(a) Overview

56. The common minimum framework represents a baseline of information that the Committees have identified as important for supervisors to begin assessing the nature and scope of an institution's derivatives activities and how derivatives contribute to an institution's overall risk profile. Based on considerations such as an institution's size and business activities, supervisors may wish to supplement the information of the common minimum framework with other information drawn from the catalogue presented in the previous section. It is expected that supervisors would revisit the common minimum framework periodically to ensure that it is in line with activities of banks and securities firms, market innovations and the state of supervisory reporting at the level of individual member countries. For example, the common minimum framework presented in this paper currently does not focus on market risk. However, in the case of banks, supervisory capital standards for market risks, once finalised, could serve as a basis for assessing comparable information on these risks.

57. The development of a common minimum framework of information could also support the efforts of the Euro-currency Standing Committee of G-10 central banks to collect, on a regular basis, aggregate market data on the derivatives activities of financial institutions. Compilation and disclosure of aggregate market data on derivatives activities could serve a useful supervisory function. For example, disclosure of aggregate market data could give supervisors a better picture of how concentrated an institution's activities are in a particular product. Such coordination of data collection initiatives between banking and securities supervisors and central banks also could contribute to limiting the reporting burden for the banking and securities industries.

(b) Description of minimum framework tables

59. Table 1 provides information for understanding the scope and nature of an institution's involvement in the derivatives markets. The table provides notional amounts by broad category of risk (interest rate, exchange rate, precious metals, other commodities and equities) and by instrument type (forwards, swaps and options). The table also gives supervisors a picture of whether the institution is primarily involved in OTC derivatives or exchange-traded contracts. Finally, the information helps supervisors understand whether derivatives are being used for trading purposes or for purposes other than trading such as hedging, which is particularly relevant for banking institutions. As indicated in footnote number 1, supervisors are also encouraged to obtain separate information on certain instruments, particularly on leveraged and other high-risk derivative instruments.

60. Table 2 summarises the minimum information for assessing the market values (gross positive and gross negative) by broad risk categories, including a distinction between contracts that are held for trading purposes and those held for purposes other than trading (generally, this distinction is of more relevance to banking supervisors). The information on market values provides supervisors with an alternative to notional amounts for gauging an institution's involvement in the derivatives markets. In addition, information on positive and negative market values enables supervisors to determine if an institution is a net creditor or borrower. Identifying market values for contracts other than trading can, in the case of banks, shed light on an institution's risk management strategy and the extent to which it may be exposed to a significant build-up of unrealised losses. Finally, in addition to market values, Table 2 illustrates that information on potential credit exposure by major category of risk should be considered an element of the minimum framework.

61. Table 3 identifies information on the notional amounts of derivatives by broad category of risk and by maturity (one year or less, over one year through five years, over five years). Given the importance of maturity information for assessing the risks of options, these are broken out in a separate line item for each of the broad risk categories.

62. Table 4 focuses on counterparty credit risk taking into account the credit quality of the counterparty. The counterparty credit quality categories are sufficiently flexible to allow for the application of the Basle Capital Accord risk-weighting framework for banks, as well as an approach based on either rating agency grades or on the equivalent internally generated ratings of an institution. The measurement of counterparty credit exposure incorporates the impact of legally enforceable netting agreements as well as the use of collateral and guarantees. Furthermore, the table provides extra information on the quality and value of collateral and guarantees associated with derivative instruments.

63. Table 5 supplements the information on credit quality contained in Table 4 by focusing on instruments that are past-due by 30-89 days and by 90 days or more, and on actual credit losses. The information in the over 90-day category could also include information on derivatives that in the institution's assessment will not be fully collectible though they are currently performing. The table indicates the flexibility for supervisors to apply different maturity breakdowns if their national reporting systems do not use the time intervals presented in the minimum framework. In addition, information on the credit losses arising from derivatives activities is included as part of the minimum framework.