ELM 3.3 Asset-liability management

A firm must, at all times, have qualifying liquid assets of a value no less than the amount of its e-money outstandings at that time.

For the purpose of ELM 3.3.1 R, a firm's qualifying liquid assets must be valued at the lower of:

1. (1)

   cost;

2. (2)

   the amount that can reasonably be realised in money from that investment (within the time specified in ELM 3.3.11 R (2) or less) by redemption, realisation, sale, exchange or other disposal of that asset.

A qualifying liquid asset is an investment fulfilling all the following criteria:

1. (1)

   it is unsubordinated;

2. (2)

   it ranks at least equally with the unsubordinated, non-preferred and unsecured obligations of the person who owes the obligation under the qualifying liquid asset in question;

3. (3)

   it is:

   1. (a)

      a zero weighted asset; or

   2. (b)

      a deposit that is repayable on demand and is held with a Zone A credit institution; or

   3. (c)

      a qualifying debt security; and

4. (4)

   either:

   1. (a)

      it has a residual maturity of one year or less; or

   2. (b)

      (in the case of an investment on which a floating rate of interest is payable) the interest rate will be redetermined no later than one year from the time in question.

The total amount of investments that fall into (b) or (c) of ELM 3.3.5 R (3) that are included as qualifying liquid assets in the calculation in ELM 3.3.1 R must not exceed an amount equal to 20 times the firm's own funds at the time in question.

A zero weighted asset is any of the following:

1. (1)

   cash;

2. (2)

   a security issued by and representing a claim on (or that is fully, directly and unconditionally guaranteed by):

   1. (a)

      a central government or central bank of a Zone A country; or

   2. (b)

      the EU or Euratom (the European Atomic Energy Community)2; or

      2
   3. (c)

      the European Central Bank;

   but only if it is sufficiently liquid.

A qualifying debt security means a debenture or government and public security (other than a zero weighted asset) that:

1. (1)

   is sufficiently liquid;

2. (2)

   is not issued by a controller of the firm or by a person in the same group as the firm; and

3. (3)

   satisfies the condition in ELM 3.3.10 R.

The condition referred to in ELM 3.3.9 R is that either:

1. (1)

   the security is issued by and represents a claim on (or it is fully, directly and unconditionally guaranteed by):

   1. (a)

      a multilateral development bank; or

   2. (b)

      the regional or local government of a Zone A country; or

   3. (c)

      a Zone A credit institution, but only if the security does not form part of its regulatory capital resources; or

   4. (d)

      an MiFID investment firm1 or recognised third country investment firm, but only if the shares of that person are listed on a recognised investment exchange or designated investment exchange; or

      1
2. (2)

   the security:

   1. (a)

      is listed on a recognised investment exchange or designated investment exchange; and

   2. (b)

      is subject to a degree of default risk that, by virtue of the solvency of the issuer or guarantor (as the case may be) is no greater than what would be within the range of what is normal for a security falling into ELM 3.3.10 R (1).

Investments held by a firm are only sufficiently liquid if they satisfy all of the following requirements:

1. (1)

   the firm is without delay able to get quotations for the sale or purchase of the investments complying with the following conditions:

   1. (a)

      the prices are for transactions that would fall into ELM 3.3.11 R (2) and ELM 3.3.11 R (3); and

   2. (b)

      the firm gets the prices from persons who are not associates of the firm, who are independent of the firm and who are willing and able to buy and purchase those investments at the prices they quote;

2. (2)

   it is reasonable to conclude that, except in exceptional circumstances, the firm will be able to find a buyer for the investments and complete the sale, for money, within a time that is within the range of (or that is quicker than) what is normal for a sale falling into (5);

3. (3)

   it is reasonable to conclude that, except in exceptional circumstances, the price that the firm will be able to obtain for the sale of the investments will not be materially affected by either the speed of the sale or the amount of the investments sold;

4. (4)

   they are regularly traded;

5. (5)

   taking into account all other factors such as the volume of trading and the number of persons who frequently trade in them, their liquidity is at least as great as would be within the range of what is normal for government and public securities (being traded on the main market for those government and public securities) of the central government of a Zone A country that are widely and continuously traded in large volumes; and

6. (6)

   the firm can buy or sell the investments in a market in which:

   1. (a)

      there is a timetable for the settlement of sales of those investments; and

   2. (b)

      it is general market practice in that market to follow that timetable;

   so that the settlement timetable for purchases of those investments is generally not a matter for negotiation.

ELM 3.3.11 R (1) does not apply to a security listed on a recognised investment exchange or designated investment exchange.

A firm must choose which particular qualifying liquid assets to treat as the e-money float for the purposes of ELM. The firm must do so on a consistent basis. In particular, the firm must not treat a particular investment as part of its e-money float for the purposes of some of the rules in ELM and not for others.