MIFIDPRU 4.15 K-DTF requirement

1Subject to MIFIDPRU 4.15.11R, the K-DTF requirement of a MIFIDPRU investment firm is equal to the sum of:

1. (1)

   0.1% of average DTF attributable to cash trades; and

2. (2)

   0.01% of average DTF attributable to derivatives trades.

1A firm must calculate its K-DTF requirement on the first business day of each month.

1. (1)

   1A firm must calculate the amount of its average DTF as:

   1. (a)

      taking the total DTF as measured throughout each business day in each of the previous 9 months;

   2. (b)

      excluding the daily values for the most recent 3 months; and

   3. (c)

      calculating the arithmetic mean of the daily values for the remaining 6 months.

2. (2)

   When measuring the value of DTF for a particular business day, a firm must convert any amounts in foreign currencies on that date into the firm’s functional currency.

3. (3)

   For the purposes of the currency conversion in (2), a firm must:

   1. (a)

      determine the conversion rate by reference to an appropriate market rate; and

   2. (b)

      record the rate that was chosen.

1. (1)

   1When measuring its DTF, a firm must use the sum of the absolute value of each buy order and sell order, as determined in accordance with this rule.

2. (2)

   For cash trades relating to financial instruments, the value of the order is the amount paid or received on the trade.

3. (3)

   For derivatives trades other than orders relating to interest rate derivatives, the value of the order is the notional amount of the contract, determined in accordance with MIFIDPRU 4.14.20R(2).

4. (4)

   For orders relating to interest rate derivatives, the value of the order is the notional amount of the contract determined in accordance with MIFIDPRU 4.14.20R(2), adjusted in accordance with MIFIDPRU 4.15.8R.

1. (1)

   1For the purposes of MIFIDPRU 4.15.6R(4), a firm must adjust the notional amount of an interest rate derivative by multiplying that notional amount by the duration.

2. (2)

   For the purposes of (1), the duration must be determined in accordance with the following formula:

   Duration = time to maturity (in years) / 10

1. (1)

   1This rule applies where a firm has had a daily trading flow for less than 9 months.

2. (2)

   For the purposes of its calculation of average DTF under MIFIDPRU 4.15.4R, a firm must use the modified calculation in MIFIDPRU TP 4.11R(1) with the following adjustments:

   1. (a)

      in MIFIDPRU TP 4.11R(1)(b), n is the relevant number of months for which the firm has had a daily trading flow (with the month during which the firm begins that activity being counted as month zero); and

   2. (b)

      during month zero of the calculation, the firm must:

      1. (i)

         use a best efforts estimate of expected DTF for that month based on its projections when beginning the new activity; and

      2. (ii)

         use the estimate in (i) as its average DTF;

   3. (c)

      during month 1 of the calculation and each month thereafter, the firm must apply the approach in (a) using observed historical data from the preceding months;

   4. (d)

      the modified calculation ceases to apply on the date that falls 9 months after the date on which the firm first had a daily trading flow.

1. (1)

   1This rule applies where a firm’s measurement of its DTF under MIFIDPRU 4.15.4R includes a proportion of daily trading flow that occurred on a trading segment of a trading venue to which stressed market conditions (as defined in article 6 of the Market Making RTS) applied.

2. (2)

   Where this rule applies, a firm may apply the following adjusted coefficients:

   1. (a)

      for cash trades, a coefficient determined in accordance with (3) instead of the relevant coefficient in MIFIDPRU 4.15.1R(1); or

   2. (b)

      for derivatives trades, a coefficient determined in accordance with (4) instead of the relevant coefficient in MIFIDPRU 4.15.1R(2).

3. (3)

   For cash trades, the adjusted coefficient must be determined by using the following formula:

   CadjCash = C * (DTFexcl/DTFincl)

   where:

   1. (a)

      CadjCash = the adjusted coefficient in (2)(a);

   2. (b)

      C = the original coefficient in MIFIDPRU 4.15.1R(1);

   3. (c)

      DTFexcl = the average DTF of cash trades calculated in accordance with MIFIDPRU 4.15.4R, excluding the value of any cash trade that occurred on a trading segment of a trading venue between the time at which the trading venue determined that:

      1. (i)

         stressed market conditions began to apply; and

      2. (ii)

         stressed market conditions ceased to apply;

   4. (d)

      DTFincl = the average DTF of all cash trades calculated in accordance with MIFIDPRU 4.15.4R.

4. (4)

   For derivative trades, the adjusted coefficient must be determined by using the following formula:

   CadjDer = C * (DTFexcl/DTFincl)

   where:

   1. (a)

      CadjDer = the adjusted coefficient in (2)(b);

   2. (b)

      C = the original coefficient in MIFIDPRU 4.15.1R(2);

   3. (c)

      DTFexcl = the average DTF of derivative trades calculated in accordance with MIFIDPRU 4.15.4R, excluding the value of any derivative trade that occurred on a trading segment of a trading venue between the time at which the trading venue determined that:

      1. (i)

         stressed market conditions began to apply; and

      2. (ii)

         stressed market conditions ceased to apply;

   4. (d)

      DTFincl = the average DTF of all derivative trades calculated in accordance with MIFIDPRU 4.15.4R.