1. The calculation of a natural or legal person's sovereign credit default swap position shall be its net position.

2. When calculating the value of the eligible risks hedged or to be hedged by a sovereign credit default swap position a distinction shall be made between static and dynamic hedging strategies. For static hedging, such as direct exposures to sovereign or public sector bodies in the sovereign, the metric used shall be the jump to default measure of the loss if the entity to which the position holder is exposed defaults. The resulting value shall then be compared against the net notional value of the credit default swap position.

3. When calculating the value of market value adjusted risks for which a dynamic hedging strategy is required, the calculations must be undertaken on a risk-adjusted rather than notional basis, taking into account the extent to which an exposure might increase or decrease during its duration and the relative volatilities of the assets and liabilities being hedged and of the referenced sovereign debt. A beta adjustment shall be used if the asset or liability for which the credit default swap position is being used as a hedge is different from the reference asset of the credit default swap.

4. Indirect exposures to risks, such as through indices, funds, special purpose vehicles, and to credit default swap positions shall be taken into account in proportion to the extent the reference asset, liability or credit default swap is represented in the index, fund or other mechanism.