Related provisions for BIPRU 7.4.37

BIPRU 7.2.1R01/01/2007

(1) A firm must calculate its interest rate PRR under BIPRU 7.2 by:(a) identifying which positions must be included within the interest rate PRR calculation;(b) deriving the net position in each debt security in accordance with BIPRU 7.2.36R-BIPRU 7.2.41R;(c) including these net positions in the interest rate PRR calculation for general market risk and the interest rate PRR calculation for specific risk; and(d) summing all PRRs calculated for general market risk and specific risk.(2)

BIPRU 7.2.3R01/01/2007

A firm's interest rate PRR calculation must:(1) include all trading bookpositions in debt securities, preference shares and convertibles, except:(a) positions in convertibles which have been included in the firm'sequity PRR calculation;(b) positions fully deducted as a material holding under the calculations under the capital resources table, in which case the firm may exclude them; or(c) positions hedging an option which is being treated under BIPRU 7.6.26R (Table: Appropriate

BIPRU 7.2.5G01/01/2007

BIPRU 7.2.3R(1) includes a trading bookposition in debt security, preference share or convertible that is subsequently repo'd under a repurchase agreement or lent under a stock lending agreement. Clearly, if the security had initially been obtained via a reverse repurchase agreement or stock borrowing agreement, the security would not have been included in the PRR calculation in the first place.

BIPRU 7.2.6G01/01/2007

BIPRU 7.2.3R(1) includes net underwriting positions or reduced net underwriting position in debt securities.

BIPRU 7.2.10G01/01/2007

BIPRU 7.2.11 R - BIPRU 7.2.35R convert the instruments listed in the table in BIPRU 7.2.4R into notional positions in:(1) the underlying debt security, where the instrument depends on the price (or yield) of a specific debt security; or(2) notional debt securities to capture the pure interest rate risk arising from future payments and receipts of cash (including notional payments and receipts) which, because they are designed to represent pure general market risk (and not specific

BIPRU 7.2.11R01/01/2007

(1) For the purposes of calculating interest rate PRR, unless specified otherwise, a firm must derive the value of notional positions as follows:(a) notional positions in actual debt securities must be valued as the nominal amount underlying the contract at the current market price of the debt security; and(b) positions in zero-specific-risk securities must be valued using one of the two methods in (2).(2) A firm must use one of the following two methods for all positions arising

BIPRU 7.2.12R01/01/2007

A firm must use BIPRU 7.2.11R(2)(a) in respect of any positions that it includes in the interest rate duration method.

BIPRU 7.2.13R01/01/2007

Futures, forwards or synthetic futures on a single debt security must be treated as follows:(1) a purchased future, synthetic future or forward is treated as:(a) a notional long position in the underlying debt security (or the cheapest to deliver (taking into account the conversion factor) where the contract can be satisfied by delivery of one from a range of securities); and(b) a notional short position in a zero coupon zero-specific-risk security with a maturity equal to the

BIPRU 7.2.16R01/04/2013

The notional debt securities in BIPRU 7.2.14R are assigned a specific risk position risk adjustment and a general market risk position risk adjustment equal to the highest that would apply to the debt securities in the basket or index.

BIPRU 7.2.17G01/04/2013

The debt security with the highest specific risk position risk adjustment within the basket might not be the same as the one with the highest general market risk position risk adjustment. BIPRU 7.2.16R requires a firm to select the highest percentages even where they relate to different debt securities in the basket or index, and regardless of the proportion of those debt securities in the basket or index.

BIPRU 7.2.18R01/01/2007

Interest rate futures or FRAs must be treated as the two notional positions (one long, one short) shown in the table in BIPRU 7.2.19R.

BIPRU 7.2.20G01/01/2007

(1) The following example illustrates BIPRU 7.2.18R and BIPRU 7.2.19R in conjunction with BIPRU 7.2.11R (the last rule determines the value of notional positions). A firm sells £1mn notional of a 3v6 FRA at 6%. This results in:(a) a short position in a zero-specific-risk security with a zero coupon, three month maturity, and a nominal amount of £1million; and(b) a long position in a zero-specific-risk security with a zero coupon, six month maturity, and nominal amount of £1,015,000

BIPRU 7.2.21R01/01/2007

Interest rate swaps or foreign currency swaps without deferred starts must be treated as the two notional positions (one long, one short) shown in the table in BIPRU 7.2.22R.

BIPRU 7.2.22R01/01/2007

Table: Interest rate and foreign currency swaps

This table belongs to BIPRU 7.2.21R

	Paying leg (which must be treated as a short position in a zero-specific-risk security)	Receiving leg (which must be treated as a long position in a zero-specific-risk security)
Receiving fixed and paying floating	Coupon equals the floating rate and maturity equals the reset date	Coupon equals the fixed rate of the swap and maturity equals the maturity of the swap
Paying fixed and receiving floating	Coupon equals the fixed rate of the swap and maturity equals the maturity of the swap	Coupon equals the floating rate and maturity equals the reset date
Paying floating and receiving floating	Coupon equals the floating rate and maturity equals the reset date	Coupon equals the floating rate and maturity equals the reset date

BIPRU 7.2.24R01/01/2007

Interest rate swaps or foreign currencyswaps with a deferred start must be treated as the two notional positions (one long, one short) shown in the table in BIPRU 7.2.25R.

BIPRU 7.2.25R01/01/2007

Table: Deferred start interest rate and foreign currency swaps

This table belongs to BIPRU 7.2.24R

	Paying leg (which must be treated as a short position in a zero-specific-risk security with a coupon equal to the fixed rate of the swap)	Receiving leg (which must be treated as a long position in a zero-specific-risk security with a coupon equal to the fixed rate of the swap)
Receiving fixed and paying floating	maturity equals the start date of the swap	maturity equals the maturity of the swap
Paying fixed and receiving floating	maturity equals the maturity of the swap	maturity equals the start date of the swap

BIPRU 7.2.27R01/01/2007

A firm must treat a swap with only one interest rate leg as a notional position in a zero-specific-risk security:(1) with a coupon equal to that on the interest rate leg;(2) with a maturity equal to the date that the interest rate will be reset; and(3) which is a long position if the firm is receiving interest payments and short if making interest payments.

BIPRU 7.2.30R01/01/2007

The forward cash leg of a repurchase agreement or reverse repurchase agreement must be treated as a notional position in a zero-specific-risk security which:(1) is a short notional position in the case of a repurchase agreement; and a long notional position in the case of a reverse repurchase agreement;(2) has a value equal to the market value of the cash leg;(3) has a maturity equal to that of the repurchase agreement or reverse repurchase agreement; and(4) has a coupon equal

BIPRU 7.2.31R01/01/2007

A cash borrowing or deposit must be treated as a notional position in a zero coupon zero-specific-risk security which:(1) is a short position in the case of a borrowing and a long position in the case of a deposit;(2) has a value equal to the market value of the borrowing or deposit;(3) has a maturity equal to that of the borrowing or deposit, or the next date the interest rate is reset (if earlier); and(4) has a coupon equal to:(a) zero, if the next interest payment date coincides

BIPRU 7.2.32R01/01/2007

(1) Where included in the PRR calculation in BIPRU 7.2 (see the table in BIPRU 7.2.4R), options and warrants must be treated in accordance with this rule.(2) An option or warrant on a debt security, a basket of debt securities or a debt security index must be treated as a position in that debt security, basket or index.(3) An option on an interest rate must be treated as a position in a zero coupon zero-specific-risk security with a maturity equal to the sum of the time to expiry

BIPRU 7.2.33R01/01/2007

Where a debt security pays coupons in one currency, but will be redeemed in a different currency, it must be treated as:(1) a debt security denominated in the coupon's currency; and(2) a foreign currencyforward to capture the fact that the debt security's principal will be repaid in a different currency from that in which it pays coupons, specifically:(a) a notional forward sale of the coupon currency and purchase of the redemption currency, in the case of a long position in the

BIPRU 7.2.34R01/01/2007

Other futures, forwards, options and swaps treated under BIPRU 7.2 must be treated as positions in zero-specific-risk securities, each of which:(1) has a zero coupon;(2) has a maturity equal to that of the relevant contract; and(3) is long or short according to the table in BIPRU 7.2.35R.

BIPRU 7.2.35R01/01/2007

Table: Interest rate risk on other futures, forwards, options and swaps

This table belongs to BIPRU 7.2.34R.

Instrument	Notional positions
foreign currency forward or future	a long position denominated in the currency purchased	and	a short position denominated in the currency sold
Gold forward or future	a long position if the forward or future involves an actual (or notional) sale of gold	or	a short position if the forward or future involves an actual (or notional) purchase of gold
Equity forward or future, or option (unless the interest rate PRR is calculated under the basic interest rate PRR calculation in BIPRU 7.3)	A long position if the contract involves an actual (or notional) sale of the underlying equity	or	A short position if the contract involves an actual (or notional) purchase of the underlying equity

BIPRU 7.2.36R01/01/2007

The net position in a debt security is the difference between the value of the firm's long positions (including notional positions) and the value of its short positions (including notional positions) in the same debt security.

BIPRU 7.2.37R01/01/2007

(1) A firm must not net positions (including notional positions) unless those positions are in the same debt security. This rule sets out the circumstances in which debt securities may be treated as the same for these purposes.(2) Subject to (3) long and short positions are in the same debt security, and a debt security is the same as another if and only if:(a) they enjoy the same rights in all respects; and(b) are fungible with each other.(3) Long and short positions in different

BIPRU 7.2.38R01/01/2007

A firm may net a short notional position in the cheapest to deliver security arising from a short future or forward (see BIPRU 7.2.13R(2)(a)) under which the seller has a choice of which debt security it may use to settle its obligations against a long position in any deliverable security up to a maximum of 90% of the common nominal amounts. The residual long and short nominal amounts must be treated as separate long and short positions.

BIPRU 7.2.40R01/01/2007

A firm may net a notional long position in a zero-specific-risk security against a notional short position in a zero-specific-risk security if:(1) they are denominated in the same currency;(2) their coupons do not differ by more than 15 basis points; and(3) they mature:(a) on the same day, if they have residual maturities of less than one month;(b) within 7 days of each other, if they have residual maturities of between one month and one year; and(c) within 30 days of each other,

BIPRU 7.2.41R01/01/2007

A firm must not net a reduced net underwriting position in a debt security with any other debt securityposition.

BIPRU 7.2.42AR31/12/2011

3A correlation trading portfolio may only consist of securitisation positions and nth-to-default credit derivatives that meet the following criteria:(1) the positions are neither resecuritisation positions, nor options on a securitisation position, nor any other derivatives of securitisationexposures that do not provide a pro-rata share in the proceeds of a securitisationtranche;(2) all reference instruments are either single-name instruments, including single-name credit derivatives,

BIPRU 7.2.42BR31/12/2011

3Positions which are not securitisation positions or nth-to-default credit derivatives may be included in the correlation trading portfolio only if they hedge other such positions in this portfolio and a liquid two-way market exists for the relevant position or its reference entities.

BIPRU 7.2.42DR31/12/2011

3A firm must calculate both the net long and the net short positions in the correlation trading portfolio by applying BIPRU 7.2.36 R and BIPRU 7.2.37 R or, where applicable, BIPRU 7.11.13 R to BIPRU 7.11.17 R.

BIPRU 7.2.43R01/04/2013

(1) A firm must calculate the specific risk portion of the interest rate PRR for each debt security by multiplying the market value of the individual net position (ignoring the sign) by the appropriate position risk adjustment from the table in BIPRU 7.2.44R or as specified by BIPRU 7.2.45R - BIPRU 7.2.48L R or by BIPRU 7.11.13 R - BIPRU 7.11.17 R.33(2) Notional positions in zero-specific-risk securities do not attract specific risk.(3) For the purpose of (1), a firm may cap the

BIPRU 7.2.44R01/04/2013

Table: specific risk position risk adjustments

This table belongs to BIPRU 7.2.43R.

Issuer	Residual maturity	Position risk adjustment
Debt securities issued or guaranteed by central governments, issued by central banks, international organisations, multilateral development banks or EEA States' regional governments or local authorities which would qualify for credit quality step 1 or which would receive a 0% risk weight under the standardised approach to credit risk.	Any	0%
(A) Debt securities issued or guaranteed by central governments, issued by central banks, international organisations, multilateral development banks or EEA States' regional governments or local authorities which would qualify for credit quality step 2 or 3 under the standardised approach to credit risk. (B) Debt securities issued or guaranteed by institutions which would qualify for credit quality step 1 or 2 under the standardised approach to credit risk. (C) Debt securities issued or guaranteed by institution which would qualify for credit quality step 3 under BIPRU 3.4.34 R (Exposures to institutions: Credit assessment based method) or which would do so if it had an original effective maturity of three months or less. (D) Debt securities issued or guaranteed by corporates which would qualify for credit quality step 1, 2 or 32 under the standardised approach to credit risk. (E) Other qualifying debt securities (see BIPRU 7.2.49R) 2	Zero to six months	0.25%
	over 6 and up to and including 24 months	1%
	Over 24 months	1.6%
(A) Debt securities issued or guaranteed by central governments, issued by central banks, international organisations, multilateral development banks or EEA States' regional governments or local authorities or institutions which would qualify for credit quality step 4 or 5 under the standardised approach to credit risk. (B) Debt securities issued or guaranteed by corporates which would qualify for credit quality step 4 under the standardised approach to credit risk. (C) Exposures for which a credit assessment by a nominated ECAI is not available. 2	Any	8%
(A) Debt securities issued or guaranteed by central governments, issued by central banks, international organisations, multilateral development banks or EEA States' regional governments or local authorities or institution which would qualify for credit quality step 6 under the standardised approach to credit risk. (B) Debt securities issued or guaranteed by corporate which would qualify for credit quality step 5 or 6 under the standardised approach to credit risk. (C) An instrument that shows a particular risk because of the insufficient solvency of the issuer of liquidity. This paragraph applies even if the instrument would otherwise qualify for a lower position risk adjustment under this table.	Any	12%
Note: The question of what a corporate is and of what category a debt security falls into must be decided under the rules relating to the standardised approach to credit risk.

[Note:CAD Annex I point 14 Table 1]2

BIPRU 7.2.46R01/04/2013

A debt security issued by a non-qualifying issuer must receive a specific risk position risk adjustment of 8% or 12% according to the table in BIPRU 7.2.44R. However a firm must apply a higher specific risk position risk adjustment to such a debt security and/or not recognise offsetting for the purposes of defining the extent of general market risk between such a security and any other debt securities to the extent that doing otherwise would not be a prudent treatment of specific

BIPRU 7.2.46AG31/12/2011

3BIPRU 7.2.43 R includes both actual and notional positions. However, notional positions in a zero-specific-risk security do not attract specific risk. For example:(1) interest-rate swaps, foreign-currency swaps, FRAs, interest-rate futures, foreign-currencyforwards, foreign-currencyfutures, and the cash leg of repurchase agreements and reverse repurchase agreements create notional positions which will not attract specific risk; while(2) futures, forwards and swaps which are based

BIPRU 7.2.48AR01/04/2013

(1) 3Subject to (3), a firm must calculate the specific risk portion of the interest rate PRR for each securitisation and resecuritisationposition by multiplying the market value of the individual net position (ignoring the sign) by the appropriate position risk adjustment from the table in BIPRU 7.2.48D R or BIPRU 7.2.48E R, or in accordance with BIPRU 7.2.48F R, as applicable.(2) In calculating the specific risk capital charge of an individual net securitisation or resecuritisation

BIPRU 7.2.48DR01/04/2013

Table: specific risk position risk adjustments - standardised approach

3Credit quality step	1	2	3	4 (only for credit assessments other than short-term credit assessments)	All other credit quality steps
Securitisations	1.6%	4%	8%	28%	100%
Resecuritisations	3.2%	8%	18%	52%	100%
A firm may only apply the position risk adjustments in this table where it would have to calculate a risk weighted exposure amount in accordance with the standardised approach to securitisation and resecuritisation positions if such positions were in its non-trading book under BIPRU 9. The appropriate position risk adjustment is calculated as 8% of the risk weight that would apply to the position under the standardised approach in BIPRU 9.11.2 R, subject to the requirements of BIPRU 9.9 to BIPRU 9.11, where appropriate.

BIPRU 7.2.48ER01/04/2013

Table: specific risk Position Risk Adjustments - IRB approach

3Credit Quality Step		Securitisation positions			Resecuritisation positions
Credit assessments other than short term	Short-term credit assessments	A	B	C	D	E
1	1	0.56%	0.96%	1.6%	1.6%	2.4%
2		0.64%	1.20%	2%	2%	3.2%
3		0.8%	1.44%	2.8%	2.8%	4%
4	2	0.96%	1.6%		3.2%	5.2%
5		1.60%	2.8%		4.8%	8%
6		2.8%	4%		8%	12%
7	3	4.8%	6%		12%	18%
8		8%			16%	28%
9		20%			24%	40%
10		34%			40%	52%
11		52%			60%	68%
all other unrated		100%
A firm may only apply the position risk adjustments in this table where it would have to calculate a risk weighted exposure amount in accordance with the IRB approach to securitisation and resecuritisation positions if such positions were in its non-trading book under BIPRU 9. The appropriate position risk adjustment is calculated as 8% of the risk weight that would apply to the position under the IRB approach in BIPRU 9.12.11 R, subject to the requirements in BIPRU 9.12 where appropriate.

BIPRU 7.2.48FR01/04/2013

(1) 3A firm may use the supervisory formula method to calculate the appropriate position risk adjustment for specific risk where:(a) the firm is permitted to apply the supervisory formula method to the same position if it was held in its non-trading book in accordance with BIPRU 9.12; or(b) otherwise, the firm is expressly permitted by its VaR model permission to apply the supervisory formula method to calculate the appropriate position risk adjustment for specific risk.(2) The

BIPRU 7.2.48GR01/04/2013

3Where a securitisation position in the trading book is subject to an increased risk weight in accordance with BIPRU 9.15, the appropriate position risk adjustment must be calculated as 8% of the risk weight that would apply to the position in accordance with BIPRU 9.15.

BIPRU 7.2.48IG01/04/2013

(1) 3Subject to BIPRU 7.2.48J G, BIPRU 9.15.9 R and BIPRU 9.15.10 R, where the investor, originator or sponsor of a securitisation fails to meet any of the requirements in BIPRU 9.3.18 R to BIPRU 9.3.20 R (Disclosure requirements) and BIPRU 9.15.11 R to BIPRU 9.15.16 R (investor due diligence requirements) in any material respect by reason of its negligence or omission, the appropriate regulator will use its powers under section 55J (Variation etc. on the Authority's own initiative)

BIPRU 7.2.48LR01/04/2013

(1) 3Where a firm holds a position in the correlation trading portfolio, it must calculate:(a) The total specific risk capital charges that would apply just to the net long positions of the correlation trading portfolio; and(b) The total specific risk capital charges that would apply just to the net short positions of the correlation trading portfolio.(2) The higher of (1)(a) and (1)(b) will be the specific risk capital charge for the correlation trading portfolio.(3) In calculating

BIPRU 7.2.55G01/01/2007

The interest rate simplified maturity method weights individual net positions to reflect their price sensitivity to changes in interest rates. The weights are related to the coupon and the residual maturity of the instrument (or the next interest rate re-fix date for floating rate items).

BIPRU 7.2.56R01/04/2013

Under the interest rate simplified maturity method, the portion of the interest rate PRR for general market risk equals the sum of each individual net position (long or short) multiplied by the appropriate position risk adjustment in the table in BIPRU 7.2.57R. A firm must assign its net positions to the appropriate maturity bands in the table in BIPRU 7.2.57R on the basis of residual maturity in the case of fixed-rate instruments and on the basis of the period until the interest

BIPRU 7.2.57R01/04/2013

Table: general market risk Position Risk Adjustments

This table belongs to BIPRU 7.2.56R.

Zone	Maturity band		position risk adjustment
Zone	Coupon of 3% or more	Coupon of less than 3%	position risk adjustment
One	0 ≤ 1 month	0 ≤ 1 month	0.00%
	> 1 ≤ 3 months	> 1 ≤ 3 months	0.20%
	> 3 ≤ 6 months	> 3 ≤ 6 months	0.4%
	> 6 ≤ 12 months	> 6 ≤ 12 months	0.7%
Two	> 1 ≤ 2 years	> 1.0 ≤ 1.9 years	1.25%
	> 2 ≤ 3 years	> 1.9 ≤ 2.8 years	1.75%
	> 3 ≤ 4 years	> 2.8 ≤ 3.6 years	2.25%
Three	> 4 ≤ 5 years	> 3.6 ≤ 4.3 years	2.75%
	> 5 ≤ 7 years	> 4.3 ≤ 5.7 years	3.25%
	> 7 ≤ 10 years	> 5.7 ≤ 7.3 years	3.75%
	> 10 ≤ 15 years	> 7.3 ≤ 9.3 years	4.5%
	> 15 ≤ 20 years	> 9.3 ≤ 10.6 years	5.25%
	> 20 years	> 10.6 ≤ 12.0 years	6.00%
		> 12.0 ≤ 20.0 years	8.00%
		> 20 years	12.50%

BIPRU 7.2.58G01/01/2007

The interest rate maturity method builds on the interest rate simplified maturity method by partially recognising offsetting positions. BIPRU 7.2.61G provides an illustration of the interest rate maturity method.

BIPRU 7.2.59R01/04/2013

Under the interest rate maturity method, the portion of the interest rate PRR for general market risk is calculated as follows:(1) Step 1: each net position is allocated to the appropriate maturity band in the table in BIPRU 7.2.57R and multiplied by the corresponding position risk adjustment;(2) Step 2: weighted long and short positions are matched within:(a) the same maturity band;(b) the same zone (using unmatched positions from (a)); and(c) different zones (using unmatched

BIPRU 7.2.61G01/01/2007

This paragraph sets out an example of a calculation under the interest rate maturity method. In this example, a firm with a £ sterling base currency is processing its euro denominated positions.

BIPRU 7.2.64R01/01/2007

Under the interest rate duration method, the portion of the interest rate PRR for general market risk is calculated as follows:(1) Step 1: allocate each net position to the appropriate duration zone in the table in BIPRU 7.2.65R and multiply it by:(a) its modified duration (using the formula in BIPRU 7.2.63R); and(b) the appropriate assumed interest rate change in the table in BIPRU 7.2.65R;(2) Step 2: match weighted long and short positions:(a) within zones; and(b) across zones

BIPRU 7.3.1R01/01/2007

(1) A firm must calculate its equity PRR by:(a) identifying which positions must be included within the PRR calculation (see BIPRU 7.3.2R);(b) deriving the net position in each equity in accordance with BIPRU 7.3.23R;(c) including each of those net positions in either the simplified equity method (see BIPRU 7.3.29R) or, subject to BIPRU 7.3.27R, the standard equity method (see BIPRU 7.3.32R); and(d) summing the PRR on each net position as calculated under the simplified equity

BIPRU 7.3.2R01/01/2007

A firm'sequity PRR calculation must:(1) include all trading bookpositions in equities, unless:(a) the position is fully deducted as a material holding under the calculations under the capital resources table, in which case the firm may exclude it; or(b) the position is hedging an option or warrant which is being treated under BIPRU 7.6.26R (Table: Appropriate treatment for equities, debt securities or currencies hedging options);(2) include notional positions arising from trading

BIPRU 7.3.5G01/01/2007

BIPRU 7.3.2R(1) includes net underwriting positions or reduced net underwriting positions in equities. BIPRU 7.3.27R requires a firm to use the simplified equity method in the case of reduced net underwriting positions. In the case of net underwriting positions that have not been reduced according to BIPRU 7.8.27R (Calculating the reduced net underwriting position), there is no such restriction; a firm can choose which of the two equity methods to use.

BIPRU 7.3.9G01/01/2007

BIPRU 7.3.10R - BIPRU 7.3.21R convert the instruments listed in the table in BIPRU 7.3.3R into notional positions in individual equities, equity baskets or equity indices.

BIPRU 7.3.10R01/01/2007

Unless specified otherwise, the value of each notional equityposition equals the quantity of that equity underlying the instrument multiplied by the current market value of the equity.

BIPRU 7.3.11G01/01/2007

(1) An example of BIPRU 7.3.10R is as follows. The current market value of a particular equity is £2.50. If a firm contracts to sell this equity in five year's time for £3 it would treat the notional short equityposition as having a value of £2.50 when calculating the equity PRR.(2) In effect, the forward position has been treated as being equivalent to a spot position for the purposes of calculating equity PRR. To capture the risk that the forward price changes relative to the

BIPRU 7.3.12R01/01/2007

A depository receipt must be treated as a notional position in the underlying equity.

BIPRU 7.3.13R01/01/2007

Where a convertible is included in BIPRU 7.3's PRR calculation (see the table in BIPRU 7.3.3R):(1) it must be treated as a position in the equity into which it converts; and(2) the firm'sequity PRR must be adjusted by making:(a) an addition equal to the current value of any loss which the firm would make if it did convert to equity; or(b) a deduction equal to the current value of any profit which the firm would make if it did convert to equity (subject to a maximum deduction equal

BIPRU 7.3.14R01/01/2007

A future (including a synthetic future), forward or CFD on a single equity must be treated as a notional position in that equity.

BIPRU 7.3.15R01/01/2007

A future (including a synthetic future), forward or CFD on an equity index or basket must be treated as either:(1) a position in each of the underlying equities; or(2) the positions shown in the table in BIPRU 7.3.16R.

BIPRU 7.3.16R01/01/2007

Table: Instruments which result in notional positions

This table belongs to BIPRU 7.3.15R(2)

	Under the simplified equity method (BIPRU 7.3.29R)	Under the standard equity method (BIPRU 7.3.32R)
Only one country in the index or basket (see BIPRU 7.3.32R)	One position in the index or basket	One position in the index or basket
More than one country in the index or basket	One position in the index or basket	Several notional basket positions, one for each country	or	One notional basket position in a separate, notional country

BIPRU 7.3.17G01/01/2007

An example of BIPRU 7.3.16R is as follows. A firm decides to treat a FTSE Eurotop 300 future under the standard equity method, and furthermore, chooses to treat it as one notional position. The table in BIPRU 7.3.16R requires that this notional position be treated as if it were from a separate notional country rather than any of the countries to which the underlying equities are from.

BIPRU 7.3.18R01/01/2007

The notional positions created under BIPRU 7.3.15R have the following values:(1) where only one notional position is created, it has a value equal to the total market value of the equities underlying the contract; or(2) where more than one notional position is created, each one has a value which reflects the relevant equity's or country's contribution to the total market value of the equities underlying the contract.

BIPRU 7.3.19R01/01/2007

The equity leg of an equityswap must be treated as a position in the underlying equity, equity basket or equity index, which is:(1) long, if the firm has contracted to receive any increase and pay any decrease in the value of the underlying equities or equity index; and(2) short, if the firm has contracted to receive any decrease and pay any increase in the value of the underlying equities or equity index.

BIPRU 7.3.21R01/01/2007

If included in BIPRU 7.3's PRR calculation (see the table in BIPRU 7.3.3R), options must be treated as follows:(1) an option on a single equity must be treated as a notional position in that equity;(2) an option on a basket of equities or equity index must be treated as a future on that basket or index; and(3) an option on an equityfuture must be treated as:(a) a long position in that future, for purchased call options and written put options; and(b) a short position in that future,

BIPRU 7.3.22R01/01/2007

The net position in each equity is the difference between the value of the firm's long positions (including notional positions) and the value of its short positions (including notional positions) in the same equity.

BIPRU 7.3.23R01/01/2007

(1) When deriving the net position in each equity, a firm must not net long and short positions except in accordance with this rule.(2) Subject to (3), a firm may net long and short positions in the same equity. Two equities are the same if and only if they:(a) enjoy the same rights in all respects; and(b) are fungible with each other.(3) Long and short positions in different tranches of the same equity may be treated as being in the same equity for the purpose of (1), where:(a)

BIPRU 7.3.24R01/01/2007

A firm must not net a reduced net underwriting position with any other equityposition.

BIPRU 7.3.25G01/01/2007

BIPRU 7.3.24R only relates to reduced net underwriting position.

BIPRU 7.3.26G01/01/2007

BIPRU 7.3.1R (1) requires that the net position in each equity be included in either the simplified equity method or the standard equity method, subject to the restriction in BIPRU 7.3.27R. A firm does not have to use the same method for all equities.

BIPRU 7.3.27R01/01/2007

A firm must use the simplified equity method for reduced net underwriting positions.

BIPRU 7.3.28G01/01/2007

A firm may use either method for a net underwriting position; BIPRU 7.3.27R only relates to reduced net underwriting positions.

BIPRU 7.3.29R01/04/2013

Under the simplified equity method, the PRR for each equity, equity index, or equity basket equals the market value of the net position (ignoring the sign) multiplied by the appropriate position risk adjustment from the table in BIPRU 7.3.30R. The result must be converted into the firm'sbase currency at current spot foreign currency rates.

BIPRU 7.3.30R01/04/2013

Table: simplified equity method position risk adjustments

This table belongs to BIPRU 7.3.29R

Instrument	Position risk adjustment
Single equities	16%2 2
Qualifying equity indices 2 (see BIPRU 7.3.38R) 2	8%
All other equity indices or baskets	16%2 2
If it is necessary to distinguish between the specific risk position risk adjustment and the general market risk position risk adjustment, the specific risk position risk adjustment for the first and third rows is 8%2 and that for the second row is 0%. The rest of the position risk adjustment in the second column is the general market risk position risk adjustment 2

BIPRU 7.3.31G01/01/2007

The standard equity method divides the risk of loss from a firm'sequitypositions into the risk of loss from a general move in a country's equity market and the risk of loss from an individual equity's price changing relative to that country's equity market. These are called general market risk and specific risk respectively.

BIPRU 7.3.32R01/01/2007

Under the standard equity method, a firm must:(1) group equitypositions into country portfolios as follows:(a) a position in an individual equity belongs to:(i) the country it is listed in;(ii) any of the countries it is listed in, if more than one; or(iii) the country it was issued from, if unlisted;(b) a position in an equity basket or index that is treated under BIPRU 7.3.15R(2), is allocated to one or more country portfolios based on the countries to which the underlying equities

BIPRU 7.3.33R01/04/2013

Under the standard equity method, a firm must calculate a PRR for specific risk based on the net position in each equity, equity index or equity basket by multiplying its market value (ignoring the sign) by the appropriate position risk adjustment from the table in BIPRU 7.3.34R.

BIPRU 7.3.34R01/04/2013

Table: position risk adjustment for specific risk under the standard equity method

This table belongs to BIPRU 7.3.33R1

Instrument	Position risk adjustment
Qualifying equity indices 2 (see BIPRU 7.3.38R) 2	0%
All equities, and other2 equity indices or equity 2 baskets 2 2	8%2 2

BIPRU 7.3.44G01/01/2007

A basic interest rate PRR calculation is included in BIPRU 7.3 for a firm that does not wish to use the calculation in BIPRU 7.2 (Interest rate PRR). However, it tends to result in higher charges than the methods in BIPRU 7.2, largely because the interest rate PRR is calculated on each notional equityposition separately and then summed without offsetting long and short positions.

BIPRU 7.3.45R01/01/2007

This rule applies to a firm that does not include a forward, future, option or swap on an equity, basket of equities or equity index in the calculation of its interest rate PRR calculation under BIPRU 7.2 (Interest rate PRR). However it does not apply to cliquet as defined in BIPRU 7.6.18R (Table: Option PRR: methods for different types of option). A firm must calculate the interest rate PRR for a position being treated under this rule as follows:(1) multiply the market value

BIPRU 7.3.48R01/01/2007

If a firm nets off positions in one or more of the equities constituting an equity index future, forward or CFD against one or more positions in the equity index future, forward or CFD itself, the firm must apply an additional equity PRR to the netted position to cover the risk of loss caused by the value of the future, forward or CFD not moving fully in line with that of its constituent equities. The same applies if a firm holds opposite positions in a future, forward or CFD

BIPRU 7.10.18R01/01/2007

A firm must use the VaR model approach to calculate the PRR for a position:(1) to the extent that the risks in relation to that position are within the scope of the VaR model permission (see BIPRU 7.10.136R (Link to standard PRR rules: Incorporation of the model output into the capital calculation)); and(2) if the position is of a type that comes within the scope of the VaR model permission.

BIPRU 7.10.20G01/01/2007

A VaR model permission will generally set out the broad classes of position within its scope. It may also specify how individual products within one of those broad classes may be brought into or taken out of the scope of the VaR model permission.

BIPRU 7.10.21G01/01/2007

The broad classes of position referred to in BIPRU 7.10.20G are as follows:(1) linear products, which comprise securities with linear pay-offs (e.g. bonds and equities) and derivative products which have linear pay-offs in the underlying risk factor (e.g. interest rate swaps, FRAs, total return swaps);(2) European, American and Bermudan put and call options (including caps, floors and swaptions) and investments with these features (see BIPRU 7.6.18R (Table: Option PRR: methods

BIPRU 7.10.32G01/01/2007

A data series is unreliable if it has, for example, missing data points, or data points which contain stale data. Reliable data series may be difficult to obtain for new products (for example an instrument of longer dated tenor that did not previously trade) and for less liquid risk factors or positions. With regard to less liquid risk factors or positions, a firm may use a combination of prudent valuation techniques and alternative VaR estimation techniques to ensure there is

BIPRU 7.10.39AR31/12/2011

3A firm must incorporate risk factors that are included in its pricing model in its VaR model. A firm'sVaR model must capture nonlinearities for options and other products, as well as correlation risk and basis risk. Where proxies for risk factors are used they must show a good track record for the actual position held. In addition, BIPRU 7.10.40 R to BIPRU 7.10.44 R apply for individual risk types.

BIPRU 7.10.40R01/01/2007

For interest rate risk, a VaR model must incorporate a set of risk factors corresponding to the interest rate curves in each currency in which the firm has interest rate sensitive positions. A firm must ensure that it captures the variations of volatility of rates along the yield curve. In order to achieve this, a firm must divide the yield curves of, at a minimum, the major currencies and markets in which it has material interest rate exposures into a minimum of six maturity

BIPRU 7.10.41R01/01/2007

For equity risk, a VaR model must use a separate risk factor at least for each of the equity markets in which the firm has material positions.

BIPRU 7.10.42R01/01/2007

For foreign currency risk, a VaR model must incorporate risk factors corresponding to the individual foreign currencies, including gold, in which the firm'spositions are denominated.

BIPRU 7.10.43R01/01/2007

For commodity risk, the VaR model must use a separate risk factor at least for each commodity in which the firm has material positions. The VaR model must also capture the risk of less than perfectly correlated movements between similar, but not identical, commodities and the exposure to changes in forward prices arising from maturity mismatches. It must also take account of market characteristics, notably delivery dates and the scope provided to traders to close out position

BIPRU 7.10.44R01/01/2007

(1) For CIUs the actual foreign currencypositions of the CIU must be taken into account.(2) A firm may rely on third party reporting of the foreign currencyposition of the CIU, where the correctness of this report is adequately ensured.(3) If a firm is not aware of the foreign currencypositions in a CIU, this position must be carved out and treated in BIPRU 7.5.18R (Derivation of notional positions in CIUs for the foreign currencyPRR).

BIPRU 7.10.45G01/04/2013

(1) This paragraph contains guidance on the inclusion of CIUs in a VaR model.(2) The appropriate regulator may allow all types of CIU to be included within the scope of a firm'sVaR model permission.(3) BIPRU 7.10 does not distinguish between specific risk and general market risk for positions in CIUs. Therefore even if specific risk is not otherwise included within the scope of a firm'sVaR model permission, a firm should be able to demonstrate that its VaR model captures specific

BIPRU 7.10.46R31/12/2011

(1) If a firm'sVaR model covers the calculation of PRR with respect to specific risk the firm must meet the VaR specific risk minimum requirements in addition to the other requirements of BIPRU 7.10.(2) The VaR model must explain the historical price variation in the portfolios concerned.(3) The VaR model must capture concentration in terms of magnitude and changes of composition of the portfolios concerned.(4) The VaR model must be robust to an adverse environment.(5) The VaR

BIPRU 7.10.48R31/12/2011

(1) [deleted]33(2) A firm'sVaR model must conservatively assess the risk arising from less liquid positions and positions with limited price transparency under realistic market scenarios. In addition, the VaR model must meet minimum data standards. Proxies must be appropriately conservative and may be used only where available data is insufficient or is not reflective of the true volatility of a position or portfolio.

BIPRU 7.10.53R01/01/2007

A firm'sVaR model must capture accurately all material price risks for positions within the scope of its VaRpermission, including risks relating to options or option-like positions. The firm must ensure that, if its VaR model does not accurately capture any material risk, the firm has capital resources adequate to cover that risk. These capital resources must be additional to those required to meet its capital resources requirement.

BIPRU 7.10.55BR31/12/2011

3The incremental risk charge must cover all positions which are subject to a capital charge for interest-rate specific risk in accordance with the firm'sVaR model permission, except securitisationpositions and nth-to-default credit derivatives. Where permitted by its VaR model permission, a firm may choose consistently to include all listed equity positions and derivativespositions based on listed equities for which that inclusion is consistent with how the firm internally measures

BIPRU 7.10.55ER31/12/2011

3The firm's approach must be based on the assumption of a constant level of risk over the one-year capital horizon, implying that given individual trading bookpositions or sets of positions that have experienced default or migration over their liquidity horizon are re-balanced at the end of their liquidity horizon to attain the initial level of risk. Alternatively, a firm may choose consistently to use a one-year constant position assumption.

BIPRU 7.10.55FR31/12/2011

(1) 3The firm's liquidity horizons for calculating incremental risk charge must be set according to the time required to sell the position or to hedge all material and relevant price risks in a stressed market, having particular regard to the size of the position.(2) Liquidity horizons must reflect actual practice and experience during periods of both systematic and idiosyncratic stresses. The liquidity horizon must be measured under conservative assumptions and must be sufficiently

BIPRU 7.10.55GR31/12/2011

3The determination of the appropriate liquidity horizon for a position or set of positions is subject to a floor of three months. The determination of the appropriate liquidity horizon for a position or set of positions must take into account a firm's internal policies relating to valuation adjustments and the management of stale positions.

BIPRU 7.10.55HR31/12/2011

3When a firm determines liquidity horizons for sets of positions rather than for individual positions, the criteria for defining sets of positions must be defined in a way that meaningfully reflects differences in liquidity. The liquidity horizons must be greater for positions that are concentrated, reflecting the longer period needed to liquidate those positions.

BIPRU 7.10.55JR31/12/2011

(1) 3Hedges may be incorporated into the calculation of a firm'sincremental risk charge. Positions may be netted only when long and short positions refer to the same financial instrument.(2) Hedging or diversification effects associated with long and short positions involving different instruments or different securities of the same obligor, as well as long and short positions in different issuers, may only be recognised by explicitly modelling gross long and short positions in

BIPRU 7.10.55KR31/12/2011

3For trading bookpositions that are hedged via dynamic hedging strategies, a rebalancing of the hedge within the liquidity horizon of the hedged position may be recognised only if the firm:(1) chooses to model rebalancing of the hedge consistently over the relevant set of trading bookpositions;(2) demonstrates that the inclusion of rebalancing results in a better risk measurement;(3) demonstrates that the markets for the instruments serving as hedges are liquid enough to allow

BIPRU 7.10.55LR31/12/2011

(1) 3The incremental risk charge must reflect the nonlinear impact of options, structured credit derivatives and other positions with material nonlinear behaviour with respect to price changes.(2) The firm must also consider the amount of model risk inherent in the valuation and estimation of price risks associated with those products.

BIPRU 7.10.55TR01/04/2013

3As part of its VaR model permission, the appropriate regulator may authorise a firm to use the all price risk measure to calculate an additional capital charge in relation to positions in its correlation trading portfolio if it meets the following minimum standards:(1) it adequately captures all price risks at a 99.9% confidence interval over a capital horizon of one year under the assumption of a constant level of risk, and adjusted, where appropriate, to reflect the impact

BIPRU 7.10.55UR31/12/2011

3The amount of the capital charge for the correlation trading portfolio calculated in accordance with the all price risk measure must not be less than 8% of the capital charge that would result from applying BIPRU 7.2.48L R to all positions in the correlation trading portfolio subject to the all price risk measure.

BIPRU 7.10.55VR31/12/2011

3A firm may include in its all price risk measurepositions that are jointly managed with positions in the correlation trading portfolio and would otherwise be included in the incremental risk charge. In that case, the firm must exclude these positions from the calculation of its incremental risk charge.

BIPRU 7.10.55WR31/12/2011

3A firm must have sufficient market data to ensure that it fully captures the salient risks of the positions in its all price risk measure in accordance with the standards set out in BIPRU 7.10.55T R.

BIPRU 7.10.55XR01/04/2013

3A firm must demonstrate through backtesting or other appropriate means that its all price risk measure can appropriately explain the historical price variation of these positions. A firm must be able to demonstrate to the appropriate regulator that it can identify the positions within its correlation trading portfolio, in relation to which it is authorised to use the all price risk measure, separately from those other positions in relation to which it is not authorised to do

BIPRU 7.10.55ZR01/04/2013

(1) 3For positions within its correlation trading portfolio in relation to which a firm may use the all price risk measure, a firm must regularly apply a set of specific, predetermined stress scenarios. These stress scenarios must examine the effects of stress to default rates, recovery rates, credit spreads, and correlations on the profit and loss of the correlation trading portfolio.(2) A firm must apply the stress scenarios in (1) at least weekly and report the results to the

BIPRU 7.10.63R01/01/2007

A firm'sgoverning body and senior management must be actively involved in the risk control process, and the daily reports produced by the risk control unit must be reviewed by a level of management with sufficient authority to enforce both reductions of positions taken by individual traders as well as in the firm's overall risk exposure.

BIPRU 7.10.72R14/12/2009

(1) A firm must frequently conduct a rigorous programme of stress testing. The results of these tests must be reviewed by senior management and reflected in the policies and limits the firm sets.(2) The programme must particularly address:(a) concentration risk;(b) illiquidity of markets in stressed market conditions;(c) one way markets;(d) event and jump to default risks;(e) non linearity of products;(f) deep out of the money positions;(g) positions subject to the gapping of

BIPRU 7.10.73AG14/12/2009

2The firm's stress testing programme should be comprehensive in terms of both risk and firm coverage, and appropriate to the size and complexity of trading bookpositions held.

BIPRU 7.10.75R01/01/2007

At least once a year, a firm must conduct, as part of its regular internal audit process, a review of its risk management process. This review must include both the activities of the business trading units and of the independent risk control unit, and must be undertaken by suitably qualified staff independent of the areas being reviewed. This review must consider, at a minimum:(1) the adequacy of the documentation of the risk management system and process;(2) the organisation

BIPRU 7.10.97G01/01/2007

Generally the positions underlying the profit and loss account and VaR measures should not be materially different.

BIPRU 7.10.115R01/01/2007

The VaR number for any business day means the VaR measure, in respect of the previous business day's close-of-business positions in products coming within the scope of the VaR model permission, calculated by the VaR model and in accordance with BIPRU 7.10 and any methodology set out in the VaR model permission. The VaR number must not be calculated taking into account matters on the business day for which it is the VaR number.

BIPRU 7.10.116R31/12/2011

The incremental risk charge3 for any business day means the incremental risk charge3 required under the provisions in BIPRU 7.10 about specific risk, in respect of the previous business day's close-of-business positions with respect to which those provisions apply.33

BIPRU 7.10.135R01/01/2007

To the extent that a position does not fall within the scope of a firm'sVaR model permission the firm must calculate the PRR under the standard market risk PRR rules1 or, as applicable, those provisions as modified by the firm'sCAD 1waiver.

BIPRU 7.10.136R31/12/2011

(1) This rule applies to a position of a type that comes within the scope of a firm'sVaR model permission.(2) Subject to BIPRU 7.10.136A R, if, 3where the standard market risk PRR rules apply, a position is subject to a PRR charge and the firm'sVaR model permission says that it covers the risks to which that PRR charge relates, the firm must, for those risks, calculate the PRR for that position under the VaR model approach rather than under the standard market risk PRR rules.3(3)

BIPRU 7.10.136AR31/12/2011

3A firm must calculate the market risk capital requirement for securitisation positions and positions in the correlation trading portfolio in accordance with the standard market risk PRR rules, with the exception of those positions subject to the all price risk measure.

BIPRU 7.10.142R01/01/2007

The standard market risk PRR rules for the option PRR are only disapplied to the extent that the derived positions arising under BIPRU 7.6.13R (Table: Derived positions) come within the scope of the VaR model permission.

BIPRU 7.4.1R01/01/2007

A firm must calculate its commodity PRR by:(1) identifying which commodityposition must be included within the scope of the PRR calculation (see BIPRU 7.4.2R);(2) expressing each such position in terms of the standard unit of measurement of the commodity concerned;(3) expressing the spot price in each commodity in the firm'sbase currency at current spot foreign exchange rates;(4) calculating an individual PRR for each commodity (see BIPRU 7.4.20R); and(5) summing the resulting

BIPRU 7.4.2R01/01/2007

A firm'scommodity PRR calculation must, regardless of whether the positions concerned are trading book or non-trading bookpositions:(1) include physical commoditypositions;(2) (if the firm is the transferor of commodities or guaranteed rights relating to title to commodities in a repurchase agreement or the lender of commodities in a commodities lending agreement) include such commodities;(3) include notional positions arising from positions in the instruments listed in the table

BIPRU 7.4.3R01/01/2007

Gold positions are excluded from the scope of the commodity PRR. Instead, they are included within the scope of the foreign exchange PRR (BIPRU 7.5).

BIPRU 7.4.4R01/01/2007

Table: Instruments which result in notional positions

This table belongs to BIPRU 7.4.2R(3)

Instrument	See
Forwards, futures, CFDs, synthetic futures and options on a single commodity (unless the firm calculates a PRR on the option under BIPRU 7.6 (Option PRR))	BIPRU 7.4.8R
A commitment to buy or sell a single commodity at an average of spot prices prevailing over some future period	BIPRU 7.4.10R
Forwards, futures, CFDs, synthetic futures and options on a commodity index (unless the firm calculates an PRR on the option under BIPRU 7.6)	BIPRU 7.4.13R - BIPRU 7.4.14R
Commodity swaps	BIPRU 7.4.16R - BIPRU 7.4.17R
A warrant relating to a commodity must be treated as an option on a commodity.

BIPRU 7.4.5G01/01/2007

BIPRU 7.4.2R includes a trading bookposition in a commodity that is subsequently repo'd under a repurchase agreement or lent under a stock lending agreement. Clearly, if the commodity had initially been obtained via a reverse repurchase agreement or stock borrowing agreement, the commodity would not have been included in the trading book in the first place.

BIPRU 7.4.7G01/01/2007

BIPRU 7.4.8R - BIPRU 7.4.19G convert the instruments listed in the table in BIPRU 7.4.4R into notional positions in the relevant commodities. These notional positions are expressed in terms of quantity (tonnes, barrels, etc), not value. The maturity of the position is only relevant where the firm is using the commodity maturity ladder approach or the commodity extended maturity ladder approach.

BIPRU 7.4.8R01/01/2007

Where a forward, future, CFD, synthetic future or option (unless already included in the firm'soption PRR calculation) settles according to:(1) the difference between the price set on trade date and that prevailing at contract expiry, the notional position:(a) equals the total quantity underlying the contract; and(b) has a maturity equal to the expiry date of the contract; and(2) the difference between the price set on trade date and the average of prices prevailing over a certain

BIPRU 7.4.10R01/01/2007

Commitments to buy or sell at the average spot price of the commodity prevailing over some period between trade date and maturity must be treated as a combination of:(1) a position equal to the full amount underlying the contract with a maturity equal to the maturity date of the contract which is:(a) long, where the firm will buy at the average price; or(b) short, where the firm will sell at the average price; and(2) a series of notional positions, one for each of the reference

BIPRU 7.4.11G01/01/2007

The following guidance provides an example of BIPRU 7.4.10R. In January, a firm agrees to buy 100 tonnes of copper for the average spot price prevailing during the 20 business days in February, and will settle on 30 June. After entering into this agreement, the firm faces the risk that the average price for February increases relative to that for 30 June. Therefore, as highlighted in the table below:(1) the short positions reflect the fact that this could occur because any one

BIPRU 7.4.12G01/01/2007

Table: Example of buying at the average spot price prevailing in the future

This table belongs to BIPRU 7.4.11G

	Application of BIPRU 7.4.10R(1)	Application of BIPRU 7.4.10R(2)
From trade date to start of averaging period	Long position in 100 tonnes of copper with a maturity of 30 June.	A series of 20 notional short positions each equal to 5 tonnes of copper. Each position is allocated a maturity equal to one of the business days in February (one for each day).
During averaging period	Long position in 100 tonnes of copper with a maturity of 30 June.	As each business day goes by in February the price for 5 tonnes of copper is fixed and so there will be one less notional short position.
After averaging period	Long position in 100 tonnes of copper with a maturity of 30 June.	No short positions.

BIPRU 7.4.13R01/01/2007

Commodity index futures and commodity index options (unless the option is included in the firm'soption PRR calculation), must be treated as follows:(1) Step 1: the total quantity underlying the contract must be either:(a) treated as a single notional commodityposition (separate from all other commodities); or(b) divided into notional positions, one for each of the constituent commodities in the index, of an amount which is a proportionate part of the total underlying the contract

BIPRU 7.4.14R01/01/2007

Table: Treatment of commodity index futures and commodity index options

This table belongs to BIPRU 7.4.13R(2)(b)

Construction of index	Notional position (or positions) and maturity
Spot level of index is based on the spot price of each constituent commodity	Each quantity determined in Step 1 as referred to in BIPRU 7.4.13R is assigned a maturity equal to the expiry date of the contract.
Spot level of index is based on an average of the forward prices of each constituent commodity	Each quantity determined in Step 1 as referred to in BIPRU 7.4.13R is divided (on a pro-rata basis) into a series of forward positions to reflect the impact of each forward price on the level of the index. The maturity of each forward position equals the maturity of the relevant forward price determining the level of the index when the contract expires.

BIPRU 7.4.16R01/01/2007

A firm must treat a commodityswap as a series of notional positions, one position for each payment under the swap, each of which:(1) equals the total quantity underlying the contract;(2) has a maturity corresponding to the payment date; and(3) is long or short according to BIPRU 7.4.17R.

BIPRU 7.4.17R01/01/2007

Table: Treatment of commodity swaps

This table belongs to BIPRU 7.4.16R

	Receiving amounts which are unrelated to any commodity's price	Receiving the price of commodity 'b'
Paying amounts which are unrelated to any commodity's price	N/A	Long positions in commodity 'b'
Paying the price of commodity 'a'	Short positions in commodity 'a'	Short positions in commodity 'a' and long positions in commodity 'b'

BIPRU 7.4.18G01/01/2007

The table in BIPRU 7.4.17R shows that where the legs of the swap are in different commodities, a series of forward positions are created for each commodity (that is, a series of short positions in commodity 'a' and a series of long positions in commodity 'b').

BIPRU 7.4.22R01/01/2007

(1) A firm must treat positions in different grades or brands of the same commodity-class as different commodities unless they:(a) can be delivered against each other; or(b) are close substitutes and have price movements which have exhibited a stable correlation coefficient of at least 0.9 over the last 12 months.(2) If a firm relies on (1)(b) it must then monitor compliance with the conditions in that paragraph on a continuing basis.

BIPRU 7.4.24R01/01/2007

A firm which calculates a commodity PRR using the commodity simplified approach must do so by summing:(1) 15% of the net position multiplied by the spot price for the commodity; and(2) 3% of the gross position (long plus short, ignoring the sign) multiplied by the spot price for the commodity;(and for these purposes the excess of a firm's long (short) positions over its short (long) positions in the same commodity (including notional positions under BIPRU 7.4.4R) is its net position

BIPRU 7.4.26R01/01/2007

(1) A firm must calculate the charges referred to in BIPRU 7.4.25R as follows.(2) Step 1: offset long and short positions maturing:(a) on the same day; or(b) (in the case of positions arising under contracts traded in markets with daily delivery dates) within 10 business days of each other.(3) Step 2: allocate the positions remaining after step 1 to the appropriate maturity band in the table in BIPRU 7.4.28R (physical commoditypositions are allocated to band 1).(4) Step 3: match

BIPRU 7.4.27G01/01/2007

The matched amount in BIPRU 7.4.26R is the lesser (ignoring the sign) of either the total long position or the total short position. For example, a band with 1000 long and 700 short results in a matched amount of 700. The unmatched amount would be 300.

BIPRU 7.4.28R01/01/2007

Table: Maturity bands for the maturity ladder approach

This table belongs to BIPRU 7.4.26R

Band	Maturity of position
Band 1	0 ≤ 1 month
Band 2	> 1 month ≤ 3 months
Band 3	> 3 months ≤ 6 months
Band 4	> 6 months ≤ 1 year
Band 5	> 1 year ≤ 2 years
Band 6	> 2 years ≤ 3 years
Band 7	> 3 years

BIPRU 7.4.34G01/01/2007

For the purposes of BIPRU 7.4.31R(1) a firm has a diversified commodity portfolio where it holds positions in more than one commodity in each of the categories set out in the table in BIPRU 7.4.33R and holds positions across different maturities in those individual commodities. A firm would not have a diversified commodity portfolio if it held positions in only one commodity in each of the categories set out in the table in BIPRU 7.4.33R. This is because the rates in the table

BIPRU 7.4.35G01/01/2007

What constitutes significant business in BIPRU 7.4.31R(2) will vary from firm to firm. The more regularly the firm undertakes trades in commodities and the more consistently it has positions in the relevant commodity, the more likely it is to be undertaking significant business for the purposes of BIPRU 7.4.31R(2).

BIPRU 7.4.36R01/01/2007

Where a firm is:(1) treating a commodity index derivative as if it was based on a single separate commodity (see BIPRU 7.4.13R(1)(a)); and(2) using the commodity extended maturity ladder approach to calculate the commodity PRR for that commodity;it must determine which index constituent incurs the highest rate in the table in BIPRU 7.4.33R and apply that rate to the notional position for the purposes of BIPRU 7.4.32R.

BIPRU 7.4.38R01/01/2007

If a short position to which BIPRU 7.4 applies falls due before a long position to which BIPRU 7.4 applies, a firm must also guard against the risk of a shortage of liquidity which may exist in some markets.

BIPRU 7.4.39G01/01/2007

In particular, where BIPRU 7.4.38R applies and the short position constitutes a material position compared to a firm's total commoditypositions, it should consider a further commodity PRR charge in respect of that position depending on the likelihood of a shortage of liquidity in that market.

BIPRU 7.6.1R01/01/2007

A firm must calculate its optionPRR by:(1) identifying which optionpositions must be included within the scope of the optionPRR calculation under BIPRU 7.6.3R - BIPRU 7.6.5R;(2) calculating the derived position in each option in accordance with BIPRU 7.6.9R - BIPRU 7.6.15R;(3) calculating the PRR for each derived position in accordance with BIPRU 7.6.16R - BIPRU 7.6.31R;(4) summing all of the PRRs calculated in accordance with (3).

BIPRU 7.6.2G01/01/2007

Firms are reminded that the table in BIPRU 7.2.4R (Instruments which result in notional positions for the purposes of the interest rate PRR) and the table in BIPRU 7.3.3R (Instruments which result in notional positions for the purposes of the equity PRR) also require an interest rate PRR to be calculated for options on equities, baskets of equities or equities indices. The interaction between BIPRU 7.6 and the rest of Chapter 7 is illustrated in BIPRU 7.6.33G.

BIPRU 7.6.7R01/04/2013

(1) The appropriate position risk adjustment for a position is that listed in the table in BIPRU 7.6.8R against the relevant underlying position.(2) If the firm uses the commodity extended maturity ladder approach or the commodity maturity ladder approach for a particular commodity under BIPRU 7.4 (Commodity PRR) the appropriate position risk adjustment for an option on that commodity is the outright rate applicable to the underlying position (see BIPRU 7.4.26R (Calculating the

BIPRU 7.6.8R01/04/2013

Table: Appropriate position risk adjustment

This table belongs to BIPRU 7.6.7R

Underlying position	Appropriate position risk adjustment
Equity	The position risk adjustment applicable to the underlying equity or equity index in the table in BIPRU 7.3.30R (Simplified equity method)
Interest rate	The sum of the specific risk position risk adjustment (see BIPRU 7.2.43R to BIPRU 7.2.51G (Specific risk calculation)) and the general market risk position risk adjustment (as set out in BIPRU 7.2.57R (General market risk position risk adjustments)) applicable to the underlying position
Debt securities	The sum of the specific risk position risk adjustment (see BIPRU 7.2.43R to BIPRU 7.2.51G (Specific risk calculation)) and the general market risk position risk adjustment (as set out in the table in BIPRU 7.2.57R (General market risk position risk adjustments)) applicable to the underlying position
Commodity	18% (unless BIPRU 7.6.7R requires otherwise)
Currency	8%
Gold	8%
CIU	32% (subject to BIPRU 7.6.6R and BIPRU 7.6.7R)

BIPRU 7.6.9R01/01/2007

A firm must calculate the derived position specified in the table in BIPRU 7.6.13R for each position included in its option PRR calculation.

BIPRU 7.6.10R01/01/2007

A firm may calculate a derived position for its net position in an option or a warrant, if the relevant options or warrants are identical or may be treated as identical under BIPRU 7.6.11R or BIPRU 7.6.12R.

BIPRU 7.6.13R01/01/2007

Table: Derived positions

This table belongs to BIPRU 7.6.9R

Underlying	Option (or warrant)	Derived position
Equity	Option (warrant) on a single equity or option on a future/forward on a single equity	A notional position in the actual equity underlying the contract valued at the current market price of the equity.
	Option (warrant) on a basket of equities or option on a future/forward on a basket of equities	A notional position in the actual equities underlying the contract valued at the current market price of the equities.
	Option (warrant) on an equity index or option on a future/forward on an equity index	A notional position in the index underlying the contract valued at the current market price of the index.
Interest rate	Option on an interest rate or an interest rate future/FRA	A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the sum of the time to expiry of the contract and the length of the period on which the settlement amount of the contract is calculated valued at the notional amount of the contract.
	Option on an interest rate swap	A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the length of the swap valued at the notional principal amount.
	Interest rate cap or floor	A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the remaining period of the cap or floor valued at the notional amount of the contract.
Debt securities	Option (warrant) on a debt security or option on a future/forward on a debt security	The underlying debt security with a maturity equal to the time to expiry of the option valued as the nominal amount underlying the contract at the current market price of the debt security.
	Option (warrant) on a basket of debt securities or option on a future/forward on a basket of debt securities	A notional position in the actual debt securities underlying the contract valued at the current market price of the debt securities.
	Option (warrant) on an index of debt securities or option on a future/forward on an index of debt securities	A notional position in the index underlying the contract valued at the current market price of the index.
Commodity	Option on a commodity or option on a future/forward on a commodity	An amount equal to the tonnage, barrels or kilos underlying the option with (in the case of a future/forward on a commodity) a maturity equal to the expiry date of the forward or Futures contract underlying the option. In the case of an option on a commodity the maturity of the position falls into Band 1 in the table in BIPRU 7.4.28R (Table: Maturity bands for the maturity ladder approach).
Commodity	Option on a commodity swap	An amount equal to the tonnage, barrels or kilos underlying the option with a maturity equal to the length of the swap valued at the notional principal amount.
CIU (These provisions about CIUs are subject to BIPRU 7.6.35R)	Option (warrant) on a single CIU or option on a future/forward on a single CIU	A notional position in the actual CIU underlying the contract valued at the current market price of the CIU.
	Option (warrant) on a basket of CIUs or option on a future/forward on a basket of CIUs	A notional position in the actual CIUs underlying the contract valued at the current market price of the CIUs.
Gold	Option on gold or option on a future/forward on gold	An amount equal to the troy ounces underlying the option with (in the case of a future/forward on gold) a maturity equal to the expiry date of the forward or futures contract underlying the option.
Currency	Currency option	The amount of the underlying currency that the firm will receive if the option is exercised converted at the spot rate into the currency that the firm will sell if the option is exercised.

BIPRU 7.6.14R01/01/2007

A firm may treat (for the purpose of calculating an option PRR under BIPRU 7.6) an option strategy listed in the table in BIPRU 7.6.15R as the single position in a notional option specified against that strategy in the table in BIPRU 7.6.15R, if:(1) each element of the strategy is transacted with the same counterparty;(2) the strategy is documented as a single structure;(3) the underlying for each part of the composite position (including any actual holding of the underlying)

BIPRU 7.6.15R01/01/2007

Table: Option strategies

This table belongs to BIPRU 7.6.14R

Option strategy (and an example)	Notional option (and rule it must be treated under)
Bull Spread (e.g. buy 100 call and sell 101 call)	One purchased option (treat under BIPRU 7.6.20R)
Bear Spread (e.g. sell 100 put and buy 101 put)	One written option (treat under BIPRU 7.6.21R)
Synthetic Long Call (e.g. long underlying and buy 100 put)	One purchased option (treat under BIPRU 7.6.20R or BIPRU 7.6.24R)
Synthetic Short Call (e.g. short underlying and sell 100 put)	One written option (treat under BIPRU 7.6.21R or BIPRU 7.6.24R)
Synthetic Long Put (e.g. short underlying and buy 100 call)	One purchased option (treat under BIPRU 7.6.20R or BIPRU 7.6.24R)
Synthetic Short Put (e.g. buy underlying and sell 100 call)	One written option (treat under BIPRU 7.6.21R or BIPRU 7.6.24R)
Long Straddle (e.g. buy 100 call and buy 100 put)	One purchased option (treat under BIPRU 7.6.20R)
Short Straddle (e.g. sell 100 call and sell 100 put)	One written option (treat under BIPRU 7.6.21R but with no reduction for the amount the option is out of the money)
Long Strangle (e.g. buy 101 call and buy 99 put)	One purchased option (treat under BIPRU 7.6.20R)
Short Strangle (e.g. sell 99 call and sell 101 put)	One written option (treat under BIPRU 7.6.21R but with no reduction for the amount the option is out of the money)
Long Butterfly (e.g. buy one 100 call, sell two 101 calls, and buy one 102 call)	One purchased option (treat under BIPRU 7.6.20R)
Short Butterfly (e.g. sell one 100 put, buy two 101 puts, and sell one 102 put)	One written option (treat under BIPRU 7.6.21R but with no reduction for the amount the option is out of the money)

Option strategy (and an example)

Notional option (and rule it must be treated under)

Bull Spread

(e.g. buy 100 call and sell 101 call)

One purchased option

(treat under BIPRU 7.6.20R)

Bear Spread

(e.g. sell 100 put and buy 101 put)

One written option

(treat under BIPRU 7.6.21R)

Synthetic Long Call

(e.g. long underlying and buy 100 put)

One purchased option

(treat under BIPRU 7.6.20R or BIPRU 7.6.24R)

Synthetic Short Call

(e.g. short underlying and sell 100 put)

One written option

(treat under BIPRU 7.6.21R or BIPRU 7.6.24R)

Synthetic Long Put

(e.g. short underlying and buy 100 call)

One purchased option

(treat under BIPRU 7.6.20R or BIPRU 7.6.24R)

Synthetic Short Put

(e.g. buy underlying and sell 100 call)

One written option

(treat under BIPRU 7.6.21R or BIPRU 7.6.24R)

Long Straddle

(e.g. buy 100 call and buy 100 put)

One purchased option

(treat under BIPRU 7.6.20R)

Short Straddle

(e.g. sell 100 call and sell 100 put)

One written option

(treat under BIPRU 7.6.21R but with no reduction for the amount the option is out of the money)

Long Strangle

(e.g. buy 101 call and buy 99 put)

One purchased option

(treat under BIPRU 7.6.20R)

Short Strangle

(e.g. sell 99 call and sell 101 put)

One written option

(treat under BIPRU 7.6.21R but with no reduction for the amount the option is out of the money)

Long Butterfly

(e.g. buy one 100 call, sell two 101 calls, and buy one 102 call)

One purchased option

(treat under BIPRU 7.6.20R)

Short Butterfly

(e.g. sell one 100 put, buy two 101 puts, and sell one 102 put)

One written option

(treat under BIPRU 7.6.21R but with no reduction for the amount the option is out of the money)

BIPRU 7.6.16R01/01/2007

A firm must calculate the option PRR for each individual derived optionposition using the method specified in the table in BIPRU 7.6.18R, or, if more than one method is permitted, using one of those methods.

BIPRU 7.6.17R01/01/2007

A firm must convert its positions into its base currency in accordance with the procedures that apply for whichever of the other PRR charges is appropriate (see BIPRU 7.2.1R(3), BIPRU 7.3.1R(2), BIPRU 7.4.1R(3), BIPRU 7.5.19R(2), BIPRU 7.5.20R(3) and BIPRU 7.7.1R(3)).

BIPRU 7.6.18R01/04/2013

Table: Option PRR: methods for different types of option

This table belongs to BIPRU 7.6.16R

Option	Description	Method
American option	An option that may be exercised at any time over an extended period up to its expiry date.	Option standard method or option hedging method if appropriate
European option	An option that can only be exercised at expiry.
Bermudan option	A cross between an American option and European option. The Bermudan option can only be exercised at specific dates during its life.
Asian option	The buyer has the right to exercise at the average rate or price of the underlying over the period (or part of the period) of the option. One variant is where the payout is based on the average of the underlying against a fixed strike price; another variant is where the payout gives at expiry the price of the underlying against the average price over the option period.	Option standard method or option hedging method if appropriate
Barrier option	An option which is either cancelled or activated if the price of the underlying reaches a pre-set level regardless of the price at which the underlying may be trading at the expiry of the option. The knock-out type is cancelled if the underlying price or rate trades through the trigger; while the knock-in becomes activated if the price moves through the trigger.
Corridor option	Provides the holder with a pay-out for each day that the underlying stays within a defined range chosen by the investor.
Ladder option	Provides the holder with guaranteed pay-outs if the underlying trades through a pre-agreed price(s) or rate(s) at a certain point(s) in time, regardless of future performance.
Lock-in option	An option where the pay-out to the holder is locked in at the maximum (or minimum) value of the underlying that occurred during the life of the option.
Look-back option	A European style option where the strike price is fixed in retrospect, that is at the most favourable price (i.e. the lowest (highest) price of the underlying in the case of a call (put)) during the life of the option.
Forward starting option	An option that starts at a future date.
Compound option	An option where the underlying is itself an option (i.e. an option on an option).	Option standard method or option hedging method if appropriate
Interest rate cap	An interest rate option or series of options under which a counterparty contracts to pay any interest costs arising as a result of an increase in rates above an agreed rate: the effect being to provide protection to the holder against a rise above that agreed interest rate.	Option standard method, but no reduction for the amount the option is out of the money is permitted
Interest rate floor	An interest rate option or series of options under which a counterparty contracts to pay any lost income arising as a result of a fall in rates below an agreed rate: the effect being to provide protection to the holder against a fall below that agreed interest rate.
Performance option	An option based on a reference basket comprising any number of assets, where the pay-out to the holder could be one of the following: the maximum of the worst performing asset, or 0; the maximum of the best performing asset, or 0; the maximum of the spreads between several pairs of the assets, or 0.	Option standard method or option hedging method - using the highest position risk adjustment of the individual assets in the basket
Quanto	Quanto stands for "Quantity Adjusted Option". A quanto is an instrument where two currencies are involved. The payoff is dependent on a variable that is measured in one of the currencies and the payoff is made in the other currency.	Subject to BIPRU 7.6.31R, the option standard method
Cliquet option	A cliquet option consists of a series of forward starting options where the strike price for the next exercise date is set equal to a positive constant times the underlying price as of the previous exercise date. It initially acts like a vanilla option with a fixed price but as time moves on, the strike is reset and the intrinsic value automatically locked in at pre-set dates. If the underlying price is below the previous level at the reset date no intrinsic value is locked in but the strike price will be reset to the current price attained by the underlying. If the underlying price exceeds the current level at the next reset the intrinsic value will again be locked in.	Option standard method for a purchased cliquet, or the method specified in BIPRU 7.6.30R for a written cliquet
Digital option	A type of option where the pay-out to the holder is fixed. The most common types are all-or-nothing and one-touch options. All-or-nothing will pay out the fixed amount if the underlying is above (call) or below (put) a set value at expiry. The one-touch will pay the fixed amount if the underlying reaches a fixed point any time before expiry.	The method specified in BIPRU 7.6.29 R
Any other option or warrant		The method specified for the type of instrument whose description it most closely resembles.

BIPRU 7.6.20R01/04/2013

Under the option standard method, the PRR for a purchased option or warrant is the lesser of:(1) the market value of the derived position (see BIPRU 7.6.9R) multiplied by the appropriate position risk adjustment (see BIPRU 7.6.8R); and(2) the market value of the option or warrant.

BIPRU 7.6.22R01/04/2013

Under the option standard method, the PRR for underwriting or sub-underwriting an issue of warrants is the net underwriting position (or reduced net underwriting position) multiplied by the current market price of the underlying securities multiplied by the appropriate position risk adjustment, but the result can be limited to the value of the net underwriting position (or reduced net underwriting position) calculated using the issue price of the warrant.

BIPRU 7.6.24R01/01/2007

Under the option hedging method a firm must calculate the option PRR for individual positions as follows:(1) for an option or warrant on an equity, basket of equities or equity index and its equity hedge(s), the firm must, to the extent specified or permitted in the table in BIPRU 7.6.26R, use the calculation in the table in BIPRU 7.6.27R;(2) for an option or warrant on a debt security, basket of debt securities or debt security index and its debt security hedge(s), the firm must,

BIPRU 7.6.26R01/01/2007

Table: Appropriate treatment for equities, debt securities or currencies hedging options

This table belongs to BIPRU 7.6.24R

Hedge	PRR calculation for the hedge	Limits (if hedging method is used)	Naked position
An equity (hedging an option or warrant)	The equity must be treated in either BIPRU 7.3 (equity PRR) or the option hedging method (see the table in BIPRU 7.6.27R)	The option hedging method must only be used up to the amount of the hedge that matches the notional amount underlying the option or warrant	To the extent that the amount of the hedge (or option or warrant) exceeds the notional amount underlying the option or warrant (or hedge), a firm must apply an equity PRR, interest rate PRR or foreign currency PRR (or the option standard method)
A debt security (hedging an option or warrant)	The debt security must be treated in BIPRU 7.2 (interest rate PRR) or the option hedging method (see the table in BIPRU 7.6.27R)	As for the first row	As for the first row
Gold (hedging a gold option)	The gold must be treated in either BIPRU 7.5 (Foreign currency PRR) or the option hedging method (see the table in BIPRU 7.6.27R)	As for the first row	As for the first row
A currency or currencies (hedging a currency option)	The currency must be treated in either BIPRU 7.5 (Foreign currency PRR) or the option hedging method (see the table in BIPRU 7.6.28R)	As for the first row	As for the first row

BIPRU 7.6.27R01/04/2013

Table: The hedging method of calculating the PRR (equities, debt securities and gold)

This table belongs to BIPRU 7.6.24R(1) - (3)

	PRR
	Option or warrant position	In the money by more than the position risk adjustment	In the money by less than the position risk adjustment	Out of the money or at the money
Long in security or gold	Long put	Zero	Wp	X
Long in security or gold	Short call	Y	Y	Z
Short in security or gold	Long call	Zero	Wc	X
Short in security or gold	Short put	Y	Y	Z
Where:
Wp means	{(position risk adjustment-100%) x The underlying position valued at strike price}		+	The market value of the underlying position
Wc means	{(100% +position risk adjustment x The underlying position valued at strike price}		-	The market value of the underlying position
X means	The market value of the underlying position multiplied by the appropriate position risk adjustment
Y means	The market value of the underlying position multiplied by the appropriate position risk adjustment. This result may be reduced by the market value of the option or warrant, subject to a maximum reduction to zero.
Z means	The option hedging method is not permitted; the option standard method must be used.

BIPRU 7.6.28R01/01/2007

Table: The hedging method of calculating the PRR (currencies)

This table belongs to BIPRU 7.6.24R(4)

PRR
Option position	In the money by more than 8%	In the money by less than 8%	Out of the money or at the money
Long calls & long puts	Zero	W_L	X
Short calls & short puts	Zero	Y	X
Where:
W_L means	(1.08% x U)	-	The market value of the underlying position
U means	The amount of the underlying currency that the firm will receive if the option is exercised, converted at the strike price into the currency that the firm will sell if the option is exercised
X means	The market value of the underlying position multiplied by 8%.
Y means	The market value of the underlying position multiplied by 8%. This result may be reduced by the market value of the option, subject to a maximum reduction to zero.

BIPRU 7.6.31R01/04/2013

If the pay-out to the holder of a quanto option is fixed at the inception of the transaction a firm must add 8% to the position risk adjustment when applying the option standard method.

BIPRU 7.6.35R01/01/2007

For the purpose of identifying the appropriate treatment for the purpose of BIPRU 7.6.5R, the underlying position for the purpose of BIPRU 7.6.8R and the derived position under BIPRU 7.6.13R a firm may choose between treating an option on a CIU as being:(1) a position in the CIU itself; or(2) (if the conditions in BIPRU 7.7 (Position risk requirements for collective investment undertakings) for the use of the method in question are satisfied) positions in the underlying investments

BIPRU 7.6.36G01/04/2013

(1) This paragraph gives an example of how the appropriate position risk adjustment should be calculated for the purpose of deciding whether or not an option on a CIU is sufficiently in the money for the firm to have a choice whether or not to apply an option PRR. This example assumes that there is no leveraging (see BIPRU 7.7.11R (CIU modified look through method)).(2) Say that the CIU contains underlying equityposition and the firm is using one of the CIU look through methods.

BIPRU 7.5.1R01/01/2007

A firm must calculate its foreign currencyPRR by:(1) identifying which foreign currency and gold positions to include in the PRR calculation;(2) calculating the net open position in each currency in accordance with this section (including where necessary the base currency calculated in the same way as it is for foreign currencies) and in gold;(3) calculating the open currency position for foreign currencies as calculated under BIPRU 7.5.19R and the net gold position (see BIPRU

BIPRU 7.5.3R01/01/2007

A firm'sforeign currency PRR calculation must include the following items regardless of whether they are trading book or non-trading bookpositions:(1) all gold positions;(2) all spot positions in foreign currency (that is, all asset items less all liability items, including accrued interest, in the foreign currency in question);(3) all forward positions in foreign currency;(4) all CRD financial instruments and other items which are denominated in a foreign currency;(5) irrevocable

BIPRU 7.5.4R01/04/2013

(1) The following are excluded from a firm'sforeign currency PRR calculation:(a) foreign currency assets which have been deducted in full from the firm'scapital resources under the calculations under the capital resources table;(b) positions hedging (a);(c) positions that a firm has deliberately taken in order to hedge against the adverse effect of the exchange rate on the ratio of its capital resources to its capital resources requirement; and(d) transactions to the extent that

BIPRU 7.5.5R01/01/2007

Table: instruments which result in notional foreign currency positions

This table belongs to BIPRU 7.5.3R(6).

Instruments	See
Foreign currency futures, forwards, synthetic futures and CFDs	BIPRU 7.5.11R
Foreign currency swaps	BIPRU 7.5.13R
Foreign currency options or warrants (unless the firm calculates a PRR on the option or warrant under BIPRU 7.6 (Option PRR)).	BIPRU 7.5.15R
Gold futures, forwards, synthetic futures and CFDs	BIPRU 7.5.16R
Gold options (unless the firm calculates a PRR on the option under BIPRU 7.6).	BIPRU 7.5.17R
Positions in CIUs	BIPRU 7.5.18R

BIPRU 7.5.7R01/01/2007

When determining the currency of denomination firms must:(1) use the currency in which the firm accounts for the instrument where an instrument is quoted in more than one currency; and(2) treat depository receipts as positions in the underlying security.

BIPRU 7.5.8G01/01/2007

Instruments denominated in a foreign currency include, amongst other things, assets and liabilities (including accrued interest); non-foreign currencyderivative; net underwriting positions; reduced net underwriting positions; and irrevocable guarantees (or similar instruments) that are certain to be called.

BIPRU 7.5.9R01/01/2007

Where a contract is based on a basket of currencies, the firm can choose either to derive notional positions in each of the constituent currencies or treat it as a single notional position in a separate notional currency.

BIPRU 7.5.11R01/01/2007

(1) A firm must treat a foreign currencyforward, future, synthetic future or CFD as two notional currency positions as follows:(a) a long notional position in the currency which the firm has contracted to buy; and(b) a short notional position in the currency which the firm has contracted to sell.(2) In (1) the notional positions have a value equal to either:(a) the contracted amount of each currency to be exchanged in the case of a forward, future, synthetic future or CFD held

BIPRU 7.5.13R01/01/2007

(1) A firm must treat a foreign currencyswap as:(a) a long notional position in the currency in which the firm has contracted to receive interest and principal; and(b) a short notional position in the currency in which the firm has contracted to pay interest and principal.(2) In (1) the notional positions have a value equal to either:(a) the nominal amount of each currency underlying the swap if it is held in the non-trading book; or(b) the present value amount of all cash flows

BIPRU 7.5.16R01/01/2007

A forward, future, synthetic future or CFD on gold must be treated as a notional position in gold with a value equal to the amount of gold underlying multiplied by the current spot price for gold.

BIPRU 7.5.18R06/04/2007

(1) This rule deals with positions in CIUs.(2) The actual foreign currencypositions of a CIU must be included in a firm'sforeign currency PRR calculation under BIPRU 7.5.1 R1.(3) A firm may rely on third party reporting of the foreign currencypositions in the CIU, where the correctness of this report is adequately ensured.(4) If a firm is not aware of the foreign currencypositions in a CIU, the firm must assume that the CIU is invested up to the maximum extent allowed under the

BIPRU 7.5.19R01/01/2007

A firm must calculate its open currency position by:(1) calculating the net position in each foreign currency;(2) converting each such net position into its base currency equivalent at current spot rates;(3) summing all short net positions and summing all long net positions calculated under (1) and (2); and(4) selecting the larger sum (ignoring the sign) from (3).

BIPRU 7.5.20R01/01/2007

A firm must calculate its net gold position by:(1) valuing all gold positions using the prevailing spot price for gold (regardless of the maturity of the positions);(2) offsetting long and short positions; and(3) converting the resulting net position into the base currency equivalent using the current spot foreign currency rate.

BIPRU 7.11.2R01/01/2007

BIPRU 7.11.3R - BIPRU 7.11.11R relate to the treatment of the protection seller for the purpose of calculating the securities PRR. Positions are determined in accordance with BIPRU 7.11.4R - BIPRU 7.11.11R.

BIPRU 7.11.4R01/01/2007

A total return swap creates a long position in the general market risk of the reference obligation and a short position in the general market risk of a zero-specific-risk security with a maturity equivalent to the period until the next interest fixing and which is assigned a 0% risk weight under the standardised approach to credit risk. It also creates a long position in the specific risk of the reference obligation.

BIPRU 7.11.5R01/01/2007

A credit default swap does not create a position for general market risk. For the purposes of specific risk, a firm must record a synthetic long position in an obligation of the reference entity, unless the derivative is rated externally and meets the conditions for a qualifying debt security, in which case a long position in the derivative is recorded. If premium or interest payments are due under the product, these cash flows must be represented as notional positions in zero-specific-risk

BIPRU 7.11.6R01/01/2007

A single name credit linked note creates a long position in the general market risk of the note itself, as an interest rate product. For the purpose of specific risk, a synthetic long position is created in an obligation of the reference entity. An additional long position is created in the issuer of the note. Where the credit linked note has an external rating and meets the conditions for a qualifying debt security, a single long position with the specific risk of the note need

BIPRU 7.11.7R01/01/2007

In addition to a long position in the specific risk of the issuer of the note, a multiple name credit linked note providing proportional protection creates a position in each reference entity, with the total notional amount of the contract assigned across the positions according to the proportion of the total notional amount that each exposure to a reference entity represents. Where more than one obligation of a reference entity can be selected, the obligation with the highest

BIPRU 7.11.8R01/01/2007

Where a multiple name credit linked note has an external rating and meets the conditions for a qualifying debt security, a single long position with the specific risk of the note need only be recorded.

BIPRU 7.11.9R01/01/2007

A first-asset-to-default credit derivative creates a position for the notional amount in an obligation of each reference entity. If the size of the maximum credit event payment is lower than the PRR requirement under the method in the first sentence of this rule, the maximum payment amount may be taken as the PRR requirement for specific risk.

BIPRU 7.11.10R01/01/2007

A second-asset-to-default credit derivative creates a position for the notional amount in an obligation of each reference entity less one (that with the lowest specific riskPRR requirement). If the size of the maximum credit event payment is lower than the PRR requirement under the method in the first sentence of this rule, this amount may be taken as the PRR requirement for specific risk.

BIPRU 7.11.12R31/12/2010

For the protection buyer, the positions are determined as the mirror principle 3of the protection seller, with the exception of a credit linked note (which entails no short position in the issuer). If at a given moment there is a call option in combination with a step-up, such moment is treated as the maturity of the protection. In the case of first-to-default credit derivatives and3 nth to default credit derivatives, the treatment in BIPRU 7.11.12AR and BIPRU 7.11.12B R applies

BIPRU 7.11.12CR31/12/2011

A firm must calculate both the net long and the net short positions in credit derivatives by applying BIPRU 7.2.36 R and BIPRU 7.2.37 R and, where applicable, BIPRU 7.2.42A R to BIPRU 7.2.42C R or BIPRU 7.11.13 R to BIPRU 7.11.17 R.4

BIPRU 7.11.14R01/01/2007

(1) A firm may take full allowance when the value of two legs always move in the opposite direction and broadly to the same extent.(2) This will be the case in the following situations:(a) the two legs consist of completely identical instruments; or(b) a long cash position is hedged by a total rate of return swap (or vice versa) and there is an exact match between the reference obligation and the underlying exposure (i.e., the cash position).(3) The maturity of the swap itself

BIPRU 7.11.16R01/01/2007

(1) A firm may take partial allowance when the value of two legs usually move in the opposite direction. This would be the case in the situations set out in (2) - (4).(2) The first situation referred to in (1) is that the position falls under BIPRU 7.11.16 R (2)(b) but there is an asset mismatch between the reference obligation and the underlying exposure. However, the positions meet the following requirements:(a) the reference obligation ranks pari passu with or is junior to

BIPRU 7.11.17R01/01/2007

In all situations not falling under BIPRU 7.11.14 R - BIPRU 7.11.16 R, a firm must assess a specific riskPRR charge against both sides of the positions.

BIPRU 7.11.62G01/01/2007

BIPRU 7.11.5 R requires a firm to recognise any premiums payable or receivable under the contract as notional zero-specific-risk securities. These positions are then entered into the general market risk framework. As premium payments paid under such contracts are contingent on no credit event occurring, a credit event could significantly change the general market risk capital requirement. A firm should consider, under the overall Pillar 2 rule, whether this risk means that the

BIPRU 7.11.63G01/01/2007

If a firm recognises profits on a non-accrual basis it should consider whether the capital requirements for its credit derivatives business adequately cover the risk that any recognised profit may not be achieved due to a credit event occurring. This includes positions for which the firm may have a perfect hedge in place.

BIPRU 7.8.1G01/01/2007

BIPRU 7.8 sets out the method for calculating a net underwriting position or reduced net underwriting position, which is then included in the PRR calculation in other parts of BIPRU 7. It also deals with concentration risk. BIPRU 7.8 only relates to new securities, which is defined in BIPRU 7.8.12R.

BIPRU 7.8.2R01/01/2007

A firm which underwrites or sub-underwrites an issue of securities must, for the purposes of calculating its market risk capital component and its concentration risk capital component:(1) identify commitments to underwrite or sub-underwrite which give rise to an underwritingposition (see BIPRU 7.8.8R);(2) identify the time of initial commitment (see BIPRU 7.8.13R); and(3) calculate the net underwriting position (set out in BIPRU 7.8.17R), reduced net underwriting position or the

BIPRU 7.8.6G01/01/2007

The net underwriting position calculated in BIPRU 7.8.17R will also be used in calculating the net underwriting exposure under BIPRU 7.8.34R.

BIPRU 7.8.7G01/01/2007

The net underwriting position or reduced net underwriting position arising from underwriting or sub-underwriting a rights or warrants issue should be calculated using the current market price of the underlying security for the purposes of the equity PRR or option PRR. However, the PRR will be limited to the value of the net underwriting position calculated using the initial issue price of the rights or warrants. Where there is no market price because the rights or warrants are

BIPRU 7.8.17R01/01/2007

A firm must calculate a net underwriting position by adjusting the gross amount it has committed to underwrite for:(1) any sales or sub-underwriting commitments received that have been confirmed in writing at the time of initial commitment (but excluding any sales in the grey market as defined in BIPRU 7.8.10R (1));(2) any underwriting or sub-underwriting commitments obtained from others since the time of initial commitment;(3) any purchases or sales of the securities since the

BIPRU 7.8.21R01/01/2007

(1) This rule deals with the treatment of short positions that arise when a firm commits to distribute securities that it is underwriting in an amount that exceeds the allocation to the firm made by the issuer of the securities being underwritten.(2) When calculating its net underwriting position, a firm may use an over-allotment option granted to it by the issuer of the securities being underwritten to reduce the short positions in (1).(3) A firm may also use an over-allotment

BIPRU 7.8.22R01/01/2007

Except as provided in BIPRU 7.8.21R, a firm must not take into account an over-allotment option granted to it or another member of the underwriting syndicate in calculating its net underwriting position.

BIPRU 7.8.27R01/01/2007

To calculate the reduced net underwriting position a firm must apply the reduction factors in the table in BIPRU 7.8.28R to the net underwriting position (calculated under BIPRU 7.8.17R) as follows:(1) in respect of debt securities, a firm must calculate two reduced net underwriting positions; one for inclusion in the firm'sinterest rate PRRspecific risk calculation (BIPRU 7.2.43R), the other for inclusion in its interest rate PRRgeneral market risk calculation (BIPRU 7.2.52R);

BIPRU 7.8.28R01/01/2007

Table: Net underwriting position reduction factors

This table belongs to BIPRU 7.8.27R

Underwriting timeline	Debt		Equity
Underwriting timeline	General market risk	Specific risk	Equity
Time of initial commitment until working day 0	0%	100%	90%
Working day 1	0%	90%	90%
Working day 2	0%	75%	75%
Working day 3	0%	75%	75%
Working day 4	0%	50%	50%
Working day 5	0%	25%	25%
Working day 6 and onwards	0%	0%	0%

BIPRU 7.8.30G01/01/2007

Table: Example of the reduced net underwriting position calculation

This table belongs to BIPRU 7.8.29G

Time	Net underwriting position (see BIPRU 7.8.17R)			Percentage reduction (see BIPRU 7.8.28R)	Reduced net underwriting position
At initial commitment 9.00am Monday	£100m gross amount is reduced by £20m due to sales/sub-underwriting commitments confirmed in writing at the time of initial commitment (see BIPRU 7.8.17R (1)) and (4)).	=	£80m	90%	£8m
Post initial commitment 9.02am Monday	Remaining £80m is reduced by £40m due to further sales, sub-underwriting commitments obtained and allocations granted (see BIPRU 7.8.17R (2) - (5)).	=	£40m	90%	£4m
At the end of working day 1	Remaining £40m is reduced to £20m due to further sales.	=	£20m	90%	£2m
End of working day 3	Remaining £20m is reduced to £5m due to further sales.	=	£5m	75%	£1.25 m
End of working day 4	Remaining £5m is reduced to £2m due to further sales.	=	£2m	50%	£1m
End of working day 5	Remaining £2m is reduced to £1m due to further sales.	=	£1m	25%	£0.75 m
Start of working day 6	£1m remaining	=	£1m	0%	£1m

BIPRU 7.8.34R01/04/2013

Except where otherwise specified by a requirement on its Part 4A permission, a firm must calculate the net underwriting exposure to an issuer by applying the relevant reduction factors in the table in BIPRU 7.8.35R to its net underwriting position calculated under BIPRU 7.8.17R.

BIPRU 7.8.35R01/01/2007

Table: Calculation of net underwriting exposure

This table belongs to BIPRU 7.8.34R

Time	Reduction factor to be applied to net underwriting position
Initial commitment to working day 0	100%
Working day 0	100%
Working day 1	90%
Working day 2	75%
Working day 3	75%
Working day 4	50%
Working day 5	25%
Working day 6 onwards	0%

BIPRU 7.1.3R01/01/2007

A firm must calculate a PRR in respect of:(1) all its trading bookpositions;(2) all positions falling within BIPRU 7.5.3 R (Scope of the foreign exchange PRR calculation), whether or not in the trading book; and(3) all positions in commodities (including physical commodities) whether or not in the trading book;even if no treatment is provided for that position in the other sections of this chapter.

BIPRU 7.1.4R01/01/2007

A firm must calculate a PRR for any position falling into BIPRU 7.1.3 R using:(1) the PRR calculations contained in BIPRU 7; or(2) another method provided the firm is able to demonstrate that in all circumstances the calculation being employed results in a higher PRR for the position than would be required under (1).

BIPRU 7.1.5G01/11/2007

Positions in instruments which are non-trading book items should be treated under BIPRU 3 (Standardised credit risk), BIPRU 4 (The IRB approach) or BIPRU 13 (Financial derivatives, SFTs and long settlement transactions) unless deducted as an illiquid asset. If they fall into BIPRU 7.1.3R(2) or (3) they also give rise to a PRR charge.

BIPRU 7.1.9R01/01/2007

Where a firm has a position for which no PRR treatment has been specified, it must calculate the PRR for that position in accordance with BIPRU 7.1.12R-BIPRU 7.1.13R.

BIPRU 7.1.10R01/01/2007

If BIPRU 7.1.9 R applies, a firm must document its policies and procedures for calculating the PRR for that position of that type in its trading book policy statement.

BIPRU 7.1.12R01/01/2007

A firm may calculate the PRR for a position falling into BIPRU 7.1.9R by applying by analogy the rules relating to the calculation of the interest rate PRR, the equity PRR, the commodity PRR, the foreign currency PRR2, the option PRR or the collective investment undertaking PRR if doing so is appropriate and if the position and PRR item are sufficiently similar to those that are covered by those rules.

BIPRU 7.1.13R01/01/2007

Where a firm has a position for which no PRR treatment has been specified and it is not applying BIPRU 7.1.12R, it must calculate a PRR of an appropriate percentage of the current value of the position calculated under GENPRU 1.3 (Valuation).

BIPRU 7.1.14R01/04/2013

(1) If a firm has a position:(a) in a PRR item in non-standard form; or(b) that is part of a non-standard arrangement; or(c) that, taken together with other positions (whether or not they are subject to PRRcharges under BIPRU 7), gives rise to a non-standard market risk;the firm must notify the appropriate regulator of that fact and of details about the position, PRR item, arrangements and type of risk concerned.(2) Except as (1) provides to the contrary, (1) applies to a position

BIPRU 7.1.15R01/01/2007

If a firm has a position or combination of positions falling into BIPRU 7.1.14R and the PRR relating to that position or positions materially underestimates the market risk incurred by the firm to which they give rise, the firm must calculate the PRR for that position or positions under BIPRU 7.1.13R.

BIPRU 7.1.16E01/04/2013

(1) In BIPRU 7.1.13R and, to the extent that that rule applies BIPRU 7.1.13R, BIPRU 7.1.15R, an "appropriate percentage" is:(a) 100%; or(b) a percentage which takes account of the characteristics of the position concerned and of discussions with the appropriate regulator or a predecessor regulator under the Banking Act 1987 or the Financial Services Act 1986.(2) Compliance with (1) may be relied on as tending to establish compliance with BIPRU 7.1.13R or, insofar as it incorporates

BIPRU 7.1.17R14/12/2009

3A firm must conduct a regular programme of stress testing and scenario analysis of its trading bookpositions, both at the trading desk level and on a firm-wide basis. The results of these tests must be reviewed by senior management and reflected in the policies and limits the firm sets.

BIPRU 7.1.17AG14/12/2009

3The firm's stress testing programme should be comprehensive in terms of both risk and firm coverage, and appropriate to the size and complexity of trading bookpositions held.

BIPRU 7.1.19G14/12/2009

3This paragraph gives guidance in relation to the stress testing programme that a firm must carry out in relation to its trading bookpositions.(1) The frequency of the stress testing of trading bookpositions should be determined by the nature of the positions.(2) The stress testing should include shocks which reflect the nature of the portfolio and the time it could take to hedge out or manage risks under severe market conditions.(3) The firm should have procedures in place to

BIPRU 7.7.1R01/01/2007

A firm must calculate its CIU PRR by:(1) identifying which CIUpositions must be included within the scope of the PRR calculation (see BIPRU 7.7.2R);(2) identifying which CIUpositions are to be subject to the CIU PRR and which positions are to be subject to one of the other PRR charges;(3) converting on a daily basis net positions into the firm'sbase currency at the prevailing spot exchange rate before their aggregation;(4) calculating an individual PRR for each position in a CIU

BIPRU 7.7.2R01/01/2007

(1) A firm'sPRR calculation must include all trading bookpositions in CIUs.(2) A firm'sCIU PRR calculation must include all trading bookpositions in CIUs unless they are treated under one of the CIU look through methods and included in the PRR calculations for the relevant underlying investments or subject to an option PRR.(3) A firm'sPRR calculation for CIUs must include notional positions arising from trading bookpositions in options or warrants on collective investmentunde

BIPRU 7.7.3R01/01/2007

Unless noted otherwise, no netting is permitted between the underlying investments of a CIU and other positions held by a firm for the purposes of calculating the PRR charge for a position in a CIU.

BIPRU 7.7.4R01/01/2007

A firm may rely on a third party to calculate and report PRR capital requirements for position risk (general market risk and specific risk) for positions in CIUs falling within BIPRU 7.7.9R and BIPRU 7.7.11R, in accordance with the methods set out in BIPRU 7.7, provided that the correctness of the calculation and the report is adequately ensured.

BIPRU 7.7.5R01/01/2007

Without prejudice to other provisions in BIPRU 7.7, a position in a CIU is subject to a collective investment undertaking PRR (general market risk and specific risk) of 32%. Without prejudice to provisions in BIPRU 7.5.18R (Foreign currency PRR for CIUs) or, if the firm has a VaR model permission, BIPRU 7.10.44R (Commodity risks and VaR models) taken together with BIPRU 7.5.18R, where the modified gold treatment set out in those rules is used, a position in a CIU is subject to

BIPRU 7.7.6R01/01/2007

A firm may determine the securities PRR requirement for positions in CIUs which meet the criteria set out in BIPRU 7.7.7R, by one of the following methods:(1) the standard CIU look through method (BIPRU 7.7.4R and BIPRU 7.7.7R - BIPRU 7.7.10R); or(2) the modified CIU look through method (BIPRU 7.7.4R, BIPRU 7.7.7R - BIPRU 7.7.8R and BIPRU 7.7.11R - BIPRU 7.7.12R).

BIPRU 7.7.9R01/01/2007

(1) Where a firm is aware of the underlying investments of the CIU on a daily basis the firm may look through to those underlying investments in order to calculate the securities PRR for position risk (general market risk and specific risk) for those positions in accordance with the methods set out in the securities PRR requirements or, if the firm has a VaR model permission, in accordance with the methods set out in BIPRU 7.10 (Use of a Value at Risk Model).(2) Under this approach,

BIPRU 7.7.11R01/01/2007

Where a firm is not aware of the underlying investments of the CIU on a daily basis, the firm may calculate the securities PRR for position risk (general market risk and specific risk) in accordance with the methods set out in the securities PRR requirements, subject to the following conditions:(1) it must be assumed that the CIU first invests to the maximum extent allowed under its mandate in the asset classes attracting the highest securities PRR for position risk (general market

BIPRU 7.7.12R01/01/2007

For the purpose of BIPRU 7.7.11R (1) the position in the CIU must be treated as a direct holding in the assumed position.

BIPRU 7.7.13G01/01/2007

Where BIPRU 7.7 permits a firm to calculate the PRR charge for a position in a CIU using the rules in BIPRU 7 relating to the underlying investment, a firm that has:(1) a CAD 1 model waiver that covers positions in CIUs may use the rules as modified by that waiver; and(2) a VaR model permission that covers positions in CIUs may use its VaR model.

BIPRU 1.2.3R01/01/2007

The trading book of a firm consists of all position in CRD financial instrument and commodities held either with trading intent or in order to hedge other elements of the trading book and which are either free of any restrictive covenants on their tradability or able to be hedged.[Note: CAD Article 11(1)]

BIPRU 1.2.4R01/01/2007

The term position includes proprietary positions and positions arising from client servicing and market making.[Note: CAD Article 11(2) second sentence]

BIPRU 1.2.10R01/01/2007

Positions held with trading intent for the purpose of the definition of the trading book are those held intentionally for short-term resale and/or with the intention of benefiting from actual or expected short-term price differences between buying and selling prices, or from other price or interest rate variations.[Note: CAD Article 11(2) first sentence]

BIPRU 1.2.11R01/01/2007

Trading intent must be evidenced on the basis of the strategies, policies and procedures set up by the firm to manage the position or portfolio in accordance with BIPRU 1.2.12 R.[Note: CAD 11(3)]

BIPRU 1.2.12R01/01/2007

Positions/portfolios held with trading intent must comply with the following requirements:(1) there must be a clearly documented trading strategy for the position/instrument or portfolios, approved by senior management, which must include the expected holding horizon;(2) there must be clearly defined policies and procedures to monitor the position against the firm's trading strategy including the monitoring of turnover and stale position in the firm'strading book; and(3) there

BIPRU 1.2.14R01/01/2007

(1) An internal hedge is a position that materially or completely offsets the component risk element of a non-trading bookposition or a set of position. Positions arising from internal hedges are eligible for trading book capital treatment, provided that they are held with trading intent and that the general criteria on trading intent and prudent valuation specified in BIPRU 1.2.12 R and the trading book systems and controls rules. In particular:(a) internal hedges must not be

BIPRU 1.2.18R01/01/2007

In order to calculate the proportion that trading book business bears to total business for the purpose of BIPRU 1.2.17 R (1)(a) to BIPRU 1.2.17R (1)(c) the firm must refer to the size of the combined on- and off-balance-sheet business. For this purpose, debt instruments must be valued at their market prices or their principal values, equities at their market prices and derivatives according to the nominal or market values of the instruments underlying them. Long positions and

BIPRU 1.2.26R01/01/2007

A firm must have clearly defined policies and procedures for determining which positions to include in the trading book for the purposes of calculating its capital requirements, consistent with the criteria set out in BIPRU 1.2.3 R to BIPRU 1.2.4 R, BIPRU 1.2.10 R to BIPRU 1.2.11 R, BIPRU 1.1.13 R and BIPRU 1.2.22 R and taking into account the firm's risk management capabilities and practices. Compliance with these policies and procedures must be fully documented and subject to

BIPRU 1.2.27R01/01/2007

A firm must have clearly defined policies and procedures for overall management of the trading book. At a minimum these policies and procedures must address:(1) the activities the firm considers to be trading and as constituting part of the trading book for capital requirement purposes;(2) the extent to which a position can be marked-to-market daily by reference to an active, liquid two-way market;(3) for positions that are marked-to-model, the extent to which the firm can:(a)

BIPRU 1.2.35G01/01/2007

All positions that are in a firm'strading book require capital to cover position risk and may require capital to cover counterparty credit risk and to cover large exposures. Counterparty credit risk in the trading book is dealt with by BIPRU 14 and capital for large exposures is covered by BIPRU 10.

BIPRU 1.2.36G01/01/2007

All positions that are not in a firm'strading book are included in its non-trading book and subject capital requirements for the non-trading book unless they are deducted from capital resources under GENPRU 2.2 (Capital resources).

IFPRU 6.2.8G01/01/2014

Other futures, forwards, and swaps where a treatment is not specified in article 328 of the EU CRR ((Interest rate futures and forwards) should be treated as positions in zero specific risk securities, each of which:(1) has a zero coupon;(2) has a maturity equal to that of the relevant contract; and(3) is long or short according to the table in IFPRU 6.2.9 G.

IFPRU 6.2.9G01/01/2014

This table belongs to IFPRU 6.2.8 G.

Instrument	Notional positions
Foreign currency forward or future	A long position denominated in the currency purchased	and	A short position denominated in the currency sold
Gold forward or future	A long position if the forward or future involves an actual (or notional) sale of gold	or	A short position if the forward or future involves an actual (or notional) purchase of gold
Equity forward or future	A long position if the contract involves an actual (or notional) sale of the underlying equity	or	A short position if the contract involves an actual (or notional) purchase of the underlying equity

IFPRU 6.2.10G01/01/2014

Interest-rate swaps or foreign currency swaps with a deferred start should be treated as the two notional positions (one long, one short). The paying leg should be treated as a short position in a zero specific risk security with a coupon equal to the fixed rate of the swap. The receiving leg should be treated as a long position in a zero specific risk security, which also has a coupon equal to the fixed rate of the swap.

IFPRU 6.2.13G01/01/2014

For interest-rate risk, a firm should treat a swap (such as an equity swap) with only one interest rate leg as a notional position in a zero specific risk security:(1) with a coupon equal to that on the interest rate leg;(2) with a maturity equal to the date that the interest rate will be reset; and(3) which is a long position if the firm is receiving interest payments and short if making interest payments.

IFPRU 6.2.14G01/01/2014

(1) A firm should treat a foreign currency forward, future or CFD as two notional currency positions as follows: (a) a long notional position in the currency which the firm has contracted to buy; and(b) a short notional position in the currency which the firm has contracted to sell.(2) In (1), the notional positions should have a value equal to either:(a) the contracted amount of each currency to be exchanged in a forward, future or CFD held in the non-trading book; or(b) the

IFPRU 6.2.15G01/01/2014

(1) A firm should treat a foreign currency swap as: (a) a long notional position in the currency in which the firm has contracted to receive interest and principal; and(b) a short notional position in the currency in which the firm has contracted to pay interest and principal.(2) In (1), the notional positions should have a value equal to either: (a) the nominal amount of each currency underlying the swap if it is held in the non-trading book; or(b) the present value amount of

IFPRU 6.2.16G01/01/2014

Where a forward, future or CFD settles according to:(1) the difference between the price set on trade date and that prevailing at contract expiry, then the notional position should: (a) equal the total quantity underlying the contract; and(b) have a maturity equal to the expiry date of the contract; and(2) the difference between the price set on trade date and the average of prices prevailing over a certain period up to contract expiry, then a notional position should be derived

IFPRU 6.2.17G01/01/2014

Commitments to buy or sell at the average spot price of the commodity prevailing over some period between trade date and maturity should be treated as a combination of:(1) a position equal to the full amount underlying the contract with a maturity equal to the maturity date of the contract, which should be:(a) long, where the firm will buy at the average price; or(b) short, where the firm will sell at the average price; and(2) a series of notional positions, one for each of the

IFPRU 6.2.18G01/01/2014

The forward cash leg of a repurchase agreement or reverse repurchase agreement should be treated as a notional position in a zero specific risk security which:(1) is a short notional position in the case of a repurchase agreement and a long notional position in the case of a reverse repurchase agreement;(2) has a value equal to the market value of the borrowing or deposit;(3) has a maturity equal to that of the borrowing or deposit, or the next date the interest rate is reset

BIPRU 9.4.1R31/12/2010

The originator of a traditional securitisation may exclude securitised exposures from the calculation of risk weighted exposure amounts and expected loss amounts if either of the following conditions is fulfilled:(1) 2significant credit risk associated with the securitised exposures is considered to have been transferred to third parties; or(2) 2the originator applies a 1250% risk weight to all securitisation positions it holds in the securitisation or deducts these securitisation

BIPRU 9.4.8R01/01/2007

Where there is a clean-up call option, the following conditions must be satisfied:(1) the clean-up call option is exercisable at the discretion of the originator;(2) the clean-up call option may only be exercised when 10% or less of the original value of the exposuressecuritised remains unamortised; and(3) the clean-up call option is not structured to avoid allocating losses to credit enhancement positions or other positions held by investors and is not otherwise structured to

BIPRU 9.4.9R01/01/2007

The securitisation documentation must not contain clauses that:(1) other than in the case of early amortisation provisions, require positions in the securitisation to be improved by the originator including but not limited to altering the underlying credit exposures or increasing the yield payable to investors in response to a deterioration in the credit quality of the securitised exposures; or(2) increase the yield payable to holders of positions in the securitisation in response

BIPRU 9.4.11R31/12/2010

2Significant credit risk will be considered to be transferred for an originator in the following cases:(1) 2the risk weighted exposure amounts of the mezzanine securitisation positions held by the originator in the securitisation do not exceed 50% of the risk weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;(2) 2where there are no mezzanine securitisation positions in a given securitisation and the originator can demonstrate that

BIPRU 9.4.12R01/04/2013

2An originator must notify the appropriate regulator that it is relying on the deemed transfer of significant credit risk under BIPRU 9.4.11R within a reasonable period before or after a relevant transfer, not being later than one month after the date of the transfer. The notification must include the following information:(1) 2the risk weighted exposure amount of the securitised exposures and retained securitisation positions; (2) 2the exposure value of the securitised exposures

BIPRU 7.9.1G01/04/2013

A firm is required under GENPRU 2.1.52 R (Calculation of the market risk capital requirement) to calculate its market risk capital requirement using the rules in BIPRU 7. However, the appropriate regulator may at the firm's request modify GENPRU 2.1.52 R to allow the firm to calculate all or part of the PRR for the positions covered by that model by using a CAD 1 model (for options risk aggregation and/or interest rate pre-processing) or a VaR model (value at risk model) instead.

BIPRU 7.9.21G01/01/2007

(1) A firm should have a conceptually sound risk management system which is implemented with integrity and should meet the minimum standards set out in this paragraph.(2) A firm should have a risk control unit that is independent of business trading units and reports directly to senior management. The unit should be responsible for designing and implementing the firm's risk management system. It should produce and analyse daily reports on the risks run by the business and on the

BIPRU 7.9.42G01/01/2007

The values that have been obtained for the delta-equivalent positions of instruments included in the scenario matrix should then be treated in the same way as positions in the underlying. Where the delta obtained relates to interest rate position risk, the delta equivalent positions may be fed into the firm's interest rate pre-processing model to the extent that the positions fall within the scope of interest rate pre-processing models as set out in BIPRU 7.9.7G and provided that

BIPRU 7.9.44G01/01/2007

To the extent that a firm'sCAD 1 model waiver is for the use of an interest rate pre-processing model the firm should use it for the pre-processing of the instruments set out in BIPRU 7.9.7G, from which the residual positions are fed into the interest rate maturity method or interest rate duration method calculation.

BIPRU 7.9.45G01/01/2007

There are a number of different methods of constructing pre-processing models but all should comply with BIPRU 7.9.45G - BIPRU 7.9.53G. All pre-processing models should generate positions that have the same sensitivity to defined interest rate changes as the underlying cash flows.

BIPRU 7.9.50G01/01/2007

Sensitivity figures calculated by a firm using an interest rate pre-processing model are usually produced in the format of a net sensitivity by maturity bucket or by discrete gridpoint. These maturity buckets or gridpoints should then be allocated to the 15 bands set out in BIPRU 7.9.49G. The number of maturity buckets or gridpoints used to represent a yield curve can be referred to as granularity. The granularity should always be adequate to capture the material curve risk in

BIPRU 7.9.52G01/01/2007

The individual sensitivity figures produced should then be input into the interest rate duration method calculation. The individual sensitivity figures for each band should be included with the other positions in the appropriate column in the table in BIPRU 7.2.65R (Table: Assumed interest rate change in the interest rate duration method).

BIPRU 9.9.3R01/01/2007

(1) Where there is an exposure to different tranches in a securitisation, the exposure to each tranche must be considered a separate securitisation position.(2) The providers of credit protection to securitisation positions must be treated as holding positions in the securitisation.(3) securitisation positions include exposures to a securitisation arising from interest rate or currency derivative contracts.[Note:BCD Article 96(2)]

BIPRU 9.9.4R01/01/2007

Subject to BIPRU 9.9.5 R,(1) where a firm calculates risk weighted exposure amounts under the standardised approach to securitisations outlined in BIPRU 9.11, the exposure value of an on-balance sheet securitisation position must be its balance sheet value;(2) where a firm calculates risk weighted exposure amounts under the IRB approach to securitisations outlined in BIPRU 9.12, the exposure value of an on-balance sheet securitisation position must be measured gross of value adjustments;(3)

BIPRU 9.9.6R01/01/2007

Where a securitisation position is subject to funded credit protection, the exposure value of that position may be modified in accordance with and subject to the requirements of BIPRU 5 (Credit risk mitigation) as further specified in BIPRU 9.11.13 R and BIPRU 9.14.[Note:BCD Annex IX Part 4 point 4]

BIPRU 9.9.8R31/12/2011

(1) Where a firm has two or more overlapping positions in a securitisation the firm must, to the extent that the positions overlap, include in its calculation of risk weighted exposure amounts only the position, or portion of a position, producing the higher risk weighted exposure amounts. The firm may also recognise such an overlap between capital charges for specific risk in relation to positions in the trading book and capital charges for positions in the non-trading book,

BIPRU 9.8.4R01/01/2007

Subject to BIPRU 9.8.5 R and BIPRU 9.8.6 R, a firm must not use an ECAI's credit assessments for its positions in some tranches and another ECAI's credit assessments for its positions in other tranches within the same structure that may or may not be rated by the first ECAI.[Note:BCD Annex IX Part 3 point 4]

BIPRU 9.8.5R01/01/2007

Where a position has two credit assessments by nominated ECAIs, the firm must use the less favourable credit assessment.[Note:BCD Annex IX Part 3 point 5]

BIPRU 9.8.6R01/01/2007

Where a position has more than two credit assessments by nominated ECAIs, the two most favourable credit assessments must be used. If the two most favourable assessments are different, the least favourable of the two must be used.[Note:BCD Annex IX Part 3 point 6]

BIPRU 9.12.2R01/01/2007

For a rated position or a position in respect of which an inferred rating may be used, the ratings based method must be used to calculate the risk weighted exposure amount.[Note:BCD Annex IX Part 4 point 38]

BIPRU 9.12.3R01/01/2007

For an unrated position the supervisory formula method must be used except where a firm uses the ABCP internal assessment approach.[Note:BCD Annex IX Part 4 point 39]

BIPRU 9.12.7R01/01/2007

When the following minimum operational requirements are satisfied a firm must attribute to an unrated position an inferred credit assessment equivalent to the credit assessment of those rated positions (the reference positions) which are the most senior positions which are in all respects subordinate to the unratedsecuritisation position in question:(1) the reference positions must be subordinate in all respects to the unratedsecuritisation position;(2) the maturity of the reference

BIPRU 9.12.20R01/04/2013

(1) If:(a) a firm'sIRB permission allows it to use this treatment; and(b) the conditions in (2)(16) are satisfied,a firm may attribute to an unrated position in an asset backed commercial paper programme a derived rating as laid down in (3).(2) Positions in the commercial paper issued from the programme must be rated positions.(3) Under the ABCP internal assessment approach, the unrated position must be assigned by the firm to one of the rating grades described in (5). The position

BIPRU 9.14.8R01/01/2007

A firm must determine the effective risk weight of the position. It must do this by dividing the risk weighted exposure amount of the position by the exposure value of the position and multiplying the result by 100.[Note:BCD Annex IX Part 4 point 63 (part)]

BIPRU 9.14.13R01/01/2007

In other cases the firm must treat the securitisation position as two or more positions with the uncovered portion being the position with the lower credit quality. For the purposes of calculating the risk weighted exposure amount for this position, the provisions in BIPRU 9.12.22 R to BIPRU 9.12.24 G apply subject to the modifications that T is adjusted to e* in the case of funded credit protection; and to T-g in the case of unfunded credit protection, where e* denotes the ratio

IFPRU 2.2.29R01/01/2014

As part of its obligations under the overall Pillar 2 rule, a firm must consider whether the value adjustments and provisions taken for positions and portfolios in the trading book enable the firm to sell or hedge out its positions within a short period without incurring material losses under normal market conditions. [Note: article 98(4) of CRD]

IFPRU 2.2.70G01/01/2014

Where a firm is exposed to market risk, the time horizon over which stress tests and scenario analyses should be carried out will depend on, among other things, the maturity and liquidity of the positions stressed. For example, for the market risk arising from the holding of investments, this will depend upon:(1) the extent to which there is a regular, open and transparent market in those assets, which would allow fluctuations in the value of the investment to be more readily

IFPRU 2.2.73G01/01/2014

(1) In identifying an appropriate range of adverse circumstances and events in accordance with IFPRU 2.2.37 R (2):(a) a firm will need to consider the cycles it is most exposed to and whether these are general economic cycles or specific to particular markets, sectors or industries;(b) for the purposes of IFPRU 2.2.37 R (2)(a), the amplitude and duration of the relevant cycle should include a severe downturn scenario based on forward-looking hypothetical events, calibrated against

BIPRU 13.6.47R01/01/2007

(1) A firm's measurement of CCR must include measuring daily and intra-day usage of credit lines.(2) The firm must measure current exposure gross and net of collateral.(3) At portfolio and counterparty level, the firm must calculate and monitor peak exposure or potential future exposure (PFE) at the confidence interval chosen by the firm.(4) The firm must take account of large or concentrated positions, including by groups of related counterparties, by industry, by market, etc.[Note:

BIPRU 13.6.57R01/01/2007

(1) A firm must stress test its CCRexposures, including jointly stressing market risk and credit risk factors.(2) In its stress tests of CCR, a firm must consider concentration risk (to a single counterparty or groups of counterparties), correlation risk across market risk and credit risk, and the risk that liquidating the counterparty's positions could move the market.(3) In its stress tests a firm must also consider the impact on its own positions of such market moves and integrate

Related provisions for BIPRU 7.4.37

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