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    2022-12-08

MIFIDPRU 10.2 Categorisation of clearing firms as non-SNI MIFIDPRU investment firms

MIFIDPRU 10.2.1 R
  1. (1)

    1A MIFIDPRU investment firm that is a clearing member or an indirect clearing firm is a non-SNI MIFIDPRU investment firm.

  2. (2)

    The classification in (1) applies irrespective of whether the firm satisfies the conditions in MIFIDPRU 1.2 (SNI MIFIDPRU investment firms) or not.

MIFIDPRU 10.2.2 R
  1. (1)

    1This rule applies where:

    1. (a)

      an investment firm group contains a clearing member or an indirect clearing firm; and

    2. (b)

      the UK parent entity of the investment firm group in (a) is subject to prudential consolidation in accordance with MIFIDPRU 2.5.

  2. (2)

    Where this rule applies, the UK parent entity in (1) must comply with the relevant obligations in MIFIDPRU on a consolidated basis as if it were a non-SNI MIFIDPRU investment firm.

  3. (3)

    The requirement in (2) applies irrespective of whether the UK parent entity satisfies the conditions in MIFIDPRU 2.5.21R or not.

MIFIDPRU 10.2.3 G
  1. (1)

    1The effect of MIFIDPRU 10.2.1R is that a firm that acts as a clearing member or indirect clearing firm will always be a non-SNI MIFIDPRU investment firm. This is the case even where the firm may otherwise satisfy all the other criteria in MIFIDPRU 1.2 to be classified as an SNI MIFIDPRU investment firm.

  2. (2)

    The effect of MIFIDPRU 10.2.2R is that where the consolidated situation of a UK parent entity includes a clearing member or indirect clearing firm, the UK parent entity will always be a non-SNI MIFIDPRU investment firm on a consolidated basis.

  3. (3)

    MIFIDPRU 10.2.1R applies equally to a firm that is a self-clearing firm.

MIFIDPRU 10.3 Application of K-DTF requirement to clearing activities

MIFIDPRU 10.3.1 R
  1. (1)

    1This rule applies to transactions in financial instruments in relation to which a MIFIDPRU investment firm provides clearing services in its capacity as a clearing member or an indirect clearing firm.

  2. (2)

    Except where MIFIDPRU 10.3.2R applies, a firm must include the transactions in (1) in its calculation of DTF for the purposes of the K-DTF requirement in accordance with the remainder of this rule.

  3. (3)

    The transactions in (1) must be included in a firm’sDTF on the following basis:

    1. (a)

      where the order that gave rise to the clearing transaction was a cash trade, the clearing transaction must also be treated as if it were a cash trade (irrespective of whether it would otherwise meet that definition); and

    2. (b)

      where the order that gave rise to the clearing transaction was a derivatives trade, the clearing transaction must also be treated as if it were a derivatives trade (irrespective of whether it would otherwise meet that definition).

MIFIDPRU 10.3.2 R
  1. (1)

    1This rule applies where a firm:

    1. (a)

      executes an order:

      1. (i)

        in its own name (whether for its own account or on behalf of a client); or

      2. (ii)

        in the name of a client; and

    2. (b)

      also provides clearing services in its capacity as a clearing member or indirect clearing firm in relation to a transaction that results from the order in (a).

  2. (2)

    1Where this rule applies, the value of the relevant order in (1)(a) is not included in the firm’s measurement of DTF attributable to clearing services under MIFIDPRU 10.3.1R, provided that the value of the order has already been included in one of the following in relation to the firm’s execution services:

    1. (a)

      the calculation of the firm’sCOH under MIFIDPRU 4.10 (K-COH requirement); or

    2. (b)

      the calculation of the firm’sDTF under MIFIDPRU 4.15 (K-DTF requirement).

MIFIDPRU 10.3.3 G
  1. (1)

    1MIFIDPRU 10.3.1R requires a MIFIDPRU investment firm to calculate an additional K-DTF requirement for any clearing transactions it undertakes in relation to financial instruments.

  2. (2)

    MIFIDPRU 10.3.2R applies to a MIFIDPRU investment firm that both executes an order and subsequently provides clearing services in relation to the resulting transaction (including where the firm is acting as a self-clearing firm). In this case, the firm is not required to include the clearing transaction in its calculation of DTF, provided that the value of the original executed order has already been included in either the firm’s measurement of its DTF or COH.

  3. (3)

    The intention of MIFIDPRU 10.3.2R is that a firm is not required to “double-count” the value of the original order and the resulting clearing transaction where the firm is involved in both executing and clearing the same trade.

MIFIDPRU 10.3.4 R

1Where prudential consolidation applies to a UK parent entity under MIFIDPRU 2.5.7R, the UK parent entity must include within the calculation of its consolidated K-DTF requirement any transactions that are cleared by clearing members or indirect clearing firms that are included within its consolidated situation.

MIFIDPRU 10.4 Own funds requirement for CCP default fund exposures

MIFIDPRU 10.4.1 R

1This section applies to:

  1. (1)

    a MIFIDPRU investment firm that is a clearing member; and

  2. (2)

    a UK parent entity to which consolidation under MIFIDPRU 2.5.7R applies, where the relevant investment firm group includes one or more clearing members.

MIFIDPRU 10.4.2 R
  1. (1)

    1A MIFIDPRU investment firm must include its pre-funded contributions to the default fund of a CCP in the calculation of its K-TCD requirement in accordance with the remainder of this rule.

  2. (2)

    The firm must apply the rules and guidance in MIFIDPRU 4.14 (K-TCD requirement) in relation to the relevant default contribution with the following modifications:

    1. (a)

      the transactions specified in MIFIDPRU 4.14.3R are deemed to include pre-funded contributions made by the firm to the default fund of a CCP;

    2. (b)

      for the purposes of MIFIDPRU 4.14.7R, the value of α shall be 1;

    3. (c)

      for the purposes of MIFIDPRU 4.14.9R, the replacement cost (RC) of the default fund contribution is the book value of that asset in accordance with the applicable accounting framework;

    4. (d)

      for the purposes of MIFIDPRU 4.14.29R, the applicable risk factor is:

      1. (i)

        the value of a C-factor calculated in accordance with the methodology in MIFIDPRU 10.4.3R where that C-factor has been published by an authorised central counterparty in relation to the default fund of the CCP;

      2. (ii)

        in the case of an authorised central counterparty that has not published a C-factor relating to its default fund, 1.6%; and

      3. (iii)

        where the CCP is not an authorised central counterparty, 8%; and

    5. (e)

      for the purposes of MIFIDPRU 4.14.30R, the credit valuation adjustment (CVA) is 1.

MIFIDPRU 10.4.3 R
  1. (1)

    1For the purposes of MIFIDPRU 10.4.2R(2)(d), a C-factor is:

    1. (a)

      in the case of an authorised central counterparty that is subject to national rules implementing the requirements in BCBS 282 (Capital requirements for bank exposures to central counterparties) published by the Basel Committee on Banking Supervision in April 2014, a value determined in accordance with the formula in (2); or

    2. (b)

      in the case of any other authorised central counterparty, a value determined in accordance with the formula in (3).

  2. (2)

    The relevant formula under (1)(a) is:

    MIFIDPRU_10_4_3_2
  3. (3)

    The relevant formula under (1)(b) is:

    MIFIDPRU_10_4_3_3

    (Capital requirements for bank exposures to central counterparties) published by the Basel Committee on Banking Supervision in July 2012.

MIFIDPRU 10.4.4 G

1An authorised central counterparty may publish C-factors for the purposes of national rules implementing both BCBS 227 and BCBS 282. In this case, the effect of MIFIDPRU 10.4.3R(1)(a) is that the C-factor published for the purpose of BCBS 282 must be used. Where the default fund relates to derivatives, the C-factor published for the purposes of the Standardised Approach to Counterparty Credit Risk (SA-CCR) will normally be the relevant C-factor.

MIFIDPRU 10.4.5 G
  1. (1)

    1Where a MIFIDPRU investment firm that is a clearing member or an indirect clearing firm has trade exposures to a CCP, it should consider whether the exposures arise from a transaction listed in MIFIDPRU 4.14.3R as being within scope of the K-TCD requirement. MIFIDPRU 4.14.3R(1)(a) and MIFIDPRU 4.14.4R exclude from the scope of the K-TCD requirement derivatives contracts that are directly or indirectly cleared through an authorised central counterparty.

  2. (2)

    However, the exclusion in (1) does not apply to a pre-funded contribution of a clearing member to the default fund of a CCP, as this exposure is not a contract cleared through the authorised central counterparty. MIFIDPRU 10.4.2R explains how a firm should calculate the K-TCD requirement for the contribution.

MIFIDPRU 10.4.6 R

1Where this section applies to a UK parent entity in accordance with MIFIDPRU 10.4.1R(2), the requirement in MIFIDPRU 10.4.2R and the modifications it makes to the rules and guidance in MIFIDPRU 4.14 apply to the UK parent entity in relation to any pre-funded contributions to the default fund of a CCP made by any entities included within the consolidated situation.