as cap and/or floor and/or digital option on Interest

Rate) which will result in a more favourable exchange rate than normal rate should

underlying interest rates move according to his expectations.

Cross Currency Swap with Currency Options

A type of Cross Currency Swap where the client also longs or shorts Currency

Options in order to achieve the more favourable exchange rates than normal rate should

underlying exchange rates move according to his expectations.

Knock In Option

The purchase or sale of an Option (Call/Cap/Put/Floor) where there are additional

limitations on exercising option rights compare to the plain vanilla option. That is, at the

origination, the derivative does not give the option buyer the rights to buy or sell the

underlying asset such as foreign exchange, interest rate, or financial index at a future date

at the pre-specified rate. However, if the underlying price moves higher, lower, within, or

outside the Barrier(s) (depending on the agreed conditions) over the observation period,

the option buyer shall have the rights to buy or sell the underlying asset at the pre-

specified strike rate in accordance with the terms of the contract. As such, the above

conditions will lower the premiums of this option contract.

Knock In Forward

A synthetic forward/forward bought or sold on the underlying asset such as

foreign exchange, interest rate, or financial index whereby some additional limitations

apart from those of the plain vanilla option or forward agreement were included. That is,

on the transaction date, the contract does not give the counterparties the rights or

obligation to buy or sell the underlying asset in the future. However, if the underlying

price moves higher, lower, within, or outside the Barrier(s) (depending on the agreed

conditions) over the observation period, the counterparties must abide by the terms of the

contract to buy or sell the underlying asset in the future at the pre-specified strike rate.

Knock Out Option


The purchase or sale of an option (call/cap/put/floor) where there are additional

limitations on exercising option rights compare to the plain vanilla option. That is, the

contract is effective from the origination where the buyer has the rights to buy or sell the

underlying asset such as foreign exchange, interest rate, or financial index. However, if

the underlying market price moves higher, lower, within, or outside the Barrier(s)

(depending on the agreed conditions) over the observation period, the aforementioned

option will immediately be terminated and the buyer shall no longer have the rights to buy

or sell the underlying asset in the future at the pre-specified strike rate. As such, the

above conditions will lower the premiums of this option contract.

Knock Out Forward

A synthetic forward/forward bought or sold on the underlying assets such as

foreign exchange, interest rate, or financial index whereby some additional limitations

apart from those of the plain vanilla option or forward agreement were included. That is,

The contract is effective from the origination where the counterparties have the

rights or obligation to buy or sell the underlying asset. However, if the underlying market


conditions) over the observation period, the contract will become terminated and the

buyer or seller shall no longer be able to buy or sell the underlying asset in the future at

the pre-specified strike rate.

Knock-In/Knock-Out Option

The purchase or sale of an option (call/cap/put/floor) where there are additional

limitations on exercising the option rights compared to plain vanilla option transaction as

follows;.

- On the transaction date, the derivative does not give the option buyer the

rights to buy or sell the underlying asset such as foreign exchange, interest rate, or financial

index in the future. However, if the underlying market price moves higher, lower, within,

or outside the Barrier(s) (depending on the agreed conditions) over the observation period,

the option buyer shall have the rights to buy or sell the underlying asset in the future at the

pre-specified strike rate in accordance to the terms of the contract.

- If, the underlying market price moves higher, lower, within, or outside

another Barrier(s) (depending on the agreed conditions) over the observation period or at

the maturity of the contract, the aforementioned option to buy or sell the underlying asset

shall immediately become terminated and the buyer shall no longer have the right to buy or

sell the underlying asset in the future at the pre-specified strike rate.


Additionally, the contract may or may not set additional conditions that the

options would only be knocked out after it had already been knocked in.

Knock-In/Knockout Forward

A Synthetic Forward/ Forward bought or sold on the underlying asset such as

foreign currency, interest rate, or financial index, whereby some additional limitations

apart from those of the plain vanilla option or forward agreements were included as

follows;

- On the transaction date, the contract does not give rights or oblige the

counterparties to buy or sell the underlying asset in the future. However, if the underlying


conditions) over the observation period, the counterparties must abide by the terms of the

contract to buy or sell the underlying asset in the future at the pre-specified strike rate..

- If the underlying price moves higher, lower, within, or outside another

Barrier(s) (depending on the agreed conditions) over the observation period, the contract

shall immediately become terminated and the buyer or seller shall no longer be able to

buy or sell the underlying asset in the future at the pre-specified strike rate.

Additionally, the contract may or may not set additional conditions that the

options or forward would only be knocked out after it had already been knocked in.

Range Bonus Forward

An agreement to buy or sell the underlying asset such as a foreign currency,

interest rate, or financial index in the future, where the client obtains more favourable

rates than the market rates if the foreign exchange rate, interest rate, or financial index

moves within the agreed Range(s) over the observation period. However, if the foreign

exchange rate, interest rate, or financial index moves outside the agreed Range(s) over the

observation period, the client shall buy or sell the underlying asset at the unfavourable

rates compared to the market rate. Range Forwards may be created from a combination of

Plain Vanilla Option(s) and Barrier Option(s), of Plain Vanilla Option(s) and Digital

Option(s), or combinations of the Barrier Options themselves or of the Plain Vanilla

Derivatives themselves.

Alternative Synthetic Forward

A contract created from a combination of long and short Knock-Out Options

resulting in a Synthetic Forward at one strike price, and long and short Knock-In Options


resulting in another Synthetic Forward at the different strike price, while the Barriers are

set at the same level.

Boosted Spot

A contract where the client agrees to buy or sell spot foreign exchange at a more

favourable exchange rate than the prevailing market rate, on the condition that if the

exchange rate moves in accordance with certain set conditions over a observation period,

the client must buy or sell a specified amount of foreign currency at an exchange rate

specified under the contract which will typically result in a loss for the client.

Boosted Forward

A contract created from a combination of a long Knock –Out Call Option and a

short Put Option on a foreign currency, enabling the client to exchange foreign currency

at a more favourable exchange rate than the Outright Forward Rate. However, if over

observation period, the exchange rate moves higher or lower than the Barrier(s)

depending on the conditions agreed upon, the client may have to buy foreign exchange at

the Spot Rate or at the Strike Rate of the Put Option sold to the financial institution.

Or a contract created from a combination of a long Knock –Out Put Option and a

short Call Option on a foreign currency, enabling the client to exchange foreign currency

at a more favourable exchange rate than the Outright Forward Rate. However, if over

observation period, the exchange rate moves higher or lower than the Barrier(s)

depending on the conditions agreed upon, the client may have to sell foreign exchange at

the Spot Rate or at the Strike Rate of the Call Option sold to the financial institution.

Forward Extra

The contract is created from a combination of a long Call Option on foreign

currency and a short Knock-In Put Option, or a long Put Option on foreign currency and a

short Knock-In Call Option providing the fully hedge for the customer, resulting in

customer buying or selling foreign currency at more favourable exchange rates than the

Outright Forward Rate over certain ranges of the exchange rate, and a less favourable

exchange rates than the Outright Forward Rate over other ranges of the exchange rate.

Accumulated Boosted Forward (ABF)

A contract where the client agrees to buy or sell foreign currency at an agreed

Strike Rate more favourable than the Outright Forward Rate whereby the Principal

Amount which the client shall buy or sell on maturity of the contract shall be calculated


from the daily accumulated amount based on the conditions agreed upon. That is, when

the spot rate moves higher, lower, inside, or outside the Barrier(s) (depending on the

conditions agreed upon), the amount of foreign currency the client may buy or sell at the

Strike Rate shall be accumulated. However, if the spot rate touches the Barrier level set

out in the contract over the observation period, the contract shall be terminated and the

client shall be able to buy or sell foreign currency of the amount equal to the previously

accumulated amount.

Protected Accumulated Boosted Forward (PABF)

The contract has the same characteristics as the ABF, however for PABF, the

daily accumulated amount may be accumulated for each day the spot rate moves higher,

lower, inside, or outside the Barrier(s) (depending on the conditions agreed upon). If any

day the spot rate touches the Barrier level there shall be no accumulation for that day, but

the contract shall not be terminated and accumulation may start again the following day,

until the maturity of the contract.

Interest Rate Option with Interest Rate Option/Digital Option on Interest Rate

The contract is created from a combination of (1) An Interest Rate Option (Interest

Rate Cap or Interest Rate Floor) and an Interest Rate Option (Interest Rate Cap or Interest

Rate Floor), or (2) Interest Rate Option(s) (Interest Rate Cap and/or Interest Rate Floor)

and a Digital Option on Interest Rate, resulting in a more favourable interest rate for the

client than the market rate if interest rates move in accordance with his expectations.

Cross Currency Swap/Interest Rate Swap with Interest Rate Option/Digital Option

on Interest Rate

The contract is created from a combination of (1) Cross Currency Swap or Interest

Rate Swap and an Interest Rate Option (Interest Rate Cap or Interest Rate Floor), or (2)

Cross Currency Swap or Interest Rate Swap and Digital Option on Interest Rate, or (3)

Interest Rate Option (Interest Rate Cap or Interest Rate Floor) and Digital Option on

Interest Rate, or (4) Cross Currency Swap or Interest Rate Swap, Interest Rate Option

(Interest Rate Cap or Interest Rate Floor) and Digital Option on Interest Rate, resulting in

a more favourable interest rate for the client than the market rate if interest rates move in

accordance with his expectations.

Knock Out Interest Rate Swap/Cross Currency Swap


A contract regarding the exchange of interest rates or foreign currency, with the

limitations apart from those of the general obligation to exchange interest rate payments.

That is, the contract shall be effective from the origination, however, if the interest rate

moves higher, lower, within, or outside the agreed Barrier(s) (depending on the

conditions set out) over the observation period, the contract shall immediately be

terminated and the counterparties shall no longer be obliged to exchange interest rate

payments under the terms of the contract.

Compound Option (Option on Option)

A contract gives the buyer the right to buy or sell a Call Option or a Put Option on

the underlying asset such as on foreign currency, interest rate, and financial index, at the

pre-specified Strike Price.


Attachment 2

List of Institutional Investors

1. Commercial banks

2. Finance companies

3. Securities companies

4. Credit foncier companies

5. Insurance companies

6. Life assurance companies

7. Juristic persons established under specific laws

8. The Bank of Thailand

9. Government agencies and state enterprises under the laws governing budget procedures

10. The Financial Institutions Development Fund

11. The Government Pension Fund

12. Provident Funds

13. Mutual Funds

Remarks Institutional investors subject to supervision of other authority must also be approved by such authority to conduct the aforementioned transactions.


Attachment 3 999-Finance Bank Public Limited Company Structured Derivatives Outstanding Report

For the Reporting Period Ending 31 xxxx 2005

Transaction Date Counterparty Reference

Amount Effective

Purpose Variables Original

Notional Ref. No.

Trade Date Value Date Maturity

Type of Product

Type Name

Deliver Derivatives

Currency Amount

Baht Equivalent

Delta Equivalent or MTM

Max. Delta Equivalent or MTM

Notes

DL-6813

2/10/2005 4/10/2005 4/2/2006 Seagull Juristic person

Example Limited Company

Customer's Hedging

FX Physical

- Buy USD Put/THB Call @ K1 USD 1 m. - Sell USD Call/THB Put @ K2 USD 1 m. - Sell USD Put/THB Call @ K3 USD 1 m.

USD 1,000,000 41,200,000 1,000,000 1,236,000 1,250,000

Total Outstanding 41,200,0000 1,000,000 1,236,000 1,250,000

Remarks: Banks shall also report transactions traded and expired within the reporting period

Name of Reporting Person : ……………………………… ………………………………… Tel: ……………………………… (……………………………….) Email: ……………………………… I hereby certify that the above information is correct and complete. Date ………………………….


Instruction for Structured Derivatives Report

1. Reference Number: Report the reference numbers of the transaction, such as, the account number, confirmation number, or contract number. 2. Transaction Date: Report the trade date, value date, and maturity date of the contracts in the form of, DD/MM/YY. 3. Types of Product: For permitted structured derivative transactions set out by the BOT in the attachment of this notification, report the transaction type or name of transaction according to descriptions of approved structured derivative transactions attached to the Notification. For other structured derivative transactions, report the transaction type or the name by which the derivative is widely known. 4. Counterparty: Specify the type and the name of the counterparty in the following categories.

4.1 Commercial banks 4.8 Government pension funds 4.2 Finance companies 4.9 Private funds 4.3 Securities companies 4.10 Juristic person (include Insurance

Companies) 4.4 Credit foncier companies 4.11 Natural persons 4.5 Life assurance companies 4.12 Non-residents 4.6 Mutual funds 4.13 Others 4.7 Provident funds

5. Purpose: Report the purpose of the transactions calssified into the following categories.

5.1 Bank’s Hedging: To hedge against the commercial bank’s own risks. 5.2 Bank’s Trading: For the commercial bank’s own trading purposes. 5.3 Customer’s Hedging: To provide instrument for hedging against all the

clients’ risks. 5.4 Customer’s risk management + cost reduction: To reduce clients’ risk

management costs. 5.5 Customer’s yield enhancement: To enhance returns to clients. 5.6 Customer’s Trading: For clients’ investment purposes. 5.7 Other (Please state in Remarks)

6. Reference Variables: Specify the type of reference variables in the following categories.

6.1 Domestic reference interest rates 6.2 Foreign reference interest rates 6.3 Indices calculated from foreign reference interest rates 6.4 Foreign exchange rates 6.5 Indices calculated from foreign exchange rates 6.6 Domestic reference interest rates and foreign exchange rates 6.7 Foreign reference interest rates and foreign exchange rates 6.8 Others (Please state in Remarks)


7. Delivery: Specify if the transaction involves physical delivery or cash settlement. 8. Derivatives: Provide details of each derivatives subcomponent of the structured derivative’s transaction, stating the commercial bank’s status with regards to each derivative component as buyer, seller, receiver, and/or payer. 9. Original Currency and Amount of the Transaction: Report the currency and transaction amount. 10. Baht Equivalent: Report the Baht-equivalent transaction amount by using the exchange rate announced by the Bank of Thailand on the BOT website as at the reporting date, for which the Mid-rates between the average buying rate via telex (T/T) and the average selling rate should be used. 11. Effective Notional: Report the sum of the Notional Amount of derivative components used to calculate the best payoff to be received by the commercial bank. 12. Delta Equivalent or MTM/Maximum Delta or MTM (in case of the short position in foreign currency, use the negative sign (-))

- Report the value equivalent to cash positions of currency options (Delta equivalent) arising from the transaction as at the reporting date, and the maximum delta equivalent value of such contract compare to the values on every reporting date from the origination, or

- Report the value derived from marking to market values of all derivative subcomponents as at the reporting date, and the maximum mark-to-market value compared to the value on every reporting date from the origination.

Remarks: 1. Reported data shall be organized by the trade date.

2. Reports shall include transactions carried out and expired within the reporting period.

3. Please state the names of officials responsible for the reports including telephone numbers and email addresses where they may be contacted.

Documents

BOT Notification No 4-2548 draft€¦ · BOT Notification No 4-2548 (draft).rtf Page 1 of 40 Unofficial Translation by the courtesy of The Foreign Banks' Association This translation