The notice groups interest rate derivatives by currency, foreign exchange derivatives by currency pair, and commodity derivatives by energy, metals, agricultural products, and other commodities. Credit and equity derivatives each form one hedging set in a netting set1.

Consider a hypothetical example of two yen interest rate swaps. Both fall in the yen interest rate hedging set. Trades in opposite directions offset in effective notional if they fall in the same maturity bucket. A US dollar interest rate swap is in a different hedging set and does not offset against the yen one.

A hedging set is not the same as a netting set. A netting set is the group of trades covered by close-out netting, and it is the unit for offsetting market values.

Notes

  1. Financial Services Agency, "銀行法第十四条の二の規定に基づき、銀行がその保有する資産等に照らし自己資本の充実の状況が適当であるかどうかを判断するための基準" (Standards for determining whether a bank's capital adequacy is appropriate in light of the assets it holds, under Article 14-2 of the Banking Act, our translation; FSA Notice No. 19 of 2006) (in Japanese), Article 79-2, paragraphs 8 to 10 (pages 193–194). Commodities are in paragraph 8, item 5. The total by currency for interest rates is in paragraph 11, item 1 (page 194). ↩