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Title[ Part 2: The First Pillar - Minimum Capital Requirements

Section[ 2. Specific risk rules for unrated debt securities

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712.     Under  the  Market  Risk  Amendment  unrated  securities  may  be  included  in  the

“qualifying” category when they are subject to supervisory approval, unrated, but deemed to be of comparable investment quality by the reporting bank, and the  issuer has securities listed  on a  recognised  stock exchange. This will remain unchanged for banks using the standardised approach. For banks using the IRB approach for a portfolio, unrated securities can be included in the “qualifying” category if both of the following conditions are met:

w the securities are rated equivalent ¹¹³ to investment grade under the reporting bank’s internal rating system, which the national  supervisor has confirmed complies with the requirements for an IRB approach; and

w the issuer has securities listed on a recognised stock exchange.

113 Equivalent means the debt security has a one-year PD equal to or less than the one year PD implied by the long-run average one-year PD of a security rated investment grade or better by a qualifying rating agency.

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