ELM 3.7 Derivatives

A firm must not be a party to or have a position in a derivative or quasi derivative contract unless ELM 3.7.2 R allows this.

A firm may be a party to a derivative or quasi derivative contract if:

1. (1)

   the sole purpose (ignoring any other purposes which together are insignificant) of becoming a party to it is hedging market risks arising from:

   1. (a)

      issuing e-money; or

   2. (b)

      the e-money float;

2. (2)

   so far as reasonably possible, being a party to that derivative or quasi derivative contract achieves the permitted purpose described in ELM 3.7.2 R (1);

3. (3)

   the derivative or quasi derivative contract is sufficiently liquid; and

4. (4)

   either:

   1. (a)

      the derivative or quasi derivative contract is an exchange rate contract relating to a foreign currency with an original maturity of 14 days or less; or

   2. (b)

      the derivative or quasi derivative contract:

      1. (i)

         is an interest rate or foreign exchange related contract;

      2. (ii)

         is regularly traded on a recognised investment exchange or designated investment exchange; and

      3. (iii)

         is subject to daily margin requirements under the rules of that exchange.