ANNEX III

ANNEX III

Duration netting rules

1. An interest rate derivative shall be converted into its equivalent underlying asset position in accordance with the following methodology:

The equivalent underlying asset position of each interest rate derivative instrument shall be calculated as its duration divided by the target duration of the AIF and multiplied by the equivalent underlying asset position:

where:

—

duration FDI is the duration (sensitivity of the market value of the financial derivative instrument to interest rate movements) of the interest rate derivative instrument,

—

duration target is in line with the investment strategy, the directional positions and the expected level of risk at any time and will be regularised otherwise. It is also in line with the portfolio duration under normal market conditions,

—

CVderivative is the converted value of the derivative position as defined by the Annex II.

2. The equivalent underlying asset positions calculated in accordance with to paragraph 1 shall be netted as follows:

(a)

Each interest rate derivative instrument shall be allocated to the appropriate maturity range of the following maturity-based ladder:

Maturities ranges

0-2 years

2-7 years

7-15 years

> 15 years

(b)

The long and short equivalent underlying asset positions shall be netted within each maturity range. The amount of the former which is netted with the latter is the netted amount for that maturity range.

(c)

Starting with the shortest maturity range, the netted amounts between two adjoining maturity ranges shall be calculated by netting the amount of the remaining unnetted long (or short) position in the maturity range (i) with the amount of the remaining unnetted short (long) position in the maturity range (i + 1).

(d)

Starting with the shortest maturity range, the netted amounts between two remote maturity ranges separated by another one shall be calculated by netting the amount of the remaining unnetted long (or short) position in the maturity range (i) with the amount of the remaining unnetted short (long) position in the maturity range (i + 2).

(e)

The netted amount shall be calculated between the remaining unnetted long and short positions of the two most remote maturity ranges.

3. The AIF shall calculate its exposures as the sum of absolute values:

—

0 % of the netted amount for each maturity range,

—

40 % of the netted amounts between two adjoining maturity ranges (i) and (i + 1),

—

75 % of the netted amounts between two remote maturity ranges separated by another one, meaning maturity ranges (i) and (i + 2),

—

100 % of the netted amounts between the two most remote maturity ranges, and

—

100 % of the remaining unnetted positions.

Recitals

CHAPTER I - DEFINITIONS (Article 1)

CHAPTER II - GENERAL PROVISIONS (Article 2-15)

CHAPTER III - OPERATING CONDITIONS FOR AIFMs (Article 16-82)

CHAPTER IV - DEPOSITARY (Article 83-102)

CHAPTER V - TRANSPARENCY REQUIREMENTS, LEVERAGE, RULES RELATING TO THIRD COUNTRIES AND EXCHANGE OF INFORMATION ON THE POTENTIAL CONSEQUENCES OF AIFM ACTIVITY (Article 103-116)

CHAPTER VI - FINAL PROVISIONS (Article 117)

ANNEX I Q&A ANNEX II Q&A ANNEX III ANNEX IV Q&A

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