Daiwa Securities Group Annual Report 2012 Corporate Summary Executive Messages Business Strategy Other Information Management Systems & CSR Financial Section 6. Overview of Policies and Procedures for the Counterparty Credit Risk Management of Derivative and Long  Settlement Transactions For derivative transactions, credit review of counterparty is conducted  in advance, and credit limit is assigned when the credit soundness is  confirmed. Exposure amount and collateral value are calculated and  compared daily; accordingly, collateral is pledged or accepted.  Likewise, for long settlement transactions, credit review of counter- party is required and transaction can only be conducted if the credit  limit is assigned. Credit limits of the counterparty are reviewed periodically. In addi- tion, for uncollateralized exposures, allowance amount is calculated  based upon allowance percentage that is set in accordance with the  Group’s internal credit rating and maturity of transaction. Risk capital is allocated based upon the credit VaR, and reviewed  semiannually. Upon the time when own credit rating downgraded,  additional collateral will be required. The Group carefully monitors the  additional collateral amount and accordingly, such amount falls into  the allowable level. 7. Securitization Exposures The Group is involved in securitization transactions as an investor,  and accordingly holds securitization products under investment  and trading accounts. Outstanding exposures and credit soundness of securitization  products are periodically monitored by independent risk control  departments. Periodical monitoring of securitization exposures are being con- ducted in order to adequately grasp comprehensive risk charac- teristics of securitization exposures including risk characteristics of  underlying asset, performance related information of underlying  assets, and the scheme of the securitization transaction. Not applicable. The Standardized Approach is used in order to calculate credit  risk amount. For general market risk, the internal model is used, for specific  risk, the standardized approach is used. Trust and Special Purpose Company are used as SPEs, and the  securitization exposure is partially owned and treated on balance. Not applicable The Group complies with Accounting Standard Board of Japan  Statement No. 10, “Accounting Standard for Financial  Instruments” in recognizing, evaluating, and booking the occur- rence or extinguishment of financial assets or liabilities related to  securitization transactions. Following ECAIs are used in order to determine the risk weight for  the securitization exposures. Rating & Investment Information, Inc. Japan Credit Rating Agency, Ltd. Moody’s Investors Service, Inc. Standard & Poor’s Rating Services Fitch Ratings Ltd. Not applicable Not applicable A). Overview of risk management policies and nature of other risks B). Overview of monitoring systems and situation of its operations C). Policies when securitization transactions are used for CRM  Techniques purpose D). Method of calculating credit risk asset E). Method of calculating market risk amount F). Engagement to the securitization transaction through Special  Purpose Entity, if applied type of SPE and the exposure G). The name of the Group company that holds securitization  exposure when securitization transaction is engaged by the  subsidiary of Group company (excluding consolidated  subsidiaries) and affiliated Group company (including  securitization transaction engaged by the Group through SPEs) H). Accounting policy applied for the securitization transaction I ). ECAIs used when determining the risk weight J). Overview when the Group uses the Internal Assessment  Approach K). Overview if significant change in quantitative information is  observed 96