BIPRU 10.10A Trading book limits3

1This section only applies to exposures in a firm's trading book to counterparties which fulfil the following conditions:3

1. (1)

   3subject to (2), and in relation to a firm, a counterparty ('P') to whom the firm has an exposure and who fulfils at least one of the following conditions:

   1. (a)

      P is closely related to the firm; or

   2. (b)

      P is an associate of the firm; or

   3. (c)

      the same persons significantly influence the governing body of P and of the firm; or

   4. (d)

      the firm has an exposure to P that was not incurred for the clear commercial advantage of the firm or the firm's group and which is not on an arm's length basis;

2. (2)

   where P is Business Growth Fund plc or another financial institution which makes venture capital investments and the firm is entitled to ignore that financial institution in accordance with GENPRU 2.2.209 R (2) for the purposes of determining whether there is a material holding, (1) applies with the following modifications to the definition of associate:

   1. (a)

      paragraph (3)(c) (community of interest) of that definition does not apply; and

   2. (b)

      in applying paragraph (3)(a) (affiliated company) of that definition, paragraph (1)(e) (participating interests) of the definition of group does not apply.

Exposures in a firm's trading book to counterparties falling within BIPRU 10.10A.1 R3 are exempt from the 25% limit in BIPRU 10.5.6 R (large exposures limit) if:

1. (1)

   the total amount of the exposures on the firm's non-trading book to counterparties falling within BIPRU 10.10A.1 R3 does not exceed the limit laid down in that rule, calculated with reference to the definition of capital resources calculated at stage (N) of the calculation in the capital resources table (Total tier one capital plus tier two capital after deductions) as set out in BIPRU 10.5.2 R, BIPRU 10.5.3 R and BIPRU 10.5.5 R, so that the excess arises entirely on the trading book; and

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2. (2)

   the firm meets the additional capital requirements relating to the concentration risk capital component (CNCOM) in relation to the relevant trading book exposures.

A firm must ensure that the total amount of its trading book exposures to its counterparties falling within BIPRU 10.10A.1 R3 does not exceed 500% of the firm's capital resources calculated at stage (T) of the capital resources table (Total capital after deductions).

A firm's CNCOM is the sum of its individual counterparty CNCOMS.

An individual counterparty CNCOM is the amount a firm must calculate in accordance with BIPRU 10.10A.8R with respect to its exposures to its counterparties falling within BIPRU 10.10A.1 R3.

A firm must calculate its individual counterparty CNCOM for its exposures to itscounterparties falling within BIPRU 10.10A.1 R3 as follows:

1. (1)

   break down its total exposure into its trading book and non-trading book components;

2. (2)

   calculate 25% of the firm's capital resources calculated at stage (N) of the calculation in the capital resources table (Total tier one capital plus tier two capital after deductions) to determine the total amount of the exposures in the firm's non-trading book does not exceed this limit in accordance with BIPRU 10.10A.2R (1);

3. (3)

   calculate 25% of the firm's capital resources calculated at stage (T) of the capital resources table (Total capital after deductions) and deduct those parts of the total exposure which are in the non-trading book falling within the limit in (2);

4. (4)

   a firm must allocate (in the order set out in (6)) trading book exposures to its counterparties falling within BIPRU 10.10A.1 R3 to the unutilised portion of the 25% limit of the firm's capital resources calculated at stage (T) of the capital resources table (Total capital after deductions) remaining after deducting the non-trading book exposures in accordance with (3);

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5. (5)

   no further trading book exposures can be allocated once the 25% limit in (4) has been reached; the remaining trading book exposures constitute the trading book concentration risk excess with respect to its counterparties falling within BIPRU 10.10A.1 R3;

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6. (6)

   for the purposes of (4), a firm must allocate the trading book exposures in the order of the level of capital requirements, starting with the lowest capital requirements for specific risk under the market risk capital requirement and/or the lowest capital requirements under the counterparty risk capital component and moving towards those trading book exposures with the highest capital requirements last;

7. (7)

   the individual counterparty CNCOM is the sum of the capital requirements for each individual exposure included in the trading book concentration risk excess in accordance with (8) and (9) (each such capital requirement being an individual CNCOM);

8. (8)

   if the trading book concentration risk excess has persisted for 10 business days or less (irrespective of the age of each component part), the individual CNCOMs must be calculated in accordance with this formula:

   each individual CNCOM = capital requirement referred to in (6) 200%;

9. (9)

   if the trading book concentration risk excess has persisted for more than 10 business days (irrespective of the age of each component part), the individual CNCOMs must be calculated in accordance with this formula:

   each individual CNCOM = capital requirement referred to in (6) appropriate percentage in BIPRU 10.10A.9R.

The appropriate percentage referred to in BIPRU 10.10A.8R (9) must be established in accordance with the following:

1. (1)

   the individual exposures included in the trading book concentration risk excess must be assigned to the bands in the first column of the table in BIPRU 10.10A.10R;

2. (2)

   the maximum amount that may be put in any band other than the last equals the percentage of the firm's capital resources in column 1 of that table;

3. (3)

   no amount may be allocated to the second or any later band unless the one before has been filled;

4. (4)

   exposures must be assigned to the bands in the order established by BIPRU 10.10A.8R (6); and

5. (5)

   for the purposes of (4), those exposures with the lowest capital requirements (as referred to in BIPRU 10.10A.8R (6)) must be assigned first and those with the highest last.

A firm that has a non-core large exposures group waiver must meet the CNCOM in relation to exposures to members of its non-core large exposures group in accordance with this section, subject to the following:

1. (1)

   in BIPRU 10.10A.8 R, 25% is substituted with 100%; and

2. (2)

   the excess exposures for the purpose of BIPRU 10.10A.8R (9) must be assigned to the bands in the first column of the table in BIPRU 10.10A.10 R beginning with the portion from 100% - 250%.

1. (1)

   This rule applies to a firm that has a core UK group waiver or a non-core large exposures group waiver.

2. (2)

   A firm must calculate the CNCOM in relation to the core UK group in question in accordance with BIPRU 10.10A.2 R (Trading book limits).

3. (3)

   A firm must then calculate the percentage of the amount calculated under (2) which is attributable to exposures of the firm.

4. (4)

   A firm must add the result of the calculation in (3) to the CNCOM applied to the firm on a solo basis in accordance with BIPRU 10.10A.5R to BIPRU 10.10A.11R (How to calculate the concentration risk capital component).