Measuring commodities risk

149. A Bank must use the simplified approach to measure commodities risk. To calculate open positions using this approach, the firm may report short and long positions in each commodity on a net basis. Positions are reported on a net basis by offsetting them against each other if they are in the same commodity. Positions in different commodities must not be offset unless:

(a) the commodities are deliverable against each other; or

(b) the commodities are close substitutes for each other and a minimum correlation between price movements of 0.9 can be clearly established over at least the preceding year.

Correlation-based offsetting mentioned in (b) above may not be used unless the AFSA has approved its use in writing.

150. Gross position in a commodity, is the sum of the absolute values of all short positions and all long positions of the firm, regardless of maturity. A Bank must use the current spot price to calculate its gross position in commodity derivatives.