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    2022-09-30

MIFIDPRU 6.2 Basic liquid assets requirement

MIFIDPRU 6.2.1R

11A firm must hold an amount of core liquid assets equal to the sum of:

  1. (1)

    one third of the amount of its fixed overhead requirement; and

  2. (2)

    1.6% of the total amount of any guarantees provided to clients.

MIFIDPRU 6.2.2R

1Where a firm calculates a total amount for guarantees under MIFIDPRU 6.2.1R(2), it must calculate:

  1. (1)

    the total value of guarantees that the firm has outstanding at the end of each business day; or

  2. (2)

    an average value for the guarantees that the firm has had outstanding over an appropriate time period, which must be updated at regular, appropriate intervals.

MIFIDPRU 6.2.3G
  1. (1)

    1MIFIDPRU 6.2.2R(2) is intended to allow a firm to smooth out its liquidity requirement for guarantees, where the value of its outstanding guarantees fluctuates on a daily basis.

  2. (2)

    An appropriate time period for calculating and updating this amount is likely to be a period that produces an average value that is representative of the overall liquidity risk arising out of the provision of guarantees to clients.

MIFIDPRU 6.2.4G

1The approach in MIFIDPRU 6.2.2R(2) is illustrated by the following example:

  1. (1)

    a firm that executes orders on behalf of a client may guarantee the settlement of any resulting transactions between the client and a third party;

  2. (2)

    in this case, it may be appropriate for the firm to use the principles for calculating average COH to calculate an average value for the guarantees that the firm has had outstanding over an appropriate time period;

  3. (3)

    average COH is calculated as the arithmetic mean of historic daily COH values. The firm could use the arithmetic mean of historic daily values for outstanding guarantees to calculate its amount for guarantees;

  4. (4)

    average COH is calculated by reference to the historic three-month period beginning six months ago (i.e. excluding the three most recent months). The firm could calculate its amount for guarantees by reference to the same time period, if this produces an average value for guarantees that is representative of the overall liquidity risk in these guarantees; and

  5. (5)

    a firm could update this calculation monthly, in line with the requirement to update average COH in MIFIDPRU 4, if this produces a value that is representative of the overall liquidity risk.